SUPPLEMENT TO OFFICIAL STATEMENT

$7,910,000 UPLAND UNIFIED SCHOOL DISTRICT

(San Bernardino County, California) 2017 General Obligation Refunding Bonds

Series A (2025 Crossover)

This Supplerrent to the Official Staterrent (this "Supplerrent") arrends and supplerrents certain portions of the Official Staterrent of the Upland Unified School District (the" District"), dated Septeni:ier 7, 2017 (the "Official Staterrent") relating to the alx:we--captioned Bonds. All persons in possession of the Official Staterrent are requested to insert this Supplerrent inside the front ccwer of, or otherwse attach this Supplerrent to, the Official Staterrent. Except as expressly supplerrented herel:,y, the Official Staterrent has not been arrended or supplerrented. All term; used but not otherwse defined herein shall have the rreani ngs assigned to such term; in the Official Staterrent.

Dated: October 9, 2017

A. Subsequent to the posting of the Official Statement, the District adopted a revised fiscal year 2017-18 budget on September 26, 2017 (the "Revised Adopted Budget"), to comply with requirements set forth by the County Superintendent of the County of San Bernardino in a letter dated September 8, 2017. As a result of the adoption of the Revised Adopted Budget, the following changes have been made to the Official Statement:

1. The final paragraph under the heading "DISTRICT FINANCIAL MATTERS-District Budget" is stricken in its entirety and the following is substituted therefor:

"The County Superintendent noted in the September 8, 201 7 letter that the 201 7-18 Adopted Budget originally submitted did not comply with certain State criteria and standards. Specifically, the amount of deficit spending in the 2017-18 Adopted Budget was not within established State standards for the current and two subsequent fiscal years and the percentage used for projecting ADA and the assumed level of State funding were too high. The letter further stated that the Revised Adopted Budget must reflect compliance with these criteria.

On September 26, 2017, the District Board adopted a Revised Adopted Budget and a resolution resolving to implement at least $2 million in budget reductions in fiscal year 2018-19 and an additional $2 million in budget reductions in fiscal year 2019-20. The resolution provides that the District will submit a detailed plan and a timeline for implementation of budget reductions for fiscal year 2018-19 with the District's Second Interim Report due in March 2018 and will submit a detailed plan and a timeline for implementation of budget reductions for fiscal year 2019-20 with the District's adopted budget for fiscal year 2018-19 which must be adopted by June 30, 2018. The District has submitted to the County Superintendent the resolution and the Revised Adopted Budget which the District believes complies with the requirements of the County Superintendent's September 8, 2017 letter. The District has formed a budget committee consisting of representatives from its Board, the County Office of Education and members of the

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community to assist the District in determining which specific expenditure reductions to implement in order to reach the savings goals set forth in the Revised Adopted Budget. Expenditure reduction options available to the District include utilizing energy efficient projects to save energy costs, implementing staffing adjustments, reducing transportation costs, limiting the District's contributions towards employee health and welfare costs, reducing school and department budgets and restricting overtime. See "-Current Financial Information."

2. The second paragraph and Table 18 under the heading "DISTRICT FINANCIAL MATTERS-Current Financial Condition" are stricken in their entirety and the following is substituted therefor:

"Table 18 below includes the District's 2016-17 Adopted Budget, its Estimated Actual Results and its Unaudited Actual Results for fiscal year 2016-17, and compares the 2016-17 Adopted Budget to the Unaudited Actual Results for fiscal year 2016-17. Table 18 also sets forth the 2017-18 Adopted Budget, as approved in June 2017, and the 2017-18 Revised Adopted Budget approved on September 26, 2017, as required by the County Superintendent.

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Table 18 UPLAND UNIF1ED SCHOOL DISTRICT

Comparison of2016-17 Adopted General Fund Budget to Unaudited Actual Results for Fiscal Year 2016-17; Estimated Actuals for Fiscal Year 2016-17; 2017-18 Adopted Budget; 2017-18 Revised Adopted Budget

SOURCES LCFF Sources Federal Revenues Other State Revenues Other Local Revenues

Total Revenues

EXPENDITURES Certificated Salaries Classified Salaries Employee Benefits Books and Supplies Contracted Services Capital Outlay Direct SupporUindirect Costs/ Outgo

Total Expenditures

Excess of Revenues over Expenditures

OTHER FINANCING SOURCES Operating Transfers In/Out Prior Year Adjustments Other Total Other sources (uses)

Net Increase (Decrease) in Fund Balance

Fund Balance (Deficit), July 1 Fund Balance (Deficit), June 30

2016-17 Adopted Budget

$ 91,570,668 4,518,380 6,074,806 5 838 036

$ 108,001,890

$ 52,667,856 15,124,580 25,401,639

3,758,050 10,320,270

110,216 1 412 355

$108,794,966

$ (793,076)

$ (793,076)

$ 16,733,180 $ 15,940,104

E sti mated Actuals for 2016-17

$ 91,387,433 5,454,542 6,105,405 6 937 072

$ 109,847,452

$ 52,566,717 15,109,111 26,092,204

5,249,273 11,829,365

215,782 1 430 701

$ 112,493,153

$ (2,608,701)

$ (2,608,701)

$ 18,055,396 $ 15,446,695

Unaudited Actuals for 2016-li7

J

$ 91,133,682 4,991,138

10,219,256 7 536 059

$ 113,880,135

$ 53,218,018 14,988,128 29,767,889

5,151,946 11,993,477

185,225 1160962

$116,765,645

$ (2,885,510)

(11,688)

(11,688)

$ (2,897,199)

$ 18,055,396 $ 15,158,197

Difference Between 2016-17 Adopted Budget

and 2016-17 Unaudited

Actuals

(0.5)% 10.5 68.2 29.1

5.4%

1.0% (0.9) 17.2 37.1 16.2 68.1

(17.8) 7.3%

2017-18 Adopted Budget

$ 93,677,147 4,740,725 4,795,897 6 250 717

$ 109,464,486

$ 53,894,454 15,210,390 25,790,633

5,963,311 10,969,160

1,706,714 1 423 557

$ 114,958,219

$ (5,493,733)

$ (5,493,733)

$ 15,446,695 $ 9,952,962

2017-18 Revised Adopted

Budget

$ 92,898,506 5,296,698 4,934,235 6 250 717

$109,380,156

$ 53,191,176 14,987,908 27,076,430

6,255,339 11,221,247

1,706,729 1,423,557

$ 115,862,386

$ (6,482,230)

$ (6,482,230)

$ 15,158,197 $ 8,675,967

(ll The Unaudited Actuals include additional revenues of $3,949,188 to reflect payments made by the State to SlRS on behalf of the District. Employee benefits have been increased by the same amount to reflect the on behalf of payment. The on behalf of payment by the State to STRS is not actually received by the District as revenues but must be recognized as revenues consistent with the requirements of GASB 68.

Source: Upland Unified School District 2016-1 7 Adopted Budget; Unaudited Actuals for fiscal year 2016-17; 2017-18 Adopted Budget and 2017-18 Revised Adopted Budget.

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3. The fourth and fifth paragraphs under the heading "DISTRICT FINANCIAL MATTERS­Current Financial Condition" are stricken in their entirety and the following is substituted therefor:

"General Fund revenues exceeded General Fund expenditures by approximately $2.1 million in fiscal year 2014-15 and $600,000 in fiscal year 2015-16. The District estimates that General Fund expenditures exceeded General Fund revenues in fiscal year 2016-17 by approximately $2.9 million. In the 2017-18 Adopted Budget, the District projected that General Fund expenditures would exceed General Fund revenues in each of fiscal years 2017-18, 2018-19 and 2019-20. In the aggregate, the District projected that General Fund expenditures would exceed General Fund revenues by approximately $13.7 million through June 30, 2020 leaving a General Fund balance of $1,786,164 as of such date. State law requires the District to maintain a reserve for economic uncertainty equal to at least 3% of General Fund expenditures and other financing uses. The District is also required to demonstrate that available reserves for each of the next two fiscal years will equal or exceed the required amount. The District's 2017-18 Adopted Budget projected a reserve for economic uncertainty equal to 3% for fiscal years 2017-18 and 2018-19, but projected a reserve for economic uncertainty of only 0.74% for fiscal year 2019-20. As directed by the County Superintendent, on September 26, 2017 the District adopted a Revised Adopted Budget which now projects a reserve for economic uncertainty of 3% in each fiscal year through fiscal year 2019-20. The Revised Adopted Budget includes a line item for $2 million in ongoing budget reductions in fiscal year 2018-19 and an additional $2 million in ongoing budget reductions in fiscal year 2019-20. As discussed in the following paragraph, the District believes that it has a number of cost cutting measures available to it in order to reduce expenditures as set forth in the Revised Adopted Budget. See "-District Budget."

The District has a number of cost cutting measures available to reduce expenditures as set forth in the Revised Adopted Budget, including utilizing energy efficient projects to save energy costs, implementing staffing adjustments, reducing transportation costs, limiting the District's contributions towards employee health and welfare costs, reducing school and department budgets and restricting overtime. The District expects to utilize some or all of these cost cutting measures in the current and subsequent fiscal years in order to reduce General Fund expenditures by at least $2 million of ongoing budget reductions in fiscal year 2018-19 and an additional $2 million of ongoing budget reductions in fiscal year 2019-20 as required by the Revised Adopted Budget. The District has formed a budget committee consisting of representatives from the County Office of Education, the District Board and members of the community for the purpose of identifying and implementing the necessary cost cutting measures. By implementing some or all of these cost cutting measures, the District believes that it will be able to stabilize its long term finances and maintain General Fund reserves of at least 3% through fiscal year 2019-20. See "-District Budget.""

4. The final sentence in the paragraph under the heading "DISTRICT FINANCIAL MATTERS-State Apportionment Funding" is stricken in its entirety and the following substituted therefor:

"District estimates that it received $91,133,682 of State Apportionment Funding in fiscal year 2016-17, representing 80.0% of its estimated General Fund revenues, and in the 2017-18 Adopted Budget budgeted for the receipt of $93,677,147 in State Apportionment Funding in fiscal year 2017-18, representing 85.6% of its budgeted General Fund revenues. In the

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Revised Adopted Budget, the District has budgeted for $92,898,506 in State Apportionment Funding in fiscal year 2017-18, representing 84.9% of its budgeted General Fund revenues."

5. The final sentence in the paragraph under the heading "DISTRICT FINANCIAL MATTERS-Federal Revenues" is stricken in its entirety and the following substituted therefor:

"Federal revenues are estimated to have been approximately 4.4 % of General Fund revenues in fiscal year 2016-17, and were budgeted in the 2017-18 Adopted Budget to be 4.3% in fiscal year 2017-18. In the Revised Adopted Budget, federal revenues are budgeted to be 4.8% of General Fund revenues in fiscal year 2017-18."

6. The final sentence in the paragraph under the heading "DISTRICT FINANCIAL MATTERS-Other State Sources" is stricken in its entirety and the following substituted therefor:

"Other State Sources were budgeted in the 2017-18 Adopted Budget to be approximately 4.4% of General Fund revenues in fiscal year 2017-18 which amount was increased to 4.5% in the Revised Adopted Budget."

7. The final sentence in the paragraph under the heading "DISTRICT FINANCIAL MATTERS-Other Local Sources" is stricken in its entirety and the following substituted therefor:

"Other Local Sources were budgeted in the 2017-18 Adopted Budget to be approximately 5. 7% of General Fund revenues in fiscal year 20 I 7-18 and this amount was unchanged in the Revised Adopted Budget."

B. The Official Statement is also being supplemented to include the following information regarding the Record Date for the above-captioned bonds:

I. A new paragraph is added to the end of the section entitled "INTRODUCTION­Description of the 2017 Bonds-Payment Dates" as follows:

"Payment of interest on any 2017 Bond shall be made to the person appearing on the Bond Register as the Owner thereof as of the Record Date immediately preceding the applicable Bond Payment Date. For pmposes of the foregoing, "Record Date" means the close of business on the fifteenth (15th) day of the month preceding each Bond Payment Date."

C. The Official Statement is also being supplemented to correct a statement regarding the net pension liability of the District at June 30, 2016:

I. The second to last sentence of the first paragraph under the heading "THE DISTRICT­Retirement System-GASE Statement Nos. 67 and 68" is stricken in its entirety and the following is substituted therefor:

"The District's auditor has calculated the District's net pension liability at June 30, 2016 to have been $65,385,480 for STRS and $15,932,114 for PERS for a total net pension liability of $81,317,594."

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D. The Official Statement is being further supplemented to revise the table on page 12 to account for the pricing of the District's $2,215,000 2017 General Obligation Refunding Bonds, Series B, and the District's $3,095,000 2017 General Obligation Refunding Bonds, Series C, which bonds are expected to be delivered concurrently with the 20 I 7 Bonds:

I. The Upland Unified School District Aggregate Annual Debt Service table on page 12 and the paragraph immediately preceding it are hereby stricken in their entirety and the following is substituted therefor:

"The following table summarizes the aggregate annual debt service requirements for all of the District's outstanding general obligation bonds following the issuance of the 2017 Bonds (excluding the debt service on the Refunded Bonds after the August I, 2025 redemption date) and the concurrent issuance of the District $2,215,000 2017 General Obligation Refunding Bonds, Series B (the "2017 Series B Bonds"), and the District's $3,095,000 2017 General Obligation Refunding Bonds, Series C (the "2017 Series C Bonds"), the proceeds of which will be used to refund certain of the District's Election of 2008 General Obligation Bonds, Series C, and certain of the District's 2011 General Obligation Refunding Bonds. See "SECURITY FOR THE 2017 BONDS."

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Upland Unified School District Aggregate Annual Debt Servic.C'l

Year Ending Prior Gen er al 2017 2017 Series B 20175eriesC Bonds131 (August 1) Obligation Bondsr2J Bonds Bonds Taal

2018 $ 5,871,431 $ $ 107,824 $ 158,387 $ 6,137,642 2019 6,114,731 109,000 153,000 6,376,731 2020 6,168,481 109,000 153,000 6,430,481 2021 5,413,031 109,000 153,000 5,675,031 2022 4,732,956 329,000 793,000 5,854,956 2023 5,070,956 368,000 831,000 6,269,956 2024 5,725,506 379,500 870,500 6,975,506 2025 5,799,006 424,750 971,250 7,195,006 2026 6,897,706 379,944 127,000 7,404,650 2027 6,334,706 380,744 504,000 7,219,450 2028 6,388,331 377,844 551,250 7,317,425 2029 7,421,881 379,944 7,801,825 2030 7,794,781 381,381 8,176,162 2031 8,211,931 382,313 8,594,244 2032 8,613,331 377,913 8,991,244 2033 8,928,981 378,113 9,307,094 2034 5,368,731 378,163 5,746,894 2035 5,672,325 378,063 6,050,388 2036 5,999,525 382,813 6,382,338 2037 6,335,425 382,263 6,717,688 2038 5,440,187 1,386,563 6,826,750 2039 5,638,325 1,604,063 7,242,388 2040 5,430,000 1,753,594 7,183,594 2041 11,698,068 1,717,031 13,415,099 2042 14,534,911 14,534,911 2043 15,258,405 15,258,405 2044 16,020,905 16,020,905 2045 16,825,000 16,825,000 2046 17,662,837 17,662,837 2047 18,550,000 18,550,000 2048 19,476,011 19,476,011 2049 20,454,035 20,454,035 2050 20 255 000 20 255 000 Total $316 107 439 $11020744 $3118324 $4 083 137 $334 329 646

(]) Ammmts rounded to the nearest dollar. (2) Excludes debt service on the Refunded Bonds after the Crossover Date. On and prior to the Crossover Date, the Refunded

Bonds will continue to be general obligation bonds of the District payable solely from ad valorem property taxes. Also excludes debt service on the bonds being refunded from the proceeds of the District's 2017 Series B Bonds and the 2017 Series C Bonds scheduled to be issued on October 12, 2017.

(3) Debt service on the 2017 Bonds through the August 1, 2025 is a special obligation of the District payable only from arnmmts on deposit in the Escrow Flllld.

Source: Underwriter."

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[THIS PAGE INTENTIONALLY LEFT BLANK]

NEW ISSUE- FULL BOOK-ENTRY STATE OF CALIFORNIA

RATING: Moody's "Aa3" COUNTY OF SAN BERNARDINO

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, 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 2017 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 2017 Bonds is exempt from State of California personal income tax. See "IEGALMATTERS-Tax Matters" herein.

Dated: Date of Delivery

$7,910,000 UPLAND UNIFIED SCHOOL DISTRICT

(San Bernardino Connty, California) 2017 General Obligation Refnnding Bonds

Series A (2025 Crossover)

Due: As shown on the inside cover This cover page contains certain information for quick 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 on this cover page not otherwise defined shall have the meanings set forth herein.

The $7,910,000 Upland Unified School District (San Bernardino County, California) 2017 General Obligation Refunding Bonds, Series A (2025 Crossover) (the "2017 Bonds") are being issued by the District to (i) advance refund, on a crossover basis, the District's outstanding Election of 2008 General Obligation Bonds, Series C maturing on August 1, 2041 (the "Refunded Bonds"), and (ii) pay the costs of issuing the 2017 Bonds. See "INTRODUCTION-Purpose oflssue" and "THE 2017 BONDS-Refunding Plan" herein.

On and prior to August 1, 2025 (the "Crossover Date"), the 2017 Bonds will be special obligations of the District secured by and payable solely from proceeds of the 2017 Bonds deposited into an escrow fund established therefor together with interest earnings thereon. After the Crossover Date, the 2017 Bonds shall, without any further action on the part of the District, or the registered Owners or Beneficial Owners (as defined herein) of the 2017 Bonds, constitute general obligation bonds of the District payable solely from ad valorem property taxes levied on taxable property within the District. After such Crossover Date, the Board of Supervisors of the County of San Bernardino is empowered and is obligated to levy ad valorem taxes, without limitation as to rate or amount, upon all property within the District subject to taxation by the District ( except certain personal property which is taxable at limited rates), for the payment of interest on and principal of the 2017 Bonds when due. The District has other outstanding general obligation bonds which are secured by and payable from ad valorem taxes levied on taxable property within the District. See "SECURITY FOR THE 2017 BONDS" and "TAX BASE FOR REPAYMENT OF THE 2017 BONDS-Ad Valorem Property Taxation" herein. All general obligation bonds of the District are issued on a parity with each other.

The 2017 Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for The Depository Trust Company, New York, New York (collectively referred to herein as "DIC"). Payments of principal of and interest on the 2017 Bonds will be paid by The Bank of New Yark Mellon Trust Company, N.A, as the designated paying agent, authenticating agent and transfer agent (the "Paying Agent"), to DIC for subsequent disbursement to DIC Participants (defined herein) who will remit such payments to the beneficial owners of the 2017 Bonds. See "THE 2017 BONDS-Book-Entry Only System" herein.

The 2017 Bonds will be dated their date of delivery. Interest on the 2017 Bonds accrues from their dated date and is payable semiannually on February 1 and August 1 of each year, commencing February 1, 2018.

The 2017 Bonds are subject to redemption prior to maturity. See "THE 2017 BONDS -Redemption of 2017 Bonds" herein.

ON AND PRIOR TO THE CROSSOVER DATE THE 2017 BONDS ARE SPECIAL OBLIGATIONS OF THE DISTRICT. AFTER THE CROSSOVER DATE THE 2017 BONDS ARE GENERAL OBLIGATION BONDS OF THE DISTRICT. THE 2017 BONDS DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE COUNTY OF SAN BERNARDINO. NO PART OF ANY FUND OF THE COUNTY OF SAN BERNARDINO IS PLEDGED OR OBLIGATED TO THE PAYMENT OF THE 2017 BONDS.

MATURITY SCHEDULE (See Inside Front Cover)

The 2017 Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval of legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel Certain matters will be passed on for the District by Stradling Yocca Carlson & Rauth, a Professional Corporation, Disclosure Counsel, and/or the Underwriter by its Counsel, Nossaman I.LP, Irvine, California. The 2017 Bonds, in book-entry form, will be available for delivery through the facilities of The Depository Trust Company in New York, New York on or about October 12, 2017.

Dated: September 7, 2017

Maturity (August 1)

2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037

MATURITY SCHEDULE

BASE CUSI pt NO. 91537P

$7,910,CXXJ UPLAND UNI Fl ED SCHOOL DISTRICT

(SAN BERNARDI NO COUNTY, CALI FORNI A) 2017GENERAL OBLIGATION REFUNDING BONDS

SERI ES A (2025 CROSSOVER)

SERIAL BONDS

PrinciJE.I Interest Amount Rate Yield

$140,CXXJ 3.C00'/4 1.840'/4 145,CXXJ 2.CXXJ 2.030 145,CXXJ 2.CXXJ 2.300 150,CXXJ 2.375 2.600 155,CXXJ 2.625 2.820 160,CXXJ 2.750 2.940 160,CXXJ 3.CXXJ 3.CXXJ 165,CXXJ 3.CXXJ 3.050 170,CXXJ 3.CXXJ 3.100 175,CXXJ 3.CXXJ 3.150 185,CXXJ 3.CXXJ 3.180 190,CXXJ 3.CXXJ 3.200

TERM BONDS

cusIP1

KC8 KD6 KE4 KFl KG9 KH7 KJ 3 KK0 KL8 KM6 KN4 KP9

$5,970,000- 3.125% Term Bond due August 1, 2041 -Yield: 3.350!6 -CUS IP: KQ7

t CUSI P® is a registered traderrnrk oft~ Arrerican Bankers Association. CUSI P Global Services (CGS) is rrnnaged on ~half oft~ Arrerican Bankers Association IJ,,I S&P Capital IQ. Cowright © 2017 CUSIP Global Services. All rights reserved. CUSIP® data ~rein is provided IJ,,I Stan:lard & Poor's CUSI P Service Bureau. This data is mt intended to create a database and dC€s mt serve in a11y \1\,8.Y as a substitute for t~ CUSI P Service Bureau. CUSI P® nu~rs are provided for cotlv'enierr::e of refererr::e only. Neit~r t~ District mr t~ U n:lerwriter takes a11y resrxmsibility for t~ accuracy of su:::h nuniJers.

No dealer, broker, salesperson or other person has been authorized 0y the District or the Underwriter to give any information or to make any representations other than those contained herein. If given or made, such other information or representations must not be relied upon as having been authorized o, the District orthe Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offerto buy, nor shall there be any sale of the 2017 Bonds o, a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the 2017 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

The Underwriter has prCNided the follo.ving sentence for inclusion in this Official Statement:

"The Underwriter has ra,ie.ved the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information."

The information and expression of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or any other parties described herein since the date hereof. This Official Statement is being subrritted in connection with the sale of the 2017 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing o, the District All summaries of documents and laws are made subject to the prCNisions thereof and do not purport to be complete statements of any or all such pr01isions.

Certain statements included or incorporated o, reference in this Official Statement constitute "forward­looking 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 o, the terrrinology used such as a "plan," "expect," "estimate," "project," "budget'' or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the captions "THE DISTRICT," and "DISTRICT FINANCIAL MATTERS" herein.

The achievement of certain results or other expectations contained in such forward-looking statements involves kno.vn and unkno.vn risks, uncertainties and other factors which may cause actual results, performance or achia,ements described to be materially different from any future results, performance or achia,ements expressed or implied o, such forward-looking statements. While the District has agreed to prCNide certain on-going financial and operating data on an annual basis, it does not plan to issue any updates or ra,isions to those forward-looking statements if or when its expectations or a,ents, conditions or circumstances on which statements are based change. See "CONTINUING DISCLOSURE" and AppendixC-"FORM OF CONTINUING DISCLOSURE CERTIFICATE" herein.

All information material to the making of an informed investment decision with respect to the 2017 Bonds is contained in this Official Statement. While the District maintains an internet website for various purposes, none of the information on its website is incorporated o, reference into this Official Statement. Any such information that is inconsistent with the information set forth in this Official Statement should be disregarded.

WITH RESPECT TO THIS OFFERING, THE UNDERWRITER MAY ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2017 BONDS AT A LEVEL 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 2017 BONDS DESCRIBED HEREIN TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED IN THIS OFFICIAL STATEMENT AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

THE 2017 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AM ENDED, IN RELIANCE UPON AN EXEMPTION CONT Al NED IN SUCH ACT AND HAVE NOT BEEN REGISTERED OR QUALi FIED UNDER THE SECURITIES LAWS OF ANY STATE.

UPLAND UNI Fl ED SCHOOL DISTRICT

BOARD OF EDUCATION

L i nda A ngona, President Wes Fifield, Vice-President

MichaelJ. Varela, Clerk P. J oseph Lenz, M eniJer J ack Y oung, M eniJer

DISTRICT ADMINISTRATION

Dr. Nancy Kelly, Superintendent Alex Rwalcam, Assistant Superintendent, Human Resources

Dr. Dre.v Passalacqua, Assistant Superintendent, Business Services

PROFESSIONAL SERVICES

Bond Counsel and Disclosure Counsel StradlingY occaCarlson & Rauth, a Prd'essional Corporation

Ne.vport Beach, California

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

Wal nut Creek, California

Underwriter Stifel, Nicolaus & Company, Incorporated

Los Angeles, California

Paying Agent and E screw Agent The Bank of Ne.vYork Mellon Trust Company, NA.

Dallas, Texas

Verification Agent Causey Derngen & Moore, P.C.

Denver, Colorado

TABLE OF CONTENTS

INTRODUCTION .......................................................... 1 Changes to Preliminary Official Statement .............. 1 The District ............................................................... I Purpose of Issue ........................................................ l Sources of Payment forthe 2017 B onds ................... 2 Description of the 2017 Bands ................................. 2 Tax Matters ............................................................... 2 Authority for Issuance of the 2017 Bonds ................ 3 Offering and Delivery of the 2017 B onds ................. 3 Continuing Disclosure .............................................. 3 Forward Looking Statements .................................... 3 Professionals Involved in the Offering ..................... 3 Other Information ..................................................... 4

THE 2017BONDS ........................................................ 4 Authority for Issuance .............................................. 4 Security and Sources of Payment ............................. 4 Description of the 2017 Bands ................................ .5 Paying Agent ............................................................ 5 Refunding Plan ........................................................ .5 Application of Tax Revenues Securing the Repayment of the 2017 B onds .................................. 6 Redemption of 2017 Bonds ...................................... 6 Selection of 2017 Bonds for Redemption ............... ..? Notice of and Effect of Redemption of the 2017 Bo~ ........................................................................ 7 Boak-£ ntry Only System .......................................... 8 Defeasance ................................................................ 8 Supplemental Resolutions ........................................ 9 Unclaimed Moneys ................................................. 10

ESTIMATED SOURCES AND USES OF FUNDS .... 10 DEBT SERVICE SCHEDULE .................................... 11 SECURl1Y FOR THE 2017BONDS ......................... 13 TAX BASE FOR REPAYMENT OF THE 2017 BONDS ........................................................................ 14

Ad ValoremProperty Taxation ............................... 14 Historical Data Concerning District Tax Base ........ 16 Tax Levies and Delinquencies ................................ 17 Tax Rates ................................................................ 17 LargestTaxpayers ................................................... 18

THE DISTRICT ........................................................... 20 Introduction ............................................................ 20 Board of Education ................................................. 21 Superintendent and Administrative Personnel ........ 21 Employee Relations ................................................ 21 Retirement System .................................................. 22 Post-<employment Benefits ...................................... 29 I nsurance ................................................................. 29

DISTRICT FINANCIAL MATTERS .......................... 29 Accounting Practices .............................................. 30 District B udget. ....................................................... 30 State Funding of Education .................................... 32 Historical General Fund Financial I nformation ...... 36 Current Financial Condition ................................. ..40 Revenue Sources ..................................................... 42 State Apportionment Funding ................................. 42 Federal Revenues .................................................... 42 Other State Sources ................................................ 42 Other Local Sources ............................................... 42 Capital Projects Funds ............................................ 42

DISTRICT DEBT STRUCTURE ................................ 43 Long-Term Debt ..................................................... 43 S hart-Term Debt ..................................................... 43 Direct and Overlapping Debt .................................. 44

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS ................... ..45

ArticleXIIIA ........................................................ ..45 Unitary Property ................................................... ..45 ArticleXIIIB .......................................................... 46 ArticlesXIIIC andXIIID ........................................ 47 Proposition 46 ......................................................... 48 Proposition 39 ......................................................... 48 Propositions 98 and l l l .......................................... 49 Proposition lA and Proposition 22 ......................... 50 Proposition 30 ......................................................... 51 Proposition 2 ........................................................... 51 California Senate Bill 222 ...................................... 52 Kindergarten Through Community College Public Education Facilities Band Act of 2016 ........ 53 Jarvis v. Connell ..................................................... 53 Future I nitiatives ..................................................... 54

STATE OF CALIFORNIA FISCAL ISSUES ............. 54 General Overview ................................................... 54 2017-l SState Budget ............................................. 55 Future Actions ........................................................ 57 State Dissolution of RedevelopmentAgencies ....... 57

LEGAL MATTERS ..................................................... 59 ~M-rs ............................................................. ~ Legality for Investment in California ..................... 60 No Litigation .......................................................... 60 Verification ............................................................. 61

CONTINUING DISCLOSURE ................................... 61 MISCELLANEOUS ..................................................... 62

Rating ..................................................................... 62 U nderwriting ........................................................... 62 Audited Financial Statements ................................. 62 Financial I nterests ................................................... 62

ADDITIONAL INFORMATION ................................ 62

APPENDIX A FORM OF OPINION OF BOND COUNSEL .......................................... A-l

APPENDIX B DISTRICT'S 2015-l6AUDITED FINANCIAL STATEMENTS ............. B-l

APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE .......... C-l

APPENDIX D ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING UPLAND .................... D-l

APPENDIX E BOOK-£NTRY ONLY SYSTEM ....... E-l APPENDIX F SAN BERNARDINOCOUN1Y

TREASURER'S STATEMENT OF INVESTMENT POLICY .................... F-l

APPENDIX G COUN1Y INVESTMENT POOL MONTHLY REPORT ........................ G-l

[THIS PAGE INTENTIONALLY LEFT BLANK]

$7,910,CXXJ UPLAND UNIFIEDSCHOOL DISTRICT

(San Bernardino County, California) 2017 General Obligation Refunding Bonds

Series A (2025 C rossCNer)

INTRODUCTION

This Official Statement (which includes the cCNer page, the Table of Contents and the Appendices attached hereto) is furnished by the Upland Unified School District (the "District'') to pravide information concerning the $7,910,CXXJ Upland Unified School District (San Bernardino County, California) 2017 General Obligation Refunding Bonds, Series A (2025 Crossaver) (the "2017 Bonds"),

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 caver page and appendices hereto, and the documents summarized or described herein, A full revie.v should be made of the entire Official Statement, The offering cf the 2017 Bonds to potential investors is made only by means of the entire Official Statement,

Changes to Preliminary Official Statement

Certain changes have been made to the Preliminary Official Statement, dated August 30, 2017, to update estimated financial information for the District for fiscal year 2016-17 based on the District's recently released Unaudited Actual Results for such fiscal year, See Table 18 under the heading "DISTRICT FINANCIAL MATTERS - Current Financial Condition," In addition, infonnation under the heading "DISTRICT Fl NANCIAL MATTERS - District Budget'' has been revised to reflect infonnation received from the County Superintendent on September 8, 2017 regarding his conditional appr<Nal cf the District's 2017-18Adopted Budget,

The District

The District was founded in 1907 as an elementary school district and unified with the Upland High School as a K-12 district on July 1, 1987, The District pravides kindergarten through twelfth grade educational services to an area cf approximately 15 square miles in the County of San Bernardino (the "County"), The District is located in the western portion of the County and serves most cf the City of Upland, and a small portion of adjacent areas, The District operates one high school, one alternative high school, one adult school, two junior high schools and ten elementary schools, The total prtjected enrollment in the District during fiscal year 2017-18 is approximately 11,CXXJ students,

The District is gaverned by a five-member Board of Education (the "Board"), each member of which is elected to a four-year term. Elections for positions to the Board are held every two years, alternating between two and three available positions, The management and policies of the District are administered by a Board appointed Superintendent who is responsible for the day-to-day operations and the supervision cf cther key personnel. See "THE DISTRICT,"

Purpose of Issue

Proceeds from the 2017 Bonds will be used to: (i) advance refund, on a crossCNer basis, the District's outstanding Election cf 2008 General Obligation Bonds, Series C maturing on August 1, 2041 (the "Refunded Bonds"), and (ii) pay the costs of issuing the 2017 Bonds, See "THE 2017 BONDS-Application and Investment of 2017 Bond Proceeds and Ad ValoremTaxes" and "ESTIMATED SOURCES AND USES OF FUNDS" herein,

Sources of Payment for the 2017 Bands

On and prior to August 1, 2025 (the "Crossaver Date''), the 2017 Bonds will be special obligations cf the District secured by and payable solely from proceeds cf the 2017 Bonds deposited into an escrcw fund established therefor together with interest earnings thereon, After the Crossaver Date, the 2017 Bonds shall, without further action on the part cf the District or the Owners or Beneficial Owners thereof, constitute general obligation bonds cf the District payable solely from the proceeds of ad valorem property taxes, After the Crossaver Date, the Board cf Supervisors cf the County of San Bernardino (the "County") has the pcwer and is obligated annually to levy advaloremtaxes forthe payment of the 2017 Bonds and the interest thereon upon al I property in the District within its boundaries subject to taxation lJy the District without limitation of rate or amount (except certain personal property which is taxable at limited rates), See "SECURITY FOR THE 2017 BONDS" herein,

ON AND PRIOR TO THE CROSSOVER DATE THE 2017 BONDS CONSTITUTE SPECIAL OBLIGATIONS OF THE DISTRICT, AFTER THE CROSSOVER DATE THE 2017 BONDS ARE GENERAL OBLIGATION BONDS OF THE DISTRICT, THE 2017 BONDS DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE COUNTY, NO PART OF ANY FUND OF THE COUNTY IS PLEDGED OR OBLIGATED TO THE PAY ME NT OF THE 2017 BONDS,

Description cf the 2017 Bonds

Maturity Dates, The 2017 Bands wi 11 mature on August 1 in the years and in the principal amounts set forth on the inside co;er page of this Official Statement,

Payment Dates, The 2017 Bonds will be dated their date of delivery, Interest on the 2017 Bonds accrues from their dated date at the rates set forth on the inside caver page of this Official Statement and is payable semiannually on each February 1 and August 1 (each, a "Bond Payment Date''), commencing February 1, 2018, The principal amount of the 2017 Bonds is payable at maturity upon surrender of the applicable 2017 B ond for payment,

Registration, The 2017 Bonds will be issued in fully registered fonn only, registered in the name of Cede & Co, as nominee cf The Depository Trust Company, Ne.v York, Ne.v York ("OTC"), and will be available to actual purchasers of the 2017 B ands (the " B enefi ci al Owners") in authorized denomi nations, under the book-entry only system maintained lJy OTC, only through brokers and dealers who are or act through direct participants in the OTC system ("OTC Participants") as described herein, Beneficial Owners will not be entitled to receive physical delivery cf the 2017 Bonds, See "THE 2017 BONDS-Book-fntry Only System" and Appendix E-"BOOK-fNTRY ONLY SYSTEM" herein,

Denominations, The 2017 Bonds will be issued, and beneficial cwnership interests may be purchased lJy Beneficial Owners, in denominations cf $5,000 or any integral multiple thered', See "THE 2017 BONDS-Book-f ntry Only System,"

Redemption, The 2017 Bonds are subject to redemption prior to maturity, See "THE 2017 BONDS-Redemption of 2017 Bonds,"

Tax Matters

In the opinion of Stradling Y occa Carlson & Rauth, a Professional Corporation, Ne.vport Beach, California ("Bond Counsel"), under existing statutes, regulations, rulings andjudicial decisions and assuming compliance with certain co;enants and requirements described herein, interest (and original issue discount) on the 2017 Bonds is excluded from gross income for federal income tax purposes and is exemr,t from State cf California personal income tax, In the further opinion of Bond Counsel, interest (and original issue discount)

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oo the 2017 Bonds is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed oo individuals and corporatioos. See "LEGAL MATTERS-Tax Matters"" herein.

Authority for Issuance of the 2017 B oods

The 2017 Boods are issued pursuant to certain pravisioos of the State of CaliforniaGavernmentCode, as well as other applicable law, and pursuant to a resolutioo adopted Of the Board of Educatioo ol' the District. See "THE 2017 BONDS-Authority for Issuance'' herein.

Offering and Delivery ol' the 2017 Bonds

The 2017 Boods are offered when, as and if issued, sugect to appraval as to the validity 0y Bond Counsel. It is anticipated that the 2017 Bonds will be available for delivery through the facilities of OTC in Ne.v York, Ne.v York on or about October 12, 2017.

Cootinuing Disclosure

The District will cavenant for the benefit of boodholders to make available certain financial information and operating data relating to the District and to pravide notices of the occurrence ol' certain enumerated events in compliance with Rule 15c2-12(b)(5) adorxed 0y the Securities and Exchange Commissioo. The specific nature of the information to be made available and ol' the nctices of enumerated events for which notice will be given is summarized belcw underthe caption "CONTINUING DISCLOSURE" and is set forth inAppendixC-"FORM OF CONTINUING DISCLOSURE CERTIFICATE" herein.

Forward Looking Statements

Certain statements included or incorporated Of reference in this Official Statement coostitute "forward-looking statements" within the meaning of the United States Private Securities Litigatioo Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Sectioo 27A ol' the United States Securities Act ol' 1933, as amended. Such statements are generally identifiable 0y the terminology used such as "plan," "expect," "estimate," "project," "budget" or cther similar words. Such forward-looking statements include, but are not limited to, certain statements cootained in the informatioo regarding the District herein.

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 RES UL TS, 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

Isom Advisors, a Division of Urban Futures, Inc., is acting as Financial Advisor to the District with respect to the 2017 Boods. Stradling Y occa Carlsoo & Rauth, a Professional Corporatioo, is acting as Bond Counsel and Disclosure Counsel to the District with respect to the 2017 Bonds. Nossaman, LLP, is acting as Underwriter's Counsel with respect to the 2017 Bonds. Causey Derngen & Moore, P.C., Denver, Colorado, is acting as verificatioo agent (the "Verificatioo Agent'') with respect to the 2017 Bonds. The fees paid to these consultants are contingent upon the sale and delivery ol' the 201 7 Bands.

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Other Information

This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies cf documents referred to herein and information concerning the 2017 Bonds are available from the Superintendent, Upland Unified School District, 390 North Euclid Avenue, Upland, California 91786, telephone: (909) 985-1864. The District may impose a charge for copying, mailing and handling.

No dealer, broker, salesperson or cther person has been authorized lJy the District to give any infonnation or to make any representations other than as contained herein and, if given or made, such other infonnation or representations must not be relied upon as having been authorized lJy the District. This Official Statement does not constitute an cfferto sell or the solicitation of an offerto buy nor shall there be any sale cf the 2017 Bonds lJy a person in any jurisdiction in which it is unlawful for such person to make such an cffer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the 2017 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations cf fact. The summaries and references to documents, statutes and constitutional pr<Nisions referred to herein do nct purport to be comprehensive or definitive, and are qualified in their entireties lJy reference to each of such documents, statutes and constitutional pravisions.

The information set forth herein, cther than that pravided lJy the District, has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness lJy the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs cf the District since the date hereof. This Official Statement is submitted in connection with the sale cf the 2017 Bonds referred to herein and may not be reproduced or used, in whole or in JE.rt, for any other purpose.

A 11 terms used herein and not otherwise defined shal I have the meanings given such terms in the Bond Resolution (as defined belo.v).

THE 2017BONDS

Authority for Issuance

The 2017 Bonds are being issued pursuant to the pravisions of Articles 9 and 11 cf Chapter 3 of Part 1 of Division 2 cf Title 5 cf the California GCNernment Code cf the State cf California (the "Refunding Act''), and pursuant to a resolution adopted lJy the Bmrd of Education of the District on August 22, 2017 (the "Bond R esol uti on").

Security and Sources of Payment

On and prior to the Crossaver Date, the 2017 Bonds will be special obligations cf the District secured by and payable solely from proceeds of the 2017 Bonds deposited into an escro.v fund established therefor together with interest earnings thereon. After the CrossCNer Date, the 2017 Bonds shall, without further action on the JE.rt of the District, ortheOwners or Beneficial Owners of the 2017 Bonds, constitute general obligation bonds cf the District, payable solely from the proceeds of ad valorem property taxes. Such taxes will be levied annually lJy the Bmrd of Supervisors of the County in addition to all other taxes during the period that the 2017 Bonds are outstanding commencing after the CrossCNer Date in an amount sufficient to pay the principal of and interest on the 2017 Bonds when due. See "SECURITY FOR THE 2017 BONDS" and "TAX BASE FOR REPAYMENT OF 2017 BONDS." Such taxes, when collected, will be placed lJy the County in the Upland Unified School District 2017 General Obligation Refunding Bonds,

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Series A Debt Service Fund (the "2017 Debt Service Fund"), which fund will be maintained lJy the County. The ad valorem property taxes and other amounts in the 2017 Delx Service Fund are irrevocably pledged for the JE.yment cf principal of and interest on the 2017 Bonds after the Crossaver Date when due. Although the County is obligated to levy ad valoremtaxes for the JE.yment of the 2017 Bonds afterthe Crossaver Date, and the County will maintain the 2017 Debt Service Fund pledged to the reJE.yment of the 2017 Bonds, the 2017 Bands are not a delx cf the C aunty.

Moneys in the 2017 Debt Service Fund, to the extent necessary to JE.Y the princiJE.I of and interest on the 2017 Bonds after the Crossaver Date, as such princiJE.I and interest becomes due and JE.yable, will be transferred to the Paying A gent (defined bel o.v). On and pri orto the C rossCNer Date, funds forthe JE.yment of the 2017 Bonds will be remitted to the Paying Agent from the Escro.v Fund (defined belo.v) established forthe 2017 Bonds. The Paying Agent will, in tum, transferthe funds to OTC, which is to distribute the princiJE.I and interest JE.yments due on the 2017 Bonds to OTC ParticiJE.nts for subsequent disbursement to the Beneficial Owners of the 2017 Bonds. See "THE 2017 BONDS-Book-f ntry Only System."

Description cf the 2017 Bonds

The 2017 Bands wi 11 be dated thei r date of delivery. I nterest on the 2017 B ands accrues from their dated date at the rates set forth on the inside cCNer JE.ge of this Official Statement and is JE.yable semiannually on each Bond Payment Date. Interest JE.yments on the 2017 Bonds are JE.yable semiannually on each February 1 and August 1, commencing February 1, 2018. The 2017 Bonds are issuable in denominations of $5,000 or any integral multiple thereof. See "-Book-fntry Only System." Interest will accrue on the 2017 Bonds on the rnsis of a 360-day year comprised cf twelve 30day months.

Paying Agent

The Bank of Ne.v York Mellon Trust ComJE.ny, NA., will act as the designated JE.ying agent, authenticating agent and transfer agent (the " Paying A gent'') for the 201 7 Bands.

If the Paying Agent resigns or is remaved lJy the District, a successor Paying Agent will be appointed lJy the District. Any successor Paying Agent selected lJy the District, other than the Treasurer and Tax Collector cf the County, may be any bank, trust comJE.ny, national banking association or other financial institution doing business in the State cf California and with at least $50,000,000 in net assets.

Refunding P Ian

The 2017 Bonds are being issued to: (i) advance refund, on a crossCNer rnsis, the Outstanding Refunded Bonds, and (ii) pay the costs cf issuing the 2017 Bonds.

Escro.v Agreement. Pursuant to an Escro.v Agreement (the "Escro.v Agreement'') lJy and between the District and The Bank of Ne.v York Mellon Trust ComJE.ny, NA., as escro.v agent (the "Escro.v Agent''), certain proceeds from the sale of the 2017 Bonds will be deposited to the credit of an escro.v fund created thereunder (the" Escro.v Fund").

Pursuant to the Escro.v Agreement, amounts deposited in the Escro.v Fund will be used to purchase certain non-callable direct and general obligations of the United States of America, or non-Gill able obi igations the JE.yment of which is unconditionally guaranteed lJy the United States of America (collectively, the "Federal Securities"), the princiJE.I of and interest on which will be sufficient, together with any monies deposited in the Escro.v Fund and held as cash, to enable the Escro.v Agent to JE.Y (i) the redemption price cf the Refunded Bonds on August 1, 2025, and (ii) on and prior to the Crossaver Date, the interest on the 2017 Bonds, as the same shall become due and JE.yable. On and prior totheC rossCNer Date, the Refunded Bonds will remain general obligation bonds of the District payable solely from ad valorem property taxes.

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CrossCNer Refunding Escro.ved Securities. The follo.ving chart describes the initial investments of the proceeds cf the 2017 Bands on deposit in the E scro.v Fund.

ESCROW FUND Federal Securities

Type of Par Maturity Security Amount Date Yield

Treasury Note $ 2,CXXJ 1;31;2019 1.225371% Treasury Note 17,CXXJ 7;31;2019 1.263888 Treasury Note 16,CXXJ 1 ;31 ;2020 1.298725 Treasury Note 17,CXXJ 7 ;31 ;2020 1.368090 Treasury Note 16,CXXJ 1 ;31 ;2021 1.448659 Treasury Note 17,CXXJ 7 ;31 ;2021 1.532037 Treasury Note 17,CXXJ 1 ;31 ;2022 1.601710 Treasury Note 18,CXXJ 7 ;31 ;2022 1.649783 Treasury Note 17,CXXJ 1 ;31 ;2023 1.709584 Treasury Note 18,CXXJ 7 ;31 ;2023 1.770662 Treasury Note 17,CXXJ 1 ;31 ;2024 1.820177 Treasury Note 18,CXXJ 7 ;31 ;2024 1.869278

STRIP-I 18,CXXJ 11 /15;2024 1.949992 AIDC 6,793,CXXJ 6;30;2025 2.134466

Verification. The sufficiency of the amounts on deposit in the Escro.v Fund, together with realizable interest and earnings thereon, to pay the interest on the 2017 Bonds on and priortotheCrossCNer Date, and the redemption price of the Refunded Bonds on the Crossaver Date, each as described abo/e, will be verified 0y the Verification Agent. On and prior to the CrossCNer Date, the Refunded Bonds will remain general obligation bonds cf the District payable solely from ad valorem property taxes, and will nct be considered def eased. See also "LEGAL MA TTERS-Escro.v Verification" herein.

Delx Service Fund. Any accrued interest and surplus moneys in the Escro.v Fund follo.ving the redemption of the Refunded Bonds shall be transferred to and accounted for in the 2017 Delx Service Fund. Any excess proceeds of the 2017 Bonds nct needed for the authorized purposes for which the 2017 Bonds are being issued shall be transferred to the 2017 Delx Service Fund and applied to the payment of principal of and interest on the 2017 Bonds afterthe CrossCNer Date. If, after payment in full of the 2017 Bonds, there remain any excess proceeds, such amounts shal I be transferred to the General Fund of the District.

Application cf Tax Revenues Securing the Repayment of the 2017 Bonds

The ad valorem taxes levied to repay the 2017 Bonds will be deposited in the 2017 Delx Service Fund, established under the Bond Resolution, are to be used only for payments cf principal of and interest on the 2017 Bonds after the Crossaver Date, and may be invested in any one or more investments which are lawful investments for school districts underthe laws cf the State of California.

It is anticipated that moneys in the 2017 Delx Service Fund will be invested in the San Bernardino County Treasury Pool. See Appendices F and G for a description of the County Investment Policy and the latest monthly report for the San B emardi no County Treasury Pool, respectively.

Redemption of 2017 Bonds

Or,tional Redemr,tion. The 2017 Bonds maturing on or before August 1, 2027 are not subject to redemption. The 2017 Bonds maturing on or after August 1, 2028 may be redeemed before maturity at the option of the District on any date on or after August 1, 2027 as a whole, or in part 0y lot from such maturities

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as are selected Of the District, at a redemption price equal to the princiJE.I amount cf the 2017 Bonds selected for redemr,ti on, together with interest accrued thereon to the date of redemption, without premium.

Mandatay Sinking Fund Redemption. The 2017 Bonds maturing on August 1, 2041 (the "Term Bonds") are sugect to redemr,tion prior to maturity from mandatay sinking fund JE.yments on August 1 cf each year, on and after August 1, 2038, at a redemption price equal to the princiJE.I amount thereof, together with accrued interest to the date fixed for redemption, without premium. The princiJE.I amount represented Of such 2017 Bonds to be so redeemed and the dates therefor and the final princiJE.I JE.yment date is as indicated in the fol Io.vi ng table:

f Final Maturity.

Redemption Date (August 1)

2038 2039 2040 2041 1

PrinciJE.I Amount

$1,200,000 1,455,000 1,650,000 1,665,000

The pri nci JE.I amount cf each mandatay sinking fund JE.yment on the Term Bands shal I be reduced proportionately Of the amount of any Term Bonds or,tionally redeemed prior to the mandatory sinking fund JE.yment date and allocated 0y the District to such sinking fund JE.yment, or as otherwise directed 0y the District.

Selection of 2017 Bonds for Redemption

Whenever pravision is made in the Bond Resolution for the optional redemr,tion of 2017 Bonds outstanding thereunder and less than all 2017 Bonds are to be redeemed, the Paying Agent, upon written instruction from the District, shall select one or more maturities of 2017 Bonds for redemption in accordance with such written instructions. Within a maturity, the Paying Agent shall select 2017 Bonds for redemr,tion Of lct. The portion cf any 2017 Bond to be redeemed in JE.rt shall be in the princiJE.I amount of $5,000 or any integral multiplethered'.

Notice of and Effect of Redemption of the 2017 Bonds

So long as the 2017 Bonds are registered to OTC or its nominee, nctices of redemption will be sent only to OTC in the manner pravided for in its procedures and will not be sent Of the Paying Agent to the Beneficial Owners.

At least 30 but not more than 60 days prior to the redemption date, a redemr,tion nctice shall be given to the o.vners of 2017 Bonds designated for redemr,tion Of first class mail, postage preJE.id, at their addresses appearing on the registration books of the Paying Agent or, so long as the 2017 Bonds are registered to OTC or its nominee, in such manner as complies with the requirements of OTC. Neither failure to receive any redemption nctice nor any defect in any such redemption notice so given shall affect the sufficiency cf the proceedings for the redemr,ti on of the 2017 B ands.

Any redemption nctice for an optional redemption of the 2017 Bonds delivered may be conditional, and, if any condition stated in the redemption notice shall not have been satisfied on or prior to the redemr,tion date: (i) the redemr,tion notice shall be of no force and effect, (ii) the District shall not be required to redeem such 2017 Bonds, (iii) the redemption shall not be made, and (iv) the Paying Agent shall within a reasonable time thereafter give notice to the persons in the manner in which the conditional redemption notice was given that such condition or conditions were not met and that the redemption was cancel ed.

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If on a redemption date moneys for the redemr,tion cf the 2017 Bonds to be redeemed, together with interest accrued to such redemption date, are held lJy the Paying Agent, and if notice cf redemption thereof shall have been given as set forth in the Bond Resolution, then from and after such redemption date, interest with respect to the 2017 Bands to be redeemed shal I cease to accrue and become JE.yable. When any 2017 Bonds (or portions thereof) which have been duly called for redemr,tion prior to maturity, or with respect to which i rrevocabl e instructions to cal I for redemption pri orto maturity at the earliest redemption date have been given to the Paying Agent and sufficient moneys are held lJy the Paying Agent or an escrcw agent appointed lJy the District for the JE.yment cf the redemption price of such 2017 Bands or portions thereof, then such 2017 Bonds shall no longer be deemed outstanding and shall be surrendered to the Paying Agent for cancellation at maturity or on the applicable redemr,ti on date.

B ook-f ntry Only System

One fully registered bond without coupons for each maturity cf the 2017 Bonds will be issued and, when issued, will be registered in the name of Cede & Co., as nominee of OTC. OTC will act as securities depository of the 2017 Bonds. Individual purchases may be made in book-entry form only, in the princiJE.I amount of $5,000 and integral multiples thereof for each maturity. Purchasers will not receive certificates representing their interest in the 2017 Bonds purchased. PrinciJE.I and interest will be JE.id to OTC, which will in turn remit such princiJE.I and interest to OTC ParticiJE.nts for subsequent dispersal to the Beneficial Owners ofthe2017Bondsasdescribedherein. SeeAppendixE-"BOOK-fNTRY ONLY SYSTEM" herein.

Defeasance

A 11 or a portion of the outstanding 201 7 Bands may be JE.i d and discharged in any one or more of the follcwingways:

(1) Cash: lJy irrevocably depositing with the Paying Agent, or an independent escrcw agent selected lJy the District, an amount of cash which together with amounts then on deposit in the 2017 Debt Service Fund is sufficient to JE.Y all 2017 Bonds designated for defeasance, including all princiJE.I and interest and premium, if any, at or before their maturity date; or

(2) GCNernment Obligations: lJy irrevocably depositing with the Paying Agent, or an independent escrcw agent selected lJy the District, noncallable GCNernment Obligations (as defined belcw), together with cash, if required, in such amount as will, in the opinion cf an independent certified public accountant, together with the interest to accrue thereon and moneys then on deposit in the 2017 Debt Service Fund, together with interest to accrue thereon, be fully sufficient to JE.Y and discharge all 2017 Bonds designated for defeasanceat or before maturity thereof, including all principal, interest and premium, if any.

If a 2017 Bond is defeased as described above, then all obligations of the District under the Bond Resolution with respect to such outstanding 2017 Bond shall cease and terminate, whether or nct such 2017 Bond has been surrendered for JE.yment, except only (i) the obligation cf the Paying Agent or an independent escrcw agent selected lJy the District to JE.Y or cause to be paid to the Owners of the 2017 Bonds all sums due thereon from the amounts on deposit pursuant to (1) and (2) above and (ii) the obligations of the District with respect to the Remte Fund (as defined in the Bond Resolution).

In the Bond Resolution, GCNernment Obligations are defined as:

Direct and general obligations of the United States cf America (which may consist of obligations of the Resolution Funding Corporation that constitute interest strips), or obligations that are unconditionally guaranteed as to princiJE.I and interest lJy the United States of America. In the case of direct and general obligations cf the United States of America, Gavernment Obligations shall include evidences of direct cwnershi p of proportionate interests in future interest or princi JE.I JE.yments of such obligations. Investments in such proportionate interests must be limited to circumstances where (i) a rank or trust comJE.ny acts as

8

custooian and holds the underlying direct and general obligations of the United States of America; (ii) the cwner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor of the underlying direct and general obligations of the United States of America; and (iii) the underlying direct and general obligations of the United States of America are held in a special account, segregated from the custooian's general assets, and are nct available to satisfy any claim of the custooian, any person claiming through the custooian, or any person to whom the custooian may be obligated; pr<Nided that such obligations are rated Of S& P Gloall Ratings and Moooy's Investors Service in the same rating category as the underlying direct and general obligations of the United States of America.

Supplemental Resolutions

The Bond Resolution and the rights and obligations of the District and cf the Owners of the 2017 Bonds may be mooified or amended at any time Of a supplemental resolution adorxed Of the District with the written consent cf Owners cwning at least 60'/4 in aggregate principal amount cf the 2017 Bonds then Outstanding exclusive of 2017 Bonds cwned Of the District; pravided, ho.vever, that no such mooification or amendment shal I, without the express consent cf the Owner cf each 2017 Bond affected reduce the principal amount of any such 2017 Bond, reduce the interest rate payable thereon, advance the earliest redemption date thereof, extend its maturity orthe times for paying interest thereon or change the monetary medium in which principal and interest is payable, nor shall any mooification or amendment reduce the percentage of consents required for amendment or mooification. No such Supplemental Resolution shall change or mooify any of the rights or obligations cf any Paying Agent without its written assent thereto.

The Bond Resolution and the rights and obligations of the District and of the Owners cf the 2017 Bonds may be mooified or amended at any time Of a supplemental resolution adopted Of the District, without the written consent cf the Owners:

(1) To add to the cavenants and agreements of the District in the Bond Resolution cther cavenants and agreements to be observed Of the District which are not contrary to or inconsistent with such resolution as theretcfore in effect;

(2) To add to the limitations and restrictions in the Bond Resolution, other limitations and restrictions to be observed Of the District which are not contrary to or inconsistent with the such resolution as theretofore in effect;

(3) To confirm as further assurance any pledge under, and the subjection to any lien or pledge created or to be created Of the Bond Resolution, of any moneys, securities or funds, or to establish any additional funds or accounts to be held under such resolution;

(4) To cure any ambiguity, supply any omission, or cure to correct any defect or inconsistent pravision in the Bond Resolution; or

(5) To amend or supplement the Bond Resolution in any other respect, pravided such Supplemental R esol uti on does not adversely affect the interests of the Owners of the 2017 B ands.

Any act done pursuant to a mooification or amendment so consented to shall be binding upon the Owners cf all the 2017 Bonds and shall nct be deemed an infringement of any of the pravisions cf the Bond Resolution whatever the character cf such act may be, and may be done and performed as fully and freely as if expressly permitted Of the terms of such resolution, and after consent relating to such specified matters has been given, no Owner shall have any right or interest to object to such action or in any mannerto question the propriety thered' or to enjoin or restrain the District or any officer or agent cf either from taking any action pursuant thereto.

9

Unclaimed M ooeys

Anything in the Bond Resolutioo to the contrary nctwithstanding, any moneys held lJy the Paying Agent in trust for the payment and discharge of any cf the 2017 Boods which remain unclaimed for one year after the date when such 2017 Bonds have become due and payable, either at their stated maturity dates or lJy cal I for earlier redemr,tioo, if such moneys were held lJy the Paying Agent at such date, or for one year afterthe date of deposit cf such mooeys if deposited with the Paying Agent after said date when such boods become due and payable, shall be repaid lJy the Paying Agent to the District, as its absolute property and free from trust, and the Paying A gent shal I thereupon be rel eased and discharged with respect thereto and the Owners of such 2017 Bonds shall look ooly to the District forthe payment of such 2017 Boods; pravided, ho.vever, that before being required to make such payment to the District, the Paying Agent shall, at the expense of District, cause to be mai I ed to the Owners of al I such 201 7 B oods at their respective addresses appeari ng oo the registration books, a notice that said mooeys remain unclaimed and that, after a date in said notice, which date shall not be less than 30 days after the date cf mailing such nctice, the allance of such moneys then unclaimed will be returned to the District.

ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses cf funds in coonectionwith the 2017 Bonds areas folio.vs:

Sources of Funds

Principal Amount cf 2017 Bonds Less Net Original Issue Discount

Total Sources of Funds

Uses of Funds

E scro.v Fund '1

Costs of lssuance1' 1

Total Uses cf Funds

$ 7,910,000.00 (237,863.25)

$ 7,672, 136.75

$ 7,474,881.96 197 254.79

$ 7,672, 136.75

1" Funds deposited herein, together with interest earnings thereon, will be used to pay the interest due on the 2017 Bonds on and prior to the Crossover Date and shall be used to redeem the Refunded Bonds on August l, 2025. See "THE 2017 BONDS-Plan of Refunding.""

w Represents all costs of issuance, including Underwriter's discount, legal fee~ printing costs, the costs and fees of the Paying Agent and financial advisor, and other costs of issuance of the 2017 Bonds.

10

DEBT SERVICE SCHEDULE

The follo.ving table sets forth the annual delx service on the 2017 Bonds (assuming no earlier optional redemption):

Perioo Ending Annual Annual (August 1) PrinciJE.I Payment I nterest Payment Total

2018 $ $ 192,621.5i $ 192,621.5i 2019 239,943.76" 239,943.76" 2020 239,943.76" 239,943.76" 2021 239,943.76" 239,943.76" 2022 239,943.76" 239,943.76" 2023 239,943.76" 239,943.76" 2024 239,943.76" 239,943.76" 2025 239,943.76" 239,943.76" 2026 140,000.00 239,943.76 379,943.76 2027 145,000.00 235,743.76 380,743.76 2028 145,000.00 232,843.76 377,843.76 2029 150,000.00 229,943.76 379,943.76 2030 155,000.00 226,381.26 381,381.26 2031 160,000.00 222,312.50 382,312.50 2032 160,000.00 217,912.50 377,912.50 2033 165,000.00 213,112.50 378,112.50 2034 170,000.00 208,162.50 378,162.50 2035 175,000.00 203,062.50 378,062.50 2036 185,000.00 197,812.50 382,812.50 2037 190,000.00 192,262.50 382,262.50 2038 1,200,000.00 186,562.50 1,386,562.50 2039 1,455,000.00 149,062.50 1,604,062.50 2040 1,650,000.00 103,593.76 1,753,593.76 2041 1,665,000.00 52,031.26 1,717,031.26 Total $ 7,910,000.00 $ 4,982,971.66 $ 12,892,971.66

Interest through August l, 2025will be paid from arrounts on deposit in the Escrow Fund. Source: Underwriter.

11

The follo.ving table summarizes the aggregate annual delx service requirements for all of the general obligation bonds al' the District that will be outstanding follo.ving the issuance al' the 2017 Bonds which excludes the debt service on the Refunded B ands afterthe August 1, 2025 redemption date:

Year Ending (August 1)

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Total

Upland Unified School District Aggregate Annual Debt Service111

Prior General Obligation Bonds121

$ 6,146,231 6,389,531 6,443,281 5,687,831 5,927,756 6,339,756 7,052,306 7,278,306 7,034,006 6,872,181 6,978,756 7,421,881 7,794,781 8,211,931 8,613,331 8,928,981 5,368,731 5,672,325 5,999,525 6,335,425 5,440,187 5,638,325 5,430,000

11,698,063 14,534,939 15,258,474 16,020,905 16,825,000 17,662,941 18,550,000 19,476,101 20,454,068 20,255,000

$232,740,858

2017 Bonds

$ 192,62i 239,944° 239,944° 239,944° 239,944° 239,944" 239,944° 239,944° 379,944 380,744 377,844 379,944 381,381 382,313 377,913 378,113 378,163 378,063 382,813 382,263

1,386,563 1,604,063 1,753,594 1,717,031

$12,892,972

'" Arr<>unts rounded to the nearest dollar.

Taal

$ 6,338,853 6,629,475 6,683,225 5,927,775 6,167,700 6,579,700 7,292,250 7,518,250 7,413,950 7,252,925 7,356,600 7,801,825 8,176,163 8,594,244 8,991,244 9,307,094 5,746,894 6,050,388 6,382,338 6,717,688 6,826,750 7,242,388 7,183,594

13,415,094 14,534,939 15,258,474 16,020,905 16,825,000 17,662,941 18,550,000 19,476,101 20,454,068 20,255,000

$336,633,830

w Exclusive of the Refunded Bonds being refunded. On and prior to the Crossc:,;er Date, the Refunded Bonds will continue to be general obligation bonds of the District payable solely from ad valoremproperty taxes. Interest through August l, 2025will be paid from amounts on deposit in the Escrow Fund.

12

SECURITY FOR THE 2017BONDS

On and prior to the Crossaver Date, the 2017 Bonds will be special obligations cf the District secured by and payable solely from proceeds of the 2017 Bonds deposited into the Escro.v Fund together with interest earnings thereon. AftertheCrossaver Date, the 2017 Bonds shall, without further action on the JE.rt of the District, or the Owners or Beneficial Owners of the 2017 Bonds, constitute general obligation bonds cf the District, JE.yable solely from the proceeds cf ad valorem property taxes. Such taxes will be levied annually by the Board of Supervisors cf the County in addition to all cther taxes during the period that the 2017 Bonds are outstanding commencing after the Crossaver Date in an amount sufficient to JE.Y the princiJE.I cf and interest on the 2017 Bonds due and JE.yable in the next succeeding bond year (less amounts on deposit in the 2017 Debt Service Fund established under the Bond Resolution). After the CrossCNer Date, the Bond Resolution irrevocably pledges as security for the 2017 Bonds the proceeds from the levy cf the ad valorem tax which are collected and allocated to the JE.yrnent of the 2017 Bonds outstanding thereunder together with amountsondepositinthe2017DebtServiceFund. See"TAX BASE FOR REPAYMENT OF 2017BONDS" herein.

The District currently has several issues cf general obligation bonds outstanding including the Refunded Bonds (collectively, the "Prior General Obligation Bonds"). See "DEBT SERVICE SCHEDULE­Aggregate Annual Debt Service'' abOle. The Prior General Obligation Bonds are currently outstanding in the aggregate princiJE.I amount of $93,637,604 (exclusive cf accreted interest). Concurrently with the issuance cf the 2017 Bonds, the District expects to issue general obligation refunding bonds to refund, on August 1, 2021, the District's Election cf 2008 General Obligation Bonds, Series C, maturing on and between August 1, 2022 and August 1, 2028, and the District's 2011 General Obligation Refunding Bonds maturing on and after August 1, 2022. The issuance of such general obligation refunding bonds will result in reduced debt service JE.yrnents due on the District's general obligation bonds.

The Prior General Obligation Bonds that remain outstanding follo.ving the issuance cf the 2017 Bonds will also be JE.yable solely from ad valorem property taxes levied on taxable property within the District to reJE.y such bonds. The amount of the annual ad valorem tax levied to reJE.y the 2017 Bonds after the Crossaver Date and the Prior General Obligation Bonds will be determined by the relationship between the assessed valuation cf taxable property in the District and the amount cf delx service due on the 2017 Bonds and the Prior General Obligation Bonds in any year. Fluctuations in the annual debt service on the 2017 Bonds and the Prior General Obligation Bonds and the assessed value cf taxable property in the District may cause the annual tax rate to fluctuate. Economic and other factors beyond the District's control could cause a reduction in the assessed value of taxable property within the District and necessitate a corresponding increase in the annual tax rate. These factors include a general market decline in real property values, reclassification cf property to a class exemr,t from taxation, whether by o.vnership or use (such as exemptions for property o.vned by the federal gavemrnent, the State of California (the "State'') and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or JE,rtial destruction cf taxable property caused by a natural or man made disaster, such as earthquake, flood or taxi c contamination.

The assessed valuation cf property in the District increased by approximately 19.4% averthe last five fiscal years. See "TAX BASE FOR REPAYMENT OF THE 2017 BONDS-Historical Data Concerning District Tax Base." While the assessed valuations in the District have been increasing, future declines in real estate values in southern California, natural disasters or other factors could result in lo.ver assessed values in the District and in both a higher annual tax rate within the District and a higher level of delinquencies in tax JE.yrnents. The County has adopted the Teeter Plan (defined belo.v). As a result, the District's receipt cf ad valorem property taxes currently is not subject to delinquencies so long as the Teeter Plan remains in effect. See "TAX BASE FOR REPAYMENT OF THE 2017 BONDS-Ad Valorem Property Taxation-Teeter Plan."

13

ON AND PRIOR TO THE CROSSOVER DATE THE 2017 BONDS CONSTITUTE SPECIAL OBLIGATIONS OF THE DISTRICT. AFTER THE CROSSOVER DATE THE 2017 BONDS ARE GENERAL OBLIGATION BONDS OF THE DISTRICT. THE 2017 BONDS DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE COUNTY. NO PART OF ANY FUND OF THE COUNTY IS PLEDGED OR OBLIGATED TO THE PAY ME NT OF THE 2017 BONDS.

TAX BASE FOR REPAYMENT OF THE 2017BONDS

The informatioo in this sectioo describes ad valorem property taxatioo, assessed valuatioo, and cther measures of the tax rnse cf the District. The 2017 Bonds are payable solely from ad valoremtaxes levied and collected lJy the County oo taxable property in the District. The District's General Fund is nct a source forthe repayment of the 2017 B oods.

Ad Valorem Property Taxation

The collectioo of property taxes is significant to the District and the cwners of the 2017 Boods in two respects. First, amounts allocated to the District from the general 1% ad valorem property tax levy, which is levied in accordancewithArticleX I I IA cf the California Constitution and its implementing legislatioo, funds a portioo cf the District's budget which is used to operate the District's educational program. See "DISTRICT FINANCIAL MA TIERS-Revenue Sources" belcw. Second, the Bmrd of Supervisors of the County will levy and collect ad valorem taxes oo all taxable parcels within the District which are pledged specifically to the repayment of the 2017 Boods after the Crossaver Date and the Prior General Obligatioo Bonds. All general obligation bonds of the District are issued oo parity with ooe another, including the 2017 Boods after the CrossCNer Date. As described belcw, the general ad valorem property tax levy and the additional ad valorem property tax levy pledged to repay the 2017 Bonds after the Crossaver Date and the Prior General Obligation Bonds will be collected on the annual tax bills distributed lJy the County to the cwners of parcels within the boundaries cf the District.

Method of Property Taxation. Beginning in fiscal year 1978-79, ArticleX II IA and its implementing legislation pennitted each county to levy and collect al I property taxes (except for levies to support prior vcter appraved indebtedness) and prescribed hew levies on county-wide property values were to be shared with local taxing entities within each county. All property is assessed using full cash value as defined lJy ArticleX I I IA of the State Coostitution. State law, hcwever, pr<Nides exemptions from ad valorem property taxatioo for certain classes of property such as churches, colleges, nm-profit hospitals, and charitable institutioos.

For purposes of allocating a county's 1% rnse property tax levy, future assessed valuatioo grcwth allcwed under ArticleX I I IA (nEW coostructioo, certain changes of cwnership, up to 2% inflatioo) will be allocated oo the rnsis of "situs" amoog thejurisdictioos that serve the tax rate area within which the grcwth occurs. Local agencies and schools will share the grcwth of "rnse'' sources from the tax rate area. Each year's grcwth allocatioo becomes part cf each agency's allocatioo in the follcwing year. The availability of revenue from grcwth in the tax rnses in such entities may be affected lJy the existence cf successor agencies to prior redevelopment agencies which, under certain circumstances, may be entitled to sources resulting from the increase in certain property values. State law exemr,ts $7,000 of the assessed valuation of an cwner--occupied principal residence. This exemption does not result in any loss of revenue to local agencies since an amount equivalent to the taxes that would have been payable on such exempt values is made up lJy the State.

Taxes are levied for each fiscal year on taxable real and personal property which is situated in a county as of the preceding January 1. Real property which changes cwnership or is mwly coostructed is revalued at the time the change in cwnership occurs or the mw construction is completed. The current year property tax rate wi 11 be applied to the reassessment, and the taxes wi 11 then be adjusted lJy a proration factor to ref I ect the portion cf the remaining tax year for which taxes are due.

14

For assessment and collectiori 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 ol' the assessment roll coritaining State-assessed public utilities property and real property having a tax lien which is sufficient, in the opi ni ori of the county assessor, to secure payment of the taxes, Other property is assessed ori the " unsecured rol L"

Property taxes ori the secured roll are due in two installments, on No;ember 1 and February 1 ol' each fiscal year, and if unpaid become delinquent ori December 10 and April 10, respectively, A penalty ol' 10'/4 attaches immediately to al I delinquent payments, Property on the secured rol I with respect to which taxes are delinquent becomes tax defaulted ori or about June 30 ol' the fiscal year, Such property may thereafter be redeemed lJy payment of a penalty ol' 1.5% per month to the time of redemption, plus costs and a redemr,tiori fee, If taxes are unpaid for a period ol' five years or more, the property is subject to sale lJy the Treasurer-Tax Collector of the county le,.,ying the tax,

Property taxes ori the unsecured roll are due as ol' theJ anuary 1 lien date and become delinquent, if unpaid, ori August 3 L A 10'/4 penalty attaches to delinquent unsecured taxes, If unsecured taxes are unpaid at 5 p,m, ori October 31, an additional penalty of 1.5% attaches to them ori the first day of each month until paid A county has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil actiori against the taxpayer; (2) filing a certificate in the ol'fice of the county clerk specifying certain facts in orderto obtain a lien ori certain property ol' the taxpayer; (3) filing a certificate of delinquency for record in the county recorder's ol'fice in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property i mpro;ements or possessory interests bel origi ng or assessed to the delinquent taxpayer,

District Assessed Valuation, Bcth the general 1% ad valorem property tax le,.,y and the additional ad valorem le,.,y for the 2017 Borids after the Crosso;er Date and the Prior General Obligation Borids are based upori the assessed valuation of the parcels of taxable property in the District, Property taxes allocated to the District are collected lJy the County at the same time and on the same tax rolls as are county, city and special district taxes, The assessedvaluatiori of each parcel of property is the same for bcth District and county taxing purposes, The valuation ol' secured property lJy the County is established as of January 1, and is subsequently equalized in Ser,tember of each year, when tax bills are mailed to property o.vners,

Appeals and Adjustments of Assessed Valuations, Under California law, property o.vners may apply for a reduction of their property tax assessment lJy filing a written applicatiori, in the form prescribed lJy the State Bmrd ol' Equalizatiori, with the appropriate county bmrd of equalization or assessment appeals bmrd, County assessors may independently reduce assessed values as wel I based upon the above factors or reducti oris in the fair market value ol' the taxable property, In most cases, an appeal is filed because the applicant believes that present market coriditioris (such as residential home prices) cause the property to be worth less than its current assessed value, Any reducti ori i n 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 sugect to yearly reappraisals and may be adjusted rack to their original values when market conditions imprave, Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor gro.vth rate allo.ved under Article XI I IA, See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS,"

A secorid type of assessment appeal involves a challenge to the base year value of an assessed property, Appeals for reductiori 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 lJy the completiori date of nEW coristructiori or the date of change ol' o.vnership, Any base year appeal must be made within four years of the change ol' o.vnership or mw construction date,

The District does not have infonnation regarding pending appeals of assessed valuatiori of property within the District, No assurance can be given that property tax appeals currently pending or filed in the future wi 11 nct significantly reduce the assessed valuation ol' property within the District,

15

Taxation of State-Assessed Utility Property. A portion of property tax revenue of the District is derived from utility property sugect to assessment Of the State Board of Equalization. State-assessed property, or "unitary property," is property cf a utility system with components located in many taxing jurisdictions that are assessed as part of a "going concern' rather than as individual pieces cf real or personal property. The assessed value of unitary and certain ct her state-assessed property is al I ocated to the counties Of the State Board of Equalization, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory fonnulae generally rnsed on the distribution of taxes in the prior year.

Teeter Plan. Certain counties in the State of California operate under a statutory program entitled Alternate Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"). Under the Teeter Plan local taxing entities receive 100'/4 cf their tax levies, but do not receive interest or penalties on delinquent taxes collected Of the county. The County has adopted the Teeter Plan, and consequently the Teeter Plan is available to local taxing entities within the County, such as the District. The District's receir,t cf property taxes is therefore nct sugect to delinquencies so long as the Teeter Plan remains in effect. The District can give no assurance that the Teeter Plan will remain in effect, in its present form, during the term cf the 2017 Bonds. Hcwever, the District is not presently aware cf any plans 0y the County to discontinue the Teeter Plan.

The Teeter Plan is to remain in effect unless the Board cf Supervisors cf 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 of the County receives a petition for its discontinuance joined in 0y a resolution ador,ted Of at least 55% of the participating revenue districts in the County. In the event the Board cf Supervisors of the County is to order discontinuance of the Teeter Plan, 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.

Historical Data Concerning District Tax Base

The information pr<Nided in Tables 1 through 6 belcw has been pravided Of California Municipal Statistics, Inc., an independent consulting firm Neither the District nor the Underwriter has independently verified this information and does not guarantee its accuracy.

Property within the District has a tctal assessed valuation for fiscal year 2016-17 cf $8,671,958,46& Table 1 bel cw pravi des the five-year hi story of assessed valuations in the District.

2012-13 2013-14 2014-15 2015-16 2016-17

Table 1 UPLAND UNI Fl ED SCHOOL DISTRICT

ASSESSED VALUATIONS Fiscal Year 2012-13 through 2016-17

Local Secured

$7,024,004,861 7,246,450,083 7,660,181,004 8,048,052,486 8,437,949,648

Utility

$68,671 68,665 69,645 69,634 69,599

Unsecured

$238,375,532 238,016,540 238,453,319 249,237,454 233,939,221

Sources: California Municipal Statistics, Inc.

16

Total

$7,262,449,064 7,484,535,288 1,sgs,103,968 8,297,359,574 8,671,958,468

Tax Levies and Delinquencies

There is no publicly available informatioo shewing tax charges and delinquencies solely for the properties within the District. Table 2 belcw summarizes the annual secured tax levy within the County and the amount delinquent as of J une 30 for fiscal years 2011-12 through 2015-16. The County has adopted the Teeter Plan. As a result, the District's receipt cf ad valorem property taxes is nct subject to delinquencies so loogastheTeeterPlanremainsineffect. See"TAX BASE FOR REPAYMENT OF THE 2017Boods-Ad Valorem Property Taxatioo-Teeter Plan."

2011-12 2012-13 2013-14 2014-15 2015-16

Table2 SAN BERNARDI NO COUNTY

Secured Tax Charges and Delinquencies Fiscal Years 2011-12 Through 2015-16

Secured Tax Charges Levied111

$2,014,680,140 2,021,202,209 2,110,117,418 2,216,431,473 2,356,910,002

Delinquent Secured Taxes

$58,958,229 49,213,978 44,448,879 42,207,744 42,824,436

'" All property taxes collected by the County. Source: California Municipal Statistics, Inc.

Tax Rates

% Delinquent June 30

2.93% 2.43 2.11 1.90 1.82

There are a tctal of 71 tax rate areas in the District. Table 3 summarizes the total ad val orem tax rates levied lJy all taxing entities in a typical Tax Rate Area within the District for fiscal years 2012-13 through 2016-17 expressed as a percentage of the assessed value cf the property upon which such taxes were I evi ed.

General

Table3 UPLAND UNI Fl ED SCHOOL DISTRICT

Summary of Ad Valorem Tax Rates Typical Total Tax Rates (TRA 8-001)

Fiscal Years 2012-13 Through 2016-17 11

2012-13 2013-14 2014-15

l.00006 l.00006 l.00006 Chaffey Cormunity College District Q0lll 0.0157 Q0109 Upland Unified School District Q0524 0.0484 Q0462 Metropolitan Water Di strict Q0035 0.0035 Q0035 Total l.0670J6 l.0678% l.0608%

2015-16 2016-17

l.00006 l.00006 Q0ll3 Q0ll6 Q0525 Q0607 Q0035 Q0035 l.0673% l.0758%

'" Fiscal year 2016-17 assessed valuation of TRA 8-001 is $3,104, l88,256which is approximately 35.8% of the District's total assessed val ua:tion.

Source: California Municipal Statistics, Inc.

17

Largest Taxpayers

Table4 belON lists the 20 largest secured property taxpayers within the District measured Of assessed valuation in fiscal year 2016-17.

Table4 UPLAND UNI Fl ED SCHOOL DISTRICT

Twenty Largest Fiscal Year 2016-17 Local Secured Property Taxpayers

2016-17 Assessed % of Property Owner Primary Land Use Valuation Total"'

l. Colonies.Pacific Comrrercial $ 137,847,990 l.63"/o 2. College ParkApartrrent Harres LP A partrrents 48,822,462 0.58 3. Brave park Property LL C Residential ;Retail 45,696,099 0.54

Developrrent 4. MG Stoneridge Village Grove LLC A partrrents 43,492,458 0.52 5. WNG Mountain Springs GP A partrrents 42,659,888 0.51 6. Rancho Monte V istaApartrrent Harres A partrrents 42,0l l, 130 0.50 7. CT Retail Properties Finance II LLC Comrrercial 40,542,445 0.48 8. Dee Matreyek-Kurth Non Exempt Trust A partrrents 34,323,239 0.41 9. NU -168 A partrrents LL C A partrrents 33,108,839 0.39 10. BRE ParagonMFAlvistaPortofinoCA A partrrents 33,000,000 0.36 l l. College Business ParkLLC Industrial 30,158,586 0.36 12 LPI DEL LLC A partrrents 27,100,956 0.32 13. Cable Comrrercial Center LL C Industrial 23,801,521 0.28 14. Pacifica Canyon Club LP A partrrents 23,710,890 0.28 15. CCF SP Claremont LLC A partrrents 21,939,045 0.26 16. Upland Meadows M anagerrent Company LP Mobile Harre Park 19,766,749 0.23 17. U PG Upland Senior Living LLC Assisted Living 19,686,713 0.23 18. Holliday Rock Co. Inc. Industrial 19,310,270 0.23 19. Foothill Ridge Properties L LC A partrrents 18,937,514 0.22 20. Dakota CreekU pland LP A partrrents 18,170,323 0.22

$ 724,087,117 8.58Yo

(l) 2016-17 Local Secured Assessed Valuation: $8,437,949,64& Source: California Municipal Statistics, Inc.

18

Table 5 pravides certain inforrnatioo with respect to the assessed values cf the single family homes I ocated within the District. Si ngl e family homes represent 64. 1 % cf the total I ocal secured assessed val uati oos in fiscal year2016-17.

Table 5 UPLAND UNI Fl ED SCHOOL DISTRICT

Per Parcel Fiscal Year 2016-17 Assessed Valuation cf Single Family Homes

No.of 2016-17 Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation

Single Farrily Residential 14,999 $5,406,718,284 $360,472 $329,447

2016-17 No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcel~" Total % ofTotal Valuation Total % ofTotal

$0-$49,999 269 l.793% l. 793% $ 9,817,224 0.182% 0.182% $50,000 - $99,999 l, 102 7.347 9.141 81,153,060 l.501 l.683

$100,000-$149,999 846 5.640 14.781 105,891,220 l.959 3.641 $150,000-$199,999 l, 131 7.541 22.321 200,477,327 3.708 7.349 $200,000-$249,999 1,623 lQ82l 31142 366,493,662 6.778 14.127 $250,000 - $299,999 1,612 lQ747 41890 443,275,553 8.199 22.326 $300,000-$349,999 1,501 lQ007 51897 486,778,689 9.003 31.329 $350,000-$399,999 1,251 &341 62.237 468,462,810 8.664 39.994 $400,000 - $449,999 1,238 &254 7Q49l 526,296,521 9.734 49.728 $450,000-$499,999 l, 129 7.527 7&019 534,845,496 9.892 59.620 $500,000-$549,999 869 5.794 81812 456,235,098 8.438 68.058 $550,000-$599,999 681 4.540 8&353 390,158,925 7.216 75.275 $600,000 - $649,999 552 1680 92.033 344,015,812 6.363 81.637 $650,000 - $699,999 359 2.393 94.426 241,585,044 4.468 86.106 $700,000-$749,999 263 l.753 96. 180 189,760,041 3.510 89.615 $750,000-$799,999 143 Q953 97. 133 110,331,188 2.041 91.656 $800,000-$849,999 88 Q587 97. 720 72,359,991 l.338 92.994 $850,000 - $899,999 72 Q480 9&200 63,089,520 l.167 94.161 $900,000-$949,999 49 Q327 9&527 45,225,102 0.836 94.998 $950,000 - $999,999 38 Q253 9&780 36,931,819 0.683 95.681

$1,000,000and greater __Jfil ___lllQ 100000 233,534,182 4.319 100.000 Total 14,999 100000% $ 5,406,718,284 100.000%

(l) I rrproved single farri ly residential parcels. Excludes condomi ni urns and parcels with multi pie farri ly units. Source: California Municipal Statistics, Inc.

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Table 6 describes the District's land use by type in fiscal year 2016-17, which reflects that 83.58'/4 of tctal assessed valuations is for residential property, 15.43% for nonresidential property and 0.98'/4 for vacant parcels.

Table6 UPLAND UNI Fl ED SCHOOL DISTRICT

Fiscal Year 2016-17 Assessed Valuation and Parcels by Land Use

2016-17 Assessed Val uation111

Non-Residential: Comrnercial,Office $ 857,590,596 Industrial 385,700,753 Recreational 31,259,117 G 0/ernrnentf-, ocial ~ nstitutional 13,416,741 Miscellaneous 14296161 Subtotal Non-Residential $ 1,302,263,368

Residential: Single Family Residence $ 5,406,718,284 Condom ni um/f o.vnhouse 757,444,687 Mobile Horne 23,136,034 Mobile Horne Park 39,345,604 2-4 Residential Units 191,943,985 5+ Residential Units/Apartments 633,227,885 Miscellaneous Residential 900 399 Subtotal Residential $ 7,052,716,878

Vacant Parcels $ 82,969,402

Total $ 8,437,949,648

'" Local Secured Assessed Valuation, excluding tax-exerrpt property. Source: California Municipal Statistics, Inc.

THE DISTRICT

% of No. of Total Parcels

10.16!6 868 4.57 347 0.37 24 0.16 63

___fill ___Jfil) 15.43% 1,482

64.08!6 14,999 8.98 2,802 0.27 624 0.47 8 2.27 621 7.50 198

__Q_QJ. __ 15 83.58)6 19,267

0.98!6 1,103

100.00!6 21,852

% of Total

3.97% 1.59 0.11 0.29 0.82 6.78!6

68.64% 12.82 2.86 0.04 2.84 0.91 0.07

88.17%

5.05%

100.00!6

The inforrnation in this section concerning the operations of the District and the District's finances is pr<Nided as supplementary inforrnation only, and it should not be inferred from the inclusion cf this inforrnation in this Official Statement that the principal cf or interest on the 2017 Bonds is payable from the general fund cf the District. After the CrossCNer Date, the 2017 Bonds will be payable solely from the proceeds of an ad valorem property tax which is required to be levied by the County in an amount sufficient for the paymentthered'. See" THE 2017 BONDS - Security and Sources of Payment'' herein.

Introduction

The District was founded in 1907 as an elementary school district and unified with the Upland High School as a K-12 district on July 1, 1987. The District pravides kindergarten through twelfth grade educational services to an area of approximately 15 square miles in the County. The District is located in the western portion of the County and serves most cf the City cf Upland, and a small portion of adjacent areas. The District operates one high school, one alternative high school, one adult school, two junior high schools and ten elementary schools. The total projected enrollment in the District during fiscal year 2017-18 is approxirnately 11,000 students. The District's projected pupil;teacher ratio for fiscal year 2017-18 is approxirnately 24: 1 for grade levels TK through 3 and 30: 1 for grade levels 4 through 12.

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Board cf E ducatioo

The District is governed lJy a five member Board cf Education. Members are elected to four year terms.

Table? UPLAND UNI Fl ED SCHOOL DISTRICT

Board of Education

Name

L i nda A ngona, President Wes Fifield, Vice President MichaelJ. Varela,Clerk P. J oseph Lenz, Member Jack Young, Member

Source: Upland Unified School District

Superintendent and Administrative Persoonel

Term Expires

Navember 2020 N av ember 2018 N av ember 2018 N av ember 2018 Navember 2020

The Superintendent of the District, appointed lJy the Board of Education, is responsible for management of the day-to-day operations and supervises the work cf cther District admi ni st rat ors. The names and backgrounds of the Superintendent and the senior administrative staff are set forth bel ON.

Dr. Nancy Kelly, Superintendent of Schools. Dr. Nancy A. Kelly has served as Superintendent cf Schools for the District since June 2013. Prior to assuming this positioo, Dr. Kelly served as a counselor, teacher, assistant princiJE.I, middle school and high school princiJE.I, director, and assistant superintendent, in various school districts in Los Angeles, Orange, and San Bernardino counties. Dr. Kelly has served in the field cf education for 32 years. Dr. Kelly earned a Bachelor of Arts degree from San Diego State University, a Master cf Science degree from Purdue University, and a doctoral degree from the University of California, Irvine and the University of California, Los Angeles.

Dr. Dre.v Passalacqua, Assistant Superintendent Business Services. Dr. Dre.v Passalacqua has served as Assistant Superintendent, Business Services for the District since March 2017. Prior to assuming this positioo, Dr. Passalacqua served as a middle school teacher, university prcfessor, assistant princiJE.I, middle school and high school pri nci JE.I, and di rector in three school districts in Ventura and Los Angel es counties. Dr. Passalacqua has served in the field cf educatioo for 20years. Dr. Passalacqua earned a Bachelor cf Arts degree from Pepperdine University, a Master of Arts degree from Pepperdine University, and a doctoral degree from California Lutheran University.

E mpl0yee Relatioos

In the fall cf 1974, the State Legislature enacted a public school empl0yee collective bargaining law knONn as the Rodda Act, which became effective in stages in 1976. The law pravides that empl0yees are to be divided into appropriate bargaining units which are to be represented lJy an exclusive bargaining agent.

The teachers of the District (certificated empl0yees) are represented lJy the Upland Teachers' Association (the "UTA"). The District and the certificated empl0yees are currently operating under a contract that expires June 30, 2018. The JE,rties are currently negctiating the terms of salary and certain benefits for fiscal year 2017-18.

21

As cf June 30, 2017 the District empl0yed 596 full-time equivalent certificated empl0yees with a total estimated JE.yroll cf $50,145,459. Table 8 bel<M' sets forth the number of full-time equivalent certificated empl0yees for each cf the last five fiscal years as of June 30 of such fiscal year.

Table8 UPLAND UNI Fl ED SCHOOL DISTRICT

Full-Time Equivalent Certificated E mpl0yees

Fiscal Year

2012-13 2013-14 2014-15 2015-16 2016-17

Tctal Number cf FTE E mpl0yees

582 562 566 599 596

Source: Upland Unified School District

The California Service Empl0yees' Association is the exclusive bargaining agent for non teaching (classified) personnel. The District and the classified empl0yees are currently operating under a contract that expires onJ une 30, 2019. The JE,rties have reached an agreement regarding the terms of salary and certain benefits for fiscal year 2017-18.

As cf June 30, 2017, the District empl0yed 369 full-time equivalent classified empl0yees with a total estimated JE.yroll cf $12,239,011. Table 9 bel<M' sets forth the number of full-time equivalent classified empl0yees for each cf the last five fiscal years as of June 30 of such fiscal year.

Table9 UPLAND UNI Fl ED SCHOOL DISTRICT Full-Time Equivalent Classified E mpl0yees

Fiscal Year

2012-13 2013-14 2014-15 2015-16 2016-17

Tctal Number cf FTE E mpl0yees

327 328 362 372 369

Source: Upland Unified School District

Retirement System

This section contains certain inforrnation relating to the Public Empl0yees' Retirement System ("PERS") and the State Teachers' Retirement System(" STRS" ). The inforrnation is prirnarily derived from inforrnation publicly available from Of PERS and STRS, their independent accountants and their actuaries. The District has not independently verified the inforrnation regarding PERS and STRS and rnakes no representations nor expresses any opinion as to the accuracy of the inforrnation publicly available from Of PERS andSTRS.

The comprehensive annual financial reports cf PERS and STRS are available from PERS at P.O. Box 942703, Sacramento, California 94229--2703 and from STRS at P.O. Box 15275, Sacramento, California 95851-0275 and on their websites at www.calpers.ca.go; and www.calstrs.ca.go;, respectively. The PERS and STRS websites also contain the most recent actuarial valuation reports, as well as other

22

inforrration concerning benefits and other rratters. Such inforrration is nct incorporated lJy reference herein. The District cannot guarantee the accuracy of such inforrration. Actuarial assessments are "forward­looking"" inforrration that reflect the judgment cf the fiduciaries of the pension plans, and are based upon a variety of assurrptions, one or rmre cf which rray not rrateriali2e or be changed in the future. Actuarial assessments wi 11 change with the future experience cf the pension plans.

STRS. All full-time certificated empl0yees, as well as certain classified empl0yees, are members of STRS. STRS pravides 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 cf investment earnings and statutorily set contributions from three sources: empl0yees, empl0yers, and the State. Benefit pravisions and contribution armunts are established lJy State statutes, as I egi slatively amended from ti me to ti me.

Prior to fiscal year 2014-15, unlike typical defined benefit programs, none cf the empl0yee, empl0yer or State contribution rate to the STRS Defined Benefit Program varied annually to rrake up funding shortfalls or assess credits for actuarial surpluses. In recent years, the combined empl0yer, empl0yee 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 prtjected that the STRS Defined Benefit Program would be depleted in 31 years assuming existing contri buti on rates continued, and other significant actuarial assumr,ti ons were realized. I n an effort to reduce the unfunded actuarial liability of the STRS Defined Benefit Program, in 2014 the State passed legislation described bel ON to increase contribution rates.

Prior toJ uly 1, 2014, K-14 school districts were required lJy statute to contribute &25% cf eligible salary expenditures, while participants contributed 8Yo of their respective salaries. On June 24, 2014, the GavemorsignedA.B. 1469("A.B. 1469") intolawasapartofthe2014-15StateBudget. A.B. 1469seeksto fully fund the unfunded actuarial obligation with respect to service credited to members cf the STRS Defined Benefit Program beforeJuly 1, 2014 (the "2014 Liability"), within 32 years, lJy increasing member, K-14 school district and State contri buti ons to S TRS. Commencing onJ uly 1, 2014, the empl 0yee contribution rates i ncreased aver a three-year phase-in period in accordance with the schedule set forth in Table 10 bel ON:

Effective Date

July 1,2014 July 1,2015 July 1,2016

Source: A.B. 1469.

TABLE 10 MEMBER CONTRIBUTION RATES

STRS (Defined Benefit Program)

S TRS Members H i red P ri orto J anuary 1, 2013

8.150'/4 9.200

10.250

23

STRS Members Hired After January 1, 2013

8.150'/4 8.560 9.205

Pursuant to the Reform Act (defined belo.v), the contribution rates for members hired after the Implementation Date (defined belo.v) will be adjusted if the normal cost increases 0y more than 1% since the last time the member contribution was set. While the contribution rate for empl0yees hired after the Implementation Date will remain unchanged at 9.205% of creditable compensation for the fiscal year commencing July 1, 2017, the STRS actuary currently estimates that member contribution rates for such members will have to increase to 10.205% of creditable compensation effectiveJ uly 1, 2018, based on the mw actuarial assumptions discussed belo.v.

PursuanttoA.B. 1469, K-14 school districts' contribution rate will increase aver a seven year phase in period in accordance with the schedule set forth in Table 11 belo.v:

TABLE 11 K-14SCHOOL DISTRICT CONTRIBUTION RATES

STRS (Defined Benefit Program)

Effective Date

July 1,2014 July 1, 2015 July 1, 2016 July 1, 2017 July 1, 2018 July 1, 2019 July 1, 2020

'" Percentage of eligible salary expenditures to be contributed. Source: A.B. 1469.

K-14 school districtsI11

8.88'/4 10.73 12.58 14.43 16.28 18.13 19.10

Based upon the recommendation from its actuary, for fiscal year 2021-22 and each fiscal year thereafter the STRS Teachers' Retirement Bmrd (the "STRS Bmrd"), is required to increase or decrease the K-14 school districts' contribution rate to reflect the contribution required to eliminate the remaining 2014 Liability 0y June 30, 2046; pr<Nided that the rate cannot change in any fiscal year Of more than 1% of creditable compensation upon which members' contributions to the STRS Defined Benefit Program are based; and pr<Nided further that such contribution rate cannot exceed a maximum cf 20.25%. In addition to the increased contribution rates discussed abOle, A.B. 1469 also requires the STRS Bmrd to report to the State legislature every five years (commencing with a report due on or beforeJ uly 1, 2019) on the fiscal health cf the STRS Defined Benefit Program and the unfunded actuarial obligation with respect to service credited to members of that program beforeJ uly 1, 2014. The reports areal so required to identify adjustments required in contribution rates for K-14 school districts and the State in orderto eliminate the 2014 Liability.

24

From its General Fund, District's cootribution to STRS in fiscal year 2015-16 was $5,663,256. The District estimates that it cootributed $6,579,055 to STRS in fiscal year 2016-17 and has budgeted a STRS cootribution cf $7,687,733 in fiscal year 2017-18.

The State also contributes to STRS, which was in an amount equal to 6.328'/4 cf teacher JE.yroll for fiscal year 2016-17. The State's contribution reflects a rnse cootribution rate of 2.017%, and a supplemental contribution rate that will vary from year to year rnsed on statutory criteria. 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 cootribution rates to reflect the cootribution required to eliminate the unfunded actuarial accrued liability attributed to benefits in effect beforeJ uly 1, 1990. For the first time, in fiscal year 2017-18, the State cootribution will increase 0.5% cf cCNered JE.yroll (the maximum rate increase allcwed per year under current law) to 6.828Yo.

In addition, the State is currently required to make an annual general fund contribution up to 2.5% cf the fiscal year cCNered STRS member JE.yroll to the Supplemental Benefit Prctection Account (the "SBPA"), which was established 0y statute to pravide supplemental JE.yments to beneficiaries whose purchasing pcwer has fallen belcw 85% cf the purchasing pcwer cf their initial allcwance.

PE RS. Classified empl0yees working four or more hours per day are members cf PERS. PERS pravides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit pr<Nisions are established 0y the State statutes, as legislatively amended from time to time. PERS operates a number of retirement plans including the Public Empl0yees Retirement Fund ("PERF"). PERF is a multiple-empl0yer defined benefit retirement plan. In addition to the State, empl0yer JE,rticiJE.nts atJ une 30, 2014 included 1,580 public agencies and 1,513 K-14 school districts. PE RS acts as the common investment and administrative agent for the member agencies. The State and school districts (for "classified empl0yees," which generally consist of school empl0yees cther than teachers) are required 0y law to JE,rticiJE.te in PERF. Empl0yees JE,rticiJE,ting in PERF generally become fully vested in their retirement benefits earned to date after five years cf credited service. One of the plans operated Of PERS is for school districts throughout the State (the "Schools Pool").

Contributions Of empl0yers to the Schools Pool are rnsed upon an actuarial rate determined annually and cootributions Of plan members vary rnsed upon their date of hire. The District is currently required to contribute to PERS at an actuarially determined rate, which is 13.888Yo of eligible salary expenditures for fiscal year 2016-17 and will be 15.531% for fiscal year 2017-1& ParticiJE.nts enrolled in PERS prior to January 1, 2013 contribute 7% of their respective salaries in fiscal year 2016-17 and will cootribute at the same rate for fiscal year 2017-18, while JE,rticiJE.nts enrolled after January 1, 2013 cootribute at an actuarially determined rate, which is 6% of their respective salaries for fiscal year 2016-17 and 6.5% in fiscal year 2017-18. See "-California Public Empl0yees' Pension Reform Act cf 2013" herein.

From its General Fund, the District contributed $1,672,075 to PERS in fiscal year 2015-16. The District estimates that it cootributed $1,884,614 to PERS in fiscal year 2016-17 and has budgeted a PERS cootribution cf $2,195,366 in fiscal year 2017-18.

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

25

Both STRS and PERS have substantial state.vide unfunded liabilities. The amount cf these unfunded liabilities will vary depending on actuarial assumr,tions, returns on investments, salary scales and participant contributions. Table 12 bel<M' summarizes information regarding the actuarially--detennined accrued liability for bcth STRS and PERS (Schools Pool). Actuarial assessments are "forward-looking" infonnation 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.

Table 12 FUNDED STATUS

STRS (Defined Benefit Program) and PE RS (Dollar Amounts in Millions)i 11

Fiscal Years 2011-12 through 2015-16

Fiscal Accrued Year Liability

201l-l2 $215,189 2012-13 222,281 2013-14 231,213 2014-15 241,753 2015-16 266,704

Fiscal Accrued Year Liability

201l-l2 $59,439 2012-13 61,487 2013-14 65,600 2014-15 73,325 2015-16" 77,544

'" Arr<>unts rmy not add due to rounding. w Reflects rrarketvalue of assets.

STRS

Value of Unfunded Value of Trust Assets Liability Trust Assets

(MVA)"' (MVA)rn (AVA)(4'

$143,118 $80,354 $144,232 157,176 74,374 148,614 179,749 61,807 158,495 180,633 72,626 165,553 177,914 101,586 169,976

PE RS (Schools Pool)

Value of Unfunded Value of Trust Assets Liability Trust Assets

(MVA)"' (MVA)(3' (AVA)(4'

$44,854 $14,585 $53,791 49,482 12,005 56,250 56,838 8,761 _JO

56,814 16,511 _JO

55,785 21,759 _JO

Unfunded Liability

(AVA)C4Hs

$70,957 73,667 72,718 76,200 96,728

Unfunded Liability (AVA)(4'

$5,648 5,237

_J6)

_J6)

_j6)

<3> Unfunded Liability (MVA) is equal to the Accrued Liability colurm minus the Value of Trust Assets (MVA) colurm rrinus

the a=unt depo~ted in the Supplemental Benefits Maintenance Account reserve, which is not available to prc:,.,ide benefits under the STRS Defined Benefit Program

c 4l B ased on actuarial val ue of assets. '" Unfunded Liability (AVA) is equal to the Accrued Liability column rrinus the Value of Trust Assets (AVA) colurm. ce Figures not provided. Effective with theJ une 30, 2015 valuation, PERS no longer uses an actuarial value of assets. '" The PERS Finance & Adrrinistration Comrrittee has apprc:,.,ed the K-14 school district contribution rate for fiscal year

2017-18 and released certain actuarial information to be incorporated into the June 30, 2016 actuarial valuation to be released in the late summer or fall of 2017.

Source: PERS Schools Pool Actuarial Valuation; STRS Defined Benefit Program Actuarial Valuation.

The STRS Bmrd has sole authority to determine the actuarial assumptions and methods used for the valuation of the STRS Defined Benefit Program. Based on the multi-year CalSTRS Experience Analysis (spanning fromJ uly 1, 2010, throughJ une 30, 2015), on February 1, 2017, the STRS B mrd ador,ted a ne.v set of actuarial assumr,tions that reflect member's increasing life expectancies and current economic trends. These ne.v assumr,tions were first reflected in the STRS Defined Benefit Program Actuarial Valuation, as cf June 30, 2016 (the "2016 Actuarial Valuation'). The ne.v actuarial assumptions include, but are nct limited to: (i) ador,ting a generational mortality methodology to reflect past impravements in life expectancies and pr<Nide a more dynamic assessment of future life spans, (ii) decreasing the investment rate cf return (net of investment and administrative expenses) to 7.2"flo for the 2016 Actuarial Valuation and 7.00'/4 for the June 30, 2017

26

actuarial evaluation, and (iii) decreasing the prtj ected wage gro.vth to 3. 50'/4 and the projected inflation rate to 2.l"flo. The 2016Actuarial Valuation continues using the Entry Age Nonnal Actuarial Cost Method.

Based on the change in actuarial assumptions adopted lJy the STRS Board, recent investment experience and the insufficiency of the contributions received in fiscal year 2015-16 to caver interest on the unfunded actuarial obligation, the 2016 Actuarial Valuation reports that the unfunded actuarial obligation increased lJy $20.5 billion since theJ une 30, 2015 actuarial valuation and the funded ratio decreased lJy 4.8'/4 to 63.7% CNer such time period. Had the investment rate of return been lo.vered to 7.00'/4 for the 2016 Actuarial Valuation, the unfunded actuarial obi i gati on and the funded ratio would have been $105. 1 bi 11 ion and 61.8'/4, respectively. As a result, it is currently prtjected that there will be a need for higher contributions from the State, empl0yers and members in the future to reach full funding lJy 2046.

According to the 2016 Actuarial Valuation, the future revenues from contri buti ons and appropriations for the STRS Defined Benefit Program are projected to be sufficient to finance its obligations, except for a small portion cf the unfunded actuarial obligation related to service accrued on or after July 1, 2014 for member benefits adorxed after 1990, for which AB 1469 pravides no authority to the STRS Board to adjust rates to pay do.vn that portion cf the unfunded actuarial obligation. This finding reflects the scheduled contribution rate increases directed lJy statute, assumes additional increases in the scheduled contribution rates al I o.ved under the current I aw wi 11 be made, and is based on the val uati on assumptions and valuation policy adorxed lJy the STRS Board, including a 7.00'/4 investment rate of return assumr,tion.

In recent years, the PERS Board of Administration (the "PERS Board") has taken several steps, as described belo.v, intended to reduce the amount of the unfunded accrued actuarial liability of its plans, incl udi ng the Schools Pool.

On March 14, 2012, the PERS Board voted to lo.verthe PERS' rate of expected price inflation and its investment rate of return (net of administrative expenses) (the "PERS Discount Rate'') from 7.l"flo to 7."flo. On February 18, 2014, the PERS Board voted to keep the PERS Discount Rate unchanged at 7."f/4. On Navember 17, 2015, the PERS Board appraved a nEW funding risk mitigation policy to incrementally lo.ver the PERS Discount Rate lJy establishing a mechanismwhere!Jy such rate is reduced lJy a minimum of 0.0"f/4 to a maximum of 0.2"flo in years when investment returns outperform the existing PERS Discount Rate lJy at least four percentage points. On December 21, 2016, the PERS Board voted to lo.verthe PERS Discount Rate to 7.0'/4 aver the next three years in accordance with the follo.ving schedule: 7.37"f/4 in fiscal year 2017-18, 7.2"f/4 in fiscal year 2018-19 and 7.00'/4 in fiscal year 2019-20. The nEW discount rate wil I go into effectJ uly 1, 2017 forthe State andJ uly 1, 2018 for K-14 school districts and other public agencies. Lo.vering the PERS Discount Rate likely means empl0yers that contract with PERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013, under the Reform Act (defined belo.v) will also likely see their contribution rates rise. The three-year reduction of the discount rate to 7 .0'/4 is expected to result in average empl 0yer rate increases of approximately 1--3% of normal cost as a percent of payrol I for most miscellaneous retirement plans and a 2-"f/4 increase for most safety plans.

On April 17, 2013, the PERS Board appr<Ned mw actuarial policies aimed at returning PERS tofully­funded status within 30years. The policies include a rate smocthing method with a 3G-yearfixed amortization period for gains and losses, a five-year increase of public agency contribution rates, including the contribution rate at the onset cf such amortization period, and a five year reduction of public agency contribution rates at the end cf such amortization period. The mw actuarial policies were first included in theJ une 30, 2014 actuarial valuation and were implemented with respect the State, K-14 school districts and all other public agencies in fi seal year 201 5-16.

Also, on February 20, 2014, the PERS Board appraved mw demographic assumptions reflecting (i) expected longer life spans cf public agency empl0yees and related increases in costs for the PERS system and (ii) trends of higher rates cf retirement for certain public agency empl0yee classes, including police officers

27

and firefighters. The nEW actuarial assumptioos were first reflected in the Schools Pool in theJ une 30, 2015 actuarial valuatioo. The increase in liability due to the mw assumptioos will be amortized aver 20years with increases phased in aver five years, beginning with the contributioo requirement for fiscal year 2016-17. The nEW demographic assumr,tioos affect the State, K-14 school districts and all other public agencies.

The District can make no representatioos regarding the future program liabilities cf STRS, or whether the District will be required to make additional contributioos to STRS in the future abo/e those amounts required under A.B. 1469. The District can also pr<Nide no assurances that the District's required contri buti ons to PE RS wi 11 not increase in the future ab<Ne the projected increases descri bed ab<Ne.

California Public E mpl0yees' Pension Reform Act cf 2013. On September 12, 2012, the GCNemor signed into law the California Public Empl0yee's Pension Refonn Act of 2013 (the "Reform Act''), which makes changes to both STRS and PERS, most substantially affecting nEW empl0yees hired after January 1, 2013 (the "lmplementatioo Date''). For STRS participants hired after the Implementation Date, the Refonn Act changes the normal retirement age Of increasing the eligibility for the 2% age factor (the age factor is the percent of final compensation to which an empl0yee is entitled to for each year cf 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 nm-safety PERS participants hired after the Implementation Date, the Reform Act changes the normal retirement age 0y increasing the eligibility for the 2% age factor from age 55 to 62 and increases the eligibility requirement for the maximum age factor cf 2.5% to age 67. Among the other changes to PERS and STRS, the Reform Act also: (i) requires all mw participants enrolled in PERS and STRS after the Implementation Date to contribute at least 50'/4 of the total annual normal cost cf their pension benefit each year as determined Of an actuary, (ii) requires STRS and PERS to detennine the final compensation amount for empl0yees rnsed upoo the highest annual compensatioo earnable averaged CNer a consecutive 36-month period as the rnsis for calculating retirement benefits for nEW participants enrolled after the Implementation Date (previously 12 months for STRS members who retire with 25 years cf service), and (iii) caps "pensionable compensation" for nEW

participants enrolled after the Implementation Date at 100'/4 of the federal Social Security contribution (to be adjusted annually rnsed on changes to the Coosumer Price Index for all Uram Coosumers) and benefit rnse for members participating in Social Security or 120'/4 for members nct participating in social security (to be adjusted annually rnsed oo changes to the Coosumer Price Index for all Uram Coosumers), while excluding previously allo.ved forms of compensatioo under the formula such as payments for unused vacatioo, annual leave, personal leave, sick leave, or compensatory time cff.

GASB Statement Nos. 67 and 68. OnJ une 25, 2012, the GCNernmental Accounting Standards Bmrd ("GASB") appraved two mw standards ("Statements") with respect to pension accounting and financial reporting standards for state and local gavernments and pensioo plans. The mw Statements, No. 67 and No. 68, will replace GASB Statement No. 27 and most of Statements No. 25 and No. 50. The changes will impact the accounting treatment cf pension plans in which state and local gavernments participate. Major changes include: (1) the inclusion of unfunded pension liabilities on the gavernment's balance sheet (previously, such unfunded liabilities were typically included as notes to the gavemment's financial statements); (2) more compooents cf full pension costs being sho.vn as expenses regardless cf actual contributioo levels; (3) lo.ver actuarial discount rates being required to be used for underfunded plans in certain cases for purposes of the financial statements; (4) closed amortizatioo periods for unfunded liabilities being required to be used for certain purposes of the financial statements; and (5) the difference between expected and actual investment returns being recognized CNer a closed five-year smocthing period. In additioo, according to GASB, Statement No. 68 means that, for pensions within the scope cf the Statement, a cost­sharing empl0yerthat does not have a special funding situation is required to recognize a net pension liability, deferred outflo.vs of resources, deferred inflo.vs of resources related to pensions and pensioo expense rnsed oo its proportionate share cf the net pension liability for benefits pr<Nided through the pension plan. Because the accounting standards do not require changes in funding policies, the full extent cf the effect cf the mw standards on the District is nct kno.vn at this time. The reporting requirements underGASB No. 68 for pension plans took effect for the fiscal year beginning July 1, 2013 and the reporting requirements for gavernment empl0yers, including the District, took effect for the fiscal year beginningJ uly 1, 2014. In orderto record the

28

District's proportiooate share of net pension liability in accordance with GASB No. 68, there was a restatement to the beginning net position of GCNernmental Activities for fiscal year 2014-15. The District's auditor has calculated the District's net pension liability atJ une 30, 2016 to have been $65,385,4&'.l. See Ncte 13 to the fi seal year 201 5-16 audited financial statements of the District, which are attached as Appendix B hereto.

Post--empl0yment Benefits

The District pr<Nides postempl0yment health care benefits, in accordance with District empl0yment contracts, to eligible empl0yees who retire from the District on or after attaining age 55 (to age 65) with at least lOyears cf service to the District. The District contributes a portion cf the amount cf premiums incurred lJy retirees and their dependents, pravided that the amount does not exceed that cf a full-time bargaining unit member. If the premium forthe retiree is greaterthan for a full-time bargaining unit member, the retiree shall JE.Y the difference. The District contribution for fiscal year 2016-17 was $1,193 per month for all eligible retirees, though such amount is reduced lJy contributions from retirees with spousal or family cCNerage. As of July 1, 2016, there were 99 retirees and beneficiaries receiving postempl0yment benefits and 932 active plan members. For fiscal year 2015-16, the District contributed $1,420,351 for postempl0yment benefits, all cf which was used for current premiums. For fiscal year 2016-17, the District estimates that it contributed $1,331,918 for postempl0yment benefits.

The District had a net obligation in respect of post--empl0yment health care benefits of $7,094,295 as cf June 30, 2015 and $8,701,897 as of June 30, 2016. See Note 11 to the fiscal year 2015-16 audited financial statements of the District, which are attached hereto as Appendix B .

Pursuant to the most recent valuation report (the "Valuation Report'') pravided to the District lJy an independent consultant, dated October 22, 2016, the actuarial liability for District-paid retiree benefits was $45,739,770as cf July 1, 2015. This amount represents the present value cf all benefits expected to be JE.id lJy the District for its current and future retirees based on certain assumptions set forth in the Valuation Report. According to the Valuation Report, the District's unfunded accrued liability (the "UAL"), which represents the unfunded present value of all benefits earned to date, as cf July 1, 2015, was $23,491,553. The District has nct established an irrevocable trust to prefund any of the accrued liability under the plan. The District's annual required contribution, which is the amount required to be contributed to meet the cost of benefits accruing in the current year and to JE.Y off the UAL in 30years, was $3,154,445 for fiscal year 2016-17.

Insurance

The District's basic property, crime, general liability and automobile insurance is administered lJy the Self-Insured Schools of California ("SISC") and the District's workers' compensation insurance is administered through CSAC Excess Insurance Authority ("CSAC"). Bcth SISC and CSAC are joint po.vers public agencies. The relationship between the District and these joint po.vers public agencies is such that neither SISC nor CSAC are component units cf the District for financial reporting purposes. The District believes its caverages are adequate for a school district cf its size and for the nature of its operations. In addition, based upon prior claims experience, the District believes that the recorded liabilities for insured claims are adequate.

DISTRICT FINANCIAL MATTERS

The inforrnation in this section concerning the operations of the District and the District's finances is pr<Nided as supplementary inforrnation only, and it should not be inferred from the inclusion cf this inforrnation in this Official Statement that the princiJE.I cf or interest on the 2017 Bonds is JE,yable from the general fund of the District. After the Crossaver Date, the 2017 Bonds will be JE,yable solely from the proceeds of an ad valorem property tax which is required to be levied lJy the County in an amount sufficient for the JE.yment thered'. See" THE BONDS - Security and Sources cf Payment'' herein.

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Accounting Practices

The accounting policies of the District conform to generally accepted accounting principles and are in accordance with the policies and procedures cf the California School Accounting Manual. This manual, according to Section 41010 cf the California Education Code, is to befollo.ved Of all State school districts.

District Budget

The District is required 0y pr<Nisions of the California Education Code to maintain each year a balanced budget in which the sum of expenditures plus the ending fund balance cannct exceed the revenues plus the carry aver fund balance from the previous year. The California State Department of Education imposes a uniform budgeting format for each school district in the State.

School districts must adopt a budget no later thanJ une 30 cf each year. The budget must be submitted to the County Superintendent cf Schools (the "County Superintendent") within five days cf adoption or Of July 1, whichever occurs first. The budget is only reador,ted if it is disappraved 0y the County Superintendent, or as needed.

Upon receipt of an adopted budget, the County Superintendent will (a) examine the ador,ted budget for compliance with the standards and criteria adopted Of the State Bmrd cf Education and identify technical corrections necessary to bring the budget into compliance, (b) determine if the adopted budget allo.vs the district to meet its current obligations, (c) determine if the adopted budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments, (d) determine whether the ador,ted budget includes the expenditures necessary to implement the local control and accountability plan or annual update thereto, and (e) determine whether the ador,ted budget includes a combined assigned and unassigned ending fund balance that exceeds the minimum recommended reserve for economic uncertainties. On or before Ser,tember 15, the County Superintendent will apprCNe, conditionally apprCNe or disapprave the ador,ted budget for each school district.

If the C aunty Superintendent deterrni nes that the adopted budget does not satisfy one or more of the requirements set forth in the preceding paragraph, the County Superintendent shall transmit recommendations regarding revisions to the adopted budget to the school district and the reasons therefor. The County Superintendent may assign a fiscal adviserto assist the school district to develop a budget in compliance with those revisions. In addition, the County Superintendent may appoint a committee to examine and comment on the revie.v and recommendations, sugect to the requirement that the committee report its findings to the County Superintendent no later than Ser,tember 20.

If the adopted budget of a school district is conditionally appr<Ned or disappraved Of the County Superintendent, on or before October 8, the gaverning bmrd of the school district, in conjunction with the County Superintendent, shall revie.v and respond to the recommendations of the County Superintendent at a regular meeting of the gaverning bmrd of the school district. The response shall include any revisions to the ador,ted budget and other proposed actions to be taken, if any, as a result of those recommendations.

No later than October 22, the County Superintendent must nctify the State Superintendent of Public Instruction (the "State Superintendent'') of al I school districts whose budget has been disapprCNed.

Upon receir,t cf a revised budget, the County Superintendent must determine whether the revised budget conforms to the standards and criteria applicable to final district budgets. If the revised budget is disappr<Ned, the County Superintendent will call forthe formation of a budget revie.v committee pursuant to Education Code Section42127. l, unless the gaverning bmrd cf the school district and the County Superintendent agree to waive the requi rement that a budget revi e.v committee be formed and the department appraves the waiver after determining that a budget revie.v committee is not necessary.

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If a budget revie.v committee is appointed and recommends appr<Nal of the adopted budget, the C aunty Superintendent shal I accept the recommendation of the committee and apprave the adorxed budget.

If the budget revie.v committee disappraves the adopted budget, the gaverning board of the school district, nct later than five working days after the receipt of the report from the budget revie.v committee, may submit a response to the S uperi ntendent, including any revisions to the adopted budget and any other proposed actions to be taken as a result of the budget revie.v committee's recommendations. Based upon these recommendations and any response thereto pravided lJy the g<Nerning board cf the school district, the Superintendent shall either apprave or disapprCNe the revised budget. If the Superintendent disappraves the budget, he or she shall nctify the gaverning board of the school district in writing of the reasons for that disappr<Nal and, until the County Superintendent certifies the school district's First Interim Financial Report (as described belcw), the County Superintendent shall undertake the actions set forth in Section 42127.3.

Upon the grant of a waiver from the requirement to form a budget revie.v committee, the County S uperi ntendent i mmediately has the authority and responsi bi I ity pravi ded in Section 42127.3. U pon appravi ng a waiver of the budget revie.v committee, the department shall ensure that a mlanced budget is adorxed for the school district lJy December 31. If no budget is adorxed lJy December 31 , the Superintendent may adopt a budget for the school district. The Superintendent shall report to the State Legislature and the Director of Finance lJy January 10 if any school district, including a school district that has received a waiver of the budget revie.v committee process, does nct have an adopted budget lJy December 31. This report shall include the reasons why a budget has not been adopted lJy the dead Ii ne, the steps bei ng taken to finalize budget adorxi on, the date the ador,ted budget is anticipated, and whether the Superintendent has or will exercise his or her authority to adopt a budget for the school district.

Not later than Navember 8, the County Superintendent shall submit a report to the Superintendent identifying al I school district for which budgets have been di sappr<Ned or budget revi e.v committees waived.

Until a district's budget is apprCNed, the district will operate on the lesser of its proposed budget for the current fiscal year or the last budget adopted and revie.ved for the prior fiscal year.

After appr<Ning the districts' budgets, the County Superintendent will monitor, throughout the fiscal year, each school district under his or her jurisdiction pursuant to its adopted budget to determine on a continuing msis if the district can meet its current or subsequent year financial obligations. If a County Superintendent determines that a district cannct meet its current or subsequent year obligations, the County Superintendent may do either or both of the follcwing: (a) assign a fiscal advisorto enable the district to meet those obligations, or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the County Superintendent must so nctify the State Superintendent, and then may do any or all cf the follcwing for the remainder of the fiscal year: (i) request additional information regarding the district's budget and operations; (ii) develop and impose, also after consulting with the district's board, revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. Hcwever, the County Superintendent may not abrogate any pravision of any collective mrgaining agreement that was entered into prior to the date upon which the County Superintendent assumed authority.

At a minimum, school districts file with their County Superintendent and the State Department cf Education a First Interim Financial Report lJy December 15 cCNering financial operations fromJ uly 1 through October31 and a Second Interim Financial Report lJy March15 cavering financial operations from Navember 1 through January 31. Section42131 of the Education Code requires that each interim report be certified lJy the school board as either (a) "positive," certifying that the district, "msed upon current projections, will meet its financial obligations for the current fiscal year and subsequent two fiscal years," (b) "qualified," certifying that the district, "msed upon current prtjections, may not meet its financial obligations for the current fiscal year or two subsequent fiscal years," or (c) "negative," certifying that the district, "msed upon current prtjections, will be unable to meet its financial obligations for the remainder of

31

the fiscal year or the subsequent fiscal year." A certification Of a school bmrd may be revised Of the County Superintendent. If eitherthe First or Second Interim Report is not "positive,"" the County Superintendent may require the district to pravide a Third Interim Financial Report cavering financial operations from February 1 through April 30 0y June 1. If not required, a Third Interim Financial Report is nct prepared. Each interim report shews fi seal year to date financial operations and the current budget, with any budget amendments made in light cf operations and conditions to that point. After the close of the fiscal year onJ une 30, an unaudited financial report for the fiscal year is prepared and filed without certification with the County Superintendent and the State Department cf Education.

The District's adopted budget for fiscal year 2013-14 was disappr<Ned Of the County Superintendent and a financial advisor was assigned to the District. The District then submitted a second adorxed budget for fiscal year 2013-14 (the "Fiscal Year 2013-14 Second Adopted Budget'') which was appr<Ned Of the County Superintendent. Additionally, the District's first interim report for fiscal years 2012-13 and 2013-14, as well as its second interim report for fiscal year 2011-12, received qualified certifications, and its second interim report for fiscal year 2012-13 received a negative certification. In addition, the District's second interim report and third interim report for fiscal year 2016-17 received qualified certifications. See "-Current Financial Condition."

Pursuant to State law, the District ador,ted its fiscal year 2017-18 budget onJ une 29, 2017 (the" 2017-18 Adopted Budget''), which set forth revenues and expenditures such that appropriations during fiscal year 2017-18were not prtjected to exceed the sum of revenues plus theJ uly 1, 2017 beginning fund allance. The 2017-18 A dor,ted B udget projects deficit General Fund spending CNerthe current and next two fi seal years and the District's reserves for fiscal year 2019-20are prtjected to drop belcw the State required minimum of 3% of General Fund expenditures and other financing uses. See "-Current Financial Condition" belcw.

On September 8, 2017, the County Superintendent nctified the District that it was conditionally appraving the 2017-18Adopted Budget subject to the District's appr<Nal of a fiscal action plan in the form cf a revised fiscal year 2017-18 budget (a "Revised Ador,ted Budget''). The plan reflected in the Revised Ador,ted B udget must include ongoing reductions to the unrestricted General Fund expenditures at a mini mum cf $2,600,000 for fiscal year 2019-20 to meet the State minimum reserve standard cf 3% through such fiscal year and meet certain other criteria outlined in the letter. The plan must identify the fiscal years in which expenditure reductions will occur, an estimated amount of savings, whether the reductions appr<Ned Of the Board are one-time or ongoing and which reductions, if any, need to be negotiated with bargaining units. A Revised Adopted Budget meeting the foregoing requirements and appraved Of the Board must be pravided to the County Superintendent Of no laterthan October 8, 2017

The County Superintendent ncted in the September 8, 2017 letter that the 2017-18 Adopted Budget originally submitted did nct comply with certain State criteria and standards. Specifically, the amount cf deficit spending in the 2017-18 Ador,ted Budget was not within established State standards for the current and two subsequent fiscal years and the percentage used for projecting ADA and the assumed level cf State funding were too high. The Revised Ador,ted Budget must reflect compliance with these criteria. District staff is preparing to present to the Bmrd for appr<Nal on September 26, 2017 a Revised Adopted Budget that satisfies the requirements outl i ned in the I etter from the C aunty Superintendent. See "-Current Financial Condi ti on."

State Funding cf Education

School district revenues consist primarily of appropriated State moneys, local property taxes and funds received from the State in the form cf categorical aid under ongoing programs cf local assistance. All State aid is sugect to the appropriation of funds in the State's annual budget.

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Revenue Limit Funding. Priorto fiscal year 2013-14, school districts operated under general purpose revenue limits established lJy the State Department cf Education. In general, revenue limits were calculated for each school district lJy multiplying the ADA for such district lJy a base revenue limit per unit cf ADA. Revenue limit calculations were sugect to adjustment in accordance with a number of factors designed to pravide cost of living adjustments ("COLAs") and to equalize revenues among school districts cf the same type. Funding cf a school district's revenue limit was pr<Nided lJy a mix cf local property taxes and State apportionments cf basic and equalization aid. Beginning in fiscal year 2013-14, school districts began being funded based on uniform funding grants assigned to certain grade spans. See "-State Funding cf Education -Local Control Funding Formula."

Table 13 belo.v reflects the District's ADA for fiscal years 2013-14 through 2017-18.

Projected.

Table 13 UPLAND UNI Fl ED SCHOOL DISTRICT

AVERAGE DAILY ATTENDANCE Fiscal Years 2013-14 through 2017-18

Average Daily Annual% Change Year

2013-14 2014-15 2015-16 2016-17 2017-18

Attendance

11,222 10,899 10,649 10,723 10,461

in ADA

Nf,A, (2.9) (2.3) 0.6

(2.4)

Source: Upland Unified School District

Local Control Funding Formula. State Assembly Bill 97 (Stats. 2013, Charter 47) ("AB 97"), enacted as part cf the 2013-14 State budget, establishes a nEW system for funding school districts, charter schools and county offices of education. Certain pravisions of AB 97 were amended and clarified lJy Senate Bill 91 (Stats. 2013, Chapter49).

The primary component of AB 97 is the implementation of the Local Control Funding Formula ("LCFF"), which replaces the revenue limit funding system for determining State apportionments, as well as the majority of categorical program funding. State allocations will be pr<Nided on the basis cf target base funding grants per unit of ADA (a "Base Grant'') assigned to each of four grade spans. Each Base Grant is sugect to certain adjustments and add-ons, as discussed belo.v. Full implementation cf the LCFF is expected to occur aver a period cf several fiscal years. Beginning in fiscal year 2013-14, an annual transition adjustment will 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 I evel and the target allocation follo.ving 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.

The Base Grants per unit of ADA for each grade span are as folio.vs: (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 forCOLAs lJy applying the implicit price deflator for gavernment goods and services. Follo.ving full implementation of the LCFF, the pravision cf COLAs will be subject to appropriation for such adjustment in the annual State budget. The differences among Base G rants are Ii nked to differentials in state.vide average revenue limit rates lJy district type, and are intended to recognize the general ly higher costs of education at higher grade I evel s.

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The Base Grants for grades K --3 and 9-12 are sug ect to adjustments of 10.4% and 2.6% , respectively, to co;er the costs of the grade SJE.n adjustment in early grades and the pro;ision of career technical education in high schools. Follcwing 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 fe.ver 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 tcwards this grade SJE.n adjustment gall in proportion to the grcwth in their funding o;er the implementation period. AB 97 also pravides additional add-ms to school districts that received categorical block grant funding pursuant to the Targeted Instructional I mpravement and H ome-to--5 chool Transportation programs during fi seal year 2012-1 3.

School districts that serve students of limited English proficiency ("EL" students), students from lcw 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 therefore nct discussed herein seJE.rately). AB 97 authorizes a supplemental grant add­on (each, a "Supplemental Grant'') for school districts that serve EL ;l I students, equal to 20'/4 ol' the applicable Base Grant multiplied lJy such districts' percentage of unduplicated EL ;l I student enrollment. School districts whose EL;ll populations exceed 55% ol' their tctal enrollment are eligible for a concentration grant add-ori (each, a "Concentration Grant'') equal to 50'/4 of the applicable Base Grant multiplied the percentage ol' such district's unduplicated EL;ll student enrollment in excess of the 55% threshold. The District does not qualify for a Concentration G rant.

Table 14 belcw shews a breakdcwn of the District's ADA lJy grade span, total enrollment, and the percentage of EL;ll student enrollment, for fiscal years 2013-14 through 2017-1 &

Table 14 UPLAND UNI Fl ED SCHOOL DISTRICT

ADA, ENROLLMENT AND EL;ll ENROLLMENT PERCENTAGE Fiscal Years 2013-14 through 2017-18

Average Daily Attendance"' Enrollment % of

Fiscal Total Total EL;ll Year K-3 4-{j 7-S 9-12 ADA E nrollmenf2) E nrollmeni"

2013-14 3,354 2,500 1,768 3,600 11,222 l l,665 58)6 2014-15 3,204 2,486 1,743 3,466 10,899 l l,225 54 2015-16 3,117 2,520 1,652 3,391 10,680 l l,136 54 2016-17 3,252 2,505 1,612 3,354 10,723 l l,012 54 2017-18 3,062 2,469 1,599 3,337 10,467 10,774 54

'" Reflects P-2 ADA for fiscal year 2013-14 and 2014-15. Because P-2 ADA for fiscal year 2017-l8will not be released until April 2018, Average Daily Attendance for fiscal year 2017-18 is based on District's estirmte for such fiscal year.

(2) As of October report subrritted to the California Basic Educational Data System (CB EDS). 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-l 5, the percentage of unduplicated EL;ll enrollment will be based on the two-year average of EL;ll enrollment in fiscal years 2013-14 and 2014-l 5. Beginning in fiscal year 2015-16, a school district's percentage of unduplicated EL;ll students will be based on a rolling average of such district's EL;ll enrollment for the then-<:urrent fiscal year and the two immediately preceding fiscal year~ Enrollment for fiscal year 2017-18 is based on District's estirmte for such fiscal year.

Source: Upland Unified School District

For certain school districts that would have received greater funding levels under the prior revenue limit system, the LCFF pro;ides for a permanent economic reco;ery 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 cwed to such districts in the same year. To derive the

34

projected funding levels, the LCFF assumes the discontinuance cf deficit revenue limit funding, implementation of a 1.94% COLA in fiscal years 2014-15 through 2020-21, and restoration cf categorical funding to pre-recession levels. The ERT add-on will be paid incrementally CNer the implementing period of the LCFF. The District does not believe that it will qualify forthe ERT add-on for fiscal year 2017-18.

The sum cf a school district's adjusted Base, Supplemental and Concentration Grants will be multiplied 0y 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 comprise a district's total LCFF allocation. Generally, the amount of annual State apportionments received 0y 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 cf their funding from such State apportionments. As a result, decreases in State revenues may significantly affect appropriations made Of the Legislature to school districts.

Certain schools districts, kncwn as "basic aid" districts, have allocable local property tax collections that equal or exceed such districts' tctal 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 Of Article IX, Section 6 cf the State Constitution. The implication for basic aid districts is that the legislatively detennined allocations to school districts, and cther politically detennined factors, are less significant in determining their primary funding sources. Rather, property tax gro.vth and the local economy are the primary detenninants. The District does nct currently qualify as a basic aid district.

Accountability. Regulations adopted Of the State Board of Education require that school districts increase or imprCNe services for EL;ll students in proportion to the increase in funds apportioned to such districts on the basis of the number and concentration of such E L ;l I students, and detai I the conditions under which school districts can use supplemental or concentration funding on a school-wide or district-wide basis.

School districts are al so required to adorx I ocal control and accountabi I ity plans (" L CA Ps") di sci osi ng annual goals for all students, as well as certain numerically significant student subgroups, to be achieved in eight areas of State priority identified Of 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 cf Education has adopted a template LCAP for use Of school districts.

Support and Intervention. AB 97, as amended Of SB 91, establishes a nEW system of support and intervention to assist school districts meet the perfonnance expectations outlined in their respective LCAPs. School districts must adopt their LCAPs (or annual updates thereto) in tandem with their annual operating budgets, and nct later than five days thereafter submit such L CA Ps or updates to their respective county superintendents of schools. On or before August 15 cf each year, a county superintendent may seek clarification regarding the contents cf a district's LCAP (or annual update thereto), and the district is required to respond to such a request within 1 5 days. Within 1 5 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 Of the respective school district at a public hearing within 15 days. A district's LCAP or annual update must be appraved Of the county superintendent Of October 8 cf each year if 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. The District has updated its LCAP for fiscal year 2017-18.

A school district is required to receive additional support if its respective LCAP or annual update thereto is not apprCNed, if the district requests technical assistance from its respective county superintendent, or if the district does nct imprave student achievement across more than one State priority for one or more

35

student subgroups. Such support can include a revie.v 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 imprCNe outcomes. Assistance may be pravided lJy the California Collaborative for E ducati anal Excel I ence, a state agency created lJy the LC FF and charged with assi sti ng school districts a chi eve the goals set forth in their LCAPs. On or before October 1, 2015, the State Bmrd 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 appraval of the State Bmrd 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 imprave student outcomes, and (iii) stay or rescind actions ol' the local gaverning bmrd that would prevent such district from impraving student outcomes; pravided, hcwever, that the State Superintendent is nct authorized to rescind an action required lJy a I ocal col I ective 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, and school districts will continue to receive restricted State revenues to fund these programs.

Other Sources. The federal g<Nernment pr<Nides funding for several school district programs, including specialized programs such as No Child Left Behind, special education programs, and programs under the Educational Consolidation and I mpravement Act. In addition, a small part ol' a school district's budget is from local sources cther than property taxes, including but not limited to interest income, leases and rentals, educational foundations, donations and sales of property.

Historical General Fund Financial Information

Table 15 belcw summarizes the District's Statement ol' General Fund Revenues, Expenditures and Changes in Fund Balance for fiscal years 2011-12 through 2015-16. The figures in Table 15 belcw are taken from the District's audited financial statements. See APPENDIX B-"DISTRICT'S 2015-16 AUDITED FINANCIAL STATEMENTS" for further detail on the District's financial condition as ol' June 30, 2016.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

36

Table 15 UPLAND UNI Fl ED SCHOOL DISTRICT

Summary of Audited General Fund Revenues, Expenditures and Changes in Fund Balance 2011-12 2012-13 2013-14 2014-15 2015-16

RevEnues RevEnue Li nit Sources

State A pr:orti ontn:flts $ 48,317,829 $ 48,203,468 $ 57,202,934 $ 63,629,358 $ 67,720,705 Local Sources 12,617,024 12,533,989 16,414,150 17,124,193 20,167,130 RevErne Li nit TransfErs 144449 100299

Total RevEnue Li nit Sources 61,079,302 60,837,756 73,617,084 80,753,551 87,887,835

FedEral RevEnues 7,047,372 4,954,431 4,289,678 4,821,937 5,279,299 OthEf State RevEnues 11,216,831 11,528,282 8,326,312 6,767,950 13,101,886 OthEf Local RevEnues 5 106 780 3646 627 5841899 6 231 367 7 955 714

Total RevEnues $ 84450 285 $ 80 967096 $ 92074 973 $ 98 574805 $ 114 224 734

Exp::nditures Instruction $ 60,246,887 $ 60,430,046 $ 56,528,324 $ 66,997,377 $ 78,482,743 I nstruction--Related Sevices

S upevi si on of I nstructi on 2,049,188 2,065,524 1,828,688 2,673,244 3,528,803 lnstnrticri Libra.iv, MediaandTe:::hndcgy 528,020 469,265 443,660 515,088 589,357 SchOO SiteAdninistraticri 5,461,784 5,437,659 5,093,655 5,452,139 6,472,161

Pup I Sevices Horre-to-5chool Transr:ortation 1,435,965 1,390,874 1,464,670 1,626,975 1,721,243 FocdSevices 14,842 23,851 88, 107 86,395 181,704 All OthEf Pup I Sevices 3,643,999 3,801,481 3,728,590 4,490,657 5,491,168

General Adninistration Data Processing 710,983 778,196 764,949 771,676 835,705 All OthErGEnEral Adninistraticri 2,851,631 3,096,712 2,739,467 3,021,082 3,712,524

Plant Sevices 7,995,400 7,580,781 7,7, 163,491 7,943,580 9,016,654 F aci I ity Acquisition and Construction 301,386 44,754 549,700 Arx:::illaiy Services 378,551 355,426 338,221 333,611 447,932 Cannmity Sevices 903,065 1,048,894 945,690 1,059,811 1,236,355 Other Out(J) 1,330,734 1,400,003 2,518,007 1,443,910 1,348,188 Deh:Sevice

Prirx:::ipal 24,962 30,480 33,554 41,932 I nt:Erest

Total Exr:erditures $ 87 877 396 $ 87 953 496 $ 83 679073 $ 96 457 477 $ 113614237

Excess cf (DeficiEncy) cf RevEnues OvEr (Under) Exp::nditures (3,427,112) (6,986,850) 8 395 900 2 117 328 610497

OthEf Financirg Sources (Uses) I nterfund T ransfErs in $ 1,009,717 $ 642,821 $ 579,348 $ $ I nterfund T ransfErs out

Total Other Finarx:::irg Scurces (Uses) 1009717 642 821 579349

Net Change in F und B al ance (2,417,395) (6,344,029) 8,975,248 2,117,328 610,497

Furd Balan:::e,July l 16025 656 13 608 261 6 352 323(I) 15 327 571 17 444899 Furd Balan:::e,J une 30 $ 13608 261 $ 7264 232 $ 15 327 571 $ 17 444899 $ 1&055 396

(') The District prepaid exr=enditures in fiscal year 2012-13 in the annunt of $91 l ,9C9. These exr=enditures were incorrectly onitta:l frum the District's at.K:lited financial statements fcr such fiscal year. This resulted in a restaterrent of theJ une ~, 2013 ending General Fund balance fr001 $7,264,232 to $6,352,323.

Source: up and Unifi a:! Schcx::JI District Audited Financial Statements fcr fiscal years 2011-12 thruugh 2015-16.

37

Table 16 bel<M' sets forth the District's General Fund allance sheet for the 2011-12 through 2015-16 fiscal years. The figures in Table 16 are taken from the District's audited financial statements.

Table 16 UPLAND UNIFIEDSCHOOL DISTRICT

Summary of Combined General Fund Balance Sheet

Audited Audited Audited Audited Audited 20ll-l2 2012-13 2013-14 2014-15 2015-16

Assets Cash and Cash Equivalents $ 8,460,017 $ 15,156,173 $ 15,095,08 l $ 25,368,985 $ 23,805,720 Accounts Receivable 294,990 709,774 13,989,912 3,832,026 4,728,038 Due from Other Funds 26,448,640 17,577,720 516,609 314,905 451,228 Stores Inventory 107,956 122,468 129,109 21,240 208,056 Other 918 085 623 155 222 14 731

Total Assets $ 35,311,603 $ 34,484,220 $ 29,731,334 $ 29,692,378 $ 29,207,773

Liabilities and Fund Balances Liabilities

Accounts Payable $ 7,935,415 $ 7,377,541 $ 11,612,356 $ 12,098,551 $ 11,067,545 Due to Other Funds 4,756,030 7,023,335 2,601,227 80,285 Current Loans 9,000,000 12,781,000 Deferred Revenues 11897 38 112 190180 14§,908 4 547

Total Liabilities $ 21 703,342 $ 27219 988 $ 14 403 763 $ 12 247459 $ ll 152 377

Fund Balances Reserved Fund Balances $ 2,421,228 $ 3,248,019 $ 5,550,529 $ 4,435,368 $ 6,120,808 Designated Fund Balances 1,049,934 1,336,882 2,893,724 8,526,161 Undesignated Fund Balances 10,137,099 4 016 213 8440160 lQ, 115,807 :!,408,427

Total Fund Balances $ 13,608261 $ 7,264,232 $ 15,327,571 $ 17,444,899 $ l§,055,396

Total Liabilities and Fund Balances $ 35,311,603 $ 34484 220 $ 29 731 334 $ 29692 378 $ 29207773

Source: Upland Unified School District Audited Financial Staterrents for fiscal years 201 l-12 through 2015-16.

38

Table 17 bel<M' compares the District's General Fund Adorxed Budget to its General Fund actual revenues and expenditures for fiscal years 2014-15 and 2015-16. See "DISTRICT FINANCIAL MATTERS-District Budget'' herein.

Table 17 UPLAND UNI Fl ED SCHOOL DISTRICT

Comparison cf General Fund Budgeted toG eneral Fund Revenues and Expenditures for fiscal years 2014-15 and 2015-16

2014-15 2015-16

Budget Audited Budget Audited Revenues Local Control Fun:ling Formula $ 81,413,347 $ 80,753,551 $ 88,551,491 $ 87,887,835 Federal 5,192,804 4,821,937 4,567,801 5,279,299 Ot~r State 3,203,858 6,767,950 10,099,290 13,101,886 Ot~r Local 4 227 333 6 231 367 5194 959 7 955 714

Total Revenues $ 94 037 342 $ 98 574805 $ 108 413 541 $ 114 224 734

Expenditures Cettificated Salaries $ 45,796,263 $ 46,383,114 $ 48,725,712 $ 55,539 Classified Salaries 11,654,290 11,498,946 12,874,777 11,604 Employee Be~fits 21,344,476 23,990,850 23,643,712 27,528,110 Booksan:l Supplies 9,466,457 3,595,564 4,571,864 3,092,170 Services an::l Ot~r O~rati tl'J E~n:litures 6,971,147 9,451,177 8,378,970 10,602,205 Capital Outlay 968,906 51,984 617,051 673,129 Ot~rOutgo 2991310 l 485 842 2 246 860 l 348 188

Total E~n:litures $ 99192849 $ 96 457 477 $ 101 058 946 $ 113 614 237

Excess (Deficiency) of RevenLes Over (U n::ler) E~n:litures $ (5,155,480) $ 2,117,328 $ 7,534,595 $ 610,497

Other Financing Sources I ntetfun:l Transfers In $ $ $ $ I ntetfun:l Transfers Out Total Ot~r Finan:::itl'J Sources an::! Uses $ $ $ $

Excess (Deficierry) of RevenLes an::l Ot~r Fi nan:::itl'J Sources Over (U n::ler) E~n:litures an::l Ot~r Financi tl'J Uses (5,155,480) 2,117,328 7,354,595 610,497

Fun::! Balances,J uly l 15327572 15 327 571 17 444 899 17 444 899 Fun::l Balan::::es,J u~ 30 $ lO 172092 $ 17 444 899 $ 24 799 494 $ 18 055 396

Source U plan::! Unified Sch::x:JI Di strict adopted bu::lget for fi seal years 2014-15 an::l 2015-16 and Au::lited Finan:::ial Staterrents for fiscal years 2014-15 an::l 2015-16.

39

Current Financial Cooditioo

The District's financial condition is closely linked to the finances cf the State. Until fiscal year 2012-13, the State had experienced an oogoing structural budget deficit for several years. Although the State budget is mlanced in the current fiscal year, future budget decisions Of the State could have an adverse impact ootheDistrict'sfinancial condition. See"STATE OF CALIFORNIA FISCAL ISSUES."

Table 18 belcw compares the District's 2016-17 Adorxed Budget to its Unaudited Actual Results for fiscal year 2016-17. Table 18 also sets forth the 2017-18 Adopted Budget and the the Estimated Actual Results for fiscal year 2016-17 as set forth in 2017-18Adorxed Budget.

Table 18 UPLAND UNI Fl ED SCHOOL DISTRICT

Comparisoo cf 2016-17 Adopted General Fund Budget to Unaudited Actual Results for Fiscal Year 2016-17; Estimated Actuals for Fiscal Year 2016-17; 2017-18Adopted Budget

SOURCES LCFF Sources Federal RevenLes Ot~r State RevenLes Ot~r Local RevenLes

Total Re,; enLes

EXPENDITURES Cettificated Salaries Classified Salaries Employee Be~fits Booksan:l Supplies Contra:::ted Services Capital Outlay Direct Supp:::,tt~ n::li rect Costs/ Outgo

Total Expenditures

Excess of RevenLes over E ~n:li tures

OTHER FINANCING SOURCES O~rati tl'J Transfers I nf)ut Prior Year Adjustrrents Ot~r Total Ot~r sources ( uses)

Net lrr::rease(Decrease) in Fun::l Balan::::e

Fund Balan::::e (Deficit),J uly l Fund Balan::::e (Deficit),J u~ 30

2016-17 Adopted Budget

$ 91,570,668 4,518,380 6,074,806 5838036

$ l 08,001,890

$ 52,667,856 15,124,580 25,401,639

3,758,050 10,320,270

110,216 1412355

$ l 08,794,966

$ (793,076)

$ (793,076)

$ 16,733,180 $ 15,940,104

Estimated Actuals for 2016-17

$ 91,387,433 5,454,542 6,105,405 6 937 072

$109,847,452

$ 52,566,717 15,109,lll 26,092,204

5,249,273 11,829,365

215,782 l 430 701

$ 112,493,153

$ (2,608,701)

$ (2,608,701)

$ 18,055,396 $ 15,446,695

Difference Between 2016-17 B udget and 2016-

U naudited Actuals 17 Unaudited for 2016-17 7! Actuals 2017-18Adopted Budget

$ 91,133,682 4,991,138

10,219,256 7 536 059

$113,880,135

$ 53,218,018 14,988,128 29,767,889

5,151,946 11,993,477

185,225 l 160 962

$116,765,645

$ (2,885,510)

(11,688)

(11,688)

$ (2,897,199)

$ 18,055,396 $ 15,158,197

(0.5)% 10.5 68.2 29.l

5.4%

l.(J,?6

(0.9) 17.2 37.l 16.2 68.l

(17.8) 7.3%

$ 93,677,147 4,740,725

47,795,897 6 250 717

$ 109,464,486

$ 53,894,454 15,210,390 25,790,633

5,963,311 10,969,160 1,706,714 l 423 557

$ 114,958,219

$ (5,493,733)

$ (5,493,733)

$ 15,446,695 $ 9,952,962

(7J T~ U nau:lited Actuals irr::lude additional revenLes of $3,949,188 mt irr::I Wed int~ Estimated Actual Results to reflect payrrents ma:le 1J,,1

t~ State to STRS on ~half oft~ District. Errployee ~~fits have ~n irr::reased by t~ sa.rre aJTDunt to reflect t~on ~half of payrrent. T~ on b::half of payrrent IJ,,I t~ State to STRS is mt actually received IJ,,I t~ Di strict as revenLes but must~ reccgnized as revenLes consistent with t~ requirerrents of GASB 68. Source U plan::! Unified Sch::x:JI Di strict 2016-17 Adopted B u::lget; U nau::lited Actuals for fi seal year 2016-17; and 2017-18 Adopted Budget.

For each of fiscal years 2009-10 through 2012-13, the District's annual General Fund expenditures exceeded annual General Fund revenues resulting in a reduction in the District's ending fund mlance from $20.9 millioo atJ une 30, 2010to $6.3 million atJ une 30, 2013. The County Superintendent of Schools did not appravethe initial budget adopted Of the District for fiscal year 2013-14 and appointed a financial advisor due to concerns about the financial condition cf the District. The District's first interim report for the period

40

ending October 31, 2013 cootained a qualified certification stating that based upon current projections as cf that date, the District might not meet its financial obligations in the current fiscal year or two subsequent fiscal years. Hcwever, the District took a number of steps to reduce expenditures in fiscal year 2013-14 and revenues increased in the fiscal year due to the LCFF. As a result, the second interim report for 2013-14 cootained a positive certification and the District's General Fund revenues exceeded General Fund expenditures for the fiscal year Of $8.4 million. The cost saving measures implemented Of the District in fiscal year 2013-14 included negctiating 9 to 14 furlough days for various empl0yee groups, reducing the total number of empl0yees through attrition, requiring empl0yee contributions for health and welfare benefits and negctiating more favorable terms for health and welfare benefits and various insurance plans. The measures reduced expenditures in fiscal year 2013-14 Of approximately $6 million from the amounts originally budgeted.

General Fund revenues exceeded General Fund expenditures Of approximately $600,000 in fiscal year 2015-16. The District estimates that General Fund expenditures exceeded General Fund revenues in fiscal year 2016-17 Of approximately $2.9 million. In the 2017-18 Adopted Budget, the District projects that General Fund expenditures will exceed General Fund revenues in each cf fiscal years 2017-18, 2018-19 and 2019-20. In the aggregate, the District prtjects that General Fund expenditures will exceed General Fund revenues Of approximately $13.7 million throughJ une 30, 2020 leaving a General Fund balance of $1,786,164 as of such date. State law requires the District to maintain a reserve for economic uncertainty equal to at least 3% cf General Fund expenditures and cther financing uses. The District is also required to demonstrate that available reserves for each of the next two fiscal years will equal or exceed the required amount. The District's 2017-18 Adopted Budget prtjects available reserves in excess cf 3% for fiscal years 2017-18 and 2018-19, but projects available reserves of only 0.74% for fiscal year 2019--20. The District is in the process of preparing a RevisedAdorxed Budget fiscal year 2017-18 for submission to the County Superintendent not later than October 8, 2017 that will prtject available reserves in excess cf 3% through fiscal year 2019--20. As discussed in the follcwing paragraph, the District believes that it has a number of cost cutting measures available to it in order to reduce expenditures, several cf which are expected to be included in its Revised Adorxed Budget for fiscal year 2017-18 to be submitted to the County Superintendent. See "-District Budget."

The District has a number cf cost cutting measures available should it need to reduce expenditures in future fiscal years, including utilizing energy efficient projects to save energy costs, implementing staffing adjustments, reducing transportation costs, limiting the District's contributions tcwards empl0yee health and welfare costs, reducing school and department budgets and restricting CNertime. The District expects to utilize some or al I of these cost cutting measures i n the current and subsequent fi seal years in order to reduce General Fund expenditures Of at least $4 million. In addition, the District has formed a budget committee consisting of representatives from the County Office of Education, the District's Bmrd of Education and the public at large for the purpose of identifying and implementing additional cost cutting measures. By implementing some or all of these cost cutting measures, the District believes that it will be able to stabilize its long tenn finances and maintain General Fund reserves cf at least 3% in fiscal year 2019-20. See "-District Budget."

Under SB 858 (as defined belcw), the District's future reserves may be capped at 6% of annual expenditures in certain fiscal years. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS-Proposition 2" and "STATE OF CALI FORNI A FISCAL ISSUES." As the reserve cap pravisions of SB 858 are dependent upon State budget actions, the District cannct predict the fiscal years in which the cap may apply.

For several fiscal years, including fiscal year 2016-17, the State deferred the payment cf certain revenues due to school districts to the fol I cwi ng fi seal year. I n accordance with State accounting standards, the District applies an accrual method cf accounti ng and, accordingly, Tables 1 5 through 1 8 do nct ref I ect any deferral of revenues to future fiscal years. The District did not issue short-term nctes to manage cash flew in fiscal year 2016-17. See "DISTRICT DEBT STRUCTURE-Short-Term Debt'' herein. The District does nct anticipate needing to borrcw additional funds on a short-term basis in order to have adequate cash on hand to

41

meet expenditures in the current fiscal year, though the District may borrcw from internal funds or from the County Treasurer on a short-term basis, if needed.

Revenue Sources

The District categorizes its General Fund revenues into four sources: (1) state apportionment funding (this was funded from revenue limit sources through fiscal year 2012-13 and thereafter pursuant to the LCFF); (2) federal sources; (3) other State sources; and (4) other local sources. Each of these revenue sources is described belcw.

StateApportionment Funding

The primary source of District funding prior to fiscal year 2013-14 came from the State in the form of base revenue limit funding per unit of ADA. In fiscal year 2013-14, state apportionment funding changed as a result cf the LCFF. See "DISTRICT Fl NANCIAL MATTERS-State Funding cf Education." For fiscal year 2015-16, the District received $87,887,835 under the LCFF, representing 76.9'/4 of its actual General Fund revenues. The District estimates that it received $91,133,682 of State Apportionment Funding in fiscal year 2016-17, representing 80.0'/4 of its estimated General Fund revenues, and has budged for the receipt cf $93,677,147 in State Apportionment Funding in fiscal year 2017-18, representing 85.6% cf its budgeted General Fund revenues.

Federal Revenues

The federal go;ernment pravides funding for several District programs, including special education programs, programs under the Educational Consolidation and lmpravement Act, and specialized programs such as Drug Free Schools. The federal revenues, all cf which are restricted, comprised approximately 4.6% cf General Fund revenues in fiscal year 2015-16. Federal revenues are estimated to have been approximately 4.4% cf General Fund revenues in fiscal year 2016-17 and are budgeted to be4.3% in fiscal year 2017-18.

Other State Sources

I n addition to State apportionment funding discussed abave, the District receives ct her State revenues ("Other State Revenues"). In fiscal year 2015-16, Other State Revenues equaled approximately 11.5% of tctal General Fund revenues, and in fiscal year 2016-17, Other State Revenues are estimated to have been approximately 9.0'/4 of tctal General Fund revenues. Other State Sources are budgeted to equal approxi mately 4.4% infiscalyear2017-18.

Other Local Sources

In addition to property taxes, the District receives additional local sources ("Other Local Revenues") from items such as the leasing of property cwned lJy the District and interest earnings. These Other Local Revenues (including tuition and transfers) equaled approximately 7.0'/4 of the tctal General Fund revenues in fiscal year 2015-16 and are estimated to have been approximately 6.6% cf General Fund revenues in fiscal year 2016-17. Other Local Sources are projected to equal approximately 5.7% cf General Fund revenues in fiscal year 2017-18.

Capital Projects Funds

The District maintains a Capital Facilities Fund, separate and apart from the General Fund, to account for developer fees collected lJy the District. The District's developer fees may be utilized for any capital purpose related to grcwth. Separate and apart from the General Fund, the District also maintains a Building Fund to account for general obligation bond proceeds restricted to capital prtjects, a County School Facilities Fund to account for State apportionments pravided for the construction and reconstruction of school facilities

42

and a Special Reserve Fund for Capital Outlay to act as a reserve for Board of Education designated construction projects.

Col I ecti on of devel aper fees fol I cwed a fonnal declaration 0y the Board of Education which addressed the avercrcwding of District schools as a result ol' mw development. These fees are collected pursuant to certain pr<Nisions of the Education Code ol' the State. The square-foot amounts are periodically adjusted for inflation and the current developer fee is $3.36 per square foot ol' habitable space on domestic housing developments. The current developer fee on commercialfindustrial developments is $0.54 per square foot. Developer fee collections during the previous five fiscal years ranged from a lcw ol' $370,860 in fiscal year 2012-13 to a high ol' $885,868 in fiscal year 2014-15. Based on the District's Unaudited Actual Results for fiscal year 2016-17, as ol' June 30, 2017 there was a balance ol' $3,702,555 in the District's Capital Facilities Fund, a balance of $4,178,588 in the Building Fund, a balance of $56,279 in the County School Facilities Fund and a balance of $35,442 in the Special Reserve Fund for Capital Outlay. The amounts in these funds are restricted to pay for capital impravements.

DISTRICT DE BT STRUCTURE

Long-Term Debt

As ol' June 30, 2016, the District had $131,932,051 ol' long-term delx outstanding. The District has not issued any general obligation bonds since such date. Concurrently with the issuance ol' the 2017 Bonds, the District expects to issue its 2017 General Obligation Refunding Bonds, Series B, and its 2017 General Obligation Refunding Bonds, Series C, the proceeds of which will be used to refund, on August 1, 2021, the District's Election of 2008 General Obligation Bonds, Series C, maturing on and between August 1, 2022 and August 1, 2028, and the District's 2011 General Obligation Refunding Bonds maturing on and after August 1, 2022, respectively.

A schedule of changes in long-term delx for the year endedJ une 30, 2016 is as follcws:

Table 19 UPLAND UNI Fl ED SCHOOL DISTRICT

L ong-T er m Debt

Balance Balance Balance Due Governmental Activities J une30. 2015 Additions Deductions J une 30. 2016 lnOneYear

General Obligation Bon:ls $ 112.141.455 $ 38.164.346 $ 33.642.418 $ 116.663.383 $ 3.425.000 PremiumonBon::ls 3.737.423 3.414.419 l.030.647 6.121.195 Com~nsated Abserr::es 374.432 71.144 445.576 Ot~r Postemployrrent Benefits 7 094 295 3 027953 l 420 351 8 701 897 Total $ 123347605 $ 44677862 $ 36 093 416 $ l3l 932051 $ 3 425 000

Source Upland Unified Schoo District.

Additional information regarding the long-term delx and its scheduled repayment is set forth in Ncte 8 in the District's 2015-16 Audited Financial Statements attached as Appendix B hereto. The Board acts as the legislative body of two community facilities districts which have issued bonds secured Of special taxes levied within the boundaries ol' those districts as described in Note 9 in the District's 2015-16 Audited Financial Statements attached as Appendix B hereto.

Short-Term Debt

The District has no short-tenn delx outstanding. The District does not expect to issue any Tax and Revenue Anticipation Notes in fiscal year 2017-18.

43

Direct and Overlapping Debt

Contained within the District are numerous averlapping local agencies pr<Niding public services. These local agencies have outstanding debt issued in the form cf general obligation, lease revenue and special tax and assessment bonds. The direct and CNerlapping debt of the District is sho.vn in Table 20 belo.v. Tax and revenue anticipation nctes, revenue, mortgage revenue and tax allocation bonds, and non-bonded capital I ease obi i gati ons are excluded from the debt statement.

The information in the follo.ving table has been pr<Nided Of California Municipal Statistics, Inc. Neither the District nor the Underwriter has independently verified this information and do nct guarantee its accuracy.

Table20 UPLAND UNI Fl ED SCHOOL DISTRICT

STATEMENT OF DIRECT AND OVERLAPPING BONDED DEBT Asof August 1, 2017

2016-17 Assessed Valuation: $8,671,958,468

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District Chaffey Community College District Upland Unified School District Upland Unified School District Community Facilities District No. 99-1 Upland Unified School District Community Facilities District No. 01-1 City of Upland Community Facilities District No. 2003-1 City of Upland Community Facilities District No. 2003-2, I A. No. 1 City of Upland Community Facilities District No. 2003-2, I.A. No. 2 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT

OVERLAPPING GENERAL FUND DEBT: San Bernardino County General Fund Obligations San Bernardino County Pension Obligation Bonds San Bernardino County Flood Control District General Fund Obligations Chaffey Community College District General Fund Obligations City of Montclair General Fund Obligations West Valley Vector Control District Certificates of Participation TOTAL OVERLAPPING GENERAL FUND DEBT

OVERLAPPING TAX INCREMENT DEBT (Successor Agencies):

COMBINED TOTAL DEBT

Ratios to 2016-17 Assessed Valuation: Direct Debt ($93,637,604) ................................................... 1.08!6 Total Direct and Overlapping Tax and Assessment Debt ...... 1. 72% Combined Total Debt ............................................................ 2.42%

Ratios to Reda,elopment Incremental Valuation ($1.161,621.444): Total Overlapping Tax Increment Debt ................................. 2.17*'

'" Excludes the 2017B onds and includes the Refunded Bonds.

% Applicable 0.335% 8.803

100.000 100.000 100.000 100.000 100.000 100.000

4.435% 4.435 4.435 8.803 0.105 0.019

Debt 8/1 ;2017 $ 250,932

12,752,466 93,637,604111

1,564,000 1,961,000 1,385,000

20,410,000 16,910,000

$148,871,002

$16,665,400 14,906,312 3,030,214

944,180 45,675

542 $35,592,323

$25,223,245

$209,686,57d21

(2) Exel udes tax and revenue antici pa.ti on notes, enterprise revenue, rrortgage revenue and non-bonded capital lease obi igations. Source: California Municipal Statistics, Inc.

44

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS

From and after theCrossaver Date, the princiJE.I of and interest on the 2017 Bonds are JE,yable solely from the proceeds cf an ad valorem tax levied Of the Bmrd of Supervisors of the County for the JE.yment thered'. (See "SECURITY FOR THE 2017 BONDS" herein.) Articles XI I IA, XIIIB, XIIIC and XI I ID of the Constitution, Propositions lA, 2, 22, 30, 39, 46, 98 and 111 and certain other prCNisions cf law discussed bel<M', are included in this section to describe the pctential effect cf these Constitutional and statutory measures on the ability cf the County to levy taxes and spend tax proceeds for operating and other purposes, and it should nct be inferred from the inclusion cf such rnaterials that these laws impose any linitation on the ability cf the County to levy taxes for JE.yment of the 2017 Bonds. The tax levied 0ythe County for JE.yment of the 2017 Bonds was appraved Of the District's voters in compliance with Article XI I IA, Article XI IIC, and all applicable laws.

ArticleXIIIA

OnJ une 6, 1978, California vcters appraved an amendment (commonly kn<M'n as bcth Proposition 13 and theJ arvis-Gann Initiative) to the California Constitution. This amendment, which added ArticleX I I IA to the California Constitution, among other things affects the valuation of real property for the purpose cf taxation in that it defines the full cash property value to mean "the county assessor's valuation of real property as sh<M'n on the 1975/76 tax bill under "full cash value," or thereafter, the appraised value cf real property ne.vly constructed, or when a change in CM'nershi p has occurred after the 1975 assessment." The ful I cash value rnay be adjusted annually to reflect inflation at a rate not to exceed 2Yo per year, or a reduction in the consumer price index or comJE.rable local data at a rate not to exceed 2Yo per year, or reduced in the event of declining property val ue caused Of darnage, destruction or other factors including a general economic d<M'nturn. The amendment further limits the amount of any ad valoremtax on real property to 1% of the full cash value except that additional taxes may be levied to JE.Y debt service on indelxedness appraved Of the voters prior to July 1, 1978, and bonded indelxedness for the acquisition or imprCNement of real property appraved on or after July 1, 1978 Of two-thirds of the votes cast Of the voters voting on the proposition. ArticleXIIIA was amended Of Proposition 39 to allcw an alternative means of seeking voter appraval for bonded indebtedness Of 55% cf the vote for school districts and community college districts. See "­Proposition 39" herein.

Legislation enacted Of the California Legislature to implementArticleX I I IA pravides that all taxable property is sh<M'n at full assessed value as described abOle. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is sh<M'n at 100'/4 of assessed value and all general tax rates reflect the $1 per $100 cf taxable value. Tax rates for voter appr<Ned bonded indebtedness and pension liability are also applied to 100'/4 cf assessed value.

Future assessed valuation grcwth al I <M'ed under Article X 111 A ( ne.v construction, change cf cwnership, 2% annual value grcwth) will be allocated on the rnsis cf "situs" among thejurisdictions that serve the tax rate area within which the grcwth occurs. Local agencies and school districts will share the grcwth of "rnse'' revenue from the tax rate area. Each year's grcwth al I ocati on becomes JE.rt cf each agency's al I ocati on the foll<M'ing year. The District is unable to predict the nature or magnitude cf future revenue sources that may be pravided Of the State to replace lost property tax revenues. Article XIIIA effectively prohibits the levying cf any other ad valorem property tax abOle the 1% limit except for taxes to support indebtedness appraved Of the voters as described abOle.

Unitary Property

Some amount of property tax revenue of the District may be derived from utility property which is considered JE.rt of a utility system with components located in many taxing jurisdictions ("unitary property"). Underthe State Constitution, such property is assessed Of the State Bmrd cf Equalization ("5 BE") as JE.rt of a

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"going concern" rather than as individual pieces cf real or personal property. Such State-assessed unitary and certain other property is allocated to the counties Of the SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions according to statutory formulae generally based on the distribution cf 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 cf the industry are regulated and o.vned. Sale of electric generation assets to largely unregulated, nonutility companies may affect ho.v those assets are assessed, and which local agencies are to receive the property taxes. The District is unable to predict the impact cf these changes on any utility property tax revenues, or whether I egi sl ati on may be proposed or adopted in response to industry restructuri ng, or whether any future litigation may affect o.vnership cf utility assets or the State's methods cf assessing uti Ii ty property and the al I ocati on of assessed value to I ocal taxing agencies, incl udi ng the District.

ArticleXIIIB

On No;ember 6, 1979, California voters appro;ed Proposition 4, the so-called Gann Initiative, which added Article X IIIB to the California Constitution. lnJ une 1990, Article XIIIB was amended Of the vcters through their appraval of Proposition 111. Article XIIIB of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or cther political subdivision cf the state to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost cf living, population and services rendered Of the gavernmental entity. The "base year" for establishing such appropriation limit is the 1978-79 fiscal year. Increases in appropriations 0y a go;ernmental entity are also permitted (a) if financial responsibility for praviding services is transferred to the go;ernmental entity, or (b) for emergencies so long as the appropriations limits for the three years follo.ving the emergency are reduced to prevent any aggregate increase abave the Constitutional limit. Decreases are required where responsibility for praviding services is transferred from the gavernment entity.

Appropriations subject to Article X 111 B include generally any authorization to expend during the fi seal year the proceeds of taxes levied Of the State or other entity of local gavernment, exclusive of certain State sulNentions, refunds cf taxes, benefit payments from retirement, unempl0yment insurance and disability insurance funds. Appropriations subject to limitation pursuant toArticleX 111 B do nct include delx service on indelxedness existing or legally authorized as of January 1, 1979 on bonded indelxedness thereafter appraved according to law 0y a vcte of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates cf courts or the Federal gavernment, appropriations for qualified outlay prtjects, and appropriations 0y the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees abaveJanuary 1, 1990 levels. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to any entity of gavernment from (a) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of praviding the service or regulation, (b) the investment cf tax revenues and (c) certain State sulNentions received 0y local gavernments. Article XIIIB includes a requirement that if an entity's revenues in any year exceed the amount permitted to be spent, the excess would have to be returned Of revising tax rates or fee schedules averthe subsequent two fiscal years.

As amended inJ une 1990, the appropriations limit for local go;ernments in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, fortransfer cf financial responsibility of pro;iding services to or from another unit cf gavernment. The change in the cost of living is, at the local go;ernment's or,tion, either (i) the percentage change in California per capita personal income, or (ii) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential nEW construction. The measurement of change in population is a blended average cf state.vide averall population gro.vth, and change in attendance at local school and community college ("K-14'') districts.

As amended 0y Proposition 111, the appropriations limit is tested o;er consecutive two-year periods. Any excess of the aggregate" proceeds cf taxes" received 0y the District o;er such two-year period abave the

46

combined appropriations limits for those two years is to be returned to taxJE,yers lJy reductions in tax rates or fee schedules CNer the subsequent two years. Any proceeds of taxes received lJy the District in excess of the appropriations limit are absorbed into the State's allcwable limit. The District does not currently have and does nct anticiJE.te having "proceeds of taxes" in excess cf its appropriations limit.

Article XIIIB permits any g<Nemment entity to change the appropriations limit lJy vote of the electorate in conformity with statutory and Constitutional vcting requirements, but any such voter-appraved change can only be effective for a maximum of four years. Pursuant to statute, if a school district receives any proceeds of taxes in excess of its appropriations limit, it may, lJy resolution cf the gaveming board, increase its appropriations limit to equal the amount received, pravided that the State has sufficient excess appropriations limit in that fiscal year.

ArticlesXIIIC andXIIID

On N<Nember 5, 1996, California voters appraved Proposition 218-Vcters Appraval for Local Gavernment Taxes-Limitation on Fees, Assessments, and Charges-Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and cther limitations on the imposition cf nEW or increased taxes, assessments and property­related fees and charges. Among other things, Proposition 218 states that all taxes imposed lJy local gavernments shal I be deemed to be either "general taxes" (imposed for general gavernmental purposes) or "special taxes" (imposed for specific purposes); prohibits special purpose gavernment agencies, including 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. Proposition 218also pravides that no tax maybe assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes appr<Ned lJy a two-thirds vcte under ArticleX I I IA, Section 4.

Article XIIIC also pravides that the initiative pcwer shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. A portion of the District's revenues are received annually from property taxes. The State Constitution and the laws of the State impose a mandatory, statutory duty on cfficials of the County and the County of San Bernardino to levy a property tax sufficient to JE.Y delx service on the 2017 Bonds coming due in each year. There is no court case which directly addresses whether the initiative pcwer may be used to reduce or repeal the ad valorem taxes pledged to reJE.y general obligation bonds. See "DISTRICT Fl NANCIAL MATTERS-General Fund Revenue Sources." In the case cf Bighorn­Desert Vie.vWater Agencyv. Virjil (Kelley) (the "Bighorn Decision"), the California Supreme Court held that water service charges may be reduced or repealed through a local voter initiative sugect toArticleX I I IC. The Supreme Court did state that it was nct holding that the initiative pcwer is free cf all limitations. Such initiative pcwer could be subject to the limitations imposed on the imJE.irment cf contracts under the contract clause of the United States Constitution. Legislation adorxed in 1997 pravides that Article XI IIC shall nct be construed to mean that any cwner or beneficial cwner cf a municiJE.I security assumes the risk of or consents to any initiative measure that would constitute an i mJE.i rment cf contractual rights under the contracts clause of the U.S. Constitution.

On Navember 2, 2010, vcters in the State appr<Ned Proposition 26. Proposition 26 amends ArticleXIIIC cf the State Constitution to exJE.nd the definition of "tax" to include "any levy, charge, or exaction cf any kind imposed lJy a local gavernment'' exceptthefollcwing: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the JE.yorthat is not pravided to those not charged, and which does nct exceed the reasonable costs to the local gavernment of conferring the benefit or granting the privilege; (2) a charge imposed for a specific g<Nemment service or product pr<Nided directly to the JE.yor that is not pravided to those not charged, and which does not exceed the reasonable costs to the local g<Nernment cf praviding the service or product; (3) a charge imposed for the reasonable regulatory costs to a local gavernment for issuing licenses and permits, performing investigations, inspections , and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thered'; (4) a charge

47

imposed for entrance to or use cf I ocal government property, or the purchase, rental, or I ease of I ocal gavernment property; (5) a fine, penalty, or cther monetary charge imposed Of the judicial branch of gavernment or a local go;ernment, as a result of a violation cf law; (6) a charge imposed as a condition cf property development; and (7) assessments and property-related fees imposed in accordance with the pro;isions cf ArticleX 111 D. Proposition 26 pro;ides that the local go;ernment bears the burden cf praving Of a preponderance cf the evidence that a I evy, charge, or ct her exaction is nct a tax, that the amount is no more than necessary to caver the reasonable costs cf the governmental activity, and that the manner in which those costs are allocated to a JE.Yor bear a fair or reasonable relationship to the JE.yor's burdens on, or benefits received from, the governmental activity.

Article X 111 D deals with assessments and property-related fees and charges. Article X 111 D explicitly pro;ides that ncthing in Article XIIIC or XIIID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; ho.vever it is not clear whether the initiative pcwer is therefore unavailable to repeal or reduce developer and mitigation fees imposed Of the District. No developer fees imposed Of the District are pledged or expected to be used to make JE.yments with respect to the 2017 Bands.

The pravisions cf Article XI I IC and X 111 D may have an indirect effect on the District, such as 0y Ii miti ng or reducing the revenues otherwise available to other I ocal governments whose boundaries encompass property located within the District therel:1y causing such local go;ernments to reduce service levels and possibly adversely affecting the value cf property within the District.

The interpretation and application of Proposition 218will ultimately be determined Of the courts with respect to a number cf matters discussed abOle, and it is not possible at this time to predict with certainty the outcome of such determi nation.

Proposition 46

OnJ une 3, 1986, California voters appro;ed Proposition 46, which pravided an additional exemr,tion to the 1% tax limitation imposed Of ArticleX II IA. Underthis amendmenttoArticleX I IIA, local go;ernments and school districts may increase the property tax rate abOle 1% for the period necessary to retire mw general obligation bonds, if two-thirds of those voting in a local election appro;e the issuance of such bonds and the money raised through the sale cf the bonds is used exclusively to purchase or imprave real property.

Proposition 39

On Navember 7, 2000, California voters appraved Proposition 39, called the "Smaller Classes, Safer Schools and Financial Accountability Act" (the "Smaller Classes Act'') which amends Section 1 of Article XI I IA, Section 18 cf Article XVI of the California Constitution and Section 47614 cf the California Education Code and allcws an alternative means of seeking vcter appro;al for bonded indebtedness Of 55% cf the vcte, rather than the two-thirds majority required under Section 18 of Article XVI cf the Constitution. The 55% voter requirement applies only if the bond measure submitted to thevcters includes, among other items: (1) a restriction that the proceeds cf the bonds may be used for "the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease cf real property for school facilities," (2) a list cf projects to be funded and a certification that the school district board has evaluated "safety, class size reduction, and information technology needs in developing that list" and (3) that annual, independent performance and financial audits will be conducted regarding the expenditure and use of the bond proceeds.

Section l(b)(3) cf Article XIIIA has been added to exemr,t from the 1% ad valorem tax limitation under Section 1 (a) cf Article XI I IA of the Constitution levies to JE.Y bonds appraved Of the 55% of the vcters, sugect to the restrictions explained abOle.

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The Legislature enacted AB 1908, Chapter 44, which became effective upon passage cf Propositioo 39 and amends various sections of the Educatioo Code. Under amendments toSectioo 15268and 15270 cf the Educatioo Code, the follcwing limits oo ad valorem taxes apply in any single election: (1) for a school district, indebtedness shall not exceed $30 per $100,000 cf taxable property, (2) for a unified school district, indelxedness shall not exceed $60 per $100,000 cf taxable property, and (3) for a community college district, indelxedness shall nct exceed $25 per $100,000 cf taxable property. Finally, AB 1908 requires that a citizens' aversight committee must be appointed to revie.v the use of the bond funds and inform the public about their proper usage. These requirements are not part of Propositioo 39 and can be changed with a majority vote of both houses of the Legislature and appraval 0y the G CNemor.

Propositions 98and 111

On Navember 8, 1988, California voters appraved Proposition 98, a combined initiative, coostitutional amendment and statute called the "Classroom Instructional I mpravement and Accountability Act" ("Proposition 98''). Propositioo 98 changed State funding cf public education belcw the university level and the operation of the State's appropriations limit, primarily 0y guaranteeing K-14 schools a minimum share of State General Fund revenues. Under Proposition 98 (as modified lJy Proposition 111, which was enacted oo June 5, 1990), K-14 schools are guaranteed the greater cf (a) 40.9'/4 of State General Fund revenues (the "first test''), or (b) the amount appropriated to K-14 schools in the prior year, adjusted for changes in the cost-of­living (measured as in Article X 11 IB lJy reference to per capita personal income) and enrollment (the "secood test''), or (c) a "third test'' which would replace the secood test in any year when the percentage grcwth in per capita State General Fund revenues from the prior year plus 1/2 cf 1% is less than the percentage grcwth in California per capita personal income. Under the third test, schools would receive the amount appropriated in the prior year adjusted for changes in enrollment and per capita State General Fund revenues, plus an additional smal I adjustment factor. If the third test is used in any year, the difference between the third test and the second test would become a "credit" to schools which would be paid in future years when State General Fund revenue grcwth exceeds personal income grcwth.

Proposition 98 pennits the Legislature 0y two-thirds vote of bcth houses, with the GCNemor's concurrence, to suspend the K-14 schools' minimum funding formula for a one-year period, and any correspooding reduction in funding for that year will nct be paid in subsequent years. Hcwever, in determining the funding level forthe succeeding year, the formula rnse forthe prior year will be reinstated as if such suspension had nct taken place. In certain fiscal years, the State Legislature and the GCNemor have utilized this pravisioo to avoid having the full Propositioo 98 funding paid to support K-14 schools.

Proposition 98 also changes ho.v tax revenues in excess cf the State Appropriatioos Limit are distributed. "Excess" tax revenues are determined rnsed on a two-year cycle, so that the State could avoid having to return to taxpayers excess tax revenues in ooe year if its appropriations in the next fiscal year were under its limit. After any two-year period, if there are excess State tax revenues, 50'/4 of the excess would be transferred to K-14 schools with the allance returned to taxpayers. Further, any excess State tax revenues transferred to K-14 schools are nct built into the school districts' rnse expenditures for calculating their entitlement for State aid in the next year, and the State's appropriatioos limit will not be increased 0y this amount.

Since Propositioo 98 is unclear in some details, there can be no assurance that the Legislature or a court might not interpret Propositioo 98 to require a different percentage of State General Fund revenues to be allocated to K-14 districts, orto apply the relevant percentage to the State's budgets in a different way than is proposed in the GCNernor's Budget. In any event, some fiscal observers expect Propositioo 98 to place increasing pressure on the State's budget aver future years, pctential ly reducing resources avai I able for other State programs, especially to the extent theArticleX 111 B spending limit would restrain the State ability to fund such other programs lJy raising taxes.

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The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. One major reason is that Proposition 98 minimums under the first test and the second test described above are dependent on State General Fund revenues. In several recent fiscal years, the State made actual allocations to K-14 districts rnsed on an assumption of State General Fund revenues at a level abo/e that which was ultimately realized. In such years, the State has considered the amounts appropriated above the minimum as a loan to K-14 districts, and has deducted the value cf these lams from future years' estimated Proposition 98 minimums.

Proposition lA and Proposition 22

On No;ember 2, 2004, California vcters appro;ed Proposition lA, which amends the State constitution to significantly reduce the State's authority o;er major local go;emment revenue sources. Under Proposition lA, the State cannot (i) reduce local sales tax rates or alter the method cf allocating the revenue generated Of such taxes, (ii) shift property taxes from local governments to schools or community colleges, (i i i) change ho.v property tax revenues are shared among I ocal go;emments without two-third appraval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without pro;iding local governments with equal replacement funding. Beginning in 2008-09, the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including: (i) a proclamation 0y the Go;emorthat the shift is needed due to a severe financial hardship of the State, and (ii) appro;al of the shift 0y the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must reJE.y local go;ernments for their property tax losses, with interest, within three years. Proposition lA does all<M' the State to apprave voluntary exchanges of local sales tax and property tax revenues among local go;emments within a county. Proposition lA 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 gavernments for their costs to comply with the mandates. This pravision does not apply to mandates relating to schools or community col I eges or to those mandates relating to empl ayee rights.

Many cf the pravisions cf Proposition lA have been superseded Of Proposition 22 enacted in Navember 2010.

Proposition 22, The Local TaxJE.yer, Public Safety, and Transportation Protection Act, appro;ed Of the voters of the State on Navember 2, 2010, prohibits the State from enacting mw laws that require redevelopment agencies to shift funds to schools or cther agencies and eliminates the State's authority to shift property taxes temporarily during a severe financial hardship cf the State. In addition, Proposition 22 restricts the State's authority to use State fuel tax revenues to JE.Y delx service on state transportation bonds, to borr<M' or change the distribution cf state fuel tax revenues, and to use vehicle license fee revenues to reimburse local governments for state mandated costs. Proposition 22 imJE.cts 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 Of the Legislative Analyst's Office (the "LAO") on July 15, 2010, the longer-term effect of Proposition 22, according to the LAO's analysis, will be an increase in the State's general fund costs Of approximately $1 billion annually for several decades.

On December 30, 2011, the California Supreme Court issued its decision in the case cf California Redevelopment Association v. Matosantos, finding California Assembly Bill xl 26 to be constitutional and California Assembly Bill xl 27 to be unconstitutional. As a result, all redevelopment agencies in California were dissolved on February 1, 2012, and the property tax revenue which previously fl <M'ed to the redevelopment agencies is n<M' instead going to cther local governments, including school districts. It is likely that the dissolution cf redevelopment agencies has mooted the effects cf Proposition 22.

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Proposition 30

On Navember6, 2012, voters cf the State appraved the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also kno.vn as "Proposition 3a'), which temporarily increased the State Sal es and Use Tax and personal income tax rates on higher incomes, For personal income taxes imposed beginning inthetaxableyearcommencingJanuary 1, 2012 and ending December 31, 2018, Proposition 30 increases the marginal personal income tax rate 0y: (i) 1% for taxable income CNer $250,000 but less than $300,001 for single filers (Oler $500,000 but less than $600,001 for joint filers and aver $340,000 but less than $408,001 for head-d'--household filers), (ii) 2% for taxable income CNer $300,000 but less than $500,001 for single filers (aver $600,000 but less than $1,000,001 for joint filers and aver $408,000 but less than $680,001 for head-of-household filers), and (iii) 3% for taxable income aver $500,000 for single filers (aver $1,000,000 for joint filers and CNer $680,000 for head-cf-household filers),

The California Children's Education and Health Care Protection Act of 2016 (also kncwn as "Proposition 55") is a constitutional amendment apprCNed 0y the vcters of the State on N<Nember 8, 2016, Proposition 55 extends the increases to personal income tax rates for high-income taxJE,yers that were appraved as JE.rt cf Proposition 30 through 2030, Proposition 55 did nct extend the temporary State Sales and Use Tax rate increase enacted under Proposition 30, which expired as cf January 1, 2017,

The revenues generated from the temporary tax increases will be included in the calculation of the Proposition 98 minimum funding guarantee for K-14 school districts, See "-Propositions 98and 111" herein, From an accounting perspective, the revenues generated from the personal income tax increases are being 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'/4 of such funds pravided to schools districts and 11% pr<Nided 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, excer,t 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 gaverning board of each school district and community college district is granted sole authority to determine ho.v the moneys received from the EPA are spent, pravided that the appropriate gaveming board is required to make these spending determinations in open session at a public meeting and such local gaveming board is prohibited from using any funds from the EPA for salaries or benefits cf administrators or any other administrative costs,

Proposition 2

On Navember 4, 2014, voters appraved the Rainy Day Budget Stabilization Fund Act (also kncwn as "Proposition 2"), Proposition 2 is a legislatively-referred constitutional amendment which makes certain changes to State budgeting practices, including substantially revising the conditions under which transfers are made to and from the State's B udgetStabilizationAccount (the "BSA") established 0y the California Balanced Budget Act of 2004 (also kncwn as Proposition 58),

Under Proposition 2, and beginning in fiscal year 2015-16 and each fiscal year thereafter, the State will generally be required to annually transfer to the BSA an amount equal to 1.5% of estimated State general fund revenues (the "Annual BSA Transfer"), Supplemental transfers to the BSA (a "Supplemental BSA Transfer") are also required in any fiscal year in which the estimated State general fund revenues that are allocable to capital gains taxes exceed 8Yo of tctal estimated general fund tax revenues, Such excess capital gains taxes-net of any portion thereof cwed to K-14 school districts pursuant to Proposition 98-will be transferred to the BSA, Proposition 2 also increases the maximum size of the BSA toan amount equal to 10'/4 cf estimated State general fund revenues for any given fiscal year, In any fiscal year in which a required transfer to the BSA would result in an amount in excess cf the 10'/4 threshold, Proposition 2 requires such excess to be expended on State infrastructure, incl udi ng deferred maintenance,

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For the first 15 year pericx:1 ending with fiscal year 2029--30, Proposition 2 pravides that half of any required transfer to the BSA, either annual or supplemental, must be appropriated to reduce certain State liabilities, including making certain payments o.ved to K-14 school districts, repaying State interfund borro.ving, reimbursing local go;ernments for State mandated services, and reducing or prefunding accrued I iabilities associated with State-level pension and retirement benefits. Follo.ving the initial 15-year pericx:1, the G avernor and the Legislature are given discretion to apply up to half of any required transfer to the BSA to the reduction cf such State liabilities. Any amount nct applied to.vards such reduction must be transferred to the BSA or applied to infrastructure, as described abave.

Proposition 2 changes the conditions under which theGavernor and the Legislature may draw upon or reduce transfers to the BSA. The Go;ernor does not retain unilateral discretion to suspend transfers the BSA, nor does the Legislature retain discretion to transfer funds from the BSA for any reason, as previously pravided Of law. Rather, the Go;ernor must declare a "budget emergency," defined as a an emergency within the meaning of Article X 111 B of the Constitution or a determination that estimated resources are inadequate to fund State general fund expenditures, for the current or ensuing fiscal year, at a level equal to the highest level cf State spending within the three immediately preceding fiscal years. Any such declaration must be follo.ved 0y a legislative bill praviding for a reduction or transfer. Draws on the BSA are limited to the amount necessary to address the budget emergency, and no draw in any fiscal year may exceed 50'/4 of funds on deposit in the BSA unless a budget emergency was declared in the preceding fiscal year.

Proposition 2 also requires the creation cf the Public School System Stabilization Account (the "PSSSA") into which transfers will be made in any fiscal year in which a Supplemental BSA Transfer is required (as described abave). Such transfer will be equal to the portion of capital gains taxes abOle the 8Yo threshold that would be otherwise paid to K-14 school districts as part cf the minimum funding guarantee. A transferto the PSSSA will only be made if certain additional conditions are met, as fol lo.vs: (i) the minimum funding guarantee was not suspended in the immediately preceding fiscal year, (ii) the operative Proposition 98 formula forthefiscal year in which a PS SSA transfer might be made is "Test l," (iii) no maintenance factor obligation is being created in the budgetary legislation for the fiscal year in which a PSSSA transfer might be made, (iv) all prior maintenance factor obligations have been fully repaid, and (v) the minimum funding guarantee for the fiscal year in which a PSSSA transfer might be made is higher than the immediately preceding fiscal year, as adjusted for ADA gro.vth and cost cf living. Proposition 2 caps the size cf the PSSSA at 10'/4 of the estimated minimum guarantee in any fiscal year, and any excess funds must be paid to K-14 school districts. Reductions to any required transfer to the PSS SA, or draws on the PSSSA, are sugect to the same budget emergency requirements described abave. Ho.vever, Proposition 2 also mandates draws on the PSSSA in any fiscal year in which the estimated minimum funding guarantee is less than the prior year's funding I evel, as adjusted for A DA gro.vth and cost of I ivi ng.

California Senate Bill 222

OnJ uly 13, 2015, theGavernor signed Senate Bill 222 ("SB 222") into law, effective January 1, 2016. SB 222 was introouced on February 12, 2015, initially to amend Section 15251 cf the California Education Code to clarify the process cf lien perfection for general obligation bonds issued Of or on behalf cf California school and community college districts. Subsequently, on April 15, 2015, SB 222 was amended to include an addition to the California Gavernment Code to similarly clarify the process of lien perfection for general obligation bonds issued Of cities, counties, authorities and special districts, including the District.

SB 222, applicable to general obligations bonds issued after its effective date, will remave the extra step between (a) the issuance of general obligation bonds Of cities, counties, cities and counties, school districts, community college districts, authorities and special districts; and (b) the imposition of a lien on the future ad valorem property taxes that are the source cf repayment of the general obligation bonds. By clarifying that the lien created with each general obligation bond issuance is a "statutory" lien (consistent with mnkrur,tcy statutory law and case precedent), SB 222, while it does nct prevent default, should reduce the

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ultimate bankruptcy risk of non-recavery on local general obligation bonds, and thus potentially imprave rati ngs, interest rates and bond cost of issuance.

Kindergarten Through Community College Public Education Facilities Bond Act cf 2016

The Kindergarten Through Community College Public Education Facilities Bond Act of 2016 (also kncwn as Proposition 51) is a voter initiative that was appr<Ned lJy voters on Navember 8, 2016. Proposition 51 authorizes the sale and issuance cf $9 bi 11 ion in general obi i gati on bonds for the mw construction and modernization cf K-14 facilities. The District makes no guarantee that it will either pursue or qualify for Proposition 51 state facilities funding.

K-12 School Facilities. Proposition 51 includes $3 billion for the mw construction of K-12 facilities and an additional $3 billion for the modernization of existing K-12 facilities. K-12 school districts will be required to JE.Y for 50'/4 cf the nEW construction costs and 40'/4 cf the modernization costs with local revenues. If a school district lacks sufficient local funding, it may apply for additional state grant funding, up to 100'/4 of the project costs. In addition, a tctal of $1 billion will be available for the modernization and nEW construction of charter school ($500 million) and technical education ($500 million) facilities. Generally, 50'/4 of modernization and mw construction prtject costs for charter school and technical education facilities must come from I ocal revenues. Hcwever, schools that cannct cCNerthei r local share forthese two types cf projects may apply for State loans. State loans must be reJE.id aver a maximum of 30years for charter school facilities and 15 years for career technical education facilities. For career technical education facilities, State grants are capped at $3 million for a nEW facility and $1.5 million for a modernized facility. Charter schools must be deemed financially sound before project appraval.

Community College Facilities. Proposition 51 includes $2 billion for community college district facility prtjects, including buying land, constructing nEW buildings, modernizing existing buildings, and purchasing equipment. In order to receive funding, community college districts must submit prtject proposals to the Chancellor of the community college system, who then decides which projects to submit to the L egi sl ature and G CNernor based on a scoring system that factors in the amount cf I ocal funds contributed to the project. The Gavemor and Legislature will select among eligible projects as JE.rt of the annual state budget process.

The table belcw shews the expected use of bond funds under Proposition 51:

Jarvis v. Connell

PROPOSITION 51 Use of Bond Funds

(In Millions)

K-12 Public School Facilities N e.v construction Modernization Career technical education facilities Charter school faci I iti es Subtotal

Community College Facilities Total

$3,COO 3,COO

500 ---200 $7,COO

$2,COO $9,COO

On May 29, 2002, the California Court of Appeal for the Second District decided the case of Ho.vard Jarvis Taxpayers Association, et al. v. Kathleen Connell (as Controller cf the State cf California). The Court cf 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

53

mandate is necessary for the State Controller to disburse funds. The foregoing requirement could apply to amounts budgeted lJy 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 ol' such payments to the District if such required legislative action is delayed, unless the payments are self-€Xecuting authorizations or are subject to a federal mandate. On May 1, 2003, the California Supreme Court upheld the holding ol' the Court ol' Appeal, stating that the Control I er is nct authorized under State I aw to disburse funds pri orto 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 lJy State law, to timely pay those State empl0yees who are sugect to the mini mum wage and averti me compensation pro;i si ons of the federal Fair Labor Standards A ct.

Future Initiatives

ArticleXIIIA, ArticleXIIIB, ArticleXIIIC, ArticleXIIID, and Propositions 22, 26, 30, 39, 46, 98, 111 and lA were each adopted as measures that qualified for the mllot pursuant to California's initiative process. From time to time other initiative measures could be adopted, further affecting school districts' revenues or such districts' ability to expend revenues.

There can be no assurance that the California electorate will not at some future time adopt cther initiatives or that the Legislature will nct enact legislation that will amend the laws or the Constitution ol' the State of California resulting in a reduction ol' amounts legally available to the District.

STATE OF CALIFORNIA FISCAL ISSUES

The follo.ving information concerning the State's budgets has been otlained from publicly available information which the District believes to be reliable; ho.vever, the District does not guarantee the accuracy or completeness ol'this information and has not independently verified such information.

General Overvie.v

Recent Financial Stress on State Budget. In 2008, the State began experiencing the most significant economic do.vnturn and financial pressure since the Great Depression of the 19305. Despite the recent significant budgetary impravements, there remain a number of major risks and pressures that threaten the State's financial condition, including the threat ol' recession, potentially unfavorable changes to federal fiscal policies and the significant unfunded liabilities of PERS, STRS, the University ol' California Retirement System and the State's retiree healthcare benefit plans currently totaling in excess ol' $280 billion. In addition, the State's revenues (particularly the personal income tax) can be volatile and correlate to averall economic conditions. There can be no assurances that the State will not face fiscal stress and cash pressures again, or that other changes in the State or national economies will nct materially adversely affect the financial condition of the State. See "-2017-18State Budget."

Cash Management lJy State and Impact on Schools. To conserve cash in light ol' declining revenues resulting from the last recession, the State enacted several statutes deferring the payment of amounts o.ved to public schools, until a later date in the current, or in a subsequent, fiscal year. This technique was used in all ol' the State's budget bills from fiscal year 2008-2009 through fiscal year 2012-13 and was again used in fiscal year 2016-17. Some ol' these statutory deferrals were made permanent, and others were implemented only for one fiscal year. These deferrals reduced amounts paid to K-12 districts and resulted in deferred payments that at one point tctaled more than $10 billion. These deferrals also created cash flo.v shortages for certain K-12 districts which required an increased level ol' cash flo.v borro.vings. A substantial portion ol' the deferrals were repaid between fiscal years 2013-14 and 2017-18. There can be no assurances that the State will not elect to implement similar deferrals in the future. See "-2017-18State Budget."

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School Reserves - Senate Bill 858 (Stats. 2014, Chapter 32) ("SB 858''), trailer legislation to the 2014-15 Budget, creates mw disclosure requirements effective beginning fiscal year 2015-16 for school districts that have general fund reserves in excess cf the State minimum. Existing minimum reserve levels vary between one to five percent cf 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 sho.vs that virtually all school districts maintain excess reserves. As a result cf the passage of Proposition 2 (discussed above), certain additional pravisions of SB 858 have gone into effect that will cap school district reserve levels. Reserves will be capped in any fiscal year follo.ving a State deposit into the PSSSA created lJy Proposition 2. See also "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS-Proposition 2." Caps for most school districts will range between three to ten percent cf annual general fund expenditures. SB 858 permits a county office of education to grant an exemption from the reserve cap for up to two years if a school district demonstrates that it would face extraordinary fi seal circumstances justifying a higher reserve.

2017-18 State Budget

OnJ une 27, 2017, theGavernor signed into law the State budget for fiscal year 2017-18 (the "2017-18 Budget''). Thefollo.ving infonnation is drawn from the LA O's preliminary revie.v of the 2017-18 Budget.

For fiscal year 2016-17, the 2017-18 Budget prtjects total general fund revenues and transfers of $118.5 billion and total expenditures of $121.4 billion. The State is prtjected to end the 2016-17 fiscal year with total available reserves of $7.4 billion, including $642 million in the traditional general fund reserve and $6.7 billion in the BSA. For fiscal year 2017-18, the 2017-18 Budget projects total general fund revenues of $125.9 billion, reflecting a 6% increase aver the prior year and driven primarily lJy a projected 5% increase in personal income, sales and use tax collections. The 2017-18 Budget authorizes expenditures of $125.1 billion. The State is projected to end the 2017-18 fiscal year with total available reserves of $9.9 billion, including $1.4 billion in the traditional general fund reserve and $8.5 billion in the BSA.

With respect to education funding, the 2017-18 Budget revises the Proposition 98 minimum funding guarantees for both fiscal years 2015-16 and 2016-17, as a result of lo.ver-than-estimated general fund revenue collections. The 2017-18 Budget sets the Proposition 98 minimum funding guarantee for fiscal year 2015-16 at $68.7 billion, an decrease cf $379 million from the prior year. Ho.vever, tctal Proposition 98 funding exceeded the minimum guarantee lJy $53 million as a result of various adjustments related to the LCFF and community college apportionments. The 2017-18 Budget revises the minimum funding guarantee for fiscal year 2016-17 at $71.3 billion, reflecting a decrease of $558 million from the prior year. Total spending, ho.vever, exceed the minimum funding guarantee lJy approximately $29 million, as a result of a $514 million "settle up'' JE.yment related to an obi i gati on created lJy understating the mi ni mum guarantee in a prior year.

For fiscal year 2017-18, the 2017-18 Budget sets the minimum funding guarantee at $74.5 billion, reflecting an increase of $3.1 billion (or 4.4%) from the revised prior-year level. Fiscal year 2017-18 is projected to be a "Test 2" year, with the change in the minimum funding guarantee attributable to a 3.7% increase in per capita personal income and a projected 0.05% decline in K-12 attendance. With respect to K-12 education, the 2017-18 Budget sets Proposition 98 funding at $64.7 billion, including $45.7 billion from the State general fund, reflecting an increase of $2.7 billion (or 4.3%) from the prior year. Per-pupil spending increases 4.3% to $10,863.

Other significant features with respect to K-12 education funding includethefollo.ving:

• Local Control Funding Formula - approximately $1.4 billion in Proposition 98 funding to continue the implementation of the LCFF. Taal LCFF funding for school districts and charter schools is set at $57.4 billion, a 2.7% increase from the prior year. The 2017-18 Budget prtjects

55

that this funding will bring LCFF implementatioo to approximately 97%. As a result, the adjusted 2017-18 Base Grants are as follcws: (i) $7,941 for grades K--3, (ii) $7,301 for grades 4-6, (iii) $7,518 for grades 7--8, and (iv) $8,939 for grades 9-12. See also "DISTRICT FINANCIAL INFORMATION - State Funding of Educatioo- Local Control Funding Formula'' herein

• Discretionary Funding - An increase cf $877 million in one-time Propositioo 98 funding that local educational agencies may use for any purpose. Similar to features included in prior State budgets, these funds would cffset any applicable unpaid reimbursement claims for State-­mandated activities.

• Maintenance Factor; Settle Up Payment -The 2017-18 Budget pr<Nides for an additional maintenance factor payment cf $536 millioo, after which the State's outstanding obligation would be approximately $900 million. The 2017-18 Budget also pr<Nides $603 million to fund a settle-­up payment related to an obligation created in fiscal year 2009-10 when revenue estimates understated the minimum funding guarantee. This reduces the State's tctal settle up obligatioo to approximately $440 million.

• Career Technical Educatioo (CTE) - The State Budget for fiscal year 2015-16 established the Career Technical Education Incentive Grant Program for local educatioo agencies to establish mw or expand high-quality CTE programs. The 2017-18 Budget pr<Nides $200 million as the final installment cf funding for this program. The 2017-18 Budget also pravides the California DeJE.rtment of Education with $15.4 millioo in oo--going Proposition 98 funding to support efforts Ii nki ng secoodary and postsecondary CTE.

• K-12 Educational Mandates - $3.5 million to fund a 1.56% COLA to the block grant program for State mandated K-12 educational programs and activities. The 2017-18 Budget establishes a statutory COLA for these programs m<Ning forward. The 2017-18 also pr<Nides $61 millioo to fund a 1.56% COLA to several cther categorical programs.

• Teacher Workforce Initiative - The 2018-17 Budget funds a variety of teacher recruitment and training programs, including (i) $25 million in me-time Proposition 98 funding for grants to assist classified school empl0yees secure bachelor's degrees and teaching credentials; (ii) $11 millioo in federal Title II funds to establish a program to help local educational agencies attract and support teachers, princiJE.ls and cther school leaders; and (iii) $5 million in me-time Proposition 98 funding for a nEW program that would encourage teachers to obtain bi Ii ngual credentials and teach in bi Ii ngual settings.

• Proposition 39- Passed 0yvoters in Navember 2012, Proposition 39 increases State corporate tax revenues and requires that, for a five-year period starting in fiscal year 2013-14, a portion cf these additional revenues be allocated to local education agencies to imprCNe energy efficiency and expand the use of alternative energy in public buildings. The 2017-18 Budget allocates $423 mi 11 i oo of such funds to support school district and charter school energy efficiency projects in fiscal year 2017-18.

• After School Safety and Education Safety Program- an increase of $50 million in Proposition 98 funding (for a tctal of $600 millioo) to increase per-<:hild reimbursement rates for pr<Niders of I ocal after school education and enrichment programs.

• Proposition 56 - Passed Of vcters in Navember 2016, Propositioo 56 increases the per-pack State sales tax oo cigarettes 0y $2, and requires that a portion cf the revenue generated be used for school programs designed to prevent and reduce the use of tobacco and nicotine products. The 2017-18 Budget allocates $32 million of Proposition 56 revenues to support these programs.

56

• Charter School Facility Grant Program- Under this program, the State pr<Nides certain charter schools with grants to defray the cost of renting and leasing school facilities. The 2017-18 Budget increases the per-student funding rate to $1, 117 and pr<Nides an ongoing COLA for the program maving forward.

• Equity and lmpravement Program -$2.5 million in one-time Proposition 98 funding for two or more county offices of education to assist local educational agencies in closing achievement gaps i n public schools.

• Proposition 51 - The Kindergarten Through Community College Public Education Facilities Bond Act ol' 2016 (also kno.vn as Proposition 51) is a voter initiative appraved at the N<Nember 8, 2016 election that authorizes the sale and issuance of $9 billion in general obligation bonds for the mw construction and modernization of K-14 facilities. The 2017-18 Budget allocates $593 million of such bond funds for K-12 school facility projects.

• Refugee Students - $10 million in one-time Proposition 98 funding for the State Department of Social Services to pr<Nide grants to school districts that serve nctable numbers of refugee students.

For additional information regarding the 2017-18 Budget, see the State DeJE.rtment ol' Finance website at www.dol'.ca.gav and the LAO's website at www.lao.ca.gCN. Ho.vever, the information presented on such websites is nct incorporated herein lJy reference.

Future Actions

The District cannot predict what actions will be taken in the future lJy the State legislature and the Gavernor to address changing State revenues and expenditures. The District also cannct 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 lJy national and State economic conditions and other factors aver 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. State budget shortfalls or changes in funding formulas in future fiscal years may also have an adverse financial imJE.ct on the financial condition of the District.

State Dissolution ol' Redevelopment Agencies

On December 30, 2011, the California Supreme Court issued its decision in the case ol' California Redevelopment Association v. Matosantos ("Matosantos"), findingABxl 26, a trailer bill to the 2011-12 State budget, to be constitutional. As a result, all Redevelopment Agencies in California ceased to exist as a matter of law on February 1, 2012. The Court in Matosantos also found thatABxl 27, a companion bill toABxl 26, violated the California Constitution, as amended lJy Proposition 22. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS­Proposition lA and Proposition 22." ABxl 27 would have permitted redevelopment agencies to continue operations pravided their establishing cities or counties agreed to make specified JE.yments to school districts and county ol'fi ces of education, totaling $1 . 7 bi 11 ion state.vi de.

ABxl 26 was modified lJy Assembly Bill No. 1484 (Chapter 26, Statutes ol' 2011-12) ("AB 1484"), which, together with ABxl 26, is referred to herein as the "Dissolution Act." The Dissolution Act pr<Nides that all rights, po.vers, duties and obligations of a redevelopment agency under the California Community Redevelopment Law that have not been repealed, restricted or revised pursuant toABxl 26 will be vested in a successor agency, generally the county or city that authorized the creation of the redevelopment agency (each, a "Successor Agency"). All property tax revenues that would have been allocated to a redevelopment agency, less the corresponding county auditor-controller's cost to administer the allocation of property tax revenues,

57

are ncm allocated to a corresponding Redevelopment Property Tax Trust Fund ("Trust Fund"), to be used for the JE.yment cf JE.SS-through JE.yments to local taxing entities, and thereafter to bonds of the former redevelopment agency and any "enforceable obligations" of the Successor Agency, as well as to JE.Y certain administrative costs. The Dissolution Act defines "enforceable obligations" to include bonds, loans, legally required JE.yments, judgments or settlements, legal binding and enforceable obligations, and certain cther obi i gati ons.

Among the various types of enforceable obligations, the first priority for JE.yment is tax allocation bonds issued Of the former redevelopment agency; second is revenue bonds, which may have been issued Of the host city, but only where the tax increment revenues were pledged for reJE.yment and only where other pledged revenues are insufficient to make scheduled delx service JE.yments; third is administrative costs cf the Successor Agency, nct to exceed $250,000 in any year, to the extent such costs have been appraved in an administrative budget; then, fourth tax revenues in the Trust Fund in excess of such amounts, if any, will be allocated as residual distributions to local taxing entities in the same proportions as cther tax revenues. Moreo;er, all unencumbered cash and cther assets of fonner redevelopment agencies will also be allocated to local taxing entities in the same proportions as tax revenues. Nctwithstanding the foregoing portion cf this JE.ragraph, the order of JE.yment is sugect to modification in the event a Successor Agency timely reports to the Controller and the DeJE.rtment cf Finance that application of the foregoing will leave the Successor Agency with amounts insufficient to make scheduled JE.yments on enforceable obligations. If the county auditor-controller verifies that the Successor Agency will have insufficient amounts to make scheduled JE.yments on enforceable obligations, it shall report its findings to the Controller. If the Controller agrees there are insufficient funds to JE.Y scheduled JE.yments on enforceable obligations, the amount of such deficiency shall be deducted from the amount remaining to be distributed to taxing agencies, as described as the fourth distribution abave, then from amounts available to the Successor Agency to defray administrative costs. In addition, if a taxing agency entered into an agreement pursuant to Health and Safety Code Section 33401 for JE.yments from a redevelopment agency under which the JE.yments were to be subordinated to certain obi i gati ons of the redevelopment agency, such subordination pr<Ni si ons shal I continue to be given effect.

As noted abOle, the Dissolution Act expressly pr<Nides for continuation of JE.SS-through JE.yments to local taxing entities. Per statute, 100'/4 cf contractual and statutory two percent JE.SS-throughs, and 56.7% of statutory JE.SS-throughs authorized under the Community Redevelopment Law ACT of 1993 (AB 1290, Chapter 942, Statutes of 1993) ("AB 1290'), are restricted to educational facilities without cffset against revenue limit apportionments Of the State. Only 43.3% of AB 1290 JE.SS-throughs are offset against State aid so long as the District uses the moneys received for land acquisition, facility construction, reconstruction, or remodeling, or def erred maintenance as pr<Ni ded under Education Code Section 42238( h).

ABX 1 26 states that in the future, JE.SS-throughs shall be made in the amount "which would have been received had the redevelopment agency existed at that time," and that the County Auditor-Controller shall "determine the amount of property taxes that would have been al I ocated to each redevelopment agency had the redevelopment agency nct been dissolved pursuant to the operation of [ABX 1 26] using current assessed values and pursuant to statutory [JE.Ss-through] fonnulas and contractual agreements with other taxing agencies."

Successor Agencies continue to operate until all enforceable obligations have been satisfied and all remaining assets of the Successor Agency have been disposed of. AB 1484 pr<Nides that once the debt of the Successor Agency is JE.id off and remaining assets have been disposed of, the Successor Agency shall tenninate its existence and all JE.SS-through JE.yment obligations shall cease.

The District can make no representations as to the extent to which State apportionments may be offset Of the future receipt of residual distributions or from unencumbered cash and assets of fonner redevelopment agencies any cther surplus property tax revenues pursuant to the Dissolution Act.

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LEGAL MATTERS

Tax Matters

In the opinion of Stradling Y occa Carlson & Rauth, a Professional Corporation, Ne.vport Beach, California ("Bond Counsel"), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy cf certain representations and compliance with certain cavenants and requirements described herein, interest (and original issue discount) on the 2017 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 cf Bond Counsel, interest (and original issue discount) on the 2017 Bonds is exempt from State cf California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2017 Bonds may be included as an adjustment in calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability cf such corporations.

In the opinion of Bond Counsel, the difference between the issue price of a 2017 Bond (the first price at which a substantial amount of the 2017 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity of such 2017 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before receipt cf cash attributable to such excludable income. The amount of original issue discount deemed received lJy a Beneficial Owner will increase the Beneficial Owner's basis in the applicable 2017 Bond. The amount cf original issue discount that accrues to the Beneficial Owner cf the 2017 Bonds is excluded from the gross income of such B enefi cial Owner for federal income tax purposes, is not an item of tax preference for purposes cf 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 for federal income tax purposes of interest on the 2017 Bands (including any original issue discount) is based upon certain representations of fact and certifications made lJy the District, the Underwriter and cthers and is sugect to the condition that the District complies with all requirements of the I ntemal Revenue Code cf 1986, as amended (the "Code'') that must be satisfied subsequent to the issuance of the 2017 Bonds to assure that interest on the 2017 Bonds (including any original issue discount) will nct become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2017 Bonds (including any original issue discount) to be included in gross income for federal income tax purposes retroactive to the date cf issuance cf the 2017 Bonds. The District will cCNenant to comply with all such requirements.

The amount lJy which a Beneficial Owner's original basis for determining loss on sale or exchange in the applicable 2017 Bond (generally, the purchase price) exceeds the amount JE.yable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 cf the Code; such amortizable bond premium reduces the Beneficial Owner's basis in the applicable 2017 Bond (and the amount of tax-€Xempt interest received), and is nct deductible for federal income tax purposes. The basis reduction as a result cf the amortization of bond premium may result in a Beneficial Owner realizing a taxable gain when a 2017 Bond is sold lJy the Beneficial Owner for an amount equal to or less (under certain circumstances) than the original costofthe2017 Bond to the Beneficial Owner. Purchasers ofthe2017 Bonds should consult their o.vn tax advisors as to the treatment, computation and collateral consequences cf amorti zabl e bond premium.

The Internal Revenue Service (the "IRS") has initiated an exJE.nded program for the auditing of tax­exempt bond issues, including both random and targeted audits. It is possible that the 2017 Bonds will be selected for audit lJy the IRS. It is also possiblethatthe market value of the 2017 Bonds might be affected as a result cf such an audit of the 2017 Bonds (or lJy an audit cf similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the I RS might nct change the Code (or

59

interpretatioo thereof) subsequent to the issuance of the 2017 Bonds to the extent that it adversely affects the exclusion from gross income cf interest (and original issue discount) on the 2017 Bonds ortheir market value.

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 2017 BONDS. TAX REFORM PROPOSALS ARE BEING CONSIDERED BY CONGRESS. IT IS POSSIBLE THAT LEGISLATIVE CHANGES MIGHT BE INTRODUCED IN CONGRESS, WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME OR STATE TAX BEING IMPOSED ON OWNERS OF TAX­EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE 2017 BONDS. THE INTRODUCTION OR ENACTMENT OF ANY OF SUCH CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE 2017 BONDS. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE 2017 BONDS SUCH CHANGES (OR OTHER CHANGES) WILL NOT BE INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF THE 2017 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 2017BONDS.

Bond Counsel's opinion may be affected Of actioos taken (or nct taken) or events occurring (or nct occurring) after the date hereof. Bood Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Bond Resolutioo and the Tax Certificate relating to the 2017 Bonds permit certain actions to be taken or to be omitted if a favorable opinion cf Bond Counsel is pravided with respect thereto. Bond Counsel expresses no opinion as to the exclusioo from gross income for federal income tax purposes cf interest (and original issue discount) with respect to any 2017 Bond if any such action is taken or omitted based upoo the advice of counsel other than Stradling Y occa Carlson & Rauth, a Professional Corporatioo.

Although Bond Counsel will render an opinioo that interest oo the 2017 Bonds (including any original issue discount) is excluded from gross income for federal income tax purposes pr<Nided that the District continues to comply with certain requirements of the Code, the accrual or receipt cf interest oo the 2017 Bonds (including any original issue discount) may otherwise affect the tax liability cf the recipient. Bood Counsel expresses no opinion regarding any such tax coosequences. Accordingly, all potential purchasers should consult their tax advisors before purchasing any cf the 2017 Bands.

A copy of the proposed form cf opinion cf Bond Counsel for the 2017 Bonds is attached in Appendix A.

Legality for Investment in California

Under pravisions of the California Financial Code, the 2017 Bonds are legal investments for commercial ranks in California to the extent that the 2017 Boods, in the informed opinion of the rank, are prudent for the investment of funds of depositors, and under pr<Nisions of the California Gavernment Code, are eligible for security for deposits cf public mooeys in the State.

No L itigatioo

No litigatioo is pending or threatened concerning the validity of the 2017 Bonds, and a certificate to that effect will be furnished Of the District at the time of the original delivery of the 2017 Boods. The District is not aware of any litigatioo pending or threatened questiooing the political existence cf the District or contesting the District's ability to receive ad valorem taxes or to collect cther revenues or contesting the District's ability to issue and retire the 2017 Bonds.

60

In the opinioo of the District, there are no claims or lawsuits pending against the District that will materially adversely affect the finances of the District.

Verification

Upon delivery of the 2017 Bands, Causey Derngen & Moore, P .C. wi 11 deliver a report oo the mathematical accuracy of certain computations rnsed upon certain i nf ormati oo and assertions pr<Ni ded to them lJy the Underwriter (defined herein) relating to (a) the adequacy of the moneys in the Esmm Fund to JE.Y (i) the redemption price of the Refunded Bonds, and (ii) the interest oo the 2017 Boods on and prior to the Crossaver Date, and (b) the computations of yield cf the 2017 Bonds which support Bond Counsel's opinioo that the interest oo the 2017 Bands is excluded from gross income for federal income tax purposes.

CONTINUING DISCLOSURE

In connectioo with the issuance cf the 2017 Bonds, the District will cavenant for the benefit cf bondholders (including Beneficial Owners of the 2017 Boods) to pr<Nide certain financial infonnation and operating data relating to the District (the "Annual Reports") lJy nct laterthan eight months follcwing the end cf the District's fiscal year (which currently ends June 30), commencing with the report for fiscal year 2016-17, and to pr<Nide notices of the occurrence cf certain enumerated events. The Annual Reports and notices cf enumerated events will be filed lJy the District in accordance with the requirements of Securities and Exchange Commissioo Rule 15c2-12(b)(5) (the "Rule''). The specific nature of the information to be cootained in the Annual Reports and the nctices cf enumerated events is included in Appendix C-"FORM OF CONTINUING DISCLOSURE CERTIFICATE" attached hereto (the "Continuing Disclosure Certificate''). These cavenants are being made in orderto assist the Underwriter in complying with the Rule. The District has retained Isom Advisors, a Division of Urban Futures, Inc. to serve as the initial dissemination agent under the Continuing Disclosure Certificate to assist the District in the preJE.ration and filing of Annual Reports and notices of enumerated events required underthe Rule.

Within the last five years there have been instances in which the District has failed to comply with its previous undertakings under the Rule as described belcw. The District did not file the annual report and audited financial statements with respect its 2012 General Obligation Refunding Boods (the "2012 Bonds") which were due lJy March 1, 2013 until May 5, 2016, without timely notice of late filing with respect to this issue. The District timely filed its annual report for fiscal year 2013-14 for its Election of 2008 General Obligation Bonds, Series C but did not link the annual report and audited financial statements lJy CUSI P number to this bood issue until N<Nember 3, 2015, without timely nctice of late filing with respect to this issue. Additionally, for the District's Electioo of 2008 General Obligatioo Bonds Series D and 2015 General Obligation Refunding Bonds (Election cf 2000, Series 2005C), the fiscal year 2013-14 annual report was to coosist cf the official statement pertaining to such bonds. The cfficial statement was filed oo EMMA in advance of the March 1, 2015 due date for such annual report but nct specifically linked to the continuing disclosure section oo EMMA relating to such boods until Navember 20, 2015. The District did not file a notice cf the failure to link the official statement to the continuing disclosure section. The District did not timely file the annual reports and audited financial statements for fiscal year 2014-15 due under its prior continuing disclosure undertakings relating to ten series cf outstanding general obligation bonds. One report was due lJy January 31, 2016 and the cthers lJy March 1, 2016. The annual reports and audited financial statements were filed oo April 12, 2016 for all series of boods. The annual report for the District's 2015 General Obligation Refunding Bonds (Electioo cf 2008, Series A) was timely filed on January 30, 2017; ho.vever, the infonnation for one of the tables was incorrect at the time of such filing and the correct infonnationwas nct filed until August 24, 2017.

In calendar years 2013, 2014 and 2017, the District failed to file a number of nctices regarding insured and underlying rating changes that related to some cf the District's outstanding indebtedness. In addition, the District did nct timely file notices of defeasance with respect to two series cf boods. The District has since filed these rating change notices and nctices of defeasance.

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MISCELLANEOUS

Rating

Mcxxiy's Investor Services, Inc. ("Moody's") has assigned the underlying rating cf "Aa3" to the 2017 Bonds. The rating reflects only the vie.vs of such organization and an explanation of the significance of such rating may be ollained therefrom. Generally, a rating agency bases its ratings on the information and materials furnished to it and on investigations, studies and assumptions cf its o.vn. There is no assurance that the rating forthe 2017 Bonds will continue for any given period of time orthat such rating will nct be revised do.vrward or withdrawn entirely Of a rating agency, if in the judgment cf such rating agency, circumstances so warrant. Any such do.vrward revision or withdrawal of a rating may have an adverse effect on the market price of the 2017 Bonds.

Underwriting

The 2017 Bonds are being purchased Of Stifel, Nicolaus& Company, Incorporated (the "Underwriter"). The Underwriter has agreed to purchase the 2017 Bonds pursuant to a Bond Purchase Agreement with the District (the" Purchase Agreement'') at the initial purchase price of $7,632,586.75 (being equal to the aggregate principal amount cf the 2017 Bonds, less an Underwriter's discount of $39,550.00, less a net original issue discount of $237,863.25). The Purchase Agreement pr<Nides that the Underwriter will purchase all cf the 2017 Bonds if any are purchased and that the obligation to make such purchase is sugect to certain terms and conditions set forth in the Purchase Agreement. The Underwriter may cffer and sel I the 2017 Bonds to certain dealers and cthers at prices lo.ver than the offering prices stated on the caver page hereof. The offering prices may be changed from time to time Of the Underwriter.

Audited Financial Statements

The District's audited financial statements for fiscal year 2015-16 included in this Official Statement have been audited Of Vavrinek, Trine, Day & Co., LLP, California (the "Auditor"), independent auditors. Attention is called to the scope limitation described in the Auditor's report accompanying the financial statements. The Auditor has not been requested to consent to the inclusion cf its report in this Official Statement. The Auditor has nct undertaken to update the audited financial statements for fiscal year 2015-16 or its report, and no opinion is expressed Of the Auditor with respect to any event subsequent to its report dated Decemberl5, 2016. See AppendixB-"DISTRICT'S 2015-16 AUDITED FINANCIAL STATEMENTS" herein.

Financial Interests

The fees being paid to the Underwriter, its counsel, the District's Financial Advisor, and Bond Counsel and Disclosure Counsel are contingent upon the issuance and delivery of the 2017 Bonds. From time to ti me, Bond Counsel represents the Underwriter on matters unrelated to the 2017 Bands.

ADDITIONAL INFORMATION

The purpose cf this Official Statement is to supply information to purchasers cf the 2017 Bonds. Quotations from and summaries and explanations cf the 2017 Bonds and cf the statutes and documents contained herein do nct purport to be complete, and reference is made to such documents and statutes for full and complete statements of their pravisions.

Any 2017 Bond Owner may obtain copies of the District's audits and budgets, as available, from the District at 390 North Euclid Avenue, Upland, California 91786. The District may impose a charge for copying, mailing and handling.

62

Any statements in this Official Statement involving matters cf opinion, whether or not expressly so stated, are intended as such and nct as representations of fact. This Official Statement is nct to be construed as a contract or agreement between the District and the purchasers or Owners of any cf the 2017 Bonds.

The delivery of this Official Statement has been duly authorized Of the District.

UPLAND UNI Fl ED SCHOOL DISTRICT

By: /s/Dr. Nancy Kelly Superintendent

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APPENDIX A

FORM OF OPINION OF BOND COUNSEL

On the date of issuance cf the 2017 Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to issue its appraving opinion relating to the 2017 Bonds in substantially the fol lcwi ng form

October 12, 2017

Honorable Members of the Board cf Education Upland Unified School District Upland, California

Re: $7,910,000 Upland Unified School District (San Bernardino County, California) 2017 General Obligation Refunding Bonds, Series A (2025 Crossaver)

Dear Honorable Members of the Board cf Education:

We have examined the Constitution and the laws of the State of California, a certified record of the proceedings of the Upland Unified School District (the "District'') taken in connection with the authorization and issuance cf the District's 2017 General Obligation Refunding Bonds, Series A (2025 Crossaver), in the aggregate princiJE.I amount cf $7,910,000 (the "2017 Bonds"), and such other information and documents as we consider necessary to render this opinion, In rendering this opinion, we have relied upon certain representations cf fact and certifications made lJy the County of San Bernardino (the "County"), the District, the initial purchaser cf the 2017 Bands and cthers, We have nct undertaken to verify through independent investigation the accuracy cf the representations and certifications relied upon lJy us,

The 2017 Bonds have been issued lJy the District pursuant to Articles 9 and 11 of Chapter 3 cf Part 1 cf Division 2 cf Title 5 cf the Gavemment Code of the State of California and pursuant toa resolution adopted lJy the Board cf Education cf the District on August 22, 2017 (the "2017 Bond Resolution"),

The 2017 Bonds mature on the dates and in the amounts referenced in the 2017 Bond Resolution, The 2017 Bands are dated thei r date of delivery and bear interest JE.yabl e semi annual ly on each February 1 and August 1, commencing February 1, 2018, at the rates per annum referenced in the 2017 Bond Resolution, The 2017 Bonds are registered bonds as set forth in the 2017 Bond Resolution,

Based upon our examination of the foregoing, and in reliance thereon and on all matters cf fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that

(1) The 2017 Bonds have been duly and validly authorized and constitute the legal, valid and binding obligations cf the District enforceable in accordance with the tenns of the 2017 Bond Resolution, except as the same may be limited lJy bankrur,tcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, lJy equitable principles, lJy the exercise of judicial discretion in appropriate cases and lJy limitations on legal remedies against public agencies in the State of California, The 2017 Bonds are obligations cf the District but are nct a debt cf the County, the State of California or any other political subdivision thered' within the meaning cf any constitutional or statutory limitation, and neither the faith and credit nor the taxing pcwer of the County, the State of Cali fomia, or any such political subdivisions is pl edged for the JE.yment thereof,

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(2) The 2017 Bood Resolution has been duly adopted Of the Board of Education of the District and coostitutes the legal, valid and binding obligatioo of the District. The 2017 Bood Resolution is enforceable in accordance with its tenns excer,t as the same may be limited 0y mnkruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or cther laws relating to or affecting generally the enforcement of creditors' rights, Of equitable principles, 0y the exercise of judicial discretioo in appropriate cases and 0y limitations on legal remedies against public agencies in the State al' California, pr<Nided, ho.vever, we express no opinion as to the enforceability of pravisioos al' the 2017 Bood Resolution as to indemnification, penalty, contributioo, choice al' law, choice of forum or waiver contained therein.

(3) The 2017 Bonds, on and prior to August 1, 2025 (the "CrossCNer Date''), are special obligatioos al' the District and will be secured Of and JE.yable solely from proceeds of the 2017 Bonds on deposit in an esmm fund established therefor together with interest earnings thereoo. After the CrossCNer Date, the 2017 Bonds are secured Of the proceeds of ad valorem taxes levied upoo taxable property in the District on which the Board of Supervisors al' the County has the pcwer to levy and is obliged Of statute to levy without limit as to rate or amount (excer,t as to certain personal property which is taxable at limited rates) for JE.yment al' the 201 7 Bands and the interest thereoo.

(4) Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) oo the 2017 Bonds is excluded from gross income for federal income tax purposes and is nct an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations; ho.vever, with respect to corporations, such interest (and original issue discount) may be included as an adjustment in the calculatioo al' alternative minimum taxable income which may affect the alternative minimum tax liability al' such corporations.

(5) Interest (and original issue discount) on the 2017 Boods is exempt from State al' California personal income tax.

(6) The difference between the issue price of a 2017 B ood (the first price at which a substantial amount al' the 2017 Boods al' a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2017 Bond (to the extent the redemr,tioo price at maturity is more than the issue price) constitutes original issue discount. Original issue discount accrues under a coostantyield method, and original issue discount will accrue toa 2017 Bond o.vner before receir,t of cash attributable to such excludable income. The amount of original issue discount deemed received 0y a 2017 Bond o.vner will increase the 2017 Bond o.vner's basis in the applicable 2017 Bood. Original issue discount that accrues for the 2017 Bond o.vner is excluded from the gross income al' such o.vner for federal income tax purposes, is not an item al' tax preference for purposes al' calculating the federal alternative minimum tax imposed oo individuals or corporations (as described in JE.ragraph 4 ab<Ne) and is exemr,t from State al' Cal if orni a personal income tax.

(7) The amount Of which a 2017 Bood o.vner's original basis for determining loss oo sale or exchange in the applicable 2017 Bond (generally the purchase price) exceeds the amount JE.yable on maturity (or on an earlier call date) constitutes amortizable bond premium which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the "Code''); such amortizable bond premium reduces the bond o.vner's basis in the applicable 2017 Bood (and the amount al' tax--exemr,t interest received), and is not deductible for federal income tax purposes. The basis reductioo as a result al' the amortization al' bond premium may result in a 2017 Bond o.vner realizing a taxable gain when a 2017 Bond is sold Of the o.vnerfor an amount equal to or I ess ( under certain circumstances) than the original cost of the 2017 B ood to the o.vner.

The opinioos expressed in JE.ragraphs (4) and (6) abOle as to the exclusion from gross income for federal income tax purposes al' interest (and original issue discount) on the 2017 Bonds are subject to the conditioo that the District complies with all requirements al' the Code, that must be satisfied subsequent to the issuance of the 2017 Boods 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) oo the 2017 Bonds to be included in gross income for federal

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income tax purposes retroactive to the date of issuance of the 2017 Boods. The District has cavenanted to comply with all such requirements. Except as set forth in paragraphs (4), (5), (6) and (7) above, we express no opinion as to any tax consequences related to the 2017 Bonds.

Certain agreements, requirements and procedures contained or referred to in the 2017 Bond Resolution and the Tax Certificate executed Of the District with respect to the 2017 Bonds may be changed and certain actioos may be taken or omitted, under the circumstances and subject to the terms and conditions set forth in such documents, upoo the advice or with theappraving opinion of counsel nationally recognized in the area cf tax exemr,t obligations. We express no opinion as to the effect oo exclusion from gross income for federal income tax purposes of the interest (and original issue discount) on any 2017 Boods if any such change occurs or actioo is taken or omitted upon advice or appraval of bond counsel other than Stradling Y occa Carlson & Rauth, a Professional Corporation.

The opinions expressed herein and the exclusioo of interest oo the 2017 Boods from gross income for federal income tax purposes may be affected lJy actioos taken (or not taken) or events occurring (or not occurring) after the date hered'. We have not undertaken to determine, or to inform any persoo, whether any such actions or events are taken or do occur. Our engagement as bond counsel to the District terminates upon the issuance cf the 2017 Bonds.

The opinioos expressed herein are based upon our analysis and interpretation of existing laws, regulati oos, rulings and judicial decisions and caver certain matters nct di rectly addressed lJy such authorities.

Our opinion is limited to matters gaverned 0y the laws cf the State of California and federal law. We assume no respoosibilitywith respect to the applicability orthe effect cf the laws of any other jurisdiction.

We express no opinion herein as to the accuracy, completeness or sufficiency cf the Official Statement relating to the 2017 B oods or cther offering material relating to the 2017 B oods and expressly disclaim any duty to advise the o.vners of the 2017 Boods with respect to matters contained in the Official Statement.

Respectfully submitted,

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APPENDIX B

DISTRICT'S 2015-16AUDITE D Fl NANCI AL STATEMENTS

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UPLAND UNI Fl ED SCHOOL DISTRICT

ANNUAL FINANCIAL REPORT

JUNE 30, 2016

UPLAND UNI Fl ED SCHOOL DISTRICT

TABLE OF CONTENTS JUNE 30, 2016

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

Gwernment-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 Conµirison Schedule Schedule of Other Posterrployment Benefits ( OPE B) Funding Progress Schedule of the District's Proportionate Share Net Pension Liability Schedule of District Contributions Note to Required Supplementary Information

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 Combining Statements -Non-Major Gwernmental Funds

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

Nate to Supplementary I nforrrati on

INDEPENDENT AUDITOR'S REPORTS Report on Internal Control over Financial Reporting and on Corrpliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Report on Corrpliance for Each Major Program and on Internal Control over Compliance Required b,t the Uniform Guidance Report on State Campi iance

2 5

15 16

17

18

20

21 23 24 25

65 66 67 68 69

71 72 73 74 75 76

77 78 79

82

84 87

UPLAND UNI Fl ED SCHOOL DISTRICT

TABLE OF CONTENTS JUNE 30, 2016

SCHEDULE OF FINDINGS AND QUESTIONED COSTS Sumrrary of Auditor's Results Financial Statement Findings Federal A wards Findings and Questioned Costs State A wards Fi ndi ngs and Questioned Costs Sumrrary Schedule of Prior Audit Findings Management Lener

91 92 93 95 97 99

FINANCIAL SECTION

ftl Vavrinek, Trine, Day & Co., LLP Certified Public Accountants

Governing Board Upland Unified School District Upland, California

INDEPENDENT AUDITOR'S REPORT

Report on the Financial Statements

VALUE THE DIFFERENCE

We have audited the accorrp3.nyi ng financial statements of the gwernmental activities, each major fund, and the aggregate remaining fund information of the Upland Unified School District (the District) as of and for the year endedJ une 30, 2016, and the related notes to the financial statements, which col I ectively comprise the District's basic fi nanci al statements as I i sted in the table of contents.

Management's R esponsi bi I ity for the Financial Statements

Management is responsi bl e for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, i mpl ementati on, and mai ntenance of i nternal control relevant to the preparation and fai r presentation of fi nanci al statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Gwernment Auditing Standards, issued b,t the Cornptrol I er General of the United States; and the 2015-2016 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, issued b,t the California Education Audit Appeals Panel as regulations. Those standards require that we pl an and perform the audit to obtai n reasonable assurance about whether the fi nanci al statements are free from material ni sstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material ni sstatement of the financial statements, whether due to fraud or error. I n making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in orderto design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opi ni on. An audit al so i ncl udes eval uati ng the appropriateness of accounting pol i ci es used and the reasonableness of significant accounti ng estimates made b,t management, as wel I as eval uati ng the overal I presentation of the financial statements.

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

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10681 Foo1hill Blvd., Sui1e 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431

Opinions

In our opinion, the financial staterrents referred to abcwe present fairly, in all rraterial respects, the respective financial position of the governrrental activities, each major fund, and the aggregate rerrai ni ng fund i nforrrati on of the Upland Unified School District, as of June 30, 2016, and the respective changes in financial position and, where applicable, cash fl o.vs thereof fort he yearthen ended in accordance with accounting pri nci pl es generally accepted in the United States of Arrerica

Other Matters

Required Suppl errentary I nforrrati on

Accounting principles generally accepted in the United States of Arrerica require that the rranagerrent's discussion and analysis on pages 5 through 14, budgetary comparison schedule on page 65, schedule of other postemplO{rrent benefits funding progress on page 66, schedule of the District's proportionate share of the net pension liability on page 67, and the schedule of District contributions on page 68, be presented to supplerrentthe basic financial staterrents. Such infcrrration, although not a part of the basic financial staterrents, is required 0y the GOJernrrental Accounting Standards Board who considers itto be an essential part of financial reporting for pl aci ng the basic financial staterrents i n an appropriate operati anal, econoni c, or historical context. We have applied certai n Ii ni ted procedures to the required suppl errentary i nf orrrati on i n accordance with audi ti ng standards generally accepted in the United States of Arrerica, which consisted of inquiries of managerrent about the rrethods of preparing the i nforrrati on and comparing the i nforrrati on for consist ency with rranagerrent's responses to our i nqui ri es, the basic financial staterrents, and other kno.vl edge we obtained during our audit of the basic financial staterrents. We do not express an opinion or prOJide any assurance on the information because the linited procedures do not prOJide us with sufficient evidence to express an opinion or prOJide any assurance.

Other I nforrrati on

Our audit was conducted for the purpose of forming opinions on the financial staterrents that collectively comprise the Upland Unified School District's basic financial staterrents. The accompanying supplerrentary inforrration such as the combining and individual non-major fund financial staterrents and Schedule of Expenditures of Federal Awards, as required 0y Title 2 U.S. Code ofF ederal Regulations (CFR) Part 200, U niformAdni ni strative Requi rerrents, Cost P ri nci pies, and Audit Requi rerrents for Federal Awards and the other suppl errentary i nforrrati on as Ii sted on the table of contents are presented for purposes of additi anal analysis and are not a required part of the basic financial staterrents.

The accornpanyi ng suppl errentary information is the responsi bi Ii ty of managerrent and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial staterrents. Such i nforrrati on has been sul::ij ected to the audi ti ng procedures applied i n the audit of the basic financial staterrents and certai n additi anal procedures, i ncl udi ng compari ng and reconci I i ng such i nf orrrati on directly to the underlying accounting and other records used to prepare the basic fi nanci al staterrents or to the basic financial staterrents themselves, and other addi ti anal procedures in accordance with audi ti ng standards general ly accepted in the United States of Arrerica. In our opinion, the accompanying supplerrentary infcrrration is fairly stated, in al I rrateri al respects, i n relation to the basic fi nanci al staterrents as a whole.

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Other Reporting Required by GovernrrentAuditing Standards

In accordance with Gwernrrent Aud ting Standards, we have also issued our report dated Decerrber 15, 2016, on our consideration of the Upland Unified School District's internal control wer financial reporting and on ourtests of its compliance with certain prwisions of laws, regulations, contracts, and grant agreerrents and other rratters. The purpose of that report is to descri be the scope of our testi ng of internal control wer fi nanci al reporti ng and compliance and the results of thattesting, and not to prwide an opinion on internal control wer financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Governrrent Auditing Standards in considering Upland Unified School District's internal control wer financial reporting and compl i ance.

Rancho Cucamonga, California December 15, 2016

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Upland Unified School District 390 N. Euclid Avenue

Upland, CA 91786-4 763 www.upland.ki 2.ca.us

(909) 985-l 864

Nancy Kelly, Ed.D., Superintendent of Schools

Assistant Superintendents Camille Johnson, Human Resources Ellen Lugo, Elementary Education Alex Rwalcaba, Secondary Education Donnie Salamanca, Business Services

This section of Upland Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial perforrrance during the fiscal yearthat ended onJ une 30, 2016. Please read it in conjunction with the District's financial staterrents, which imrrediately follo.vthis section.

OVERVIEW OF THE FINANCIAL STATEMENTS

The Financial Statements

The financial staterrents presented herein include all of the activities of the District and its corrponent units using the i ntegrated approach as prescri bed b,t C overnrrental A ccounti ng Standards Board ( GAS B) Staterrent No. 34.

The GOJernrrent-Wide Financial Staterrents presentthe financial picture of the District from the economic resources rreasurerrent focus using the accrual basis of accounting. The District reports al I activities as givernrrental activities. These staterrents include all assets of the District (including capital assets), as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed b,t the staterrent in regards to interfund activity, payables, and receivables.

The F und F i nanci al Staterrents incl ude staterrents for each of the two categories of activities: gwernrrental and fiduciary.

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

The Fiduciary Activities are prepared using the econonic resources rreasurerrent focus and the accrual basis of accounting.

Reconci Ii ation of the Fund Financial Staterrents to the GOJernrrent-Wide Financial Staterrents is prOJi ded to explain the differences created b,t the i ntegrated approach.

The Primary unit of the gwernrrent is the Upland Unified School District.

5

UPLAND UNI Fl ED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2016

REPORTING THE DISTRICT ASA WHOLE

The Statement of Net Position and the Statement of Activities

The Statement of Net Position and the Statement of Activities report information aboutthe 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 sinilartothe accounting used 0y most private-sector corrp3.nies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid.

These two statements report the District's net position and changes in them Net position is the difference between assets and deferred outflo.vs of resources, and liabilities and deferred inflo.vs of resources, which is one way to measure the District's financial health, or financial position. overtime, increases or decreases in the District's net position will serve as a useful indicator ofwhetherthe financial position of the District is imprwing 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. Si nee the gwerni ng boards responsibility is to prwide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the werall 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, al I the District's activities are as fol lo.vs:

Governmental Activities- The District reports all of its services in this category. This includes the education of ki ndergarten through grade twelve students, adult education students, the operation of chi Id 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.

6

UPLAND UNI Fl ED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2016

REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS

Fund Financial Statements

The fund financial statements prwide detailed information about the most significant funds -notthe District as a whole. Some funds are required to be established b,t State law and b,t bond cwenants. Ho.vever, management establishes many other funds to help it control and manage money for particular purposes or to sho.v that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education.

Governmental Funds -All of the District's basic services are reported in governmental funds, which focus on ho.v money flo.vs 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 al I other financial assets that can readily be converted to cash. The governmental fund statements provide a detai I ed short-term view of the District's general government operations and the basic services it prwi des. Governmental fund information helps deterni ne whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences ofresults in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation fol Io.vi ng each governmental fund financial statement.

THE DISTRICT ASA TRUSTEE

Reporting the Districts Fiduciary Responsibilities

The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities, scholarships, and Community Facilities District's Debt Service. The District's fiduciary activities are reported in the Statement ofFiduciary Net Position and 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 Di strict is responsible for ensuring thatthe assets reported in these funds are used for their intended purposes.

7

UPLAND UNI Fl ED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2016

THE DISTRICT AS A WHOLE

Net Position

The District's net position was $(34,974,319) for the fiscal year endedJ une 30, 2016. Of this arrount, $(92,307,627) was unrestricted. Restricted Net Position is reported sei:arately to shews legal constraints from debt covenants and enabling legislation that Ii nit the governing board's ability to use net position for day-to-day operations. Our analysis belo.v, in sumrrary form, focuses on the Net Position (Table 1) and change in Net Position (Table 2) of the District's gwernmental activities.

Table 1

Governmental Activities 2016 2015

Assets Current and other assets $ 50,956,230 $ 51,278,480 Capital assets 124,790,433 125,869,202

Total Assets 175,746,663 177, 147,682 Deferred Outflows of Resources 31,858,326 6,086,623

Liabilities Current liabilities 12,238,730 13,032,470 L ong--term obi i gati ans 131,932,051 123,347,605 Aggregate net pension liability 81,317,594 59,147,697

Total Liabilities 225,488,375 195,527,772 Deferred I nflo.vs of Resources 17,090,933 17,743,948

Net Position Net i nvestrrent in capital assets 39,019,584 42,637,333 Restricted 18,313,724 11,683,357 Unrestricted (92,307,627) (84,358,105)

Total Net Position $ (34,974,319) $ (30,037,415)

The $(92,307,627) in unrestricted net position of governmental activities represents the accumulated results of al I past years' operations. The District continues to have a significant decrease in unrestricted net position as a direct result of the irrplementation of GASB Statement No. 68, discussed further in Note 13.

8

UPLAND UNI Fl ED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2016

Changes in Net Position

The results of this year's operations for the District as a whole are reported in the Statement of Activities on P39e 16. Table 2 takes the information from the Statement, rounds off the nurrbers, and rearranges them slightly so you can see ourtotal revenues forthe year.

Table 2

GOJernmental Activities 2016 2015

Revenues Program revenues:

Charges for services $ 1,829,923 $ 1,893,568 Operating grants and contri buti ons 17,098,187 15,220,182 Capital grants and contributions 16,851 13,599

General revenues: Federal and State aid not restricted 75,646,456 66,364,577 Property taxes 28,998,153 21,829,672 Other general revenues 3,929,285 2,948,066

Total Revenues 127,518,855 108,269,664 Expenses

I nstructi on-related 90,524,233 74,436,496 Pupil services 11,526,848 10,320,008 Adrrinistration 4,603,266 3,940,412 M ai ntenance and operati ans 9,914,787 9,267,108 Other 15,886,625 16,139,472

Total Expenses 1 32,455, 759 114,103,496 Change in Net Position $ (4,936,904) $ (5,833,832)

Governmental Activities

As reported in the Statement of Activities on page 16, the cost of all of our gOJernmental activities this year was $132,455,759. Ho.vever, the amountthat our taxpayers ultimately financed for these activities through local taxes was only $28,998,153 because the cost was paid b,t those who benefited from the programs $(1,829,923) or b,t other gOJernments and organizations who subsidized certai n programs with grants and contri buti ons $(17, 115,038). We paid for the remaining "public benefit'' portion of our gOJernmental activities with $79,575,741 in Federal and State funds, and with other revenues, like interest and general entitlements.

9

UPLAND UNI Fl ED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2016

In Table 3, we have presented the cost and net cost of each of the District's largest functions: instruction related pupil services, adninistration, maintenance and operations, and other. As discussed abcwe, net cost sho.vs the financial burden that was placed on the District's taxpc1.yers 0y each of these functions. Providing this inforrration allo.vs our citizens to considerthe cost of each function in corrparison to the benefits they believe are provided 0y that function.

Table 3

Total Cost of Services Net Cost of Services 2016 2015 2016 2015

I nstructi on related $ 90,524,233 $ 74,436,496 $ 78,510,623 $ 63,923,210 Pupi I services 11,526,848 10,320,008 6,805,906 5,899,294 A dni ni strati on 4,603,266 3,940,412 4,388,344 3,787,295 M ai ntenance and operations 9,914,787 9,267,108 9,711,908 9,073,999 Other 15,886,625 16,139,472 14,094,017 14,292,349

Total $ 132,455,759 $ 114, 1 03,496 $ 113,510,798 $ 96,976,147

The District notes a decrease in Net Position of $4,936,904.

THE DISTRICT'S FUNDS

As the District cornpl eted this year, our gcwernmental funds reported a corrbi ned fund balance of $39,552,200, which is an increase of $679,247 from last year (Table 4).

Table4

Balances and Activity July 1, 2015 Revenues Expenditures J une 30, 2016

General Fund $ 17,444,899 $ 114,224,734 $ 113,614,237 $ 18,055,396 Building Fund 13,268,499 37,479,284 42,603,712 8,144,071 County School Facilities Fund 13,599 16,850 30,449 Adult Education Fund 429,042 148,987 280,055 Cafeteria Fund 1,006,898 4,138,440 4,177,392 967,946 Capital Facilities Fund 2,129,389 818,741 995 2,947,135 Special Reserve Fund for Capital Outlay Prqjects 35,442 35,442 B ond I nterest and R ederrpti on Fund 4,974,227 8,091,681 3,974,202 9,091,706

Total $ 38,872,953 $ 165,198,772 $ 164,519,525 $ 39,552,200

10

UPLAND UNI Fl ED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2016

The pri rrary reasons for the changes in fund balance are the fol Io.vi ng:

a Our General Fund is our principal operating fund. The fund balance in the General Fund increased from $17.4 million to $18.1 nillion. This increase is due to: 1. I ncreased State revenue 2. Expenditure offsets utilizing one-time monies

b. Our Cafeteria Fund and Capital Facilities Fund remained fairly stable from the prior year sho.ving a net decrease of approximately $0.04 nil lion and $0.81 nil lion, respectively.

c. Our Building Fund decreased $5.16 nil lion as a result of capital outlay expenditures to.vards voter approved prqj ects.

General Fund Budgetary Highlights

OVerthe course of the year, the District revises its budget as it attempts to aqj ust for changes in revenues and expenditures. The final amendment to the budget was adopted i nJ une, 2015. (A schedule sho.vi ng the District's original and final budget amounts comi:aredwith amounts actually i:aid and received is provided in our annual report on page 65).

OnJ une 27, 2013, Gwernor Jerry Bro.vn signed the State Budget Act, Assembly Bill (AB) 110 (Chapter 20;Statutes 2013); and subsequently signed the Education Trailer Bill, AB86 (Chapter 48;Statutes 2013); Local Control Funding Formula, AB 97 (Chapter 47 ;Statutes 2013); Amendments to AB 97, Senate Bill (SB) 91 (Chapter 49;Statues 2013); and Proposition 391 rrplementation, SB 73 (Chapter 29;Statutes 2013).

The cornerstone of this budget is the apprwal of the "Local Control Funding Formula' (LCFF). This formula establishes a base grant funding with supplemental and concentration add-ons for English Learners (EL), free and reduced price meal eligible students and foster youth students, and prwides additional funding for K-3 Class Size Reduction (CSR), Grades 9-12, Home-to-School Transportation, and the Targeted Instructional Improvement Grant (Tl IC). The LCFF contains a Hold Harniess prwision that guarantees ninimum funding atthe 2012-2013 revenue Ii nit and categorical funding level. The transition from the existing funding system of revenue Ii nits into a new more locally controlled funding formula is corrplex and the fiscal irrpact has been unique to each district.

The elements of the Local Control Funding Formula provide for base grants that are based on undeficited statewide revenue Ii nit averages b,t grade span. The base grant would increase annually b,t the cost of living aqj ustment (COLA). The base grant rates for 2015-2016 are for K -3 $7,083, Grades 4-6 $7, 189, Grades 7--8 $7,403 and Grades 9-12 $8,578. The formula also prwides augmentation grants for grades K-3 CSR and grades 9-12. The K-3 CSR augmentation is 10.4 percent of the K-3 base grant, which is estirrated to be $737 per ADA for 2015-2016. In orderto be eligible for the augmentation funds the district must make incremental progress annually to.vards a site average daily class size of 24: 1 b,t 2020-2021. The class size requirement is not sul::iject to a waiver b,t the State Board of Education and all districts are required to rraintain 24: 1 ratio unless a locally bargained alternative ratio is agreed upon. The grades 9-12 augmentation is 2.6 percent of the 9-12 base grant amount and esti rrated at $223 per ADA for 2015--2016.

A major component of the funding is thatthe LCFF establishes a target funding amount for each district. The State anticii:ates that it will take eight years to reach the targeted funding level, it anticii:ates to be fully funded b,t 2020-2021. H o.vever, there is no statutory requirement to fund future years' funding ( i ncrease i n funding) and districts are corrpletely dependent on the State's ability to fund the increase.

11

UPLAND UNI Fl ED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2016

A major focus of the State Budget Act was to provide increased funding for students that are economically disacwantaged or English Learners. The Supplerrental and Concentration Grants prwide additional funding for the unduplicated count of students identified as qualifying for free and reduced price rreals, English Learners, and foster youth. The supplerrental grant prwides an additional 20 percent of the Base Grant multiplied b,t the total undupl i cared count percentage. The concentration grant prwi des additi anal funding for districts with undupl icated count percentages greater than 55 percent. The grant provides 50 percent of the base grant rnulti plied b,t the undupl icated count in excess of 55 percent.

Although the LCFF intends to allo.v rnore flexibility in allocating resources to rreet local needs, schools districts are held accountable for academe and fiscal outcorres. Starting in 2014--2015 the school district were required to adopt a Local Control Accountability Plan (LCAP) for the use of the supplerrental and concentration grant funds. Although the funds are considered "unrestricted' the State is rrandating that they be targeted for use with the population that earned them The District will be required to have an LCAP apprwed b,t July 1, annually. The plan is effective for three years and needs to be reviewed annually.

Upland Unified School District has responded to the mw LCFF funding rnodel and its requirerrents bf working closely with al I District stakeholders to review prograrnrrati c needs and al I ocate resources that align to student needs and district priori ti es.

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

AtJ une 30, 2016, the District had $124,790,433 in a broad range of capital assets (net of depreciation), including I and, bui I di ngs, furniture, and equi prrent. This arnount represents a net decrease ( i ncl udi ng additions, deductions, and depreciation) of $1,078,769, or 0.86 percent, from last year (Table 5).

Land and construction i n progress B ui I dings and i rnproverrents Equipment

Total

Table 5

Gwernrrental Activities 2016 2015

$ 7,903,003 110,404,301

6,483,129 $ 124,790,433

$ 7,875,703 115,296,963

2,696,536 $ 125,869,202

The District engaged in rrarginal construction activity and experienced an overall decrease in capital assets, with current year depreciation outpacing capital asset additions.

We present rnore detai I ed i nforrrati on about our capital assets in Note 5 to the fi nanci al staterrents.

12

UPLAND UNI Fl ED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2016

Long-Term Obligations

At the end of this year, the District had $131,932,051 in debt outstanding versus $123,347,605 lastyear, an increase of 6. 9 percent. Debt consisted of:

Table6

Go.rernmental Activities 2016 2015

General obligation bonds (financed with property taxes) Other pa;terrpl O{ment benefits ( OPE B) Other

Total

$ 122,784,578 8,701,897

445,576 $ 131,932,051

$ 115,878,878 7,094,295

374,432 $ 123,347,605

The District's general obligation bond rating continues to be an "AA3 Rating." The State Ii nits the amount of general obi i gati on debt that districts can issue. The District's outstanding general obi i gati on debt is significantly bel o.v this statutori ly-i mposed Ii nit.

Other obligations include compensated absences i:ayable, pa;terrplO(ment benefits (not including health benefits) and other I ong-term obi i gati ons. We present more detai I ed i nformati on regardi ng our I ong-term obi i gati ans in Note 8 of the financial statements.

Net Pension Liability (NPL)

At year-€nd, the District had a net pension liability of $81,317,594 as a result of the irrplementation of GASB Statement No. 68 during the prior fiscal year.

ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES

In considering the District Budget forthe 2016-2017year, the District board and management used the follo.ving criteria:

The key assurrptions in the District's revenue forecast are the follo.ving:

1. Revenues will increase due to the new local control funding formula

2. Revenue increase will be offset bf loss ofrevenue due to declining enrollment.

3. Developer fee collections are based on approximate new housing units to be constructed.

4. Expenditures will increase in accordance with increases in errplO(er contributions for errplO{ee retirement programs (STRS ;PE RS).

13

UPLAND UNI Fl ED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2016

CONTACT! NG THE DISTRICT'S Fl NANCI AL MANAGEMENT

This financial report is designed to prwi de our citizens, taxpayers, students, and investors and creditors with a general wervi ew of the District's finances and to sho.v the District's accountabi I ity for the money it receives. If you have questions about this report or need any additi anal financial information, contact the Assistant Superintendent, Business Services, at Upland Unified School District, 390 North Euclid Avenue, Upland California, 91786 or e--rrail at donnie_salamanca@upland.kl2.ca.us.

14

UPLAND UNI Fl ED SCHOOL DISTRICT

STATEMENT OF NET POSITION JUNE 30, 2016

ASSETS Deposits and i nvestments Receivables Prepaid expenses Stores inventories Capital assets

Capital assets not depreciated Capital assets, net of accumulated depreciation

Total Capital Assets Total Assets

DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding Deferred outfl ONS of resources related to pensions

Total Deferred OutflONs of Resources

LIABILITIES Accounts i:ayabl e I nterest i:ayabl e U nearned revenue Long-term obi i gati ons:

Current pcllti on of I ong-term obi i gati ons other than pensions N oncurrent pcllti on of I ong-term obi i gati ons otherthan pensions

Total Long-term Obi i gati ons Aggregate net pension liability

Total Liabilities

DEFERRED I NF LOWS OF RESOURCES Deferred i nfl ONS of resources related to pensions

NET POSITION Net i nvestment for capital assets Restricted for:

Debt service Capital prqjects E ducati anal programs Other activities

Unrestricted Total Net Position

The accomi:anyi ng notes are an i ntegral i:art of these financial statements.

15

GOJernmental Activities

$ 45,439,718 5,266,113

20,003 230,306

7,903,003 116,887,430 124,790,433 175,746,663

5,349,136 26,500,190 31,858,326

11,399,483 834,700

4,547

3,425,000 128,507,051 131,932,051 81,317,594

225,488,375

17,090,933

39,019,584

8,257,006 2,982,946 5,848,021 1,225,751

(92,307,627) $ (34,974,319)

UPLAND UNI Fl ED SCHOOL DISTRICT

STATEMENT OF ACTIVITIES FOR THE YEAR ENDE DJ UNE 30, 2016

Program Revenues Charges for Operating Capital Services and Grants and Grants and

Fu nctions;Programs Expenses Sales Contributions Contributions Governmental Activities: I nstruction $ 79,694,758 $ 34,692 $ l 0,685,852 $ 16,851 I nstruction--related activities:

Supervision of instruction 3,624,755 951,831 I nstructional Ii brary, rredia, and techrology 600,171 5,938

School site adrrinistration 6,604,549 4,581 313,865 Pupi I services:

Home-to-,;chool transportation 1,736,481 Food services 4,181,912 881,941 2,714,694 A 11 other pupi I services 5,608,455 13,442 l, 110,865

Adrrinistration: Data processing 847,823 All other adrrinistration 3,755,443 57 214,865

Plant services 9,914,787 50,283 152,596 Facility acquisition and construction 386,414

Ancillary services 457,561 6,678 Community services 1,302,339 241,282 Interest on long-term obligations 7,112,674 Other outgo 655,062 844,927 699,721 Depreciation (unallocated) 1 5,972,575

Total Governmental Activities $ 132,455,759 $ 1,829,923 $ 17,098,187 $ 16,851

General revenues and su!Nentions: Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and State aid rot restricted to specific purposes I nterest and i nvestrrent earnings Miscellaneous

Subtotal, General Revenues Change in Net Position Net Position -Beginning Net Position -Ending

Net (Expenses) Revenues and Changes in Net Position

Governmental Activities

$ (68,957,363)

(2,672,924)

(594,233) (6,286, l 03)

(1,736,481) (585,277)

(4,484,148)

(847,823) (3,540,521) (9,711,908)

(386,414) (450,883)

(1,061,057) (7,112,674)

889,586 (5,972,575)

(113,510,798)

20,167,129 8,039,766

791,258 75,646,456

207,320 3,721,965

l 08,573,894 (4,936,904)

(30,037,415) $ (34,974,319)

1This armunt excludes any depreciation that is included in the direct expenses of the various programs.

The accorrp3.nyi ng notes are an i ntegral i:art of these financial statements.

16

UPLAND UNI Fl ED SCHOOL DISTRICT

GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2016

General Fund

ASSETS Deposits and i nvestments $ 23,805,720 $ Receivables 4,728,038

Due from other funds 451,228 Prepaid expenditures 14,731

Stores inventories 208,056 Total Assets $ 29,207,773 $

L IABI L ITI ES AND FUND BALANCES Liabilities:

Accounts payable $ 11,067,545 $ Due to other funds 80,285 U nearned revenue 4,547

Total Liabilities 11,152,377 Fund Balances:

Nonspendable 272,787

Restricted 5,848,021 Assigned 8,526,161 Unassigned 3,408,427

Total Fund Balances 18,055,396 Total Liabilities and Fund Balances $ 29,207,773 $

The accorrpanyi ng notes are an integral part of these financial statements.

17

County School Building Facilities

Fund Fund

5,589,968 $ 3,002,219 11,670 5,312

2,980,020 5,362

8,587,020 $ 3,007,531

303,175 $ 139,774 2,977,082

442,949 2,977,082

5,362 8,138,709 30,449

8,144,071 30,449

8,587,020 $ 3,007,531

Band Interest Non-Major Total and Redemption Go.tern mental Gcwernmental

Fund Funds Funds

$ 9,091,7Co $ 3,950,105 $ 45,439,718 521,093 5,266,113 77,347 3,508,595

20,093 22,250 230,3Co

$ 9,091,7Co $ 4,570,795 $ 54,464,825

$ - $ 28,763 $ 11,399,483 311,454 3,508,595

4,547 340,217 14,912,625

22,250 300,399 9,091,7Co 4,208,328 27,317,213

8,526,161 3,408,427

9,091,7Co 4,230,578 39,552,200

$ 9,091,7Co $ 4,570,795 $ 54,464,825

17

UPLAND UNI Fl ED SCHOOL DISTRICT

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

JUNE 30, 2016

Total Fund Balance-GCNernmental Funds

Amounts Reported for G CNernmental Activities in the Statement of Net Position are Different Because:

Capital assets used in gCNernmental activities are not financial resources and, therefore, are not reported as assets in gewernmental funds.

The cost of capital assets is

Accumulated depreciation is

Net Capital Assets

This represents the deferred charge on refunding as a result of the refunding of bonds. The difference between the amounts that were sent to the escro.v agent for the repayment of the old debt and the actual retraining debt obi igation wi 11 be amortized as an adjustment to interest expense CNer the retraining I ife of the refunded debt This represents the unamortized balance as of year-€nd.

Expenditures relating to contributions trade to pension plans were recognized on the modified accrual basis, but are not recognized on the accrual basis.

In gewernmental funds, untratured interest on long-term obligations is recognized in the period when it is due. On the gCNernment-wide financial statements, untratured interest on I ong-term obi i gati ons is recognized when it is incurred.

The net change in proportionate share of net pension liability as of the measurement date is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis ewer the expected retraining service life of members receiving pension benefits.

The difference between projected and actual earnings on pension plan irwestments are not recognized on the modified accrual basis, but are recognized on the accrual basis as an adjustment to pension expense.

The differences between expected and actual experience in the measurement of the total pension liability are not recognized on the modified accrual basis, but are recognized on the accrual basis CNerthe expected average retraining service life of members receiving pension benefits.

The changes of assurrptions is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis ewer the expected average retraining service life of members receiving pension benefits.

Net pension liability is not due and payable in the current period, and is not reported as a I iabi I ity in the funds.

18

$ 39,552,200

$ 222,155,975

(97,365,542)

124,790,433

5,349,136

7,335,331

(834,700)

9,119,410

(5,875,508)

(182,063)

(978,913)

(81,317,594)

UPLAND UNI Fl ED SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION, (Continued)

JUNE 30, 2016

Long-term obi igati ons, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds.

Long-term obi igati ons at year-€nd consist of:

Bonds payable

Unamortized premium on bonds

Compensated absences (vacations)

Other postemplo,,ment benefits (OPEB) In addition, the District has issued "capital appreciation" general obligation bonds. The accretion of interest on the general obligation bonds to date is:

Total Long-TermObligations

Total Net Position -G CNernmental Activities

19

$ (93,137,499)

(6,121,195)

(445,576)

(8,701,897)

(23,525,884)

$ (131,932,051)

$ (34,974,319)

UPLAND UNI Fl ED SCHOOL DISTRICT

GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCES FOR THE YEAR ENDE DJ UNE 30, 2016

County School

General Building Facilities Fund Fund Fund

REVENUES Local control funding formula $ 87,887,835 $ $ Federal sources 5,279,299 Other State sources 13,101,886 Other I ocal sources 7,955,714 47,893 16,850

Total Ra,enues 114,224,734 47,893 16,850 EXPENDITURES Current

I nstructi on 78,482,743 I nstruction--related activities:

Supervision of instruction 3,528,803 I nstructi onal Ii brary, media, and technol og,, 589,357 School site adrri ni strati on 6,472,161

P upi I services: Horre--to--5Chool transportation 1,721,243 Food services 181,704 A II other pupi I services 5,491,168

A drri nistrati on: Data processing 835,705 A II other adrri ni strati on 3,712,524

Plant services 9,016,654 553,158 Facility acquisition and construction 549,700 4,630,171 Ancillary services 447,932 Community services 1,236,355 Other outgo 1,348,188

Debt service Principal I nterest and other 1,205,851

Total Expenditures 113,614,237 6,389,180

Excess (Deficiency) of Ra,enues Over Expenditures 610,497 (6,341,287) 16,850 Other Financing Sources

Other sources -proceeds from issuance of bonds 34,016,972 Other sources -prerri um on bond issuance 3,414,419 Other uses -payment to refunded bond escro.v agent (36,214,532)

Net Financing Sources (Uses) 1,216,859 NET CHANGE IN FUND BALANCES 610,497 (5,124,428) 16,850 Fund Balance-Beginning 17,444,899 13,268,499 13,599 Fund Balance-Ending $ 18,055,396 $ 8,144,071 $ 30,449

The accorrp3.nyi ng notes are an i ntegral i:art of these financial statements.

20

B ond I nter est Non-Major Total

and Redemption G CNernmental G CNernmental

Fund Funds Funds

$ $ $ 87,887,835 3,CXXJ,847 8,280,146

38,749 632,623 13,773,258 8,052,932 1,752,753 17,826,142 8,091,681 5,386,223 127,767,381

43,916 78,526,659

35,753 3,564,556 589,357

14,176 6,486,337

1,721,243 3,956,188 4,137,892

16,672 5,507,840

835,705 3,712,524

222,199 9,792,011 5,179,871

447,932 38,470 1,274,825

1,348,188

2,21 O,CXXJ 2,21 O,CXXJ 1,764,202 2,970,053 3,974,202 4,327,374 128,304,993

4,117,479 1,058,849 (537,612)

34,016,972 3,414,419

(36,214,532) 1,216,859

4,117,479 1,058,849 679,247 4,974,227 3,171,729 38,872,953

$ 9,091,706 $ 4,230,578 $ 39,552,200

20

UPLAND UNI Fl ED SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDE DJ UNE 30, 2016

Total Net Change in Fund Balances-Gwernmental Funds

Amounts Reported for Gwernmental Activities in the Statement of Activities are Different Because:

Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures; ho.vever, for governmental activities, those costs are sho.vn in the Statement of Net Position and al I ocated wer their estimated useful I ives as annual depreciation expenses in the Statement of Activities.

This is the amount by which depreciation exceeds capital outlays in the period.

Depreciation expense Capital outlays

Net Expense Acjj ustment

In the Statement of Activities, certain operating expenses, such as corrpensated absences (vacations) and special ternination benefits (retirement incentives) are measured by the amounts earned during the year. In the governmental funds, ho.vever, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). Vacation used was less than the amounts earned by $71,144. There were no special ternination benefits paid this year.

In the governmental funds, pension costs are based on empl O{er contributions made to pension plans during the year. Ho.vever, in the Statement of Activities, pension expense is the net effect of all changes in the deferred outflo.vs, deferred inflo.vs and net pension liability during the year.

Proceeds received from sale of general obi i gati on bonds and refunding bonds is a revenue in the governmental funds, but it i ncreases I ong-term obligations in the Statement of Net Position and does not affect the Statement of Activities.

Payment of principal on long-term obligations is an expenditure in the governmental funds, but it reduces I ong-term obi i gati ons i n the Statement of Net Position and does not affect the Statement of Activities.

General obi i gati on bonds

21

$(5,972,575) 4,893,SCX,

$ 679,247

(1,078,769)

(71,144)

(402,282)

(34,016,972)

33,642,418

UPLAND UNI Fl ED SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCES TO THE STATEMENT OF A CTI VITI ES, (Continued) FOR THE YEAR ENDE DJ UNE 30, 2016

Governrrental funds report the effects of prem urn on issuance and deferred arnount on a refunding when debt is first issued, whereas the amounts are deferred and amortized on the Staterrent of Activities. This arnount is the net effect of these related item;.

Prem urn on issuance Deferred charge on refunding A rnorti zati on of debt prem urn Amortization of deferred charge on refunding

Interest on I ong-terrn obi i gati ons is recorded as an expenditure in the funds when it is due; ho.vever, in the Staterrent of Activities, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest reported in the Staterrent of Activities is the net result of two factors. First, accrued interest on I ong-terrn obligations increased b,r $207,757 and second, $4,147,374of accurnul ated i nterest was accreted on the District's "capital appreciation" general obi i gati on bonds.

In gcwernrrental funds, other posternployrrent benefits ( OPE B) costs are recognized when employer contributions are rnade. In the Staterrent of Activities, OPEB costs are recognized on the accrual basis. This year, the difference between OPE B costs and the actual ernpl o,rer contri buti ons was:

Change in Net Position of Governmental Activities

22

$(3,414,419) 4,782,114 1,030,647 (125,011) $ 2,273,331

(4,355,131)

(1,607,602)

$ (4,936,904)

UPLAND UNIFIED SCHOOL DISTRICT

Fl DUCIARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2016

Scholarship Agency Trust Funds

ASSETS Deposits and i nvestrrents $ 64,580 $ 1,344,461

Receivables 2,674

Stores inventories 5,968 Total Assets 64,580 $ 1,353,103

LIABILITIES Due to student groups $ 872,452 Due to oondhol ders 480,651

Total Liabilities $ 1,353,103

NET POSITION Reserved for schol arshi ps 64,580

Total Net Position $ 64,580

23

UPLAND UNI Fl ED SCHOOL DISTRICT

Fl DUCIARY FUNDS STATEMENT OF CHANGES IN NET POSITION FOR THE YEAR ENDE DJ UNE 30, 2016

ADDITIONS Interest

DEDUCTIONS Other expenditures

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

The acconµinyi ng notes are an i ntegral part of these financial statements.

24

Scholarship Trust

$ 1,143

$

1,777

(634) 65,214 64,580

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Reporting Entity

The Upland Unified School District (the District) was unified onJ uly 1, 1987 underthe laws of the State of California. The District operates under a locally elected five--merrber Board form of government and provides educational services to grades K-12 as mandated b,t the State and/or Federal agencies. The District operates ten elementary schools, two junior high schools, one comprehensive high school, a continuation high school, and an adult school.

A reporti ng entity is comprised of the pri mary government, component uni ts, and other organi zati ans that are included to ensure the financial statements are not ni sleadi ng. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Upland Unified School District, this includes general operations, food service, and student related activities of the District.

Component Units

Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District, in thatthe District apprwes their budget, the issuance of their debt or the laying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable butthe nature and significance of the organization's rel ati onshi p with the District is such that excl usi on would cause the District's fi nanci al statements to be ni sl eadi ng or i ncornpl ete. For fi nanci al reporti ng purposes, the component uni ts descri bed bel ON have a financial and operati anal rel ati onshi p which meets the reporti ng entity defi ni ti on criteria of the Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, and thus are included in the financial statements of the District. The component units, although legally separate entities are reported in the financial statements using the blended presentation method as if they were part of the District's operations because the governing board of the component units is essentially the same as the governing board of the District and because their purpose is to finance the construction of facilities to be used for the direct benefit of the District.

The Community Facilities District No. 99-1 and Community Facilities District No. 01-1 (the CFDs) of the Upland Unified School District's financial activity is presented in the financial statements as an Agency Fund. The long­term obligations of the CFDs do not represent obligations of the District and thus are not included in the government-wide fi nanci al statements. I ndivi dually prepared fi nanci al statements are not avai I able for the Corporation or CFDs.

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 ol::ijectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into two broad fund categories: governmental and fiduciary.

25

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Gwernmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds accordi ng 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 follo.ving are the District's major and non--maj or governmental funds:

Major Gwernmental Funds

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

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.

County School Facilities Fund The County School Facilities Fund is established pursuantto Education Code Section 17070.43 to receive apportionments from the 1998 State School F aci I iti es Fund (Proposition IA), the 2002 State School Facilities Fund (Proposition 47), the 2004 State School Facilities Fund (Proposition 55), or the 2006 State Schools Facilities Fund (Proposition 1 D) authorized 0y the State Allocation Board for new school facility construction, modernization prqjects, and facility hardship grants, as prwided in the LerO{ F. Greene School Facilities Act of 1998 (Education Code Section 17070 et seq.)

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

Non-Major Gwernmental Funds

Special Revenue Funds The Special Revenue funds are used to account for the proceeds from specific revenue sources ( other than trusts, major capital prqj ects, or debt service) that are restricted or comni tted to expenditures for specified purposes and that compose a substantial portion of the i nflo.vs of the fund. Additional resources that are restricted, comnitted, or assigned to the purpose of the fund may also be reported in the fund.

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

Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections 38090-38093) and is used only forthose expenditures authorized b,t the governing board as necessary for the operation of the District's food service program (Education Code Sections 38091 and 38100).

26

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Capital P rqj ect Funds The Capital Prqj ect funds are used to account for financial resources that are restricted, cornnined, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed b,t proprietary funds and trust funds).

Capital Facilities Fund The Capital Facilities Fund is used prirrarily to account sepc1.rately for rmnies received from fees levied on developers or other agencies as a condition of apprwing a development (Education Code Sections 17620-17626). Expenditures are restricted to the purposes specified in Gwernment Code Sections 65970-65981 or to the items specified in agreements with the devel aper ( Gwernment Code Section 660CXi).

Special Reserve Fund for Capital Outlay Prqjects The Special Reserve Fund for Capital Outlay Prqjects exists prirrarily to prwide forthe accunulation of General Fund rmnies for capital outlay purposes (Education Code Section 42840).

Fiduciary Funds Fiduciary funds are used to account for assets held in trustee or agent capc1.city for others that cannot be used to support the District's o.vn programs. The fiduciary fund category is split into four classifications: pension trust funds, i nvestmenttrust funds, private-purpose trust funds, and agency funds. The key di sti ncti on between trust and agency funds is that trust funds are sul::ij ect to a trust agreement that affects the degree of rranagement i nvolvement and the I ength of ti me that the resources are held.

Trust funds are used to account for the assets held b,t the District under a trust agreement for individuals, private organizations, or other governments and are therefore, not available to support the District's o.vn programs. The District's trust funds are the Scholarship Funds. Agency funds are custodial in nature (assets equal I iabi Ii ties) and do not involve measurement of results of operations. Such funds have no equity accounts si nee al I assets are due to individuals or entities at some future time. The District's agency funds account for student body activities (ASB) and the collection of special taxes for pc1.yments of non-obligatory debt required for the CFDs.

Basis of Accounting-Measurement Focus

Government-Wide Financial Statements The government-wide financial statements are prepc1.red using the econonic 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 rranner i n which governmental fund fi nanci al statements are prepared.

The government-wide statement of activities presents a cornpc1.ri son between expenses, both direct and i ndi rect, and program revenues for each segment of the District and for each governmental function, and exclude fiduciary activity. Di rect expenses are those that are speci fi cal ly associated with a service, program, or department and are therefore, clearly identifiable to a pc1.rticular function. The District allocates indirect expenses to functions in the Statement of Activities, except for depreciation. Program revenues include charges paid b,t the recipients of the goods or services offered b,t the programs and grants and contri buti ons that are restricted to meeti ng the operati anal or capital requi rements of a particular program Revenues that are not classified as program revenues are presented as general revenues. The coITTP3-rison of program revenues and expenses identifies the extent to which each program or business segment is self-financing or cir.M's from the general revenues of the District. Eliminations have been rrade to minimize the double counting of internal activities.

27

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Net position should be reported as restricted when constraints placed on net position are either externally imposed b,t creditors (such as through debt cwenants), grantors, contributors, or laws or regulations of other governrrents or imposed b,t I.Ml through constitutional prwisions or enabling legislation. The net position restricted for other activities result frorn special revenue funds and the restrictions on their use.

Fund Financial Statements Fund financial staterrents report detai I ed i nforrrnti on about the District. The focus of governrrental fund financial staterrents is on rnaj or funds rather than reporting funds b,t type. Each rnaj or fund is presented in a separate colurnn. Non-major funds are aggregated and presented in a single colurnn.

Governmental Funds All governrrental funds are accounted for using the flON of current financial resources rreasurerrent focus and the rnodi fi ed accrual basis of accounti ng. With this rreasurerrent focus, only current assets and current liabilities generally are included on the balance sheet. The staterrent of revenues, expenditures, and changes in fund balances reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. This approach differs frornthe rranner in which the governrrental activities of the governrrent -wide financial staterrents are prepc1.red. Gwernrrental fund financial staterrents, therefore, include reconciliations with brief explanations to better identify the rel ati onshi p between the governrrent -wide fi nanci al staterrents, prepc1.red using the econorni c resources rreasurerrent focus and the accrual basis of accounting, and the governrrental fund financial staterrents, prepc1.red using the fl ON of current financial resources rreasurerrent focus and the rnodifi ed accrual basis of accounting.

Fiduciary F u nds Fiduciary funds are accounted for using the fl ON of econoni c resources rreasurerrent focus and the accrual basis of accounting. Fiduciary funds are excl ucled frorn the governrrent -wide financial staterrents because they do not represent resources of the District.

Revenues-Exchange and Non-Exchange Transactions Revenue resulting frorn exchange transactions, in which each plrty 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 rreasurable and become available. Available rreans that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter, to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within 60 days. HONever, to achieve cornpc1.rability of reporting arnong California districts and so as not to di start norrral revenue patterns, with specific respect to rei rnburserrent grants and corrections to State--ai d apporti onrrents, the California Depc1.rtrrent of Education has defi ned avai I able for districts as collectible within one year. The follONing revenue sources are considered to be both rreasurable and available at fiscal year-end: State apportionrrents, 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, entitl errents, and clonati ons. Revenue frorn property taxes is recognized in the fiscal year in which the taxes are received. Revenue frorn certain grants, entitlerrents, and donations is recognized in the fiscal year in which all eligibility requirerrents have been satisfied. Eligibility requirerrents include ti rre and purpose restrictions. On a rnodi fi ed accrual basis, revenue frorn non-exchange transactions rnust also be available before it can be recognized.

28

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Unearned Revenue Unearned revenue arises when potential revenue ck:Jes not n-eet both the "n-easurable" and "available" criteria for recognition in the current period or when resources are received b,t the District prior to the i ncurrence of qualifying expenditures. In subsequent peri ads, when both revenue recognition criteria are n-et, or when the District has a legal claim to the resources, the liability for unearned revenue is rerroved from the balance sheet and revenue is recognized.

Certain grants received before the el i gi bi I ity requi ren-ents are n-et are recorded as unearned revenue. On the givernn-ental fund financial staten-ents, receivables that will not be collected within the available period are also recorded as unearned revenue.

Expenses;Expenditures On the accrual basis of accounting, expenses are recognized atthe ti m2 they are incurred. The n-easuren-ent focus of givernn-ental fund accounting is on decreases in net financial resources ( expenditures) ratherthan expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if n-easurable, and typically paid within 90 days. Principal and interest on long­term obi igati ans, which has not matured, are recognized when pal d in the gcwernn-ental funds as expenditures. Allocations of costs, such as depreciation and amortization, are not recognized in the gcwernn-ental funds but are recognized in the entity-wide staten-ents.

I nvestments

lnvestn-ents held atJ une 30, 2016, with original maturities greaterthan one year are stated at fair value. Fair val ue is esti mated based on quoted market prices at year -end. A 11 i nvestn-ents not requi red to be reported at fai r value are stated at cost or amortized cost. Fair values of i nvestn-ents in county and State i nvestn-ent pools are deterni ned b,t the program sponsor.

Prepaid Expenditures

Prepaid expenditures (expenses) represent amounts paid in acwance of receiving goods or services. The District has the option ofreporting an expenditure in gcwernn-ental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditures when paid.

Stores Inventories

Inventories consist of expendable food and suppiies held for consurrption. Inventories are stated at cost, on the weighted average basis. The costs of inventory items are recorded as expenditures in the gcwernn-ental funds and expenses in the proprietary funds when used.

Capital Assets and Depreciation

The accounting and reporting treatn-ent applied to the capital assets associated with a fund are deterni ned b,t its measuren-ent focus. Capital assets are long-lived assets of the District. The District maintains a capitalization threshold of $5,000. The District ck:Jes not possess any infrastructure. I mprwen-ents 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 Ii fe are not capitalized, but are expensed as incurred.

29

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

When purchased, such assets are recorded as expenditures in the governrrental funds and capitalized in the governrrent-wide staterrent of net assets. The valuation basis for capital assets is historical cost, or where historical cost is not available, estimated historical cost based on replacerrent cost. Donated capital assets are capitalized at esti rrated fair rrarket value on the date donated.

Capital assets in the proprietary funds are capitalized in the fund in which they are utilized. The valuation basis for proprietary fund capital assets is the sarre as those used for the capital assets of governrrental funds.

Depreciation is corrputed usi ng the straight -Ii ne rrethod. E sti rrated useful I ives of the various cl asses of depreciable capital assets are as fol lo.vs: buildings, 20to SO years; irrprwerrentsfinfrastructure, 5 to SO years; equi prrent, 2 to 15 years.

I nterfund Balances

On fund fi nanci al staterrents, receivables and payables resul ti ng from short -term i nterf und I oans are classified as "i nterfund receivables/payables". These amounts are eliminated in the governrrental activities column of the staterrent of net assets.

Compensated Absences

Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the governrrent-wide staterrent of net assets. For governrrental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as emplO{ee resignations and reti rerrents that occur prior to year-end that have not yet been paid with expendable avai I able financial resources. These amounts are reported in the fund from which the emplO(ees who have accumulated I eave are paid.

Sick leave is accumulated without Ii nit for each emplO(ee at the rate of one day for each month worked. Leave with pay is prwidedwhen emplO(ees are absent for health reasons; ho.vever, the emplO{ees do not gain a vested right to accumulated sick I eave. E mpl O{ees are never paid for any sick I eave balance at terni nation of emplO{rrent or any othertirre. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial staterrents. Ho.vever, credit for unused sick leave is applicable to all classified school rrembers who retire after January 1, 1999. At retirerrent, each rremberwill receive .004year of service credit for each day of unused sick leave. Credit for unused sick leave is applicable to all certificated emplO{ees and is deternined b,t dividing the number of unused sick days b,t the number of base service days required to complete the last school year, if emplO{ed full-tirre.

Accrued Liabilities and Long-Term Obligations

Al I payables, accrued Ii abi I iti es, and I ong-term obi i gati ons are reported in the governrrent -wide and proprietary fund financial staterrents. In general, governrrental fund payables and accrued liabilities that, once incurred, are paid in a ti rrely manner and in ful I from current financial resources are reported as obi i gati ons of the governrrental funds.

30

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

HONever, claims andjudgrrents, compensated absences, special ternination benefits, and contractually required pension contributions that wi 11 be plid from governrrental funds are reported as a I iabil ity in the governrrental fund financial staterrents only to the extent thatthey are due for payrrent during the current year. Bonds, capital I eases, and other I ong-term obi i gati ans are recognized as I i abi Ii ti es i n the governrrental fund fi nanci al staterrents when due.

Debt Premiums and Discounts

I n the governrrent -wide fi nanci al staterrents, I ong-term obi i gati ans are reported as I i abi Ii ti es in the appl i cabi e governrrental activities Staterrent of Net Position. Debt premiums and discounts, as well as issuance costs, related to prepaid i nsurance costs are amortized wer the Ii fe of the bonds using the straight -I i ne rrethod.

In governrrental fund financial staterrents, bond premiums and discounts, as well as debt issuance costs are recognized in the current period. The face amount of the debt is reported as other financing sources. Preni urns received on debt issuance are also reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds, are reported as debt service expenditures.

Deferred OutflONs~ nflONs of Resources

In addition to assets, the Staterrent of Net Position also reports deferred outflONs of resources. This separate financial staterrent elerrent represents a consurrption of net position that applies toa future period and so will not be recognized as an expense or expenditure unti I then. The District reports deferred outfl CM'S of resources for deferred charges on refunding of debt and for pension related items.

In addition to liabilities, the Staterrent of Net Position reports a separate section for deferred inflONs of resources. This separate fi nanci al staterrent el errent represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The District reports deferred inflONs of resources for pension related i terns.

Pensions

For purposes of rreasuri ng the net pension I i abi Ii ty and def erred outfl ONsfi nfl CM'S of resources related to pensi ans, and pension expense, i nformati on about the fiduciary net position of the Cal i forni a State Teachers R eti rerrent System (CalSTRS) and the California Public Employees' Retirerrent System (Cal PERS) plan for schools (Plans) and additions to;tleductions from the Plans' fiduciary net position have been determined on the same basis as they are reported b,t CalSTRS and Cal PERS. For this purpose, benefit payrrents (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Member contributions are recognized in the period in which they are earned. I nvestrrents are reported at fair value.

31

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Fund Balances -Gwernmental Funds

As of June 30, 2016, fund balances of the governmental funds are classified as folio.vs:

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

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

Assigned -amounts that do not meet the criteria to be classified as restricted or comnitted but that are intended to be used for specific purposes. Underthe 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.

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 comnitted, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of comnitted funds, then assigned funds, and finally unassigned funds, as needed, uni ess the governing board has prwided otherwise in its commitment or assignment actions.

Minimum Fund Balance Policy

The governing board adopted a ninimum fund balance policy for the General Fund in order to protect the district against revenue shortfalls or unpredicted on-time expenditures. The policy requires a Reserve for Econonic Uncertainties consisting of unassigned amounts equal to no less than five percent of General Fund expenditures and other fi nanci ng uses.

Net Position

Net position represents the difference between assets and liabilities. Net position net of investment in capital assets consists of capital assets, net of accumulated depreciation, reduced b,t the outstanding balances of any borro.vings used for the acquisition, construction, or imprwement of those assets. Net position is reported as restricted when there are linitations imposed on their use either through the enabling legislation adopted b,t the District or through external restrictions imposed b,t creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. The government-wide financial statements report $18,313,724 of restricted net position, which is restricted b,t enabling legislation.

32

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

I nterfund Activity

Exchange transactions between funds are reported as revenues in the seller funds and as expenditures;expenses in the purchaser funds. Flo.vs of cash or goods from one fund to another without a requirement for rei:avment are reported as i nterfund transfers. I nterfund 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 pmicular expenditures/expenses to the funds that initially paid for them are not presented in the financial statements. I nterfund transfers are eliminated in the governmental activities columns of the Statement of Activities.

Estimates

The prepc1.rati on of the financial statements i n conformity with accounti ng pri nci pl es general ly accepted i n the United Stat es of America requi res managementto make estimates and assumptions that affect the amounts reported in the financial statements and accompc1.nying notes. Actual results may differ from those estimates.

Budgetary Data

The budgetary process is prescribed b,t provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no laterthanJ uly 1 of each year. The District governing board satisfied these requirements. The adopted budget is sul::ij ect to amendment throughout the year to gve consideration to unanti ci pc1.ted revenue and expenditures primarily resulting from events unkno.vn at the ti me of budget adoption with the I egal restriction that ex pen di tu res cannot exceed appropriations b,t major ol::ij ect account.

The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after al I budget amendments have been accounted for. For budget purposes, on behalf i:avments have not been included as revenue and expenditures as required under generally accepted accounting pri nci pl es.

Property Tax

Secured property taxes attach as an enforcealbl e I i en on property as of J anuary 1 . Taxes are payable i n two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of San Bernardino bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received.

33

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Change in Accounting Principles

In February 2015, the GASB issued Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair val ue is the price that would be received to sel I an asset or paid to transfer a Ii abi Ii ty i n an orderly transaction between rrarket participants at the measurement date. This Statement prwides guidance for determining a fair value measurement for financial reporting purposes. This Statement also prwides guidance for applying fair val ue to certai n i nvestments and di sci osures related to al I f ai r val ue measurements.

The District has implemented the provisions of this Statement as of June 30, 2016.

lnJ une 2015, the GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Prwisions of GASB Statements No. 67 and No. 68. The ol::ijective of this Statement is to improve the usefulness of information about pensions i ncl uded i n the general purpose external fi nanci al reports of state and I ocal gwernments for maki ng decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemplO{ment benefits with regard to prwi di ng decision-useful i nforrrati on, supporting assessments of accountabi I ity and i nter --period equity, and creating additional transparency.

This Statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for purposes of prwiding those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement No. 68. It also amends certain prwisions of Statement No. 67, Financial Reporting for Pension Plans and Statement No. 68 for pension plans and pensions that are within their respective scopes.

The provisions in this Statement effective as of June 30, 2016, include the prwisions for assets accumulated for purposes of providing pensions through defined benefit plans and the amended prwisions of Statements No. 67 and No. 68. The District has implemented these provisions as of June 30, 2016. The prwisions in this Statement related to defined benefit pensions that are not within the scope of Statement No. 68 are effective for periods beginning after J une 15, 2016.

lnJ une 2015, the GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The ol::ijective of this Statement is to identify-in the context of the current givernmental financial reporting environment-the hierarchy of generally accepted accounting pri nci pies (GAAP). The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local gwernmental entities in conformity with GAAP and the frame.vork for selecting those pri nci pies. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative I iterature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP.

This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting P ri nci pies for State and Local Gwernments.

The District has implemented the provisions of this Statement as of June 30, 2016.

34

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

In December 2015, the GASB issued Statement No. 79, Certain External Investment Pools and Pool Participmts. This Statement addresses accounti ng and financial reporting for certain external i nvestment pools and pool plrticipc1.nts. Specifically, it establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in this Statement. The specific criteria address ( 1) ho.v the external investment pool transacts with pc1.rti ci pc1.nts; ( 2) requirements for portfolio maturity, qual ity, diversification, and Ii qui di ty; and ( 3) cal cul ati on and requi rements of a shado.v price. 5 i gni fi cant noncorrpl i ance prevents the external i nvestment pool from measuri ng al I of its investments at amortized cost for financial reporti ng purposes. Professi anal j udgment is required to deterni ne if i nstances of noncompliance with the criteria established 0y this Statement during the reporting period, individually or in the aggregate, were significant.

If an external investment pool does not meet the criteria established 0y this Statement, that pool should apply the prwisions in pc1.ragraph 16 of Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, as amended. If an external investment pool meets the criteria in this Statement and measures all of its investments at amortized cost, the pool's pc1.rticipc1.nts also should measure their investments in that external investment pool at amortized cost for financial reporting purposes. If an external investment pool does not meet the criteria in this Statement, the pool's plrti ci pc1.nts should measure their investments in that pool at fair value, as prwided in paragraph 11 of Statement No. 31, as amended.

This Statement establ i shes additional note di sci osure requi rements for qual i fyi ng external i nvestment pools that measure al I of their investments at amortized cost for financial reporting purposes and for gwernments that plrticipate in those pools. Those disclosures for both the qualifying external investment pools and their plrti ci pc1.nts incl ude i nformati on about any I i ni tati ons or restrictions on plrti ci pant withdrawals.

The District has implemented the provisions of this Statement as of June 30, 2016.

New Accounting Pronouncements

lnJ une 2015, the GASB issued Statement No. 74, Financial Reporting for PostemplO{ment Benefit Plans Other Than Pension Plans. The ol::ijective of this Statement is to improve the usefulness of information about postemplO{ment benefits otherthan pensions (other postemplO{ment benefits or OPEB) included in the general purpose external financial reports of state and local gwernmental OPEB plans for making decisions and assessing accountabl Ii ty. This Statement results from a comprehensive review of the effectiveness of exi sti ng standards of accounting and financial reporting for all postemplO{ment benefits (pensions and OPEB) with regard to prwiding decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transpc1.rency.

This Statement replaces Statements No. 43, Financial Reporting for PostemplO(ment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements b,t Agent EmplO{ers and Agent Multiple-£mplO{er Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements forthose OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement No. 43, and Statement No. 50, Pension Disclosures.

The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2016. Early implementation is encouraged.

35

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

lnJ une 2015, the GA5B issued Statement No. 75, Accounting and Financial Reporting for PostemplO(ment Benefits Other Than Pension. The prirrary ol::ijective of this Statement is to improve accounting and financial reporting b,t state and local gcwernments for posterrpl O{ment benefits other than pensions ( other posterrpl O{ment benefits or OPEB). It also imprwes information provided b,t state and local gcwernmental emplO{ers about financial support for OPEB that is prwided b,t other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for al I posterrpl O{ment benefits (pensions and OPE B) with regard to prwi di ng decision-useful i nf orrrati on, supporti ng assessments of accountabi Ii ty and i nter--peri od equity, and creating additional transparency.

This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting b,t ErrplO{ers for PosterrplO{ment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements b,t Agent EnplO{ers and Agent Multiple--ErrplO{er Plans, for OPEB. Statement No. 74, Financial Reporting for Posterrpl O{ment Benefit PI ans Other Than Pension PI ans, establishes new accounting and fi nanci al reporting requirements for OPE B pl ans.

The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2017. Early irrplementation is encouraged.

In August 2015, the GASB issued Statement No. 77, Tax Abatement Disclosures. This Statement requires givernments that enter i nto tax abatement agreements to di sci ose the fol Io.vi ng i nformati on about the agreements:

• Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, el i gi bi I ity criteria, the mechanism b,t which taxes are abated, prwi si ons for recapturing abated taxes, and the types of cormi tments rrade b,t tax abatement recipients

• The gross dollar amount of taxes abated during the period • Comni tments made b,t a gwernment, other than to abate taxes, as part of a tax abatement agreement

The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2015. Early implementation is encouraged.

In December 2015, the GASB issued Statement No. 78, Pensions Provided Through Certain Multiple--ErrplO{er Defined Benefit Pension Plans. The ol::ijective of this Statement is to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue is associated with pensions prwi ded through certai n multi pl e--errpl O{er defi ned benefit pension pl ans and to state or I ocal givernmental empl O{ers whose errpl O{ees are prwi ded with such pensions.

Prior to the issuance of this Statement, the requi re men ts of Statement No. 68 applied to the fi nanci al statements of all state and local givernmental errplO{ers whose emplO{ees are prwidedwith pensions through pension plans that are adni ni stered through trusts that meet the criteria in paragraph 4 of that Statement.

36

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

This Staterrent arrends the scope and applicability of Staterrent No. 68 to exclude pensions prwided to employees of state or I ocal governrrental empl ayers through a cost --shari ng multi pl e-€mpl ayer defined benefit pension plan that (1) is not a state or local governrrental pension plan, (2) is used to prwide defined benefit pensions both to employees of state or I ocal governrrental empl ayers and to employees of empl ayers that are not state or local governrrental employers, and (3) has no predominant state or local governrrental employer (either individually or collectively with other state or local governrrental employers that provide pensions through the pension plan). This Staterrent establishes requirerrents for recognition and rreasurerrent of pension expense, expenditures, and Ii abi I iti es; note di sci osures; and required suppl errentary information for pensions that have the characteristics descri bed above.

The requirerrents of this Staterrent are effective for reporting periods beginning after December 15, 2015. Early i rrpl errentati on is encouraged.

I nJ anuary 2016, the GASB issued Staterrent No. 80, Blending Requi rerrents for Certain Corrponent Units -arrendrrent of GASB Staterrent No. 14. The ol::ijective of this Staterrent is to irrprwe financial reporting b,t cl ari fyi ng the financial staterrent presentation requi rerrents for certain corrponent units. This Staterrent amends the blending requirerrents established in i:aragraph 53 of Staterrent No. 14, The Financial Reporting Entity, as arrended. The additi anal criterion requires blending of a corrponent unit incorporated as a not-for-profit corporation in which the primary governrrent is the sole corporate rrember. The additional criterion does not apply to component uni ts incl uded in the fi nanci al reporting entity pursuant to the prwi si ons of Staterrent No. 39, Deterni ni ng Whether Certain Organizations Are Corrponent Units.

The requirerrents of this Staterrent are effective for reporting periods beginning after June 15, 2016. Early i rrpl errentati on is encouraged.

In March 2016, the GASB issued Staterrent No. 81, Irrevocable Split-I nterestAgreerrents. The ol::ijective of this Staterrent is to improve accounting and financial reporting for irrevocable split-interest agreerrents b,t providing recognition and measurerrent guidance for situations in which a governrrent is a beneficiary of the agreerrent.

This Staterrent requires that a governrrent that receives resources pursuant to an irrevocable split-interest agreerrent recognize assets, I i abi Ii ti es, and deferred i nfl o.vs of resources at the i ncepti on of the agreerrent. Furthermore, this Staterrent requires that a governrrent recognize assets representi ng its beneficial interests i n irrevocable split-interest agreerrents that are administered b,t a third party, if the governrrent controls the present service cai:acity of the beneficial interests. This Staterrent requires that a governrrent recognize revenue when the resources become appl i cable to the reporting period.

The requi rerrents of this Staterrent are effective for financial staterrents for periods beginning after December 15, 2016, and should be applied retroactively. Early implerrentation is encouraged.

37

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

In March 2016, the GASB issued Staterrent No. 82, Pension Issues -An Arrendrrent of GASB Staterrents No. 67, No. 68, and No. 73. The ol::ijective of this Staterrent is to address certain issues that have been raised with respect to Staterrents No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Staterrent No. 68, and Arrendrrents to Certain P rwisi ons of GASB Staterrents No. 67 and No. 68. Specifically, this Staterrent addresses issues regarding (1) the presentation of i:ayroll,elated rreasures in required suppl errentary i nforrrati on, ( 2) the selection of assurrpti ons and the treatrrent of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of i:avrrents made b,t empl O{ers to satisfy empl O{ee (plan rrerrber) contri buti on requi rerrents.

The requirerrents of this Staterrent are effective for reporting periods beginning after June 15, 2016, except for the requirerrents of this Staterrent for the selection of assumptions in a circumstance in which an errplO(er's pension liability is rreasured as of a date otherthan the errplO(er's most recent fiscal year-end. In that circumstance, the requi rerrents for the selection of assumptions are effective for that errplO(er in the first reporting period in which the rreasurerrent date of the pension liability is on or after June 15, 2017. Early i rrpl errentati on is encouraged.

NOTE 2-DEPOSITSAND INVESTMENTS

Summary of Deposits and Investments

Deposits and investrrents as of June 30, 2016, are classified in the accomi:anying financial staterrents as fol lo.vs:

Gwernrrental activities Fiduciary funds

Total Deposits and I nvestrrents

Deposits and i nvestrrents as of J une 30, 2016, consist of the fol Io.vi ng:

Cash on hand and in banks Cash in revolving I nvestrrents

Total Deposits and I nvestrrents

Policies and Practices

$ 45,439,718 1,409,041

$ 46,848,759

$ 1,694,029 50,000

45,104,730 $ 46,848,759

The District is authorized under California Gwernrrent Code to make direct investrrents in local agency bonds, notes, or warrants within the State; U.S. Treasury i nstrurrents; registered State warrants or treasury notes; securities of the U.S. Gwernrrent, or its agencies; bankers acceptances; comrrercial paper; certificates of deposit placed with comrrercial banks and;br savings and loan companies; repurchase or reverse repurchase agreerrents; medium term corporate notes; shares of beneficial interest issued b,t diversified rranagerrent companies, certificates of participation, obiigations with first priority security; and collateralized mortgage obligations.

38

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Investment in County Treasury - The District is considered to be an involuntary i:articipant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro--rata share of the fair value prwided b,t 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 b,t the County Treasurer, which is recorded on the amortized cost basis.

General Authorizations

Li nitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules bel cw:

Maximum Maximum Maximum Authorized Remaining Percentage Investment

I nvestment Type Maturity of Portfolio i n One I ssuer Local Agency B ands, N ates, Warrants Syears None None Registered State Bonds, Notes, Warrants Syears None None U.S. Treasury Obligations Syears None None U.S. Agency Securities Syears None None Banker's Acceptance 180days 40)6 30)6 Commercial Paper 270days 25% 10)6 N egoti able Certificates of Deposit Syears 30)6 None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20)6 of base None Medi um-Term Corporate N ates Syears 30)6 None Mutual Funds N/A 20)6 10)6 Money Mark et M utual Funds N/A 20)6 10)6 Mortgage Pass-Through Securities Syears 20)6 None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAI F) N/A None None Joint Po.vers Authority Pools N/A None None

Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. General ly, the I ongerthe maturity of an investment, the greaterthe sensitivity of its fair value to changes in market interest rates. The District does not have a formal investment policy that Ii nits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The District manages its exposure to interest rate risk b,t investing in the County Pool and purchasing a corrbination of shorter term and I anger term investments and b,t ti ni ng cash fl o.vs from maturities so that a portion of the portfolio is maturing or coning close to maturity evenly wertime as necessary to provide the cash flew and liquidity needed for operations.

39

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Specific Identification

lnforrration about the sensitivity of the fair values of the District's investrrents to rrarket interest rate fluctuation is prwided b,t the follo.ving schedule that sho.vs the distribution of the District's investrrent b,t rraturity:

I nvestrrent Type Federated U.S. Treasury Cash Reserve San Bernardi no County Treasury I nvestrrent Pool

Total

Credit Risk

$

$

Reported Average Maturity Arnount in Days

480,651 52 days 44,624,079 311 days 45,104,730

Credit risk is the risk that an issuer of an investrrent will not fulfill its obligation to the holder of the investrrent. This is rreasured b,t the assignrrent of a rating b,t a nationally recognized statistical rating organization. The District's investrrents in the San Bernardino County Pool is rated AAA b,t Fitch Ratings. The investrrents with the Federated U.S. Treasury Cash Reserves have been ratedAAArn b,t Standard and Poor's Ratings.

Custodial Credit Risk-Deposits

This is the risk that in the event of a bank failure, the District's deposits rray not be returned to it. The District does not have a policy for custodial credit risk for deposits. Ho.vever, the California Gwernrrent Code requires that a financial institution secure deposits rrade b,t State or local governrrental units b,t pledging securities in an undivided collateral pool held b,t a depository regulated under state law (unless so waived b,t the governrrental unit). The rrarket value of the pledged securities in the col lateral pool rnust equal at least 11 0 percent of the total arnount deposited b,t the public agency. California law alsoallo.vs financial institutions to secure public deposits b,t pledging firsttrust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued b,t the Federal Horne Loan B ank of San Francisco havi ng a val ue of 1 05 percent of the secured deposits. As of June 30, 2016, the District's bank balance of $1,395,684was exposed to custodial credit risk because it was uninsured and collateralizedwith securities held b,t the pledging financial institution's trust departrrent or agent, but not in the narre of the District.

40

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

NOTE 3-FAIR VALUE MEASUREMENTS

The District categorizes the fair value measurements of its investments based on the hierarchy established 0y 92nerally accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure an asset's fair value. The follo.ving provides a sumrrary of the hierarchy used to measure fair value:

Level 1 -Quoted prices in active rrarkets for identical assets that the District has the ability to access at the measurement date. Level 1 assets may include debt and equity securities that are traded in an active exchang2 rrarket and that are highly Ii quid and are actively traded in wer-the-counter markets.

Level 2-0bservable inputs otherthan Level 1 prices such as quoted prices for similar assets in active rrarkets, quoted prices for identical or sinilar assets in rrarkets that are not active, or other inputs that are observable, such as interest rates and curves observable at commonly quoted intervals, irrpliedvolatilities, and credit spreads. For financial reporting purposes, if an asset has a specified term, a Level 2 input is required to be observable for substantially the ful I term of the asset.

Level 3-Unobservable inputs should be developed using the best inforrration available underthe circumstances, which might include the District's o.vn data. The District should aqj ust that data if reasonably avai I able i nforrrati on i ndi cat es that other rrarket parti ci pants would use different data or certain ci rcumstances specific to the District are not avai I able to other market participants.

Uncategorized -Investments in the San Bernardino County Treasury Investment Pool are not measured using the input levels abcwe because the District's transactions are based on a stable net asset value per share. All contributions and redemptions are transacted at $1.00 net asset value per share.

The District's fair value measurements are as fol lo.vs atJ une 30, 2016:

I nvestment Type San Bernardi no County Treasury Investment Pool

41

Reported Amount

$ 44,624,079 U ncategori zed

$ 44,624,079

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

NOTE 4-RECEIVABLES

Receivables atJ une 30, 2016, consisted of intergcwernrrental grants, entitlerrents, interest and other local sources. All receivables are considered collectible in full.

County School Non-Major General Building Facilities G CNernmental Fiduciary

Fund Fund Fund Funds Total Funds Federal GCNernment

Categorical aid $ 2,229,833 $ $ $ 460,949 $ 2,690,782 $ StateGCNernment

LCFF apportionment Categorical aid 185,599 32,334 217,933 Lottery 1,206,187 1,206,187 Special Education 627,955 627,955

Local G CNernment Interest 58,911 11,670 5,312 4,950 80,843

Other Local Sources 419,553 22,860 442,413 2,674 Total $ 4,728,038 $ 11,670 $ 5,312 $ 521,093 $ 5,266,113 $ 2,674

42

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

NOTE 5 -CAPITAL ASSETS

Capital asset activity for the fi seal year endedJ une 30, 2016, was as fol I o,vs:

GOJernmental Activities Capital Assets Not Being Depreciated:

Land Construction in Progress

Total Capital Assets Not B ei ng Depreciated

Capital Assets Being Depreciated: Land I mprwements Bui I dings and I mprwements Furniture and Equipment

Total Capital Assets Being Depreciated

Total Capital Assets Less A ccurnul ated Depreciation:

Land I mprwements Bui I dings and I mprwements Furniture and Equipment

Total Accumulated Depreciation GOJernmental Activities Capital Assets, Net

Balance July 1, 2015

$ 7,875,703

7,875,703

43,643,081 153,535,001 12,208,294

200,386,466 217,262,169

13,233,229 68,647,980 9,511,758

91,392,967

$125,869,202

Additions

$ -

27,300

27,300

633,838

4,232,668

4,866,506 4,893,806

1,426,493 4,100,007

446,075 5,972,575

$ (1,078,769)

Depreciation expense was charged as unallocated on the Statement of Activities.

43

Balance Deductions J une 30, 2016

$

$

- $ 7,875,703 27,300

7,903,003

44,276,919 153,535,001 16,440,962

214,252,972 222,155,975

14,659,722 72,747,987 9,957,833

97,365,542

- $124,790,433 ====

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

NOTE 6-1 NTE RFU ND TRANSACT! ONS

I nterfund Receivables;Payables (Due To;Due From)

I nterfund receivable and i:avabl e balances arise from i nterfund transactions and are recorded b,t al I funds affected in the period in which transactions are executed. I nterfund receivable and i:ayable balances atJ une 30, 2016, between major and non--rnaj or gcwernmental funds, non--rnaj or enterprise funds, internal service funds, and fiduciary funds are as folio.vs:

Due From County School Non-Major

General Building Facilities Governmental Due To Fund Fund Fund Funds Total

$ - $ 139,774 $ - $ 311,454 $ 451,228 General Fund Building Fund 2,938 2,977,082 2,980,020

77,347 77,347 Non-Major Governmental Funds Total $ 80,285 $ 139,774 $2,977,082 $ 311,454 $3,508,595

The balance of $2,977,082 due to the Building Fund from the County School Facilities Fund resulted from reimbursement of construction costs.

The balance of $139,774 due to the General Fund from the Building Fund resulted from i:ayroll costs.

A balance of $258,515 due to the General Fund from the Cafeteria Non-Major Governmental Fund resulted from i:ayrol I and i ndi rect costs due.

A balance of $52,939 due to the General Fund from the Adult Education Non-Major GOJernmental Fund resulted from i:ayrol I and i ndi rect costs due.

All rerraining balances resulted forthe time lag between the date that ( 1) interfund goods and services are prCNided or rei rrbursabl e expenditures occur, ( 2) transactions are recorded in the accounting system, and ( 3) payments between funds are rrade.

44

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

NOTE 7-ACCOUNTSPAYABLE

Accounts i:ayable atJ une 30, 2016, consisted of the follo.ving:

General Fund

Salaries and benefits $ 7,389,532 LCFF appclltionrrent 1,196,251 Se1Vi ces and operating 1,712,331 B oaks and suppl i es 287,073 Construction 5,459 Other significant i:ayables 476,899

Total $ 11,067,545

NOTE 8-LONG-TERM OBLIGATIONS

Summary

Non-Major Building Gcwernrrental

Fund Funds $ - $ 19,314

12,836 641 270,816 8,808

19,523

$ 303,175 $ 28,763

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

Balance July l, 2015 Balance

as restated Additions Deductions June 30, 2016 General obligation bonds $ 112,141,455 $ 38,164,346 $ 33,642,418 $ 116,663,383 Prerriumon bonds 3,737,423 3,414,419 1,030,647 6,121,195 Corrpensated absences 374,432 71,144 445,576 Other posterrployrnent benefits (OP EB) 7,094,295 3,027,953 1,420,351 8,701,897

$ 123,347,605 $ 44,677,862 $ 36,093,416 $ l3l,932,05l

Total $ 7,408,846

1,196,251 1,725,808

566,697 24,982

476,899 $ 11,399,483

Due in One Year

$ 3,425,000

$ 3,425,000

Payrrents on the general obligation bonds are made b,t the bond interest and redemption fund with local revenues. The accrued vacation wi 11 be i:aid b,t the fund for which the errpl O{ee worked. The suppl errental early reti rerrent plan wil I be plid b,t the General Fund. Other postemplO{rrent benefits are generally plid b,t the General Fund

45

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Bonded Debt

The outstandi ng general obi i gati on bonded debt is as fol I o,vs:

Bonds Issue Maturity I merest Original Outstanding Date Date Rate Issue July l, 2015 Issued

09J06Pl 08Pl/20 3.15-6.50 $ 15,999,914 $ 1,928,632 $ -

04 /25P5 08Pl/28 3.50-5.36 7,999,669 4,212,830 06/lBPB 08Pl/33 3.25-5.33 26,532,404 29,543,193 1 ops pg 08Pl/4 l 5.59-6.65 11,999,981 16,899,066 04 JOG/ll osp1;50 2.00-7.75 23,350,977 28,647,734 05P3/ll 08Pl/25 3.00-5.00 7,670,000 6,775,000 10/25/12 08Pl/25 l.00-5.00 ll, 180,000 9,880,000 02Pl/l5 08Pl/39 2.004.00 10,000,000 10,000,000 02Pl/l5 08Pl/26 2.00-5.00 4,255,000 4,255,000 12/23/15 08Pl/27 2.00-5.00 12,750,000 12,750,000 06j()7/l6 osp1140 2.00-5.00 21,266,972 21,266,972

$ 112,141,455 $ 34,016,972

2000 Election General Obligation Bonds, Series B

Bonds Outstanding

Accreted Redeerred June 30, 2016 $ 127,092 $ - $ 2,055,724

220,148 375,000 4,057,978 819,638 13,885,000 16,477,831

l, 125,419 17,897,418 127,067 1,855,077 160,000 30,342,811

325,000 6,450,000 l ,(X)(),(X)() 8,880,000

10,000,000 4,255,000

12,750,000 21,266,972

$ 4,147,374 $ 33,642,418 $ 116,663,383

On Septerrber 6, 2001, the District issued the $15,999,914, consisting of $819,936 in capital appreciation and $7,301,343 in convertible capital appreciation bonds convertible to current interest bonds on August 1, 2003, and $7,878,635 term bonds, with a final rrnturity to occur on August 1, 2020. Interest rates on the bonds range from of 3.15 to 6.50 percent. Proceeds from the sale of the bonds were to be used for the purpose of i:aying for repairs, modernization, and construction of school facilities. AtJ une 30, 2016, the princii:al balance outstanding of the 2000 General Obligation Bonds, Series B was $2,055,724.

2000 Election General Obligation Bonds, Series 2005 C

On April 25, 2005, the District issued the $7,999,669, consisting of $5,765,000 in current interest and term bonds and $2,234,669 in capital appreciation bonds. The 2005 Series C Bonds have a final maturity to occur on August 1, 2028. Interest rates on the bonds range from of 3.50to 5.36 percent. Proceeds from the sale of the bonds were to be used for the purpose of i:aving for rei:airs, modernization, and construction of school facilities. On February 4, 2015, the District issued the 2015 General Obligation Refunding Bonds, in the amount of $4,255,000, to refund all of the callable outstanding current interest 2000 General Obligation Bonds, Series C. As a result, the refunded portion of the debt obligation has been rem::wed as a long-term obligation from the givernment-wide Statement of Net Position. AtJ une 30, 2016, the pri nci pai balance outstanding of the capital appreciation 2000 General Obi igation Bonds, Series 2005C was $4,057,978. Unamortized preni um received on issuance of the bonds amounted to $142,398 as of June 30, 2016.

46

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

2008 Election General Obligation Bonds, Series A

OnJ une 18, 2008, the District issued the $26,532,404 consisting of $16,585,000 in current interest and term bonds and $9,947,404 in capital appreciation bonds. The Series A Bonds have a final maturity to occur on August 1, 2033. Interest rates on the bonds range from of 3.25 to 5.33 percent. Proceeds from the sale of the bonds were to be used for the purpose of plying for repc1.irs, modernization, and construction of school facilities. On December 23, 2015, the District issued the 2015 General Obligation Refunding Bonds, Series A, to acwance refund all of the District's Election of 2008 General Obligation Bonds, Series A maturing on August 1, 2019 through and including August 1, 2027. As a result, the portion of the bonds refunded totaling $13,535,000, is considered to be def eased and the liability for those bonds has been rerroved from the gcwernment-wide statement of net position. AtJ une 30, 2016, the principll balance outstanding of the 2008 General Obligation Bonds, Series A was $16,477,831. Unamortized prenium received on issuance of the bonds amounted to $585,609 as of J une 30, 2016.

2008 Election General Obligation Bonds, Series B

On October 8, 2009, the District issued the $11,999,981 in capital appreciation bonds. The Series B Bonds have a final maturity to occur on August 1, 2041. Interest rates on the bonds range from of 5.59to 6.65 percent. Proceeds from the sale of the bonds were to be used for the purpose of plying for repc1.irs, modernization, and construction of school facilities. OnJ une 7, 2016, the District issued the 2016 General Obligation Refunding Bonds, Series B, to acwance refund all of the District's Election of 2008 General Obligation Bonds, Series B maturing on August 1, 2022 through and includingAugust 1, 2040. As a result, the portion of the bonds refunded totaling $17,897,418, is considered to be def eased and the liability for those bonds has been rerroved from the givernment-wide statement of net position. AtJ une 30, 2016, the principll balance outstanding of the 2008 General Obligation Bonds, Series B was $127,067.

2008 Election General Obligation Bonds, Series C

On April 6, 2011, the District issued the $23,350,977, consisting of $14,912,923 in capital appreciation and $3, 568,054 in convertible capital appreciation bonds convertible to current interest bonds on August 1, 2020, and $4,870,000 in current interest serial and term bonds, with a final maturity to occur on August 1, 2050. Interest rates on the bonds range from of 2.00to 7.75 percent. Proceeds from the sale of the bonds were to be used for the purpose of pc1.ying for repc1.irs, modernization, and construction of school facilities. AtJ une 30, 2016, the principll balance outstanding of the 2008 General Obligation Bonds, Series C was $30,342,811. Unamortized premium received on issuance of the bonds amounted to $103,266 as of June 30, 2016.

2008 Election General Obligation Bonds, Series D

On February 4, 2015, the District issued the $10,000,000, in current interest and term bonds, with a final maturity to occur on August 1, 2039. Interest rates on the bonds range from of 2.00to 7.75 percent. Proceeds from the sale of the bonds were to be used for the purpose of plying for repc1.irs, modernization, and construction of school facilities. AtJ une 30, 2016, the principll balance outstanding of the 2008 General Obligation Bonds, Series D was $10,000,000. Unamortized preni um received on issuance of the bonds amounted to $533,421 as of J une 30, 2016.

47

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

2011 General Obligation Refunding Bonds

On May 3, 2011, the District issued the $7,670,000 in General Obligation Refunding Bonds. The 2011 General Obligation Refunding Bonds were issued as current interest bonds, and have a final rraturity to occur on August 1, 2025. Interest rates on the bonds range from of 3.00to 5.00 percent. The net proceeds from the issuance were used to current refund a portion of the District's outstanding 2000 Election General Obligation Bonds, Series A, and to i:av the costs of issuance associated with the refunding bonds. AtJ une 30, 2016, the principll balance outstanding of the 2011 General Obligation Refunding Bonds was $6,450,000. Unamortized prenium received on issuance of the bonds amounted to $227,733 as of June 30, 2016.

2012 General Obligation Refunding Bonds

On October 25, 2012, the District issued the $11,180,000 in General Obligation Refunding Bonds. The 2012 General Obligation Refunding Bonds were issued as current interest bonds, and have a final rraturity to occur on August 1, 2025. Interest rates on the bonds range from of 1.00 to 5.00 percent. The net proceeds from the issuance were used to advance refund a portion of the District's outstanding 2000 E I ecti on General Obi i gati on Bonds, Series B, and to i:av the costs of issuance associated with the refunding bonds. AtJ une 30, 2016, the pri nci i:al balance outstandi ng of the 2012 General Obi i gati on Ref undi ng Bands was $8,880,000. U namorti zed preni um received on issuance of the bonds amounted to $654,844 as of June 30, 2016.

2015 General Obligation Refunding Bonds

On February 4, 2015, the District issued the 2015 General Obligation Refunding Bonds, in the amount of $4,255,000, to refund all of the callable outstanding current interest 2000 General Obligation Bonds, Series C. The 2015 General Obligation Refunding Bonds have a final rraturity to occur on August 1, 2026. Interest rates on the bonds range from of 2.00 to 7.75 percent. AtJ une 30, 2016, the pri ncii:al balance outstanding of the 2015 General Obi igation Refunding Bonds was $4,255,000. Unamortized preni um received on issuance of the bonds amounted to $570,866 as of June 30, 2016.

2015 General Obligation Refunding Bonds, Series A

On December 23, 2015, the District issued the 2015 General Obligation Refunding Bonds, in the amount of $12,750,000, to acwance refund all of the District's Election of 2008 General Obligation Bonds, Series A maturing on August 1, 2019 through and includingAugust 1, 2027. The 2015 General Obligation Refunding Bonds, Series A have a final rraturity to occur on August 1, 2027. Interest rates on the bonds range from 2.00 to 5.00 percent. AtJ une 30, 2016, the princii:al balance outstanding of the 2015 General Obligation Refunding Bonds was $12,750,000. Unamortized prenium received on issuance of the bonds amounted to $2,496,701 as of J une 30, 2016.

The refunding of debt resulted in a decrease in debt service i:avments of $1,533,224. The transaction resulted in an econoni c gai n (difference between the present val ue of the debt service on the old and the ne.v bonds) of $1,290, 128. The acwance refunding met the requirements of an i n-5ubstance defeasance and the associated liabilities were rem:wed from the District's financial statements.

48

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

2016 General Obligation Refunding Bonds, Series B

OnJ une 7, 2016, the District issued the 2016 General Obligation Refunding Bonds, Series B, in the amount of $5,570,000 current interest serial bonds, and $15,696,972 capital appreciation serial bonds, to advance refund al I of the District's Election of 2008 General Obligation Bonds, Series B rraturing on August 1, 2022 through and includingAugust 1, 2040. The 2016 General Obligation Refunding Bonds, Series B have a final rraturity to occur on August 1, 2040. Interest rates on the bonds range from 2.00 to 5.00 percent. AtJ une 30, 2016, the pri nci pc1.I balance outstanding of the 2016 General Obi i gati on Refunding Bands was $21,266,972. Unamortized preni um received on issuance of the bonds amounted to $806,355 as of June 30, 2016.

The refunding of debt resulted in a decrease in debt service pc1.yments of $29,268,654. The transaction resulted in an econoni c gai n (difference between the present val ue of the debt service on the old and the ne.v bonds) of $11,986,611. The advance refunding met the requirements of an i n--substance defeasance and the associated Ii abi Ii ti es were rerroved from the District's financial statements.

Debt Service Requirements to Maturity

The bonds rrature through 2051 as fol Io.vs:

Accreted lnterestto Fiscal Year Principc1.I Interest Maturity Total

2017 $ 3,425,000 $ $ 2,062,356 $ 5,487,356 2018 3,734,256 45,744 2,017,041 5,797,041 2019 4,085,592 89,408 1,900,381 6,075,381 2020 4,419,588 140,412 1,751,406 6,311,406 2021 4,596,287 173,713 1,825,556 6,595,556

2022-2026 23,198,545 846,455 7,776,169 31,821,169 2027-2031 22,150,037 12,769,963 3,301,819 38,221,819 2032-2036 15,518,903 20,961,097 2,672,847 39,152,847 2037-2041 16,484,963 17,015,037 2,011,925 35,511,925 2042-2046 10,801,466 65,535,611 70,000 76,407,077 2047-2051 8,248,746 88,149,386 96,398,132

Total $ 116,663,383 $ 205,726,826 $ 25,389,500 $347,779,709

Accumulated Unpaid Employee Vacation

The long-term portion of accumulated unpaid employee vacation forthe District atJ une 30, 2016, amounted to $445,576.

Other Postemployment Benefits (OPE B) Obligation

The District's annual required contribution for the year endedJ une 30, 2016, was $3,154,445, and contributions made b,t the District during the year were $1,420,351. Interest on the net OPEB obligation and aqjustments to the annual required contribution were $283,772 and $(410,264), respectively, which resulted in an increase to the net OPEB obligation of $1,607,602. As of June 30, 2016, the net OPEB obligation was $8,701,897. See Note 11 for additi anal i nforrrati on regardi ng the OPE B obi i gati on and the postempl oyment benefits pl an.

49

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

NOTE 9-NON-OBLIGATORY DEBT

Non-obligatory debt relates to debt issuances b,t the Comnunity Facility Districts 99-1 and 2001-1, as authorized b,t the Mello-Roos Community Facilities Act of 1982 as arrended, and the Mark-Roos Local Bond Pooling Act of 1985, and are i:ayable from special taxes la,ied on property within the Community Facilities Districts according to a rrethock:Jlogy approved b,t the voters within the District. Neitherthe faith and credit nortaxing pcwer of the District is pledged to the i:avrrent of the bonds. Reserves have been established from the bond proceeds to rreet delinquencies should they occur. If delinquencies occur beyond the arrounts held in those reserves, the District has no duty to i:av the delinquency out of any available funds of the District. The District acts solely as an agent for those i:ayi ng taxes I a,i ed and the bondholders, and rray initiate for eel osure proceedi ngs. 5 peci al assessrrent debt of $3,700,000as ofJ une 30, 2016, does not represent debt of the District and, as such, does not appear in the accorni:anyi ng basic fi nanci al staterrents.

NOTE 10-FUNDBALANCE5

Fund balances are corrposed of the fol Io.vi ng el errents:

County Bond School Interest and Non-Major

General Buildirg Facilities Rederrption Governmental Fund Fund Fund Fund Funds Total

Nonspendable Revolvi rg cash $ 50,000 $ - $ - $ - $ - $ 50,000 Stores irrventories 208,056 22,250 230,306 Prepaid expenditures 14,731 5,362 20,093

Total Nonspendable 272,787 5,362 22,250 300,399

Restricted Legally restricted programs 5,848,021 1,225,751 7,073,772 Capital projects 8,138,709 30,449 2,982,577 11,151,735 Debt service 9,091,706 9,091,706

Total Restricted 5,848,021 8,138,709 30,449 9,091,706 4,208,328 27,317,213

Assigned Other program ralances 8,526,161 8,526,161

Unassigned Reserve for econonic urcertai nties 3,408,427 3,408,427

Total Unassigned 3,408,427 3,408,427 Total $18,055,396 $8,144,071 $ 30,449 $9,091,706 $ 4,230,578 $ 39,552,200

50

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

NOTE 11-POSTEMPLOYMENT HEAL TH CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION

Plan Description

The Plan is a single-employer defined benefit healthcare plan administered b,t the Upland Unified School District. The Plan provides medical, dental, vision, and life insurance benefits to eligible retirees and their spouses. Membership of the Plan consists of 99 retirees and beneficiaries currently receiving benefits, and 932 active pl an members.

Contribution Information

The contribution requirements of plan members and the District are established and may be amended b,t the District and the UplandTeachersAssociation (UTA), the local California Service Employees Association ( CS EA), and unrepresented groups. The requi red contribution is based on prqj ected pay-as-you-go fi nanci ng requirements. For fiscal year 2015--2016, the District contributed $1,420,351 to the plan, all of which was used for current premi urns.

Annual OPEB Cost and Net OPEB Obligation

The District's annual OPE B cost ( expense) is calculated based on the annual required contribution of the empl ayer (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 prqjected to ewer normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) wer a period not to exceed thirty years. The follo.vingtable sho.vs 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 Adj ustment to annual requi red contri buti on Annual OPE B cost ( expense) Contributions made Increase in net OPE B obi i gati on Net OPEB obligation, beginning of year Net OPEB obligation, end of year

51

$ 3,154,445 283,772

(410,264) 3,027,953

(1,420,351) 1,607,602 7,094,295

$ 8,701,897

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Trend Information

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

Year Ended Annual OPEB Actual Percentage Net OPEB June 30, Cost Contri buti on Contri buted Obi i gati on

2014 $ 2,564,620 $ 1,372,058 23% $ 5,924,636 2015 2,543,356 1,373,697 19% 7,094,295 2016 3,027,953 1,420,351 16% 8,701,897

Funded Status and Funding Progress

A schedule of funding progress as of the most recent actuarial valuation is as follo.v:

Actuarial Accrued Liability Unfunded UAAL asa

Actuarial (AAL) - AAL Percentage of Valuation Actuarial Value Unprojected (UAAL) Funded Ratio Covered Covered Payrol I

Date of Assets ( a) Unit Credit ( b) (b-a) (a /b) Payroll (c) (lb-a] /c) July l, 2015 $ $ 23,491,553 $ 23,491,553 $ $ 69,648,837 34%

Actuarial Met hods and Assumptions

Prqjections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood b,t the emplO{er and the plan members) and include the types of benefits prwided at the time of each valuation and the historical pattern of sharing of benefit costs between the emplO{er and plan members to that point. The actuarial methods and assurrpti ans used incl ude techniques that are designed to reduce the effects of short -term vol ati I ity i n actuarial accrued I i abi Ii ti es and the actuarial value of assets, consistent with the I ong-term perspective of the cal cul ati ans.

In theJ uly 1, 2015, actuarial valuation, the unprqjected unit credit method was used. The actuarial assurrptions included a 4.0 percent investment rate of return (net of adninistrative expenses), based on the plan being funded in an irrevocable emplO{ee benefittrust invested in a combined equity and fixed income portfolio. Healthcare costtrend rates ranged from an initial 6.0 percentto an ultimate rate of 8.0 percent. The costtrend rate used for the Dental and Vision programs was 4.0 percent. The UAAL is being amortized at a level dollar method. The remaining amortization period atJ uly 1, 2013, was 22years. The actuarial value of assets was not deternined in this actuarial val uati on.

52

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

NOTE 12-RISK MANAGEMENT

The District's risk rranagerrent activities are recorded in the General Fund. The General Fund, through the purchase of cornrrercial insurance, administers employee life and health programs. The District i:articii:ates in the CSA C Excess I nsurance Authority publ i c entity risk pool for worker's cornpensati on program and Self -Insured Schools of California (SISC) public entity risk pool for property and liability program See Note 15 for additional inforrration relating to public entity risk pools.

For insured programs, there have been no significant reductions in insurance cwerage. Senl errent amounts have not exceeded coverage for the current year or the three prior years.

NOTE 13-EMPLOYEE RETIREMENT SYSTEMS

Qualified employees are cwered under multiple-€mployer defined benefit pension plans rraintained b,t agencies of the State of California. Academic employees are rrembers of the California State Teachers' Reti rerrent System (CalSTRS) and classified employees are rrembers of the California Public Employees' Retirerrent System (CalPERS).

For the fiscal year endedJ une 30, 2016, the District reported net pension liabilities, deferred outflo.vs of resources, deferred inflo.vs of resources, and pension expense for each of the above plans as folio.vs:

Collective Collective Net Deferred Outfl o.vs

Pension Plan Pension Liability of Resources CalSTRS $ 65,385,480 $ 20,499,777 Cal PERS 15,932,114 6,009,413

Total $ 81,317,594 $ 26,509,190

The detai Is of each pl an are as fol Io.vs:

California State Teachers' Retirement System (CalSTRS)

Plan Description

Col I ective Deferred Collective I nflo.vs of Resources Pension Expense

$ 11,574,349 $ 6,687,138 5,516,584 1,050,476

$ 17,090,933 $ 7,737,614

The District contributes to the State Teachers R eti rerrent Plan (STRP) administered b,t the California State Teachers' Retirerrent System (CalSTRS). STRP is a cost-sharing rnultiple-€mployer public employee retirerrent system defi ned benefit pension pl an. Benefit prwi si ons are establ i shed b,t State statutes, as I egi sl atively amended, within the State Teachers' Retirerrent Law.

A full description of the pension plan regarding benefit prwisions, assumptions (for funding, but not accounting purposes), and rrembership inforrration is listed in theJ une 30, 2014, annual actuarial valuation report, Defined Benefit Program Actuarial Valuation. This report and CalSTRS audited financial inforrration are publically available reports that can be found on the CalSTRS website under Publications at: http: //vlMNV.cal strs.com/rrember --publ i cations.

53

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Benefits Prwided

The STRP prwides retirerrent, disability and survivor benefits to beneficiaries. Benefits are based on rrembers' final corrpensation, age and years of service credit. Members hired on or before December 31, 2012, with five years of credited service are eligible for the normal retirerrent benefit at age 60. Members hired on or after January 1, 2013, with five years of credited service are eligible for the normal retirerrent benefit at age 62. The normal reti rerrent benefit is equal to 2.0 percent of final compensation for each year of credited service. The STRP is comprised of four programs: Defined Benefit Program, Defined Benefit Supplerrent Program, Cash Balance Benefit Program and Replacerrent Benefits Program. The STRP holds assets forthe exclusive purpose of prwiding benefits to rrembers and beneficiaries of these programs. CalSTRS also uses plan assets to defray reasonable expenses of adninistering the STRP. Although CalSTRS is the adninistrator of the STRP, the state is the sponsor of the STRP and obligor of the trust. In addition, the state is both an emplO{er and nonemplO{er contributing entity to the STRP.

The District contributes exclusively to the STRP Defined Benefit Program, thus disclosures are not included for the other pl ans.

The STRP prwisions and benefits in effect atJ une 30, 2016, are summarized as folio.vs:

Hire date Benefit formula Benefit vesting schedule Benefit payrrents R eti rerrent age Monthly benefits as a percentage of eligible compensation R equi red ernpl O{ee contribution rate R equi red ernpl O{er contri buti on rate R equi red state contribution rate

Contributions

STRP Defined Benefit Program On or before On or after

December 31, 2012 January 1, 2013 2% at 60 2% at 62

5 years of service Monthly for Ii fe

60 2.0% -2.4%

9.20% 10.73%

7.1258936

5 years of service Monthly for life

62 2.0% -2.4%

8.56% 10.73%

7.1258936

Required rrember, Di strict and State of California contributions rates are set 0y the California Legislature and Governor and detailed in Teachers' Retirerrent Law. The contributions rates are expressed as a level percentage of payroll using the entry age normal actuarial rrethod. In accordance with AB 1469, ernplO(er contributions into the CalSTRS will be increasing to a total of 19.1 percent of applicable rrember earnings phased wer a seven year period. The contribution rates for each plan for the year endedJ une 30, 2016, are presented above and the District's total contributions were $5,663,256.

54

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Pension Liabilities, Pension Expense, and Deferred Outflo.vs of Resources and Deferred I nflo.vs of Resources Related to Pensions

AtJ une 30, 2016, the District reported a liability for its proportionate share of the net pension liability that reflected a reduction for State pension support prwided to the District. The amount recognized b,t the District as its proportionate share of the net pension liability, the related state support and the total portion of the net pension liability that was associated with the District were as folio.vs:

Total net pension liability, including State share:

District's proportionate share of net pension I i abi Ii ty $ State's proportionate share of the net pension liability associated with the District

Total $

65,385,480 34,581,711 99,967,191

The net pension liability was rreasured as of June 30, 2015. The District's proportion of the net pension liability was based on a prqjection of the District's long-term share of contributions to the pension plan relative to the prqj ected contributions of al I i:arti ci pati ng school districts and the State, actuarial ly determined. The District's proportionate share forthe rreasurerrent periodJ une 30, 2015 andJ une 30, 2014, respectively, was 0.0971 percent and 0.0816 percent, resulting in a net increase in the proportionate share of 0.0155 percent.

For the year endedJ une 30, 2016, the District recognized pension expense of $6,687,138. In addition, the District recognized pension expense and revenue of $2,678,742 for support prwided b,t the State. AtJ une 30, 2016, the District reported deferred outfl o.vs of resources and def erred i nfl o.vs of resources related to pensions from the fol Io.vi ng sources:

Pension contributions subsequent to rreasurerrent date Net change i n proportion ate share of net pension I i abi I i ty Difference between prqj ected and actual earnings on pension pl an i nvestrrents Differences between expected and actual experience in the measurerrent of the total pension Ii abi Ii ty

Total

55

Deferred Outfl o.vs Deferred I nfl o.vs of Resources of Resources

$ 5,663,256 $ 9,684,758

5,151,763 10,481,742

1,092,607 $ 20,499,777 $ 11,574,349

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

The def erred outfl o.vs of resources related to pensions resul ti ng from District contri buti ons subsequent to the rreasurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year.

The deferred outflo.vs/(inflo.vs) of resources related to the difference between prqjected and actual earnings on pension plan investments will be amortized wer a closed five-year period and will be recognized in pension expense as fol Io.vs:

Deferred Year Ended Outflo.vs/(1 nflo.vs)

June 30, of Resources 2017 $ (2,205,973) 2018 (2,205,973) 2019 (2,205,973) 2020 1,287,940 Total $ (5,329,979)

The def erred outfl o.vs/( i nfl o.vs) of resources related to the net change i n proportion ate share of net pension Ii abi Ii ty and differences between expected and actual experience in the rreasurement of the total pension I i abi Ii ty will be amortized werthe Expected Average Rerraining Service Life (EARSL) of all members that are prwided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL for the 2014-2015 measurement period is ?years and will be recognized in pension expense as folio.vs:

Deferred Year Ended Outflo.vs/(1 nflo.vs)

June 30, of Resources 2017 $ 1,432,025 2018 1,432,025 2019 1,432,025 2020 1,432,025 2021 1,432,025

Thereafter 1,432,026 Total $ 8,592,151

56

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Actuarial Met hods and Assumptions

Total pension liability for STRP was determined b,t applying update procedures toa financial reporting actuarial valuation as of J une 30, 2014, and rol Ii ng forward the total pension Ii abi I ity to J une 30, 201 5. The financial reporting actuarial valuation as of June 30, 2014, used the follo.ving methods and assumptions, applied to all prior peri ads i ncl uded i n the measurement:

Val uati on date Measurement date Experience study Actuarial cost method Discount rate I nvestment rate of return Consumer price inflation Wage gro.vth

June 30, 2014 J une 30, 2015 July 1, 2cx:x=; throughJ une 30, 201 0 Entry age normal 7.60)6 7.60)6 3.00)6 3.75%

CalSTRS uses custom mortality tables to best fit the patterns of mortality among its merrbers. These custom tables are based on RP2000 series tables aqjustedto fit CalSTRS experience.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and i nfl ati on) are developed for each major asset cl ass. The best estimate ranges were developed using capital market assumpti ans from Cal ST RS general investment consultant. Based on the model for Cal STRS consul ti ng actuary's investment practice, a best estimate range was determined b,t ass uni ng the portfolio is re-balanced annually and that the annual returns are I ognormal ly distributed and independent from year to yearto develop expected percenti I es for the I ong-term di stri buti on of annual i zed returns. The assumed asset allocation is based on Teachers' Retirement Board of the California State Teachers' Retirement System (board) policy for target asset allocation in effect on February 2, 2012, the date the current experience study was apprwed b,t the board. Best estimates of 1 Q-year geornetri c real rates of return and the assumed asset al I ocati on for each major asset cl ass used as i nput to develop the actuarial investment rate of return are summarized i n the fol Io.vi ng table:

Asset Class GI obal equity Private equity Real estate I nfl ati on sensitive Fixed income CashAiquidity

Assumed Asset Allocation

47% 12% 15% 5%

2(1}6

1%

57

Long-Term Expected Real Rate of Return

4.5(1}6 6.2(1}6 4.35% 3.2(1}6 0.2(1}6 0.00)6

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Discount Rate

The discount rate used to measure the total pension liability was 7.60 percent. The prqjection of cash flo.vs used to deterni ne the discount rate assumed the contributions from pl an members and empl O{ers wi 11 be rrade at statutory contribution rates. Prqj ected i nfl o.vs from i nvestment earni ngs were calculated usi ng the I ong-term assumed investment rate of return ( 7 .60 percent) and assuming that contri buti ons, benefit payments and administrative expense occurred nidyear. Based on these assurrptions, the STRP's fiduciary net position was prqjected to be available to rrake all prqjected future benefit i:ayments to current plan members. Therefore, the I ong-term assumed i nvestment rate of return was applied to al I periods of prqj ected benefit i:ayments to deterni ne total pension liability.

The fol I ONi ng presents the District's proportionate share of the net pension I i abi I ity calculated usi ng the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent I o.ver or higher than the current rate:

Discount Rate 1% decrease (6.60)6) Current discount rate (7.60)6) 1 % increase ( 8.60)6)

California Public E mplcyees Retirement System (Cal PE RS)

Plan Description

Net Pension Liability

$ 98,726,986 65,385,480 37,675,999

Qualified emplO{ees are eligible to participate in the School EmplO{er Pool (SEP) underthe California Public E mplO{ees' Retirement System ( Cal PE RS), a cost-sharing multi ple--empl O{er public empl O{ee retirement system defined benefit pension plan administered b,t Cal PERS. Benefit prwisions are estabiished b,t State statutes, as legislatively amended, within the Public EmplO{ees' Retirement Law.

A full description of the pension plan regarding benefit prwisions, assumptions (for funding, but not accounting purposes), and membership inforrration is listed in theJ une 30, 2014 annual actuarial valuation report, Schools Pool Actuarial Valuation, 2014. This report and Cal PERS audited financial information are publically available reports that can be found on the Cal PERS website under Forms and Publications at: https: //vlMNV.cal pers.ca.gov /i:age/forms--publ icati ons.

58

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Benefits Prwided

Cal PE RS provides service retirement and disability benefits, annual cost of I ivi ng aqj ustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of service credit, a benefit factor and the member's final compensation. Members hi red on or before December 31, 2012, with five years of total service are eligible to retire at age 50with statutorily reduced benefits. Members hired on or after January 1, 2013, with five years of total service are eligible to retire at age 52 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after five years of service. The Basic Death Benefit is plid to any member's beneficiary if the member dies while actively employed. An employee's eligible survivor may receive the 1957 Survivor Benefit if the member dies while actively employed, is at least age 50 (or 52 for members hired on or after January 1, 2013), and has at least five years of credited service. The cost of living aqjustments for each plan are applied as specified 0y the Public Employees' Retirement Law.

The Cal PERS provisions and benefits in effect atJ une 30, 2016, are summarized as folio.vs:

Hire date Benefit formula Benefit vesting schedule Benefit payments R eti rement age Monthly benefits as a percentage of eligible compensation R equi red employee contribution rate R equi red empl ayer contri buti on rate

Contributions

School Employer Pool (Cal PERS)

On or before December 31, 2012

2% at55 5 years of service Monthly for life

55 1.1% -2.5%

7.0C/JYo 11.847%

On or after January 1, 2013

2% at 62 5 years of service Monthly for life

62 1.0)6 -2.5%

6.0C/JYo 11.847%

Section 20814(c) of the California Public Employees' Retirement Law requires thatthe employer contribution rates for al I publ i c empl ayers be deterni ned on an annual basis 0y the actuary and shal I be effective on the J uly 1 follo.ving notice of a change in the rate. Total plan contributions are calculated through the Cal PERS annual actuarial valuation process. The actuarially deternined rate is the estimated amount necessary to finance the costs of benefits earned 0y employees during the year, with an additional amountto finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially deternined rate and the contribution rate of employees. The contributions rates are expressed as percentage of annual payrol I. The contribution rates for each plan fortheyear endedJ une 30, 2016, are presented abOJe and the total District contributions were $1,672,075.

59

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

Pension Liabilities, Pension Expense, and Deferred Outflo.vs of Resources and Deferred I nflo.vs of Resources Related to Pensions

As of June 30, 2016, the District reported net pension liabilities for its proportionate share of the Cal PERS net pension liability totaling $15,932,114. The net pension liability was measured as of June 30, 2015. The District's proportion of the net pension liability was based on a prqjection of the District's long-term share of contributions to the pension pl an relative to the prqj ected contributions of al I parti ci pati ng school districts, actuarial ly deternined. The District's proportionate share for the measurement periodJ une 30, 2015 andJ une 30, 2014, respectively, was 0.1081 percent and 0.1009 percent, resulting in a net increase in the proportionate share of 0.0072 percent.

For the year endedJ une 30, 2016, the District recognized pension expense of $1,050,476. AtJ une 30, 2016, the District reported deferred outfl o.vs of resources and def erred i nfl o.vs of resources related to pensions from the fol Io.vi ng sources:

Deferred Outflo.vs Deferred I nfl o.vs of Resources of Resources

Pension contributions subsequent to measurement date $ 1,672,075 $ Net change i n proportion ate share of net pension I i abi I i ty 810,114 1,375,462 Difference between prqj ected and actual earnings on pension pl an investments 2,616,680 3,162,209 Differences between expected and actual experience in the measurement of the total pension Ii abi Ii ty 910,544 Changes of assumptions 978,913

Total $ 6,009,413 $ 5,516,584

The def erred outfl o.vs of resources related to pensions resul ti ng from District contri buti ons subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year.

The deferred outflo.vs/(inflo.vs) of resources related to the difference between prqjected and actual earnings on pension plan investments will be amortized wer a closed five-year period and will be recognized in pension expense as fol Io.vs:

Deferred Year Ended Outflo.vs/(1 nflo.vs)

June 30, of Resources 2017 $ (399,900) 2018 (399,900) 2019 (399,900) 2020 654,171 Total $ (545,529)

60

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

The deferred outfl o.vs/( i nfl o.vs) of resources related to the net change i n proportion ate share of net pension liability, changes of assurrptions, and differences between expected and actual experience in the measurement of the total pension liability will be armrtized overthe Expected Average Remaining Service Life (EARSL) of all merrbers that are prwided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL forthe 2014-2015 measurement period is 3.9years and will be recognized in pension expense as folio.vs:

Year Ended June 30,

2017 2018 2019 Total

Actuarial Met hods and Assumptions

Deferred Outflo.vs/(I nflo.vs)

of Resources $ (431,957)

(431,957) 230,196

$ (633,718)

Total pension liability for the SEP was deternined b,t applying update procedures to a financial reporting actuarial valuation as of June 30, 2014, and rolling forward the total pension liability toJ une 30, 2015. The financial reporting actuarial valuation as of June 30, 2014, used the follo.ving methods and assurrptions, applied to al I prior periods incl uded i n the measurement:

Val uati on date Measurement date Experience study Actuarial cost method Discount rate I nvestment rate of return Consumer price inflation Wage gro.vth

June 30, 2014 J une 30, 2015 July 1, 1997 throughJ une 30, 2011 Entry age normal 7.65% 7.65% 2.75% Vari es b,t entry age and service

Mortality assumptions are based on rmrtality rates resulting from the most recent Cal PE RS experience study adopted b,t the Cal PERS Board. For purposes of the posHetirement rmrtality rates, those revised rates include five years of prqjected ongoing rmrtal ity i mprwement using Scale AA published b,t the Society of Actuaries.

61

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

In deternining the long-term expected rate of return, Cal PERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flo.vs. Using historical returns of all the funds' asset cl asses, expected corrpound returns were cal cu lated wer the short-term (first ten years) and the I ong­term (11--60years) using a building-block approach. Using the expected noninal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set 0y calculating the single equivalent expected return that arrived at the same present value of benefits for cash flo.vs as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalenttothe single equivalent rate calculated abOJe and rounded do.vn to the nearest one quarter of one percent. The target asset al location and best estimates of arithmetic real rates of return for each major asset class are summarized in the follo.ving talble:

Asset Class GI obal equity GI obal fixed i ncorne Private equity Real estate I nfl ati on sensitive I nfrastructure and For est I and Liquidity

Discount Rate

Assumed Asset Allocation

51% 1936 10)6 10)6 6% ZYo ZYo

Long-Term Expected Real Rate of Return

5.25% 0.9936 6.83% 4.50)6 0.45% 4.50)6 -0.55%

The discount rate used to measure the total pension liability was 7.65 percent. The prqjection of cash flo.vs used to deterni ne the discount rate assumed the contributions from pl an members and empl O{ers wi 11 be made at statutory contribution rates. Based on these assurrptions, the School EmplO{er Pool fiduciary net position was prqjected to be available to make all prqjected future benefit payments to current plan members. Therefore, the I ong-term assumed i nvestment rate of return was applied to al I periods of prqj ected benefit payments to determine total pension liability.

The fol lo.vi ng presents the District's proportionate share of the net pension lialbil ity calculated using the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent I o.ver or higher than the current rate:

Discount rate 1% decrease (6.65%) Current discount rate (7.65%) 1 % increase ( 8.65%)

62

Net Pension Liability

$ 25,930,842 15,932,114 7,617,503

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

On Behalf Payments

The State of California makes contributions to CalSTRS on behalf of the District. These i:ayments consist of State General Fund contributions to CalSTRS in the amount of $2,927,268(7.12589 percent of annual payroll). Contributions are no longer appropriated in the annual Budget Act for the legislatively mandated benefits to Cal PERS. Therefore, there is no on behalf contribution rate for Cal PERS. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements.

NOTE 14-COMMITMENTS AND CONTI NG ENCi ES

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 compl i ance with terms and conditions specified in the grant agreements and are sul::iject to audit b,t the grantor agencies. Any disallo.ved claims resulting from such audits could become a liability of the General Fund or other applicabie funds. Ho.vever, in the opinion of management, any such disallo.ved claims will not have a material adverse effect on the werall financial position of the District atJ une 30, 2016.

Litigation

The District is involved in various litigations 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 adJerse effect on the werall financial position of the District atJ une 30, 2016.

NOTE 15-PARTICI PATION IN PUBLIC ENTITY RISK POOLS,J OINT POWERS AUTHOR I Tl ES AND OTHER RELATED PARTY TRANSACTIONS

The District is a member of the CSAC Excess I nsuranceAuthority and Self-Insured Schools of California public entity risk pools. The District i:ays an annual prenium to the applicable entity for its workers' compensation, and property liability coverage. The District is a member of the Baldy View Regional Occui:ational Program ( B V R OP) to provide occupati anal training to students wi thi n the District. The rel ati onshi ps between the District, the pools, and the BVROP are such that they are not component units of the District for financial reporting purposes.

These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; ho.vever, fund transactions between the entities and the District are i ncl uded i n these statements. Audited financial statements are generally avai I able from the respective entities.

During the year endedJ une 30, 2016, the District made payments of $275,150 and $420,294 to CSAC Excess I nsurance Authority and SI SC, respectively, for services received.

63

REQUIRED SUPPLEMENTARY INFORMATION

64

UPLAND UNI Fl ED SCHOOL DISTRICT

GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDE DJ UNE 30, 2016

Variances-

Positive Budgeted Amounts (Negative)

Actual Final

Original Final (GAAP Basis) to Actual REVENUES Local Control Funding Fornula $ 88,551,491 $ 88,190,093 $ 87,887,835 $ (302,258) Federal sources 4,567,801 5,553,200 5,279,299 (273,901) Other State sources 10,099,290 9,880,906 13,101,886 3,220,980 Other I ocal sources 5,194,959 7,289,869 7,955,714 665,845

Total Ra,enues' 108,413,541 110,914,068 114,224,734 3,310,666

EXPENDITURES Current

Certificated salaries 48,725,712 55,657,298 55,622,759 34,539 Classified salaries 12,874,777 14,759,280 14,747,676 11,604 E rrplo,,ee benefits 23,643,712 24,879,268 27,528,110 (2,648,842) Books and supplies 4,571,864 3,954,156 3,092,170 861,986 Services and operating expenditures 8,378,970 11,480,110 10,602,205 877,905 Other outgo 2,204,928 1,328,230 1,348,188 (19,958)

Capital outlay 617,051 673,129 673,129 Debt service-principal 41,932 84,125 84,125

Total Expenditures 1 101,058,946 112,815,596 113,614,237 (798,641)

NET CHANGE IN FUND BALANCES 7,354,595 (1,901,528) 610,497 2,512,025 Fund Balance-Beginning, as Restated 17,444,899 17,444,899 17,444,899 Fund Balance-Ending $ 24,799,494 $ 15,543,371 $ 18,055,396 $ 2,512,025

1 On behalf payments of $2,927,268 are included in the actual revenues and expenditure~ but have not been included in the budgeted arrounts.

See accompc1.nyi ng note to required suppl errentary inf orrrati on.

65

UPLAND UNI Fl ED SCHOOL DISTRICT

SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDE DJ UNE 30, 2016

Actuarial Accrued Liability Unfunded

Actuarial (AAL) - AAL Valuation Actuarial Value Unprojected (UAAL)

Date of Assets (a) Unit Credit (b) (b -a) July 1, 2011 $ $ 22,481,510 $ 22,481,510 July 1, 2013 22,216,821 22,216,821 July 1, 2015 23,491,553 23,491,553

See accompc1.nyi ng note to required suppl errentary inf orrrati on.

66

UAAL asa Percentage of

Funded Ratio C<Nered C<Nered Payroll (a /b) Payroll (c) ([b -a] /c)

036 $ 52,061,624 43% 036 57,846,718 3836 036 69,648,837 34%

UPLAND UNI Fl ED SCHOOL DISTRICT

SCHEDULE OF DISTRICT'S PROPORTIONATE SHARE OF THE NET PENION LIABILITY FOR THE YEAR ENDE DJ UNE 30, 2016

CalSTRS

District's proportion of the net pension liability

District's proportionate share of the net pension liability

State's proportionate share of the net pension Ii abi I ity associated with the District

Total

District's cwered-errplO{ee payroll

District's proportionate share of the net pension liability as a percentage of its covered -errplO(ee i:avrol I

Plan fiduciary net position as a percentage of the total pension liability

CalPERS

District's proportion of the net pension liability

District's proportionate share of the net pension liability

District's cwered-errplO{ee payroll

District's proportionate share of the net pension liability as a percentage of its covered -errplO(ee i:avrol I

Plan fiduciary net position as a percentage of the total pension liability

2016 2015

0.0071% 0.0816%

$ 65,385,480 $ 47,688,051

34,581,711 28,796,104

$ 99,967,191 $ 76,484,155

$ 44,988,435 $ 41,079,370

145% 116%

74% 77%

0.1081% 0.1000%

$ 15,932,114 $ 11,459,646

$ 11,890,383 $ 10,599,259

134% 108% -----

79% 83% -----

Note: I n the future, as data become avai I able, ten years of i nforrrati on wi 11 be presented.

See accornpc1.nyi ng note to required suppl errentary inf orrrati on.

67

UPLAND UNI Fl ED SCHOOL DISTRICT

SCHEDULE OF DISTRICT CONTRIBUTIONS FOR THE YEAR ENDE DJ UNE 30, 2016

CalSTRS

Contractually required contribution

Contri buti ans in relation to the contractually required contribution

Contribution deficiency (excess)

District's cwered-errplO{ee payroll

Contri buti ans as a percentage of cwered -errpl O{ee payrol I

CalPERS

Contractually required contribution

Contri buti ans in relation to the contractually required contribution

Contribution deficiency (excess)

District's cwered-errplO{ee payroll

Contri buti ans as a percentage of cwered -errpl O{ee payrol I

2016

$ 5,663,256

5,663,256

$

$ 52,779,646

10.73%

$ 1,672,075

1,672,075

$

$ 14,113,911

11.85%

Note: I n the future, as data become avai I able, ten years of i nforrrati on wi 11 be presented.

See accornpc1.nyi ng note to required suppl errentary inf orrrati on.

68

2015

$ 3,994,973

3,994,973

$

$ 44,988,435

8.88%

$ 1,399,617

1,399,617

$

$ 11,890,383

11.77%

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTE TO REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2016

NOTE 1 -PURPOSE OF SCHEDULES

Budgetary Comparison Schedule

This schedule presents information for the ori gi nal and fi nal budgets and actual results of operati ans, as wel I as the variances from the final budget to actual results of operations.

Schedule of Other PostemplO(ment Benefits (OPE B) Funding Progress

This schedule is intended to shew trends about the funding progress of the District's actuarially deterni ned liability for postemplO(ment benefits otherthan pensions.

Schedule of the District's Proportionate Share of the Net Pension Liability

This schedule presents information on the District's proportionate share of the net pension liability (NPL), the plans' fiduciary net position and, when applicable, the State's proportionate share of the NPL associated with the District. In the future, as data becomes available, ten years of information will be presented.

Schedule of District Contributions

This schedule presents information on the District's required contribution, the amounts actually contributed, and any excess or deficiency related to the required contribution. In the future, as data becomes available, ten years of information will be presented.

NOTE 2-CHANGES IN BENEFIT TERMS AND ASSUMPTIONS

Changes in Benefit Terms

There were no changes in benefitterms since the previous valuation for either CalSTRS and Cal PERS.

Changes in Assumptions

The Cal ST RS pl an rate of investment return assumption was not changed from the previous valuation. The Cal PERS plan rate of investment return assumption was changed from 7.50 percentto 7.65 percent since the previous val uati on.

69

SUPPLEMENTARY INFORMATION

70

UPLAND UNI Fl ED SCHOOL DISTRICT

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDE DJ UNE 30, 2016

Federal G rantor ,!'ass-Through CFDA G rantor ,f'rogram or Cluster Title Nurrlier

U.S. DEPARTMENT OF EDUCATION Passed through California Department of Education (CDE):

No Child Left Behind Act (NCLB) Title I Grants to Local Educational Agencies Cluster:

Title I, PartA -Lew Income and Neglected 84.010 Title I, PartG -Advanced Placement (AP) Test Fee Rei rrbursement Program 84.330B

Title 11, Part A -I rrprCNingTeacherQuality 84.367

English Language Acquisition Grants: Title 111 -I nrrigrant Education Program 84.365 Title 111 -Linited English Proficiency (LEP) Student Program 84.365

Subtotal English LanguageAcquisitionGrants Carl D. Perkins Vocational and Technical Education Act of 1998

Secondary Education, Section 1 31 84.048 Passed through West End Special Education Local Plan Area:

Individuals with Disabilities Education Act (I DEA) Local Assistance 84.027

Total U.S. Department of Education

U.S. DEPARTMENT OF AGRICULTURE Passed through CDE:

Child Nutrition Cluster: Basic School Breakfast Program 10.553 Especially Needy Breakfast 10.553 National School Lunch 10.555 Food Di stri buti on 10.555 Summer Lunch Program 10.559

Subtotal Child Nutrition Cluster Child andAdultCare Food Program 10.558 Child andAdultCare Food Program 10.582

Total U.S. Department of Agriculture

U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Passed through California Department of Health Services:

Medical Assistance Program Cluster: Medi-Cal AdrrinistrativeActivities 93.778 Medi-Cal Billing Options 93.778

Passed through San Bernardino County Department of Behavioral Health:

Medi-Cal Billing Options 93.778 Total U .S. Department of H ea Ith and H urran Services Total Expenditures of Federal Awards

See accompc1.nyi ng note to suppl errentary i nforrrati on.

71

Pass-Through Entity

Identifying Federal Nurrlier Expenditures

14329 $ 2,027,495

14831 14,022 14341 440,605

15146 11,662 14346 216,308

227,970

14894 67,394

13379 1,821,535 4,599,021

13525 3,008 13526 382,317 13524 2,195,997 13524 33,872 13004 50,142

2,665,336 13393 309,407 14968 26,105

3,000,848

10060 171,998 10013 275,691

10013 204,731 652,420

$ 8,252,289

UPLAND UNI Fl ED SCHOOL DISTRICT

LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2016

ORGANIZATION

The Upland Unified School District was establishedJ uly 1, 1987 and consists of an area corrprising approxirrately 24 square miles. The District operates ten elementary schools, two junior high schools, one high school, one continuation school and alternative programs for independent study and adult education. There were no boundary changes during the year.

GOVERNING BOARD

MEMBER

Steve Frazee

LindaAngona

Wes Fifield

M i chaelJ . V are I a

P.J oseph Lenz

ADMINISTRATION

NAME

Nancy Kelly, Ed.D

CamilleJohnson

Donnie Salarranca

Alex Ravalcaba

Ellen Lugo

OFFICE

President

Vice President

Clerk

Member

Member

TITLE

S uperi ntendent

TERM EX PIRES

Nwember 2016

Nwember 2016

Nwember 2018

Nwember 2018

Nwember 2018

Assistant Superintendent, Human Resources

Assistant Superintendent, Business Services

Assistant Superintendent, Secondary Education

Assistant Superintendent, Elementary Education

See accompanying note to supplementary i nforrrati on.

72

UPLAND UNI Fl ED SCHOOL DISTRICT

SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDE DJ UNE 30, 2016

Regular ADA T ransi ti anal ki ndergarten through thi rd Fourth through sixth Seventh and eighth Ninth through twelfth

Total Regular ADA

Special Education, Nonpublic, Nonsectarian Schools T ransi ti anal ki ndergarten through thi rd Fourth through sixth Seventh and eighth Ninth through twelfth

Total Special Education, Nonpublic, Nonsectarian Schools

ExtendedY ear Special Education, Nonpublic, Nonsectarian Schools T ransi ti anal ki ndergarten through thi rd Fourth through sixth Seventh and eighth Ninth through twelfth

Total Conm.mity Day School Total ADA

See accornpc1.nyi ng note to suppl errentary i nforrrati on.

73

Final Report Second Period Annual

Report Report

3,115.26 3,119.64 2,516.65 2,516.92 1,648.85 1,642.76 3,383.25 3,325.82

10,664.01 10,605.14

2.91 1.86 2.81 3.08 2.78 2.77 8.01 6.86

16.51 14.57

0.21 0.10 0.15 0.26 0.17 0.17 0.53 0.52 1.06 1.05

10,681.58 10,620.76

UPLAND UNI Fl ED SCHOOL DISTRICT

SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDE DJ UNE 30, 2016

1986-S7 2015-16 Nurrber of Days Minutes Actual T radi ti onal Multitrack

Grade La,el R equi rerrent Minutes Calendar Calendar Status K i ndergarten 36,000 36,863 180 Corrplied Grades 1 -3 50,400

Grade 1 53,765 180 Corrplied Grade 2 53,765 180 Corrplied Grade 3 53,765 180 Corrplied

Grades 4-6 54,000 Grade 4 54,390 180 Corrplied Grade 5 54,390 180 Corrplied Grade 6 54,390 180 Corrplied

Grades 7-8 54,000 Grade 7 55,727 180 Corrplied Grade 8 55,727 180 Corrplied

Grades9-12 64,800 Grade 9 65,300 180 Corrplied Grade 10 65,300 180 Corrplied Grade 11 65,300 180 Corrplied Grade 12 65,300 180 Corrplied

See accornpc1.nyi ng note to suppl errentary i nforrrati on.

74

UPLAND UNI Fl ED SCHOOL DISTRICT

RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDE DJ UNE 30, 2016

There were no aqj ustrrents to the U naudited Actual Financial Report, which required reconci Ii ati on to the audited financial staterrents atJ une 30, 2016.

See accornpc1.nyi ng note to suppl errentary i nforrrati on.

75

UPLAND UNI Fl ED SCHOOL DISTRICT

SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDE DJ UNE 30, 2016

(Budget)

2017 1 2016

GENERAL FUND Revenues $108,001,890 $ 114,224,734 Other sources

Total Revenues and Other Sources 108,001,890 114,224,734

Expenditures 108,794,966 113,614,237

INCREASE (DECREASE) IN FUND BALANCE $ (793,076) $ 610,497

ENDING FUND BALANCE $ 17,262,320 $ 18,055,396

AVAILABLE RESERVES 2 $ 11,216,572 $ 3,408,427

AVAILABLE RESERVES ASA PERCENTAGE OF TOTAL OUTGO' 10.3% 3.0)6

LONG-TERM OBLIGATIONS N/A $ 131,932,051

K-12AVERAGE DAILY ATTENDANCE AT P--2 10,582 10,682

2015 2014

$ 98,574,805 $ 92,074,973 579,348

98,574,805 92,654,321 96,457,477 83,679,073

$ 2,117,328 $ 8,975,248

$ 17,444,899 $ 15,327,571

$ 2,893,724 $ 8,440,160

3.1% 10.4%

$ 123,347,605 $110,428,945

10,911 11,222

The General Fund balance has increased 0y $2,727,825 overthe past two years. The fiscal year 2016--2017 budget prqjects a decrease of $793,076 (4.4 percent). For a district this size, the State recornrrends available reserves of at I eastthree percent of total General Fund expenditures, transfers out, and other uses ( total outgo).

The District has incurred operating surpluses in all of the pastthreeyears but anticipcltes incurring an operating deficit during the 2016-2017 fiscal year. Total long-term obligations have increased 0y $21,503,106 wer the past two years.

Average daily attendance has decreased 0y 540 werthe past two years. Additional decline of lOOADA is anticipclted during fiscal year 2016-2017.

1 Budget 2017 is included for analytical purposes only and has not been subjected to audit 2 Available reserves consist of all unassigned fund balances including all arrounts reserved for econorric uncertainties contained with the

General Fund. 3 On behalf payrrents of $2,499,116 and $2,441,887 have been excluded from the calculation of available reserves for the fiscal years

ending June 30, 2015 and 2014.

See accornpanyi ng note to suppl errentary information.

76

UPLAND UNI Fl ED SCHOOL DISTRICT

NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2016

Adult Capital Education Cafeteria Facilities

Fund Fund Fund ASSETS

Deposits and i nvestrrents $ 290,472 $ 681,707 $ 2,942,484 Receivables 299 516,143 4,651

Due from other funds 65,166 12,181 Stores inventories 22,250

Total Assets $ 355,937 $ 1,232,281 $ 2,947,135

L IABI L ITI ES AND FUND BALANCES

Liabilities: Accounts payable $ 22,943 $ 5,820 $ Due to other funds 52,939 258,515

Total Liabilities 75,882 264,335

Fund Balances: Nonspendable 22,250

Restricted 280,055 945,696 2,947,135 Total Fund Balances 280,055 967,946 2,947,135 Total Liabilities and Fund Balances $ 355,937 $ 1,232,281 $ 2,947,135

See accornpanyi ng note to suppl errentary i nforrrati on.

77

Special Reserve Total Non-Maj or

Fund for Capital Gcwernmental Outlay Prqjects Funds

$ 35,442 $ 3,950,105 521,093

77,347 22,250

$ 35,442 $ 4,570,795

$ $ 28,763 311,454 340,217

22,250 35,442 4,208,328 35,442 4,230,578

$ 35,442 $ 4,570,795

77

UPLAND UNI Fl ED SCHOOL DISTRICT

NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDE DJ UNE 30, 2016

Adult Capital Education Cafeteria Facilities

Fund Fund Fund REVENUES Federal sources $ - $ 3,000,847 $ Other State sources 428,620 204,003

Other I ocal sources 422 933,590 818,741 Total Revenues 429,042 4,138,440 818,741

EXPENDITURES Current

I nstructi on 43,916 I nstruction,elated activities:

Supervision of instruction 35,753

School site adninistration 14,176 Pupi I services:

Food services 3,956,188 A 11 other pupi I services 16,672

Plant services 221,204 995 Comnunity services 38,470

Total Expenditures 148,987 4,177,392 995

NET CHANGE IN FUND BALANCES 280,055 (38,952) 817,746 Fund Balance-Beginning 1,006,898 2,129,389 Fund Balance-Ending $ 280,055 $ 967,946 $ 2,947,135

See accornpanyi ng note to suppi errentary i nforrration.

78

Special Reserve Fund for Capital Outlay Prqjects

Total Non-Major Governmental

Funds

$ - $ 3,000,847 632,623

1,752,753

$

5,386,223

43,916

35,753 14,176

3,956,188 16,672

222,199 38,470

4,327,374

1,058,849 35,442 3,171,729 35,442 $ 4,230,578

============

78

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2016

NOTE 1 -PURPOSE OF SCHEDULES

Schedule of Expenditures of Federal Awards

The accorrp3.nying Schedule of Expenditures of Federal Awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The inforrration in this schedule is presented in accordance with the requirerrents of Title 2 U.S. Code of Federal Regulations Part 200, U niformAdninistrative Requirerrents, Cost Principles, and Audit Requirerrents for Federal Awards (Uniform Guidance). Therefore, sorre amounts presented in this schedule rray differ from amounts presented in, or used in the preparation of, the financial staterrents. The District has not elected to use the ten percent de minims cost rate as covered in Section 200.414 Indirect (F&A) costs of the Uniform Guidance.

The fol Io.vi ng schedule prwi des reconci Ii ation between revenues reported on the Staterrent of Revenues, Expenditures, and Changes in Fund Balances, and the related expenditures reported on the Schedule of Expenditures of Federal Awards. The reconci Ii ng amounts consist of Medi-Cal Bi 11 i ng Option funds that in the current period were recorded as revenues but were unspent as of June 30, 2016. These unspent balances are reported as legally restricted ending balances within the General Fund.

Total Federal Revenues From the Staterrent of Revenues, Expenditures, and Changes in Fund Balances:

Medi-Cal Billing Option Total Schedule of Expenditures of Federal Awards

Local Education Agency Organization Structure

CFDA Number

93.778

Amount

$ 8,280,146 (27,857)

$ 8,252,289

This schedule prwi des information about the District's boundaries and schools operated rrembers of the giverning board, and rrembers of the administration.

Schedule of Average Daily Attendance (ADA)

Average daily attendance (ADA) is a measurerrent of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to prwide the basis on which apportionrrents of State funds are rrade to school districts. This schedule prwi des information regarding the attendance of students at various grade I evel s and in different programs.

Schedule of Instructional Ti me

The District has received incentive funding for increasing instructional ti rre as prwided 0y the Incentives for Longer Instructional Day. The District neither rret nor exceeded its target funding. This schedule presents inforrration on the amount of instructional tirre offered 0y the District andwhetherthe District complied with the prwisions of Education Code Sections 46200through 46206.

Districts must rraintaintheir instructional minutes at the 1986--87 requirerrents, as required 0y Education Code Section 46201.

79

UPLAND UNI Fl ED SCHOOL DISTRICT

NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2016

Reconciliation of Annual Financial and Budget Report With Audited Financial Statements

This schedule prwi des the information necessary to reconci I e the fund balance of al I funds reported on the Unaudited Actual Financial Report to the audited financial statements.

Schedule of Financial Trends and Analysis

This schedule di sci oses the District's financial trends b,t di splaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of ti me.

Non-Maj or Gwernmental Funds -Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances

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

80

INDEPENDENT AUDITOR'S REPORTS

81

ftl Vavrinek, Trine, Day & Co., LLP Certified Public Accountants

VALUE THE DIFFERENCE

INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER Fl NANCI AL REPORTING AND ON COMPLIANCE AND OTHER MATTERS

BASED ON AN AUDIT OF Fl NANCI AL STATEMENTS PERFORMED IN ACCORDANCE W 1TH GOVERNMENT AUDITING STANDARDS

Governing Board Upland Unified School District Upland, California

We have audited, in accordance with the auditing standards generally accepted in the United States of Arrerica and the standards appl i cable to fi nanci al audits contained i n G OJernrrent Audi ti ng Standards issued 0y the Comptroller General of the United States, the financial staterrents of the governrrental activities, each major fund, and the aggregate rerraining fund inforrrntion of Upland Unified School District (the District) as of and for the year endedJ une 30, 2016, and the related notes to the financial staterrents, which collectively comprise Upland Unified School District's basic financial staterrents, and have issued our report thereon dated Decerrber 15, 2016.

Internal Control Over Financial Reporting

In planning and perforning our audit of the financial staterrents, we considered Upland Unified School District's internal control OJ er financial reporti ng (internal control) to deterni ne the audit procedures that are appropriate i n the circumstances for the purpose of expressing our opinions on the financial staterrents, but not for the purpose of expressing an opinion on the effectiveness of Upland Unified School District's internal control. Accordingly, we do not express an opinion on the effectiveness of Upland Unified School District's internal control.

A deficiency in internal control exists when the design or operation of a control does not allo.v rranagerrent or employees, in the norrral course of performing their assigned functions, to prevent, or detect and correct, nisstaterrents on a tirrely basis. A rraterial weakness is a deficiency, or a corrbination of deficiencies, in internal control, such that there is a reasonable possibility that a rrnterial misstaterrent of the District's financial staterrents will not be prevented, or detected and corrected on a tirrely basis. A significant deficiency is a deficiency, or a combi nation of defi ci enci es, i n internal control that is I ess severe than a rrateri al weakness, yet i mportant enough to rreri t attention b,t those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to i den ti fy al I defi ci enci es i n internal control that night be rrnteri al weaknesses or significant deficiencies. Given these linitations, during our audit we did not identify any deficiencies in internal control that we consider to be rrnteri al wealknesses. H o.vever, rrateri al weaknesses rray exist that have not been identified.

82

10681 Foo1hill Blvd., Sui1e 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431

Compliance and Other Matters

As part of obtai ni ng reasonable assurance about whether U pl and U ni fi ed School District's financial statements are free from material nisstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompl i ance with which could have a di rect and material effect on the deternination of financial statement amounts. Ho.vever, prOJiding an opinion on compliance with those prOJisions was not an ol::ijective of our audit, and accordingly, we do not express such an opinion. The results of our tests di sci osed no i nstances of noncornpl i ance or other matters that are required to be reported under Government Auditing Standards.

We noted certain matters that we reported to management of Upland Unified School District in a separate letter elated December 15, 2016.

Purpose of This Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to prOJide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with GOJernmentAuditing Standards in considering the District's internal control and compliance. Accardi ngly, this communication is not suitable for any other purpose.

Rancho Cucamonga, California December 15, 2016

83

ftl Vavrinek, Trine, Day & Co., LLP Certified Public Accountants

VALUE THE DIFFERENCE

INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJ OR PROGRAM AND ON INTERNAL CONTROL

OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE

Governing Board Upland Unified School District Upland, California

Report on Compliance for Each Major Federal Program

We have audited Upland Unified School District's (the District) compliance with the types of compliance requirements descri bed i n the OM B Campi i ance Supplement that could have a di rect and material effect on each of Upland Unified School District's major Federal programs for the year endedJ une 30, 2016. Upland Unified School District's major Federal programs are identified in the summary of auditor's results section of the accorrp3.nyi ng schedule of fi ndi ngs and questioned costs.

Management's Responsibility

Management is responsi bl e for comp! i ance with the requi rements of federal statutes, regul ati ans, and the terms and conditions of its Federal awards applicable to its Federal programs.

Auditor's Responsibility

Our responsibility is to express an opinion on compliance for each of Upland Unified School District's major Federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to fi nanci al audits contai ned in Government Audi ti ng Standards, issued 0y the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code ofFederal Regulations Part 200, UniformAdninistrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the auditto obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a maj or Federal program occurred. An audit i ncl udes exanining, on a test basis, evidence about Upland Unified School District's compliance with those requirements and perform ng such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each major Federal program. Ho.vever, our audit does not provide a legal deternination of Upland Unified School District's compl i ance.

84

10681 Foo1hill Blvd., Sui1e 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431

Opinion on Each Major Federal Program

In our opinion, Upland Unified School District complied, in all material respects, with the types of compliance requirements referred toabcwe that could have a direct and material effect on each of its major Federal programs for the year endedJ une 30, 2016.

Other Matters

The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as item 2016-001. Our opinion on each major Federal program is not modified with respect to these matters.

Upland Unified School District's response to the noncompliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. Upland Unified School District's response was not sul::ijected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.

Report on Internal Control Over Compliance

Management of Upland Unified School District is responsible for establishing and maintaining effective internal control OJer compliance with the types of compliance requirements referred to abcwe. In planning and performing our audit of compliance, we considered Upland Unified School District's internal control OJer compliance with the types of requirements that could have a direct and material effect on each major Federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major Federal program and to test and report on internal control OJer compliance in accordance with the Uniform Guidance, but not forthe purpose of expressing an opinion on the effectiveness of internal control OJer compliance. Accordingly, we do not express an opinion on the effectiveness of Upland Unified School District's internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control OJer compliance does not al I ON management or empl O{ees, i n the normal course of performing their assigned functions, to prevent, or detect and correct, noncompl i ance with a type of compl i ance requi rement of a Federal program on a timely basis. A material weakness in internal control OJer compliance is a deficiency, or corrbination of defi ci enci es, i n i nternal control over compl i ance, such that there is a reasonable possi bi Ii ty that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control OJer compliance is a deficiency, or a combi nation of defi ci enci es, i n internal control OJ er compl i ance with a type of compliance requi rement of a Federal program that is I ess severe than a material wealkness i n i nternal control over compl i ance, yet i mportant enough to merit attention b,t those charged with gwernance.

Our consideration of internal control over compliance was for the linited purpose described in the first paragraph of this section and was not designed to identify al I defi ci enci es i n i nternal control OJ er compl i ance that night be material weaknesses or significant defi ci enci es and therefore, material weaknesses or significant defi ci enci es may exist that were not i den ti fi ed. We did not identify any defi ci enci es i n i nternal control OJ er compl i ance that we considerto be material weaknesses. Ho,vever, we identified certain deficiencies in internal control OJer compliance, as described in the accompanying schedule of findings and questioned costs as item 2016-001, which we consider to be significant deficiencies.

85

Upland Unified School District's response to the internal control OJer compliance findings identified in our audit are described in the accorrp3.nying schedule of findings and questioned costs. Upland Unified School District's response was not sul::ijected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.

The purpose of this report on internal control OJer compliance is solely to describe the scope of ourtesting of internal control OJer compliance and the results of thattesting based on the requirements of the Uniform Guidance. Accordngly, this report is not suitable for any other purpose.

Rancho Cucamonga, California December 15, 2016

86

ftl Vavrinek, Trine, Day & Co., LLP Certified Public Accountants

VALUE THE DIFFERENCE

INDEPENDENT AUDITOR'S REPORT ON STATE COMPLIANCE

Governing Board Upland Unified School District Upland, California

Report on State Compliance

We have audited Upland Unified School District's (the District) compliance with the types of compliance requirements as identified in the 2015-2016 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting that could have a direct and material effect on each of the Upland Unified School District's State government programs as noted bel ON for the year endedJ une 30, 2016.

Management's Responsibility

Management is responsible for cornpliancewith the requirements of State laws, regulations, and the terms and conditions of its State awards applicable to its State programs.

Auditor's Responsibility

Our responsibility is to express an opinion on compliance of each of the Upland Unified School District's State programs based on our audit of the types of compliance requirements referred to above. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in GOJernment Auditing Standards, issued b,t the Cornptrol I er General of the United States; and the 2015-2016 Guide for Annual Audits of K-12 Local Education Agencies and State Campi i ance Reporting. These standards require that we pl an and perform the audit to obtain reasonable assurance about whether noncornpl i ance with the compl i ance requirements ref erred to above that could have a material effect on the applicable government programs noted belON. An audit includes exanining, on a test basis, evidence about Upland Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit prOJides a reasonable basis for our opinions. Our audit does not prOJide a legal deternination of Upland Unified School District's compl i ance with those requi rements.

Basis for Qualified Opinion on School Accountability Report Card

As described in the accompanying schedule of findings and questioned costs, Upland Unified School District did not comply with requirements regarding the School Accountability Report Card; referto State Award Findings and Questioned Costs section of this report, finding 2016--002. Cornpliancewith such requirements is necessary, in our opinion, for Upland Unified School District to comply with the requirements applicable to that program.

87

10681 Foo1hill Blvd., Sui1e 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431

Qualified Opinion on School Accountability Report Card

In our opinion, except for the noncorrpliance described in the Basis for Qualified Opinion paragraph, Upland Unified School District cornpl i ed, i n al I rrateri al respects, with the types of cornpl i ance requirements referred to above for the year endedJ une 30, 2016.

Unmodified Opinion on Each of the Other Programs

In our opinion, Upland Unified School District corrplied, in all rraterial respects, with the compliance requirements ref erred to abcwe that are appl i cable to the gcwernment programs noted bel cw that were audited for the year endedJ une 30, 2016, except as described in the Schedule of State Awards Findings and Questioned Costs section of the accornpanyi ng Schedule of Fi ndi ngs and Questioned Costs.

I n connection with the audit referred to above, we selected and tested transactions and records to deterrni ne the Upland Unified School District's cornpliancewith the State laws and regulations applicable to the follo.ving items:

LOCAL EDUCATION AGENCIES OTHER THAN CHARTER SCHOOLS Attendance Teacher Certification and Misassignments Kindergarten Caiti nuance Independent Study Continuation Education I nstructi anal Ti me I nstructi anal Materials Ratios of Adninistrative Employees to Teachers Classroom Teacher Salaries Early Retirement Incentive Gann Lirnit Calculation School Accountability Report Card Juvenile Court Schools Middle or Early College High Schools K -3 Grade Span A qj ustment Transportation M ai ntenance of Effort

SCHOOL DISTRICTS, COUNTY OFFICES OF EDUCATION, AND CHARTER SCHOOLS

Educator Effectiveness California Clean Energy Jobs Act After School Education and Safety Program

General R equi rements After School Before School

Proper Expenditure of Education Protection Account Funds Unduplicated Local Control Funding Formula Pupil Counts Local Control Accountability Plan Independent Study -Course Based I rnrnunizations

88

Procedures Performed

Yes Yes Yes

No, see bel cw Yes, see belo.v

Yes Yes Yes Yes

No, see bel cw Yes Yes

No, see bel cw No, see bel cw

Yes Yes

Yes Yes

Yes Yes Yes Yes Yes Yes

No, see bel cw Yes, see belo.v

CHARTER SCHOOLS Attendance Mode of I nstructi on Non Classroom-Based Instruction~ ndependent Study for Charter Schools Determination of F undi ng for Non CI assroom-B ased I nstructi on Annual Instruction Minutes Classroom-Based Charter School Facility Grant Program

Procedures Perforrred

No, see belON No, see bel ON

No, see bel ON

No, see bel ON

No, see bel ON

No, see bel ON

We did not perform testing for Independent Study because the ADA was belON the required threshold fortesti ng.

The District does not offer a Work Experience Program; therefore, we did not perform procedures related to the Work Experience Program within the Continuation Education Attendance Program

The District did not offer an Early Retirerrent Incentive Program during the current year; therefore, we did not perform procedures related to the Early R eti rerrent Incentive Program

The District does not have any Juvenile Court Schools; therefore, we did not perform any procedures related to Juvenile Court Schools.

The District does not have a Middle or Early College High School Program; therefore, we did not perform any procedures related to the Middle or Early College High School Program

The District does not offer a Course Based Independent Study Program; therefore, we did not perform the procedures related to Independent Study -Course Based.

The District did not have any schools listed on the immunization assessrrent reports; therefore, we did not perform the remaining procedures.

The District does not have any Charter Schools; therefore, we did not perform any procedures for Charter School Programs.

Rancho Cucamonga, California December 15, 2016

89

SCHEDULE OF FINDINGSANDQUESTIONED(OSTS

90

UPLAND UNI Fl ED SCHOOL DISTRICT

SUMMARY OF AUDITOR'S RESULTS FOR THE YEAR ENDE DJ UNE 30, 2016

FINANCIAL STATEMENTS Type of auditor's report issued: Internal control cwerfinancial reporting:

Material weakness identified? Significant deficiency identified?

N oncorrpl i ance rnateri al to fi nanci al statements noted?

FEDERAL AWARDS I ntemal control ewer major Federal programs:

Material weakness identified? Significant deficiency identified?

Type of auditor's report issued on compliance for major Federal program,:

Any audit fi ndi ngs di sci osed that are requi red to be reported i n accordance with Section 200. 516( a) of the U ni farm Gui dance?

I denti fi cation of major Federal program,:

CF DA N urrber

84.010

Name of Federal Program or Cluster Title I, Part A -LOJV Income and Neglected

Dollar threshold used to distinguish between Type A and Type B program,: Audi tee qual i fi ed as I OJV--ri sk audi tee?

STATE AWARDS Type of auditor's report issued on cornpl i ance for State program,:

U nmodi fi ed for al I program, except for the fol I OJVi ng program which was qualified:

Name of Program School A ccountabi I i ty Report Card

91

Unmodified

No None Reported

No

No Yes

Unmodified

Yes

$ 750,000 Yes

Unmodified

UPLAND UNI Fl ED SCHOOL DISTRICT

FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDE DJ UNE 30, 2016

None reported.

92

UPLAND UNI Fl ED SCHOOL DISTRICT

FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDE DJ UNE 30, 2016

The fol I oNi ng fi ndi ng represents a significant deficiency, and/or material instances of noncornpl i ance incl udi ng questioned costs that are required to be reported b,t the Uni form Gui dance. This finding has been coded as folio.vs:

2016--001 Code 50000

Five Digit Code 50000

Federal Program Affected

AB 3627 Finding Type Federal Campi i ance

Program Name: Title I, Part A -Lo.v--1 ncorne and Neglected CFDA Number: 84.010 Pass-Through Entity: California Depc1.rtment of Education Federal Agency: U .5. Deplrtment of Education

Criteria or Specific Requirements

Per Title 34, Code ofF ederal Regulations, Part 200, 5ubp3.rtA, Section 200.63(a), local education agencies ( L EAs) must provide ti mely and meani ngf ul consultations with appropriate officials of private schools. LEAs must be able to demonstrate that eligible private schools were contacted and notified of the opportunity to pc1.rticipc1.te in the Title I, Part A program

Condition

Through inquiry with District personnel, it appears that records were not maintained to demonstrate that private schools had been contacted and notified of the opportunity to pc1.rticipc1.te in the Title I, Part A program for the 2015--2016 school year.

Questioned Costs

There were no questioned costs identified.

Context

The condition was identified as a result of the auditor's inquiry with District personnel.

Effect

The District was not in compliance with Title 34, Code of Federal Regulations, Part 200, SubplrtA, Section 200.63(a),

Cause

The condition identified appears to have materialized due to private school correspondence records not being maintained b,t the District for the 201 5-2016 school year.

93

UPLAND UNI Fl ED SCHOOL DISTRICT

FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDE DJ UNE 30, 2016

Recommendation

It is recommended thatthe District mai ntai n private school correspondence records, ni nut es from meetings with private school representatives, and written affirmations from private school officials to demonstrate comp! iance with provisions under Title 34, Code ofF ederal Regulations, Part 200, Subpart A, Section 200.63(a).

Corrective Action Plan

District staff responsi bl e for wersi ght and adni ni strati on of federal programs have reviewed program gui del i nes regarding the need to prwi de ti mely and meani ng consultations with appropriate officials of private schools. In order to demonstrate cornpl i ance with these requirements, records of correspondence with private schools, including minutes from meetings, and I eners of notice wi 11 be retained for review.

94

UPLAND UNI Fl ED SCHOOL DISTRICT

STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDE DJ UNE 30, 2016

The folloNing finding represents an instance of noncorrpliance and;br questioned costs relating to State program laws and regulations. The findings have been coded as folio.vs:

2016--002 Code72000

Five Digit Code 72000

Criteria or Specific Requirements

AB 3627 Finding Type School Accountability Report Card

As required b,t California Education Code Section 33126(b)(8), the School Accountability Report Card (SARC) shall include, but is not limited to, assessment of the safety, cleanliness, and adequacy of school faci Ii ti es, including any need for mai ntenance.

Condition

The SARC, among other information, includes a report on the adequacy of school facilities which is derived from the Facilities Inspection Tool (FIT). Upon reviewing the SARC and the FIT, the information as reported on the SARC did not match the information reported on the FIT.

Questioned Costs

There were no questioned costs associated with the condition identified.

Context

The condition was identified as a result of our inquiry with the District's Facilities and Education Services Department personnel and through revi e.v of supporting documents.

Effect

The District has not complied with requirements identified in California Education Code Section 331 26( a) which states that the SAR C shal I prwi de data i ncl udi ng adequacy of school faci Ii ti es, b,t which a parent can make meaningful comparisons between public schools. The information on school facilities reported on the SARC was not accurately reported for all four schools tested.

Cause

The condition identified appears to have materialized primarily due to the lack of a revie.v process.

95

UPLAND UNI Fl ED SCHOOL DISTRICT

STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDE DJ UNE 30, 2016

Recommendation

The District should become faniliarwith all the requirements identified in California Education Code Section 33126. The Facility Inspection Tools should be kept on file to substantiate the condition of the District's facilities as reported on the SARC. Additionally, the District should provide management wersight to errplO{ees responsible for performing key corrpliance requi rements.

Corrective Action Plan

District staff responsible for reporting Facilities Inspection Tool results on the SARC have reviewed program requirements as outlined in California Education Code Section 33126. To ensure accurate reporting of the condition of school facilities, district management will review and corrpare information reported in the SARC to source documents and Facilities Inspection Tools.

96

UPLAND UNI Fl ED SCHOOL DISTRICT

SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDE DJ UNE 30, 2016

Except as specified in previous sections of this report, sumnarized belo.v is the current status of all audit findings reported i n the prior year's schedule of financial staterrent fi ndi ngs.

Financial Staterrent Findings

2015--001 30000

Criteria or Specific Requirements

Cash col I ected 0y staff should be receipted, transni tted, and deposited intact and ti rrely.

Condition

While the deposits remitted to the District office disclosed no discrepancies, a further re.1iew of the tuition payrrent process reveal eel fees received for chi Id care were either posted incorrectly in the child care receipting system (EZ Care) or not credited to the appropriate fanily account. During our review of the cash col I ecti on procedures, we noted manual receipts were uti Ii zed to record cash receipts but were not transnitted to the District or credited to the related fanily accounts in the EZ Care System. There were 17 tuition credittransactions with available receipts totaling $717 that were never posted as credits to.vards tuitions received. We were unable to trace these tuition credits to the deposits reni tted to the District office. There were five separate tuition credit transactions totaling $113 that we were unable to associate with the paying party with any existing family /student accounts in the EZ Care System. There were 11 tuition credittransactions with available receipts totaling $1,365 that were posted to the system, but we were unable to verify these tuition credits to deposits remitted to the District office.

Questioned Costs

Based on our re.1iew, we were able to arrive atthe conclusion that $2,195 appeared to not be posted in the EZ Care System We were unable to deternine if these transactions were deposited.

Context

The condition was identified through the course of our review of the District's cash collection procedures regardi ng tuition payrrents, review of tuition records, and through inquiry with the District's Child Developrrent Departrrent personnel.

Effect

Given the observed deficiency, the Child Care Center is operating in an environrrentthat is currently sul::ijectto nisappropriation of assets. Additionally, there is a certain level of risk associated with the District's child care tuition fees reported on the District's financial staterrents.

97

UPLAND UNI Fl ED SCHOOL DISTRICT

SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDE DJ UNE 30, 2016

Cause

The deficiency appears to be triggered 0y the lack of re.1iew, in conjunction with the lack of written policies to use as reference. Training appears to be necessary based on observations, as personnel were not faniliarwith the EZ Care System The EZ Care System has certain functionalities that would have identified the situation sooner if certai n queries were generated and re.,,i ewed to reconcile the amount of revenue posted with the amount of cash receipts recorded.

Recommendation

The District should evaluate its receipting procedures and modify them accordingly to ensure controls are sufficiently implemented and operating to reduce the risk of error or fraud. Since the District has invested in the EZ Care System, the District should strongly consider incorporating all the features of the EZ Care System to develop procedures over cash receipts. In addition, there appears to be a general lack of segregation of duties with responsibilities associated with collecting, recei pti ng, reconci Ii ng, and re.,,i ewi ng the re.1enue posted i n the system. We recommend the District adopt a pol icy ;procedure to provi defi ssue regular periodic tuition statement to al I i:arti ci i:ati ng fami I i es and i ndependent review procedures over empl O{ees perform ng recei pti ng;recordi ng functions. Once procedures have been created, suffi ci enttrai ni ng should be provided to al I i mpacted District personnel to faci Ii tate a smooth transition of new procedures. Lastly, all adopted procedures and policies wer cash collection activities should be written to serve as reference for al I District empl O{ees. Adherence to written pol i ci es should be strictly rei nforced 0y the District's management.

Current Status

Implemented.

98

ftl Vavrinek, Trine, Day & Co., LLP Certified Public Accountants

Governing Board Upland Unified School District Upland, California

VALUE THE DIFFERENCE

In planning and perform ng our audit of the financial staterrents of Upland Unified School District (the District), for the year endedJ une 30, 2016, we considered its internal control structure in orderto deternine our auditing procedures for the purpose of expressing our opi ni on on the financial staterrents and not to prwi de assurance on the i nternal control structure.

HONever, during our audit we noted rraners that are opportunities for strengthening internal controls and operating efficiency. The fol I ONi ng i terns represent con di ti ons noted 0y our auditthat we consider i rrportant enough to bring to your attention. This letter does not affect our report dated Decerrber 15, 2016, on the givernrrent-wide financial staterrents of the District.

ASSOCIATED STUDENT BODY FUNDS (ASB)

Upland High School

Observations

During the revie.v of student body funds, we noted the follONing issues:

1. 14 of 37 receipts selected for testing were not deposited in a tirrely rranner. The delay in deposit was noted as 12 to 27 days from the date of receipt. This could result in I arge cash balances being rrai ntai ned at the site which can hinder the safeguarding of ASB assets.

2. One of two revenue potential forms selected was not completed with the proper i nforrrati on i ncl udi ng actual revenues from the event and explanations for any differences between prqj ected and actual profit.

3. The bank account reconciliation for June 30, 2016, had nurrerous stale dated checks in excess of 6 months totaling $2,902.31.

R ecomrrendati ons

1. At a minimum, deposits should be made weekly to minimize the amount of cash held atthe site. During weeks of high cash activity, there rray be a need to rrake more than one deposit. The District should establish guidelines for this procedure including the maximum cash on hand that should be rraintained at the site.

99

10681 Foo1hill Blvd., Sui1e 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431

Governing Board Upland Unified School District

2. As the revenue potential form is a vital internal control tool, it should be used to document revenues, expenditures, potential revenue and actual revenue. This allo.vs an analysis of the fundraiserto be conducted, i ndi cati ng to the staff the success or fai I ure of the corrpl eted prqj ect. The revenue potential also indicates weak control areas in the fund,aising procedures atthe site, including lost or stolen merchandise, problems with collecting all moneys due and so forth.

3. TheASB should periodically review outstanding checks and deposits and determine if such outstanding items should be cleared from the account. Outstanding checks over six months old should be credited back to the appropriate account and taken off the subsequent bank reconciliation. By having old items on the reconciliation, the site is not aware of their available cash balance or if the financial records of the clubs accurately reflect true financial information.

We will review the status of the current year comments during our next audit engagement.

Rancho Cucamonga, California December 15, 2016

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APPENDIX C

FORM OF CONTINUING DISCLOSURE CERTI Fl CATE

This Continuing Disclosure Certificate (the "Disclosure Certificate''), dated October 12, 2017, is executed and delivered 0y the Upland Unified School District (the" Issuer") in connection with the issuance of the Issuer's $7,910,000 2017 General Obligation Refunding Bonds, Series A (2025 Crossaver) (the "Bonds"), The Bonds are being issued pursuant to a resolution of the Issuer dated August 22, 2017 (the "Resolution"), The Issuer cavenants and agrees as folio.vs:

SECTION L Purpose of the Disclosure Certificate, This Disclosure Certificate is being executed and delivered 0y the Issuer for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule,

SECTION 2, Definitions, In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the follcwing capitalized terms shall havethefollo.ving meanings:

"Annual Report'' shall mean any Annual Report pravided Of the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate,

"Beneficial Owner" shall mean any person which has or shares the pcwer, directly or indirectly, to make investment decisions concerning o.vnership of the Bonds (including persons holding Bonds through nominees, depositories or cther intermediaries),

"Disclosure Representative'' shall mean either the Superintendent or the Assistant Superintendent, Business Services of the Issuer, or either of their designees, or such cther officer or empl0yee as the Issuer shall designate in writing from time to time,

"Dissemination Agent'' shall mean, initially, Isom Advisors, a Division of Uram Futures, Inc,, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designed in writing Of the Issuer and which has been filed with the then current Dissemination Agent a written accer,tance of such designation,

"EMMA" shall mean the Electronic Municipal Market Access system of the MSRB,

"Listed Events" shall mean any of the events listed in Section S(a) and (b) of this Disclosure Certificate,

"MSRB" shall mean the Municipal Securities Rulemaking Board and any successor entity designated underthe Rule as the repository for filings made pursuant to the Rule,

"Official Statement'' shall mean the Official Statement for the Bonds dated Ser,tember 7, 2017,

"Participating Underwriter" shall mean Stifel, Nicolaus & Company, Incorporated as the original underwriter of the Bands,

"Rule'' shall mean Rule 15c2-12(b)(5) adopted Of the Securities and Exchange Commission underthe Securities Exchange Act al' 1934, as the same may be amended from ti me to ti me,

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SECTION 3. Pr<Nision cf Annual Reports.

(a) The Issuer shall, or shall cause the Dissemination Agent upon written direction to, not later than eight months after the end cf the Issuer's fiscal year, commencing with the report for the fiscal year endingJ une 30, 2017, pravide to the MSRB an Annual Report which is consistent with the requirements of Section4 cf this Disclosure Certificate. The Annual Report shall be pr<Nided to the MSRB in an electronic format as prescribed lJy the MSRB and shall be accompanied lJy identifying information as prescribed lJy the MSRB. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include lJy reference other information as pravided in Section 4 of this Disclosure Certificate; pravided that the audited financial statements cf the Issuer may be submitted separately from and laterthan the allance cf the Annual Report if they are not available lJy the date required abave for the filing of the Annual Report.

The Annual Report shall be pr<Nided at least annually notwithstanding any fiscal year longerthan 12 calendar months. The Issuer's fiscal year is currently effective from July 1 to the immediately succeeding June 30 of the follo.ving year. The Issuer will promptly notify the MSRB and the Dissemination Agent cf a change in the fiscal year dates. The Issuer shall pravide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished lJy it hereunder. The Dissemination Agent may conclusively rely upon such certification cf the Issuer and shall have no duty or obligation to revie.v such Annual Report.

(b) If the Dissemination Agent is other than the Issuer, not later than fifteen ( 15) days prior to the date specified in subsection (a) for praviding the Annual Report to the MSRB, the Issuer shall pravide the Annual Report to the Dissemination Agent. If lJy fifteen (15) days priorto such date the Dissemination Agent has not received a COJJr cf the Annual Report, the Dissemination Agent shall contact the Issuer to detennine if the Issuer is in compliance with subsection (a).

(c) If the Dissemination Agent is unable to verify that an Annual Report has been pravided to the MSRB lJy the date required in subsection (a), the Dissemination Agent shall send a nctice in a timely manner to the MSRB, in the form required lJy the MSRB.

(d) The Dissemination Agent shall:

(i) confinn the electronic filing requirements of the MSRB for the Annual Reports; and

(ii) promr,tly after receir,t cf the Annual Report, file a report with the Issuer certifying that the Annual Report has been pravided pursuant to this Disclosure Certificate, stating the date it was pravided the MSRB. The Dissemination Agent's duties under this clause (ii) shall exist only if the Issuer pr<Nides the Annual Report to the DisseminationAgentforfiling.

(e) Nctwithstanding any cther pravision of this Disclosure Certificate, all filings shal I be made in accordance with the MSRB 's EMMA system or in ancther manner appr<Ned under the Rule.

SECTION 4. Content of Annual Reports. The Issuer's first Annual Report shall consist solely of the Official Statement and thereafter shal I contai n or include lJy reference the fol Io.vi ng:

(a) 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 gavernmental entities from time to time lJy the Gavernmental Accounting Standards Board. If the District's audited financial statements are nct available lJy the ti me 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.

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2. Financial information and operating data with respect to the District of the type included in the Official Statement in the follo.ving categories (to the extent not included in the District's audited financial statements):

(A) State funding received lJy the District for the last completed fiscal year, which may be in the form of an update to Table 15;

(B) Average daily attendance, enrollment and English learners~o.v--income percentage of enrollment of the District for the last completed fiscal year, which may be in the form of an update to Table 14;

(C) Outstanding District indelxedness, which may be in the form of an update to either Table 19 or Table 20;

(D) S umrnary financial i nforrnation on revenues, expenditures and fund balances forthe District's general fund ref I ecti ng adopted budget forthe current fi seal year, which may be in the form of an update to Table 18;

(E) Assessed Valuation ol' property within the District for the last completed fiscal year, which may be in the form ol' an update to Table 1;

(F) Twenty largest secured property taxpayers within the District for the last completed fiscal year, which may be in the form of an update to Table 4; and

(G) In the event the County ol' San Bernardino discontinues the Teeter Plan, property tax delinquency rates in the District for the I ast completed fi seal year, which may be in a form similar to Table 2 but with such information exclusively forthearea within the District.

(b) Any or all ol' the items listed abole may be included lJy specific reference to cther documents, including ol'ficial statements ol' delx issues of the Issuer or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included lJy reference is a final ol'ficial statement, it must be available from the MSRB. The Issuer shall clearly identify each such cther document so included lJy reference.

SECTION 5. Reporting ol' Significant Events.

(a) Pursuant to the pr<Nisions of this Section 5, the Issuer shall give, or cause to be given, notice of the occurrence of any of the follo.ving events with respect to the Bonds in a timely manner not more than ten ( 10) business days afterthe event:

( 1) principal and interest payment delinquencies;

(2) unscheduled draws on delx service reserves reflecting financial difficulties;

(3) unscheduled draws on credit enhancements reflecting financial difficulties;

(4) substitution of credit or liquidity praviders, or their failure to perform;

(5) adverse tax opinions or issuance lJy the Internal Revenue Service of proposed or final determinations of taxability or of the Notice of Proposed Issue (IRS Form 5701-TEB);

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(6) tender cffers;

(7) defeasances;

( 8) ratings changes; and

(9) mnkrur,tcy, insolvency, receivership or similar proceedings.

Ncte: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the follo.ving occur. the appointment cf a receiver, fiscal agent or similar cffi cer for an obi i gated person in a proceeding under the U .5. B ankrur,tcy Code or i n any cther proceeding under state or federal law in which a court or gavernmental authority has assumed jurisdiction CNer substantially all cf the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing gavernmental body and officials or cfficers in possession but subject to the supervision and orders of a court or gavernmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or gavernmental authority having supervision or jurisdiction aver substantially all cf the assets or business cf the obligated person.

(b) Pursuant to the pr<Nisions of this Section 5, the Issuer shall give, or cause to be given, notice of the occurrence of any of the fol lcwi ng events with respect to the Bands, if material:

(1) unless described in JE.ragraph 5(a)(5), notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or cther material events affecting the tax status of the Bands;

(2) the consummation cf a merger, consolidation or acquisition involving an obligated person or the sale of al I or substantially al I cf the assets cf the obi i gated person, other than in the ordinary course cf business, the entry into a definitive agreement to undertake such an action orthe tenni nation cf a definitive agreement relating to any such actions, other than pursuant to its terms;

(3) appointment cf a successor or additional trustee or the change of the name of a trustee;

( 4) nonJE.yment related defaults;

(5) modifications to the rights cf Owners cf the Bonds;

(6) bond calls; and

(7) release, substitution or sale cf property securing reJE.yment of the Bonds.

(c) Whenever the Issuer attains kno.vledge of the occurrence cf a Listed Event described in subsection (b), the Issuer shall as soon as possible determine if such event would be material under applicable federal securities laws.

(d) If the Issuer determines that kncwledge cf the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the Issuer shall file a notice cf such occurrence with EM MA in a timely manner not more than ten ( 1 O) business days after the event.

(e) The Issuer hereby agrees that the undertaking set forth in this Disclosure Certificate is the responsibility of the Issuer and that the Dissemination Agent shall not be responsible for determining whether

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the Issuer's instructions to the Dissemination Agent underthis Section 5 comply with the requirements cf the Rule.

(f) If the Dissemination Agent has been instructed Of the Issuer to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB. Na.withstanding the foregoing, nctice of Listed Events described in subsection (b)(6) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners cf affected Bonds pursuant to the Resolution. In the case cf such Listed Event, the Dissemination Agent shall not be obligated to file a ncticeas required in this subsection (f) prior to the occurrence of such Listed Event.

(g) Any of the filings required to be made under this Section 5 shall be made in accordance with the MSRB 's EMMA system or in another manner appraved underthe Rule.

SECTION 6. Tennination of Reporting Obligation. The obligations of the Issuer and the Dissemination Agent under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of Bonds. If such termination occurs prior to the final maturity of the Bonds, the Issuer shall give nctice cf such termination in the same manner as for a Listed Event under Section 5.

SECTION 7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Isom Advisors, a Division cf Urban Futures, Inc. The Dissemination Agent may resign 0y pr<Niding thirty days written notice to the Issuer and the Paying Agent. The Dissemination Agent shall not be responsible for the content of any report or nctice prepared 0y the Issuer. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not pravided to it 0y the Issuer in a timely manner and in a fonn suitable for filing.

SECTION 8. Amendment.

(a) This Disclosure Certificate may be amended, in writing, without the consent of the Owners, if all of the follo.ving conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thered', or a change in the identity, nature or status of the Issuer or the type of business conducted therel:1y, (2) this Disclosure Certificate as so amended would have complied with the requirements of the Rule as of the date cf this Disclosure Certificate, after taking into account any amendments or interpretations cf the Rule, as wel I as any change in circumstances, ( 3) there shal I have been delivered to the Issuer an opinion cf a nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the Issuer, to the same effect as set forth in clause (2) abOle, (4) the Issuer shall have delivered to the Dissemination Agent (if other than the Issuer) an opinion cf nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the Issuer, to the effect that the amendment does nct materially impair the interests cf the Owners, and ( 5) the Issuer shal I have delivered copies of such opinion and amendment to the MSRB.

(b) This Disclosure Certificate may be amended in writing with respect to the Bonds, upon obtaining consent cf Owners at least 25% in aggregate principal of the Bonds then outstanding; pr<Nided that the conditions set forth in Section 8(a)(l), (2) and (3) have been satisfied; and pr<Nided, further, that the Dissemination Agent shall not be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder.

(c) To the extent any amendment to this Disclosure Certificate results in a change in the type of financial information or operating data pravided pursuant to this Disclosure Certificate, the first Annual Report

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pr<Nided thereafter shall include a narrative explanation of the reasons for the amendment and the imJE.ct of the change.

(d) If an amendment is made to the basis on which financial statements are preJE.red, the Annual Report fortheyear in which the change is made shall present a comJE.rison between the financial statements or infonnation preJE.red on the basis of the mw accounting principles and those preJE.red on the basis of the former accounting principles. Such comJE.rison shall include a quantitative and, to the extent reasonably feasible, qualitative discussion of the differences in the accounting principles and the imJE.ct of the change in the accounting principles on the presentation of the financial information.

SECTION 9. Additional lnfonnation. Nothing in this Disclosure Certificate shall be deemed to prevent the Issuer 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 0y this Disclosure Certificate. If the Issuer chooses to include any information in any Annual Report or nctice of occurrence of a Listed Event in addition to that which is specifically required 0y this Disclosure Certificate, the Issuer shall have no obligation under this Disclosure Certificate to update such infonnation or include it in any future Annual Report or nctice if occurrence of a Listed Event.

The Issuer ackno.vledges and understands that cther state and federal laws, including but not limited to the Securities Act of 1933 and Rule lOb-5 promulgated under the Securities Exchange Act cf 1934, may apply to the Issuer, and that under some circumstances compliance with this Disclosure Certificate, without additional disclosures or other action, may not fully discharge all duties and obligations cf the Issuer under such laws.

SECTION 10. Default. In the event the Issuer fails to comply with any pr<Nision in this Disclosure Certificate, the Dissemination Agent may (or shall upon direction of the Owners of 25% in aggregate princiJE.I cf the Bonds then outstanding or the Underwriter) take all action necessary to cause the Issuer to comply with this Disclosure Certificate. In the event of a failure cf the Issuer to comply with any pr<Nision cf this Disclosure Certificate, any Owner or Beneficial Owner cf the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance Of court order, to cause the Issuer 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 cf the Issuer to comply with this Disclosure Certificate shal I be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Issuer agrees to indemnify and save the Dissemination Agent, its officers, directors, empl0yees and agents, harmless against any loss, expense and liabilities which it may incur arising out cf or in the exercise or performance cf its pcwers and duties hereunder, including the costs and expenses (including attormys' fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be JE.id compensation Of the Issuer for its services pravided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred 0y the Dissemination Agent in the perfonnance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to revie.v any information pravided to it hereunder and shall not be deemed to be acting in any fiduciary caJE.city for the Issuer, the Bond Owner's, or any cther JE,rty. The obligations cf the Issuer under this Section shall survive resignation or remaval of the Dissemination Agent and payment cf the Bonds. No person shall have any right to commence any action against the Dissemination Agent hereunder, seeking any remedy cther than to compel specific perfonnance of this Disclosure Certificate. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach under this Disclosure Certificate.

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SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Issuer, the Dissemination Agent, the Participating Underwriter, Owners and Beneficial Owners from time to time of the Bands, and shall create no rights in any cther person or entity.

SECTION 13. Nctices. Notices should be sent in writing to the follo.ving addresses. The follo.ving infonnation may be conclusively relied upon until changed in writing.

Disclosure Representative: Superintendent Upland Unified School District 390 N. Euclid Avenue Upland, California 91786

UPLAND UNIFIED SCHOOL DISTRICT

By: Its: Superintendent

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APPENDIX D

ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING UPLAND

The follcwing inforrration concerning the City of Upland (the" City''), the County of San Bernardino (the " County'') and the State of California (the "State'') are presented as general mckground i nforrration, The 2017 Bonds are not an obligation of the City, the County or the State and the taxing the pcwer cf the City, the County and the State are nct pledged to the JE.yment of the 2017 Bonds,

The District has not independently verified the inforrration set forth in this Appendix D and while this inforrration is believed to be reliable, it is nct guaranteed as to accuracy Of the District,

General

The City cf Upland is located in the souttwestern portion of San Bernardino County within the Inland Empire, The City encomJE.sses 15 square miles and is located 35 miles east cf Los Angeles, The City was incorporated on May 15, 19C6 and operated as a general law city, The City has a council-manager form of munici JE.I government, The City Counci I is composed of five members elected to four year averlappi ng terms, The Mayor and Council Members are elected at large,

San Bernardino County is located in Southern California and was incorporated in 1853, The County encompasses an area of CNer 22,000 square miles, rraking it the geographically largest county in the nation, and includes twenty-four incorporated communities, The County is bordered on the west Of Los Angeles County, on the north 0y Kem and Inyo counties and on the east and south Of the County of Riverside, Composed essentially of three topographic regions-valley, mountain and desert-elevation in the County ranges from a high of 11,502 feet abOle sea level to a lcw of 181 feet ab<Ne sea level. The Mtjave Desert rrakes up much of the County, including the Mojave National Preserve in the eastern JE.rt of the County, The western JE.rt of the county i ncl udes the San B ernardi no Nati anal For est

D-1

Population

The follo.ving table sho.vs the population estimates in the City cf Upland, County cf San Bernardino and the State of California for years 2008 through 2017.

POPULATION ESTIMATES City of Upland, County of San Bernardino and State of California

2008-2017

Year"' City of Upland County of San Bernardino State of California

2008 72,654 2,009,594 36,704,375 2009 72,715 2,019,432 36,966,713 2010 73,732 2,035,141 37,253,956 2011 74,913 2,054,735 37,536,835 2012 74,462 2,070,374 37,881,357 2013 74,615 2,086,576 38,239,207 2014 74,973 2,101,525 38,567,459 2015 75,617 2,122,015 38,907,642 2016 76,016 2,135,724 39,255,883 2017 76,790 2,160,250 39,523,613

'" January l data Source: S1ate of California, DepartrrentofFinance, E-4 Population Estimates for Cities, Counties and S1ate, 2001-2010, with

2000& 20l0Census Counts, Sacramento, California, November 2012 and E-4 Population Estimates for Citie~ Counties and S1ate, 2011-2014, with 2010 Benchmark, Sacramento, California, May 2015.

Personal I ncome

The follo.ving tables sho.v the personal income and per capita personal income for the County, State cf California and United States from 2007 through 2014.

PERSONAL INCOME County cf San Bernardino, State cf California, and United States

2007-2014

Year

2007 2008 2009 2010 2011 2012 2013 2014

Note: Dollars in Thousand~

County of San Bernardino

$58,473,029 60,145,538 58,693,991 59,850,108 62,952,683 64,633,723 66,321,591 69,487,877

California

$1,565,343,003 1,602, 748801 1,537,136,355 1,583,446,730 1,691,002,503 1,812,314,643 1,849,505,496 1,939,527,656

Source: U .5. Department of Corrrnerce, Bureau of Economic Analysis.

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United States

$11,995,419,000 12,492,705,000 12,079,444,000 12,459,613,000 13,233,436,000 13,904,485,000 14,064,468,000 14,683,147,000

PER CAPITA PERSONAL INCOME 111

County cf San Bernardino, State cf California, and United States 2011-2015

County of Year San Bernardino California United States

2011 30,738 45,820 42,453 2012 31,331 48,312 44,267 2013 31,916 48,471 44,462 2014 33,562 50,988 46,414 2015 35,431 53,741 48,122

'" Per capita personal income is the total personal inc:orre divided by the total rrid-year population estirmtes of the U.S. Bureau of the Census. All dollar estirmtes are in current dollars (not adjusted for inflation).

Source: U.S. Department of Comrrerce, Bureau of Econorric Analysi~

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E mpl 0yment

The follcwing table summarizes the labor force, empl0yment and unempl0yment figures averthe JE5t five years fortheCity, County and State.

CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT RATE City of Upland, County of San Bernardino and the State of California

2012-2016

Year and Area Labor Force E mpl 0ymentl21 U nempl 0ymentl31 Unemplo/.ment

Rate 41

2012 City of Upland 36,100 33,100 3,100 San Bernardino County 892,200 790,400 101,800 State of California 18,551,400 16,627,800 1,923,600

2013 City of Upland 36,500 33,800 2,600 San Bernardino County 896,600 809,100 87,500 State of California 18,670,100 17,001,000 1,669,000

2014 City of Upland 37,600 35,300 2,200 San Bernardino County 911,400 838,200 73,200 State of California 18,827,900 17,418,000 1,409,900

2015 City of Upland 38,100 36,300 1,800 San Bernardino County 926,600 866,800 59,800 State of California 18,981,800 17,798,600 1,183,200

2016 City of Upland 38,500 36,900 1,600 San Bernardino County 935,600 882,200 53,400 State of California

'" Data is based on annual average~ unless otherwise specified, and is not seasonally adjusted. w Includes persons involved in labor-managerrent trade dispute~ <3> Includes all persons without jobs who are actively seeking work.

8.5% 11.4 10.4

7.'¼, 9.8 8.9

5.9% 8.0 7.5

4.8% 6.5 6.2

4.2% 5.7

<4> The unerrplc:,yrrent rate is corrputed from un-munded data; therefore, it may differ from rates corrputed from rounded

figures in this table. Source: U.S. Department of Labor - Bureau of Labor Statistics, California Errplc:,yrrent Developrrent Department, March 2016

Benchmark.

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Industry

The follo.ving table summarizes the average annual industry empl0yment in the County from 2012 through 2016.

LABOR FORCE AND INDUSTRY EMPLOYMENT ANNUAL AVERAGES Riverside, San Bernardino Ontario MSA

2012-2016

Type of Employrrent 2012 2013 2014 2015 2016

Total Farm 15,000 14,500 14,400 14,800 14,700 Mining & Logging 1,200 1,200 1,300 1,300 900 Construction 62,600 70,000 77,600 85,700 92,500 Manufacturing 86,700 87,300 91,300 96, 100 98,900 Transportation, Warehousing& Utilities 73,000 78,400 86,600 97,400 104,400 Wholesale Trade 52,200 56,400 58,900 61,600 62,900 Retail Trade 162,400 164,800 169,400 174,300 179,000 Information 11,700 11,500 11,300 11,400 ll,600 Financial Activities 40,700 41,800 42,900 43,900 45,300 Professional and Business Services 127,100 131,900 138,700 147,400 145,800 Education and Health Services 173,600 187,600 194,800 205,100 214,300 Leisure and Hospitality 129,400 135,900 144,800 151,700 159,700 Other Services 40,100 41,100 43,000 44,000 45,100 Governrrent 224,600 225,200 228,800 233,300 240,500

Total 1,200,300 1,247,600 1,303,800 1,368,000 1,415,600

Note: Items may not add to total due to independent rounding. Source: California Employment Development Departrren~ Labor Market Information Divi~on. March 2016 Benchrrark.

Largest E mpl0yers

The County's economy has always had a strong agricultural base, though industry has been developing rapidly in recent years. Over 700 manufacturing firms are located in the County producing items including many steel products, materials made from concrete and glass, canned foods, JE.per goods and commercial and scientific equipment. Within the County is a diverse empl0yer base comprising both public entities and private corporations. The fol Io.vi ng table sets forth the top ten empl 0yers I ocated i n the C aunty:

LARGEST EMPLOYERS County of San Bernardino

201 e11

Empl0yer

County of San Bernardi no Stater Bros. Market U.S.Army, Fort Irwin& National Training Center LOTTI Linda University U.S. Marine CorpAirGround Combat Center UPS San Bernardino City Unified School District Ontario International Airport LOTTI Linda University Medical Center Kaiser PerTT1nente ( Fontana Only)

Number E mpl0yed

19,000 18,221 13,805 13,805 12,486 8,600 8,574 7,695 6,147 6,000

'" Due to the unavailability of fiscal year 2016, 2015 and 2014 data, fiscal year 20l 3data was used instead by the County. Source: San Bernardino County "Corrprehensive Annual Financial Report," Fi seal Year Ended J une 30, 2016.

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Unlike the County, the City's economy does nct have a strong agricultural base due to the fact that most of the land is devoted to residential use. The City's economy is diverse and empl0yment is very well distributed among empl0yers.

LARGEST EMPLOYERS City of Upland

2016

Empl0yer

San Antonio Community Hospital

Number E mpl0yed

Upland Unified School District City of Upland U pl and R ehabi I itation & Care Center WalMart Target Le.vis Group VC I Construction Holliday Rock Co., Inc. Allied Professional Nursing Care, Inc.

Source: CityofUpland"CorrprehensiveAnnual Financial Report'" fortheyearendingJune 30, 2016.

Commercial Activity

2,020 956 386 320 315 265 220 210 203 200

A summary cf taxable sales within the County and City for years 2011 through first quarter of 2016 are sho.vn in the follo.ving tables.

TAXABLE SALES County of San Bernardino

2011-201 e 11

(Dollars in Thousands)

Retai I and Food Retai I and Food Taxable

Year Perrrits Transactions

2011 34,140 18,736,053 2012 35,095 19,980,937 2013 32,986 21,173,875 2014 34,455 22,240,376 2015 Nf,A, 23,142,828 2016111 N /,A, 5,828,691

'" Reflects taxable sales through the first quarter of 2016. Np\ NotAvailable.

Total Permits

47,791 48,936 46,632 48,349 56,961 56,961

Source: "Taxable Sales in California (Sales & Use Tax)"" -California State Board of Equalization.

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Total Outlets Taxable

Transactions

27,322,980 29,531,921 31,177,823 33,055,967 35,338,556 8,904,320

TAXABLE SALES City of Upland

2011-201 e 11

(Dollars in Thousands)

Retai I and Food Total Outlets Retai I and Food Taxable Taxable

Year Perrrits Transactions Total Permits Transactions

2011 1,312 734,054 2,033 888,313 2012 1,302 755,379 2,029 907,817 2013 1,357 832,874 2,074 1,005,651 2014 1,445 885,860 2,146 1,076,032 2015 N /,'\ 937,690 N /,'\ 1,154,037 2016111 N /,'\ 222,505 N /,'\ 273,594

'" Reflects taxable sales through the first quarter of 2016. Source: "Taxable Sales in California (Sales & Use Tax)" -California State Board of Equalization.

Building Activity

In addition to annual building pennitvaluations, the numbers ol' permits for mw ct.veiling units issued each year from 2012 through 2016 are shewn in the follcwing tables for bcth the County and the City.

BUILDING PERMIT VALUATIONS San Bernardino County

2012 Valuation ($000' s)

Residential $ 480,704 Non-Residential 562,616 Total $1,043,320

Units Single Farrily 1,214 Multiple Family 596 Total 1,810

Note: Totals may not add to sum because of rounding. Source: Construction Industry Research Board.

2012-2016

2013 2014

$ 666,166 $ 708,471 744169 958267

$1,434,335 $1,666,738

1,874 1,937 1,439 1,266 3,313 3,203

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2015 2016

$1,056,572 $ 888,142 1,146,722 994,282

$2,203,294 $1,882,424

2,753 2,896 1 159 976 3,912 3,872

BUILDING PERMIT VALUATIONS

2012 Valuation ($000' s)

Residential $ 7,974 Non-Residential 8977 Total $16,951

Units Single Farrily 24 M ulti-f arri ly 0 Total 24

Note: Totals may not add to sum because of rounding. Source: Construction Industry Research Board.

Recreation and Tourism

City of Upland 2012-2016

2013 2014

$6,837 $15,354 2,023 2458

$8,860 $17,812

32 41 _J) _J)

32 41

2015 2016

$2,720 $21,960 3,179 3 116

$5,899 $25,076

42 80 J) J) 42 80

The County includes many of southern California's most popular recreation areas. Nct only do the mountain lakes and resorts offer summer swimming, boating, fishing and hiking, but they also pravide for sncw skiing and other winter sports. The Colorado River pravides an all-year recreational area at the County's eastern boundary.

Transportation

Situated in the midst of the most heavily populated area in California, the County has easy access to excellent raids, rail and air transportation. The San Bernardino Free.vay (Interstate 10) pravides direct access todcwntcwn Los Angeles and connects with major highways.

Rail and freight service is pravided Of the Santa Fe Railway and the Southern Pacific Company. Amtrak pravides passenger service to Los Angeles to the west. Bus service is pravided lJy Continental Trailways Bus System and Greyhound Bus Lines. The Omnitrans Transit District pravides bus service among most County cities. Most interstate common carriertruck lines operating in California serve the County.

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APPENDIX E

BOOK-f NTRY ONLY SYSTEM

The inforrnatioo in this sectioo coocerning OTC and DTC's book-entry ooly system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the corrpleteness or accuracy thered'. The follo.ving descrir,tioo cf the procedures and record keeping with respect to beneficial OMJership interests in the 2017 Bonds, JE.yment of princiJE.I, prenium, if any, accreted value and interest on the 2017 Boods to OTC ParticiJE.nts or Beneficial Owners, confirrnation and transfers of beneficial OMJership interests in the 2017 Bonds and other related transactions Of and between OTC, the OTC ParticiJE.nts and the Beneficial Owners is based solely oo inforrnation pravided Of DTC.

1. The Depository TrustComJE.ny ("OTC"), Nav York, NY, will act as securities depository for the 2017 B oods (the "Securities"). The Securities will be issued as fully-registered securities registered in the name cf Cede & Co. (DTC's JE,rtnership nominee) or such other name as rnay be requested Of an authorized representative of OTC. One fully-registered Security certificate will be issued for each rnaturity cf the Securities in the aggregate princiJE.I amount cf such maturity, and will be deposited with OTC. If, ho.vever, the aggregate princiJE.I amount cf any issue exceeds $500 millioo, one certificate will be issued with respect to each $500 millioo of princiJE.I amount, and an additional certificate will be issued with respect to any remaining princiJE.I amount cf such issue.

2. OTC, the world's largest securities depository, is a limited-purpose trust comJE.ny organized under the N av Y ork Banking Law, a " banking organi zati ori' within the meaning of the N av Y ork Banking Law, a member cf the Federal Reserve System, a "clearing corporation' within the meaning cf the Nav York Unifonn Commercial Code, and a "clearing agency" registered pursuant to the pr<Nisioos of Sectioo 17A cf the Securities Exchange Act of 1934. OTC holds and pr<Nides asset servicing for aver 3.5 million issues of U.S. and noo--U.5. equity issues, corporate and municiJE.I delx issues, and mooey market instruments (from CNer 100 countries) that DTC's JE,rticiJE.nts (" Direct ParticiJE,nts") deposit with OTC. OTC also facilitates the post-trade settlement amoog Direct ParticiJE.nts of sales and cther securities transactions in deposited securities, through electrooic computerized book-entry transfers and pledges between Direct ParticiJE.nts' accounts. This eliminates the need for physical m<Nement of securities certificates. Direct ParticiJE,nts include bcth U.S. and non--lJ.5. securities brokers and dealers, banks, trust comJE.nies, clearing corporations, and certain cther organizations. OTC is a wholly--o.vned subsidiary cf The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding comJE.ny for OTC, National Securities Clearing Corporatioo and Fixed Income Clearing Corporatioo, all cf which are registered clearing agencies. DTCC is o.vned 0y the users of its regulated subsidiaries. Access to the OTC system is also available to others such as bcth U.S. and non--lJ .5 . securities brokers and dealers, banks, trust comJE.ni es, and clearing corporati oos that cl ear through or rnaintain a custodial relatiooshipwith a Direct ParticiJE.nt, either directly or indirectly ("Indirect ParticiJE.nts"). OTC has a Standard & Poor's rating of AA+. The OTC Rules applicable to its ParticiJE.nts are on file with the Securities and Exchange Commissioo. More i nfonnatioo about OTC can be found atwww.dtcc.com.

3. Purchases cf Securities under the OTC system must be made Of or through Direct ParticiJE.nts, which will receive a credit for the Securities on DTC's records. The cwnership interest cf each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect ParticiJE.nts' records. Beneficial Owners will nct receive written confirrnatioo from OTC of their purchase. Beneficial Owners are, ho.vever, expected to receive written confi nnations pr<Nidi ng details of the transactioo, as well as periodic statements of their holdings, from the Direct or Indirect ParticiJE.nt through which the Beneficial Owner entered into the transaction. Transfers of o.vnership interests in the Securities are to be accomplished 0y entries rnade on the books of Direct and Indirect ParticiJE,nts acting oo behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their cwnership interests in Securities, except in the event that use cf the book-entry system for the Securities is discontinued.

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4. To facilitate subsequent transfers, all Securities deposited Of Direct ParticiJE.nts with OTC are registered in the name of DTC's JE,rtnership nominee, Cede& Co., or such other name as may be requested 0y an authorized representative cf OTC. The deposit of Securities with OTC and their registration in the name of Cede & Co. or such other OTC nominee do nct effect any change in beneficial cwnership. OTC has no kncwledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct ParticiJE.nts to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect ParticiJE.nts will remain responsible for keeping account of their holdings on behalf cf their customers.

5. Conveyance cf notices and other communications Of DTC to Direct ParticiJE.nts, 0y Direct ParticiJE.nts to Indirect ParticiJE.nts, and Of Direct ParticiJE.nts and Indirect ParticiJE.nts to Beneficial Owners will be go;emed Of arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners cf Securities may wish to take certain steps to augment the transmission to them cf nctices of significant events with respect to the Securities, such as redemr,tions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit nctices to Beneficial Owners. In the alternative, Beneficial Owners may wish to pravide their names and addresses to the registrar and request that copies of notices be pro;i ded directly to them.

6. Redemption notices shall be sent to OTC. If less than all of the Securities within a maturity are being redeemed, DTC's practice is to determine Of lct the amount of the interest cf each Direct ParticiJE.nt in such maturity to be redeemed.

7. Neither OTC nor Cede & Co. (nor any other OTC nominee) will consent or vote with respect to Securities unless authorized Of a Direct ParticiJE.nt in accordance with DTC's MM I Procedures. Under its usual procedures, OTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct ParticiJE.nts to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

& PrinciJE.I, redemr,tion price and interest JE.yments on the Securities will be made to Cede & Co., or such other nominee as may be requested Of an authorized representative cf OTC. DTC's practice is to credit Direct ParticiJE.nts' accounts upon DTC's receipt of funds and corresponding detail information from the District or the Paying Agent, on JE.yable date in accordance with their respective holdings shewn on DTC's records. Payments Of ParticiJE.nts to Beneficial Owners will be gaverned Of 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 ParticiJE.nt and nct of OTC, the Paying Agent, orthe District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of princiJE.I, redemption price and interest JE.yments to Cede& Co. (or such other nominee as may be requested Of an authorized representative of OTC) is the responsibility of the District or the Paying Agent, disbursement cf such JE.yments to Direct ParticiJE.nts will be the responsibility of OTC, and disbursement of such JE.yments to the Beneficial Owners will be the responsibility of Direct and Indirect ParticiJE.nts.

9. If applicable, a Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its ParticiJE.nt, to tender/remarketing agent, and shall effect delivery cf such Securities Of causing the Direct ParticiJE.nt to transfer the ParticiJE.nt's interest in the Securities, on DTC's records, to tender/remarketing agent. The requirement for physical delivery of Securities in connection with an or,tional tender or a mandatory purchase will be deemed satisfied when the cwnership rights in the Securities are transferred Of Direct ParticiJE.nts on DTC's records and follcwed Of a book-entry credit of tendered Securities to tender /remarketi ng agent's OTC account.

10. OTC may discontinue pravidi ng its services as depository with respect to the Securities at any time Of giving reasonable nctice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is nct obtained, Security certificates are required to be printed and delivered.

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11. The District may decide to discontinue use of the system cf book-entry-only transfers through OTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to OTC.

THE TRUSTEE, AS LONG AS A BOOK-fNTRY ONLY SYSTEM IS USED FOR THE 2017 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO OTC. ANY FAILURE OF OTC TO ADVISE ANY OTC PARTICIPANT, OR OF ANY OTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2017 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.

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APPENDIX F

SAN BERNARDI NO COUNTY TREASURER'S STATE ME NT OF INVESTMENT POL ICY

F-1

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SCOPE:

OFFICE OF THE AUDITOR--CONTROLLER/fREASURER/fAX COLLECTOR

COUNlY OF SAN BERNARDINO

TREASURER'S STATEMENT OF INVESTMENT POLICY As approved by the Board of Supervisors onJ une 27, 2017

The County of San Bernardino's Investment Policy has been prepared in accordance with California State law. This policy shall be reviewed annually by the County's Treasury Oversight Committee and approved by the County Board of Supervisors. The purpose of this policy is to establish cash management and investment guidelines for the County Treasurer, who is responsible forthe management and investment of the County Treasury Pool, which consists of the pooled monies held on behalf of the County, school districts, community college districts and certain special districts within the County.

This policy shall apply to all investments held within the County Treasury Pool and made on behalf of the County and member agencies of the Pool, with the exception of certain bond funds for which the Board of Supervisors may specifically authorize other allowable investments, consistent with State law. The Treasurer and Treasurer's staff are responsible for the full-time, active management of the Pool. All investments and activities of the Treasurer and staff are made with the understanding that the Treasurer holds a public trust with the citizens of the County, which shall not be compromised.

FIDUCIARY RESPONSIBILITY: The California Government Code, Section 27000.3, declares each treasurer, or governing body authorized to make investment decisions on behalf of local agencies, to be a fiduciary subject to the prudent investor standard.

This standard requires that "When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, the county treasurer or the board of supervisors, as applicable, shall act with care, skill, prudence, and diligence under the circumstances then prevailing, specifically including, but not limited to, the general economic conditions and the anticipated needs of the county and other depositors, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the county and the other depositors. Within the limitations of this section and considering individual investments as part of an overall investment strategy, investments may be acquired as authorized by law." This standard shall be applied in the context of managing the overall portfolio.

Page 1 of 16

PORTFOLIO OBJECTIVES: It is the policy of the Treasurer to invest public funds in a manner which will preserve the safety and liquidity of all investments within the County investment pool while obtaining a reasonable return within established investment guidelines. The portfolio should be actively managed in a manner that is responsive to the public trust and consistent with State law. Accordingly, the County investment pool will be guided by the following principles, in order of importance:

• The primary objective of the Treasurer's investment of public funds is to safeguard investment principal.

• The secondary objective is to maintain sufficient liquidity to insure that funds are available to meet daily cash flow requirements.

• The third and last consideration is to achieve a reasonable rate of return or yield consistent with these objectives.

AUTHORITY: The Treasurer's authority for making investments is delegated by the Board of Supervisors in accordance with the California Government Code. Statutory authority for the investment and safekeeping functions are found in Sections 53600 et seq. and 53630 et seq. of the California Government Code.

AUTHORIZED INVESTMENTS: Investments shall be restricted to those authorized in the California Government Code and as further restricted by this policy statement, with the exception of certain bond funds in which the Board of Supervisors has specifically authorized other allowable investments. All investments shall be further governed by the restrictions shown in Schedule I which defines the type of investments authorized, maturity limitations, portfolio diversification (maximum percent of portfolio), credit quality standards, and purchase restrictions that apply. Whenever a maximum allowable percentage of the portfolio is stated for any type of security as detailed above, the maximum allowable limit is determined by the portfolio size at the market close of the regular business day prior to the security purchase date. Maximum limits are applicable at the time of security purchase only unless otherwise noted or defined in Schedule I.

In conjunction with these restrictions, County Treasurer staff shall diversify its investments by security type, issuer and maturity. The purpose of this diversification is to reduce portfolio risk by avoiding an overconcentration in any particular maturity sector, asset class or specific issuer. As Agency security holdings are the largest portion of the pool, diversification among the Agency issuers should be considered to the extent practical when making investments.

PROHIBITED INVESTMENTS: No investment shall be made that is prohibited 0y law. Thus, no investments are authorized in inverse floaters, range notes, interest-only strips that are derived from a pool of mortgages, nor in any other investment that could result in zero interest if held to maturity. Additionally, the following types of investments are also prohibited:

• Mutual bond funds that do not maintain a constant Net Asset Value (NAV). • Illiquid investments which lack a readily available market for trading. These investments

are defined to be: private placement notes or bonds, funding agreements, master notes, and loan participations.

Page 2 of 16

STAFF AUTHORIZED TO MAKE INVESTMENTS: Only the Auditor--Controller;rreasurer;rax Collector, Assistant Auditor--Controller;rreasurer;rax Collector with Treasury oversight responsibility, Cash Manager~nvestment Officer, Assistant Cash Manager~nvestment Officer, Investment Analyst(s) and authorized contracted consultant(s) may make investments and order the receipt and delivery of investment securities among custodial security clearance accounts. Authority granted to contracted consultant(s) shall be defined in their contract(s).

AUTHORIZED BROKER;DEALERS: The County Treasurer shall maintain an 'Eligible Broker/Dealer List'. Security transactions are limited solely to those banks, direct issuers and dealers included on this list. All financial institutions must be approved by the County Treasurer before they receive County funds or are able to conduct business with the County Treasurer.

All firms with whom the County does business shall comply with the requirements set forth in Schedule IV. County Treasurer staff shall conduct an annual review of each Broker/Dealer's current financial condition and performance in servicing the County overthe prior year. Further, in compliance with Section 27133(c) & (d) of the California Government Code, no dealer and;br securities firm shall be eligible if they have made a political contribution in excess of the limitations contained in Rule G-37 of the Municipal Securities Rule making Board or exceeded the limit on honoraria, gifts, and gratuities set by State law, by the Fair Political Practices Commission, or by County ordinance.

DUE DILIGENCE: County Treasurer staff shall conduct a thorough review and perform due diligence of all brokers, dealers, issuers of securities, and mutual funds prior to investing or conducting transactions with these parties and on a continuing basis. This due diligence shall include a periodic review of recent news, financial statements and SEC filings related to each entity.

INTERNAL CONTROLS: The County Treasurer has established a system of internal controls to provide reasonable assurance that the investment objectives are met and to ensure that the assets of the County Treasury Pool are protected from loss, theft or misuse. The concept of reasonable assurance recognizes that the cost of control shall not exceed the benefits likely to be derived and that the valuation of costs and benefits require estimates and judgments by management. The County Treasurer shall develop and maintain written procedures for the operation of the investment program which are consistent with this policy. These procedures shall include reference to separation of duties, safekeeping, collateralization, wire transfers and banking related activities.

Except for declared emergencies, the County Treasurer's Office shall observe the following procedures on a daily bas is:

• Investment transactions in excess of overnight maturity conducted by the County Treasurer's office shall be documented and subsequently reviewed by the Treasurer.

• All investment transactions shall be entered into the Treasurer's accounting system. • County investments shall be transacted, confirmed, accounted for, and audited by

different people.

Page 3 of 16

SECURITY CUSTODY & DELIVERIES: All securities purchased shall be deposited for safekeeping with the custodial bank that has contracted to provide the County Treasurer with custodial security clearance services or with a tri--party custodian bank under a written tri--party custody agreement. All security holdings shall be reconciled monthly by the County Treasurer and audited at least quarterly by the independent certified public accounting firm approved by the County Board of Supervisors. These third party trust department arrangements provide the County with a perfected interest in, ownership of and control over the securities held by the bank custodian on the County's behalf and are intended to protect the County from the bank's own creditors in the event of a bank default and filing for bankruptcy. Securities are not to be held in investment firm;broker dealer accounts.

All security transactions are to be conducted on a "delivery-versus-payment basis". Confirmation receipts on all investments are to be reviewed immediately for conformity with County transaction documentation. Confirmations resulting from securities purchased under repurchase agreements should clearly state the exact and complete nomenclature of the underlying securities purchased, that these securities have been sold to the County under a repurchase agreement, and the stipulated date and amount of the resale by the County back to the seller of the securities.

REPURCHASE AGREEMENTS: Repurchase agreements are restricted to primary dealers of the Federal Reserve Bank of New York. All counterparties must sign a Securities Industry & Financial Markets Association (formerly known as The Bond Market Association) Master Repurchase Agreement and, for tri­party repurchase agreements, a Tri-Party Repurchase Agreement as well before engaging in any repurchase agreement transactions. Collateral for repurchase agreements shall have a market value of at least 102% of the amount invested and must be marked to market by staff or by an independent third-party or custodial bank acting under contract to the County. Collateral for term repurchase agreements shall be marked to market no less than once weekly. Repurchase agreements are required to be collateralized by securities authorized under Section 53601 et seq. of the California Government Code.

COMPETITIVE PRICING: Investment transactions are to be made at current market prices. When possible, competitive prices should be obtained through multiple bids or offers and documented on the trade ticket or other written forms. When possible, bids and offers for any investment security should be taken from a minimum of three security broker/dealers or banks and awards should be made to the best offer. When identical securities are not available from multiple sources, or investments are purchased directly from issuers (e.g. commercial paper and certificates of deposit), market prices may be documented by reference to offerings of similar securities that are of comparable rating and maturity by other issuers.

LIQUIDITY: The duration-to-maturity of the portfolio shall not exceed 1.50. To provide sufficient liquidity to meet daily expenditure requirements for the following 12 months, the portfolio shall maintain at least 40% of its par value in securities having a maturity of 12 months or less.

PERFORMANCE EVALUATION: Portfolio performance is monitored daily by the Treasurer and monthly by third-party analysis, which includes security pricing, evaluation, and a total return measurement using the Bank of America Merrill Lynch 6-month Treasury Bill Index "G0O2" as a benchmark.

Page 4 of 16

MITIGATING MARKET & CREDIT RISKS: Safety of principal is the primary objective of the portfolio. Each investment transaction shall seek to minimize the County's exposure to market and credit risks by giving careful and ongoing attention to the credit ratings issued by Standard & Poor's, Moody's and;br Fitch rating services on the credit worthiness of each issuer of securities, by limiting the duration of investments to the time frames noted in Schedule I, and by maintaining the diversification and liquidity standards expressed within this policy.

In the event of a downgrade of a security held in the portfolio, the Cash Manager~nvestment Officer shall report the downgrade to the Treasurer promptly. In the event of a downgrade below the minimum credit ratings authorized by this policy, the security shall be evaluated to determine whether the security shall be sold or held. It is preferred to sell such a security if there is no book loss. In the event of a potential loss upon sale, the Treasurer will evaluate whether to hold or sell the security based on the amount of loss, remaining maturity and any other relevant factors.

TRADING & EARLY SALE OF SECURITIES: Securities should be purchased with the intent of holding them until maturity. However, in an effort to minimize market risks, credit risks, and increase the total return of the portfolio, securities may be sold prior to maturity, either at a profit or loss, when market conditions or a deterioration in credit worthiness of the issuer warrant a sale of the securities to either enhance overall portfolio yield or to minimize loss of investment principal. In measuring a profit or loss, the sale proceeds shall be compared to the original cost as per the County's books of the security plus accrued interest earned and/or any accretion or amortization of principal on the security from the date of purchase or the last coupon date to the date of sale. However, the sale of a security at a loss can only be made with the approval of the County Treasurer or his designee.

PURCHASE OF SECURITIES FOR FORWARD SETTLEMENT: Purchases of securities for forward settlement are only authorized as long as the intent of the purchase is to hold them in the portfolio and not for speculative trading, sufficient cash is available to consummate their acceptance into the Treasurer's portfolio on the settlement date, there is the ability at purchase to hold them in the portfolio to maturity without violating any of the diversification;tnaturity limits of this policy, and the forward settlement period does not exceed 21 days.

PORTFOLIO REPORTS/AUDITING: On a monthly basis, the County Treasurer shall prepare and file with the Board of Supervisors, Chief Executive Officer, Assistant Auditor--Controller/freasurer/fax Collector with Treasury oversight responsibility, Chief Deputy Auditor, Superintendent of Schools and Treasury Oversight Committee a report consisting of, but not limited to, the following:

• All investments detailing each by type, issuer, date of maturity, and par value and stating the book vs. current market value together with all other portfolio information required by law.

• Compliance of investments to the existing County Investment Policy. • A statement confirming the ability of the Pool to meet anticipated cash requirements for

the next six months.

Page 5 of 16

TREASURY OVERSIGHT COMMITTEE: In accordance with California Government Code Section 27131, the Board of Supervisors has established a Treasury Oversight Cornrnittee. The Treasury Oversight Cornrnittee will render unbiased and objective opinions on matters involving the Treasurer's investment of public funds. Specifically, the law requires that the Treasury Oversight Committee meet to:

• Review the Treasurer's annual Investment Policy Statement and any subsequent changes thereto prior to submission to the Board ofS upervisors for review and adoption.

• Review the Treasurer's investment portfolio reports and the portfolio's compliance with law and this Investment Policy.

• Cause an annual audit to be conducted on the Treasurer's pooled investment portfolio.

The Treasury Oversight Committee shall receive a copy of every Audit Report as prepared by the independent certified public accounting firm approved by the County Board of Supervisors. Such reports are made in accordance with the California Government Code Sections 26920 and 26922 and County Board of Supervisor's resolution dated July 6, 1971, and which includes an evaluation of investments for compliance with California Government Code Section 53601 and 53635.

All meetings of the Oversight Committee are to be open to the public and subject to the Ralph M. Brown Act. By law, the Treasury Oversight Committee is not allowed to direct individual investment decisions, nor select individual investment advisors, brokers, or dealers, or impinge on the day-to-day operations of the County Treasury. Members of the Oversight Committee are prohibited from accepting gifts or gratuities from investment advisors, brokers, dealers, bankers or other persons with whom the county treasury conducts business.

QUARTERLY DISTRIBUTION OF INVESTMENT EARNINGS: All moneys deposited in the pool by the participants represent an individual interest in all assets and investments in the pool based upon the amount deposited. Portfolio income shall be reconciled daily against cash receipts and quarterly prior to the distribution of earnings among those entities sharing in pooled fund investment income. It is the intent of this policy to safeguard and maintain the principal value of funds invested and to minimize "paper losses" caused by changes in market value. Nonetheless, actual portfolio income and;br losses, and net of any reserves, will be distributed quarterly among those participants sharing in pooled investment income in compliance with the California Government Code. Except for specific investments in which the interest income is to be credited directly to the fund from which the investment was made, all investment income is to be distributed pro,ata based upon each participant's average daily cash balance for the calendar quarter.

QUARTERLY APPORTIONMENT OF ADMINISTRATIVE COSTS: Prior to the quarterly apportionment of pooled fund investment earnings, the County Treasurer is permitted, pursuant to the California Government Code, to deduct from investment earnings the actual cost of the investments, auditing, depositing, handling and distribution of such income. Accordingly, the Treasury shall deduct from pooled fund investment earnings the actual cost incurred for: banking services, wire transfers, custodial safekeeping charges, building remodeling costs and other capital outlays, the costs of investment advisory services, credit ratings, the pro,ata annual cost of the salaries including fringe benefits for the personnel in the Treasurer/fax Collector's office engaged in the administration, investment, auditing, cashiering, accounting, reporting, remittance processing and depositing of public funds for investment, together with the related computer and office expenses associated with the performance of these functions.

Page 6 of 16

WITHDRAWAL OF FUNDS: Any depositor or public official having funds on deposit, either voluntarily or involuntarily, with this pool, that seeks to withdraw these funds for the purpose of investing or depositing them outside the Treasury Pool, shall first submit a request for withdrawal to the Treasurer for approval prior to withdrawing funds.

The request should be submitted and processed as follows:

• In writing, from the governing authority of the funds being withdrawn. The request should state the amount, date of transfer, where investment and;br deposit is to be made, and the reason forthe request.

• The request must be received by the County Treasurer no less than thirty (30) days priorto the requested date of withdrawal.

• Prior to approving a withdrawal, the County Treasurer shall find that the proposed withdrawal will not adversely affect the interests of the other depositors in the County Treasury pool, in accordance with California Government Code Section 27136(b).

CRITERIA FOR AGENCIES SEEKING VOLUNTARY ENTRY INTO THE TREASURY POOL: The County Treasurer is not soliciting nor accepting any new agency's voluntary entry into the Treasury Pool.

ETHICS & CONFLICTS OF INTEREST: Officers and staff members involved in the investment process shall refrain from any personal business activity that compromises the security and integrity of the County's investment program or impairs their ability to make impartial and prudent investment decisions. The Auditor--Controller;rreasurer;rax Collector, Assistant Auditor--Controller;rreasurer;rax Collector with Treasury oversight responsibility, Cash Manager~nvestment Officer, Assistant Cash Manager~nvestment Officer, and Investment Analyst(s) are required to file annually the applicable financial disclosure statements as mandated by the Fair Political Practices Commission (FPPC) and/or by County ordinance. In addition, the Assistant Auditor-Controller;rreasurer;rax Collector with Treasury oversight responsibility, Cash Manager~nvestment Officer, Assistant Cash Manager~nvestment Officer, Investment Analyst(s), and any outside investment advisors or contracted consultants are required to sign and abide by an Ethics Policy instituted by the Auditor--Controller;rreasurer;rax Collector.

POLICY ADOPTION & AMENDMENTS: This policy statement will become effective immediately following adoption by the Board of Supervisors. It will remain in force as long as the delegation of authority to the Treasurer to invest is in effect and until the policy statement is subsequently amended in writing by the County Auditor--Controller;rreasurer;rax Collector, reviewed by the Treasury Oversight Committee and approved by the Board of Supervisors.

Page 7 of 16

COUNTY OF SAN BERNARDINO INVESTMENT POLICY OFFICE OF THE AUDITOR--CONTROLLER/fREASURER/fAX COLLECTOR

(SCHEDULE I)

AUTHORIZED DIVERSIFICATION PURCHASE MATURITY MINIMUM ALLOWABLE INVESTMENTS RESTRICTIONS (not to CREDIT QUALITY

exceed) (S&P /MOODY'S f ITCH)

United States Treasury notes, l0OJ6 None 5 years Not Applicable bonds, bills, or certificates of

indebtedness, or those for which the full faith and credit of the U. S. are pledged for

the payment of principal and interest

Notes, participations or l0OJ6 Senior debt only 5 years Not Applicable obligations issued or fully guaranteed as to principal

and interest by an agency of the Federal Government or U.S. government-sponsored

enterprises (excluding mor1gage-backed securities)

Notes, participations or 30J6 US Dollar 5 years AA by at least one rating obligations issued or fully denominated Senior agency guaranteed as to principal Unsecured debt only

and interest by the International Bank for Reconstruction and Developmen~ the

International Finance Corporation, and,br the Inter-American Development Bank

Bonds, notes, warrants or ](J,)6 With approval of 5 years AAA by at least 2 of the 3 certificates of indebtedness Treasurer rating agencies*

issued by agencies of and Pr within the County of San

Bernardino

Bankers Acceptances issued 30J6 Max $100mm par 180 Days Rated byatleast2 of the 3 by approved banks value of any one rating agencies, minimum A-

issuer, subject to 5% l, P-1, and,br Fl (if rated)* overall corporate

issuer limit

Commercial paper of U.S. 40J6 total for all Max 5% of portfolio 270 Days Rated byatleast2 of the 3

rating agencies, minimum A-Corps with total assets in Commercial Paper by any one issuer, l, P-1, and,br Fl (if rated)*

excess of $500 MM subjectto 5% overall corporate issuer limit

Asset-backed Commercial 40J6 total for all Issuer must have 270 Days Rated byatleast2 of the 3

rating agencies, minimum A-Paper Commercial Paper program-wide credit l, P-1, and,br Fl (if rated)*

enhancements

Negotiable CDs issued by 30J6 Max 5% of portfolio 3 years from Rated byatleast2 of the 3

rating agencies, minimum A-approved banks by any one issuer, settlement l, P-1, and,br Fl short-term

subjectto 5% overall rating or long-term letter

Page 8 of 16

corporate issuer limit date rating of A-and,br A3 (if rated)*

Collateralized Certificates of lOJ6 As stipulated in l year from See Section 53630etal. of Deposit Pe posits Article 2, 5 ection settlement the California Government

53630etal. of the date Code Calif. Govt Code

Repurchase Agreements with 40J6 Repurchase 180 days Restricted to Primary l 02% collateral Agreements Dealers on Eligible

(contracts) must be B rokerPealer List on file

Reverse Repurchase lOJ6 5 ee 5 chedule II 92 days (5 ee Restricted to Primary Agreements 5 chedule II) Dealers on Eligible

B rokerPealer List

Medium Term Notes of U.S. lOJ6 Max $100mm par 3 years and 2 Rated long-term A-and,br Corporations & Depository value of any one months (38 A3 by at least 2 of the 3

Institutions andfa:,r Corporate issuer, subject to 5% months) from rating agencies* or Banknotes overall corporate settlement

issuer limit date

Asset-Backed Securities lOJ6 Max $100mm par 2.75 WAL and Rated AAA by at least 2 value of any one 4.5 years rating agencies and Pr A-1,

issuer, subject to 5% P-l or F-l rated trust A-overall issuer rating and,br A3 rated issuer by 2

of 3 rating agencies

FDIC Insured Deposit 5% Max $50MM per Term Deposits Not Applicable Accounts Authorized under selected depository not permitted

California Government Code institution Sections 53601.8 & 53635.8 Max$ l 00MM per

placement service

J PA Investment Pools 5% Max $200MM per Immediate AAA by at least one rating authorized under California J PA Pool Maintain Liquidity agency Government Code Section Constant Net Asset

5360l(p) Value (NAV)

Money Market mutual funds 15% Registered with Immediate AAA by at least 2 of the 3 that meet requirements of SEC. No NAV Liquidity rating agencies*

California Government Code adjustments. No loads. Max l OJ6 per

fund.

* Standard & Poor's Ratings Services, Moody's Investors Service Inc., and Fitch Ratings Ltd.

Page 9 of 16

OFFICE OF THE AUDITOR--CONTROLLER/fREAS URER/fAX COLLECTOR COUNTY OF SAN BERNARDINO

STATEMENT OF INVESTMENT POLICY

SCHEDULE II

POLICY STATEMENT ON REVERSE REPURCHASE AGREEMENTS AND SECURITIES LENDING AGREEMENTS

The Treasurer hereby institutes the following policies as further safeguards governing investments in Reverse Repurchase Agreements and Securities Lending Agreements:

1. The total of Reverse Repurchase Agreement and Securities Lending Agreement transactions shall not exceed 1 O percent of the base value of the portfolio.

2. The terrn of such agreements shall not exceed 92 calendar days, unless the agreement includes a written codicil guaranteeing a rninirnurn earning or spread for the entire period between the sale of a security using such an agreement and the final maturity date of the sarne security.

3. All loaned securities subject to Reverse Repurchase Agreements or Securities Lending Agreements shall be properly flagged and immediately accounted for in the Treasurer's financial system.

4. Investments purchased from the loaned proceeds of the Reverse Repurchase Agreement shall have maturities not exceeding the due date for repayment of the Reverse Repurchase Agreement transaction.

5. Only U.S. Treasury Notes and Federal Agency securities owned, fully paid for, and held in the Treasurer's portfolio for a minimum of 30 days can be subject to Reverse Repurchase Agreement and Securities Lending Agreement transactions.

6. Reverse Repurchase Agreements and Securities Lending Agreements shall only be placed on portfolio securities that are intended to be held to maturity, have been fully paid for, and have been held in the portfolio for a minimum of 30 days.

7. Reverse Repurchase Agreements and Securities Lending Agreements shall only be made with primary dealers of the Federal Reserve BankofNewYork.

8. A contractual agreement must be in place prior to entering into a Reverse Repurchase Agreement or Securities Lending Agreement with any authorized primary dealer.

9. Reverse Repurchase Agreement and Securities Lending Agreement transactions shall have the approval of the County Treasurer.

Page10of16

OFFICE OF THE AUDITOR--CONTROLLER/fREASURER/fAX COLLECTOR COUNlY OF SAN BERNARDINO

STATEMENT OF INVESTMENT POLICY

SCHEDULE Ill

POLICY CRITERIA FOR COLLATERALIZED CERTIFICATE OF DEPOSITS

1. The bank must provide us with an executed copy of the authorization for deposit of moneys.

2. The money-market yield on the certificate of deposit must be competitive with negotiable CD's offered by banks on the county's pre-approved list in the maturities desired by the County. The County Treasurer's Office reserves the right to negotiate higher yields based on market conditions at the time.

3. Collateral Requirements: the County will only accept U.S. Treasury and;br Agency securities as collateral. The collateral must be held by a separate custodial bank in an account in the name of San Bernardino County. The County must have perfected interest in the collateral. The maximum maturity of securities is 5 years, the collateral must be priced at 11 Cf36 of the face value of the CD on a daily basis, and the minimum face value per pledged security is $5 million. The County Treasury must receive written confirmation that these securities have been pledged in repayment of the time deposit. Additionally, a statement of the collateral shall be provided on a monthly basis from the custodial bank.

4. The County Treasurer must be given a current audited financial statement for the financial year just ended. The financial reports must both include a statement of financial condition as well as an income statement depicting current and prior year operations.

5. The County Treasurer must receive a certificate of deposit which specifically expresses the terms governing the transaction, such as: deposit amount, issue date, maturity date, name of depositor, interest rate, interest payment terms (monthly, quarterly, etc.).

6. Notwithstanding the above, the certificate of deposit must meet the requirements of Fitch Ratings Ltd. for the County to maintain its AAA pool rating. These requirements typically include an A-1 ;P-1 and;br Fl short-term rating. The County may rely on credit ratings of Standard & Poor's, Moody's and Fitch to determine the creditworthiness of an institution and/or may supplement this research with its own financial analysis.

7. Deposits will only be made with banks and savings and loans having branch office locations within San Bernardino County.

Page 11 of 16

OFFICE OF THE AUDITOR--CONTROLLER/fREAS URER/fAX COLLECTOR COUNTY OF SAN BERNARDINO

STATEMENT OF INVESTMENT POLICY

SCHEDULE IV

POLICY CRITERIA FOR SELECTION OF BROKER;DEALERS

1. All financial institutions wishing to be considered for the County of San Bernardino's Broker/Dealer List must confirm that they are a member of the Financial Industry Regulatory Authority (FINRA), registered with the Securities & Exchange Commission (SEC), and possess all other required licenses.

2. The County Treasurer's intent is to enter into a long-term relationship. Therefore, the integrity of the firm and the personnel assigned to our account is of primary importance.

3. The firm must acknowledge receipt of the County Treasurer's written Investment Policy guidelines.

4. It is important that the firm provide related services that will enhance the account relationship, which could include:

(a) An active secondary market for its securities. (b) Internal credit research analysis on commercial paper, bankers' acceptances and other securities it

offers for sale. (c) Be willing to purchase securities from our portfolio. (d) Be capable of providing market analysis, economic projections, and newsletters.

5. The firm must provide the County with annual financial statements. All firms with whom the County does business must have a stable financial condition.

6. The County Treasury is prohibited from the establishment of a broker/dealer account for the purpose of holding the County's securities. All securities must be subject to delivery at the County's custodial bank.

7. Without exception, all transactions are to be conducted on a delivery vs. payment (DVP) basis or, for repurchase agreements, on a tri-party basis.

8. The broker/dealer must have been in operation for more than five (5) years.

9. Firms must have adequate financial strength and capital to support the level of trading that is approved. Adequate financial strength will be assessed by a review of the balance sheet and income statement of the dealer. Broker/dealers with less than $1 O million of net capital may be approved for trading that is limited in maturity or amount or may not be approved for extended settlement trades.

10. Repurchase agreement counterparties will be limited to primary government securities dealers who report to the Federal Reserve Bank of New York and meet the following criteria:

(a) Counterparties must have a minimum of one short-term credit rating of at least A-1,P-1, and/or F 1. (b) Counterparties and;br their parent must have a minimum of $25 billion in assets and $350 million in

capital.

Page 12 of 16

GLOSSARY OF TERMS

ACCRUED INTEREST - Interest that has accumulated but has not yet been paid from the most recent interest payment date or issue date to a certain date.

AGENCY ISSUES - Securities issued by federal agencies, those chartered by the federal government or Government Sponsored Enterprises that are considered to be backed by the federal government. See also Government Sponsored Enterprises.

AMORTIZED COST - The original cost of the principal adjusted for the periodic reduction of any discount or premium from the purchase date until a specific date (also called "Book Value").

ASSET-BACKED SECURITY (ABS) - A financial security backed by a loan, lease, or receivables against assets otherthan real estate and mortgage-backed securities.

BANKERS ACCEPTANCE - Money market instrument created from transactions involving foreign trade. In its simplest and most traditional form, a bankers' acceptance is merely a check, drawn on a bank by an importer or exporter of goods.

BAS IS POINT - A unit of measurement equal to 1 /l 00 of 1 percent. As an example, the difference between a security yielding 3.25% and one yielding 3.20% is five basis points.

BE NCH MARK - An index or security used to compare the performance of a portfolio.

BOND - A long-term debt instrument of a government or corporation promising payment of the original investment plus interest by a specified future date.

BULLET -A colloquial term for a bond that cannot be redeemed, or called, priorto maturity.

CALLABLE BOND - A bond in which all or a portion of its outstanding principal may be redeemed prior to maturity by the issuer under specified conditions.

COLLATERALIZATION - Process by which a borrower pledges securities, property or other deposits for the purpose of securing the repayment of a loan and/or security.

COLLATERALIZED CERTIFICATE OF DEPOSIT - An instrument representing a receipt from a bank for a deposit at a specified rate of interest for a specified period of time that is collateralized by the bank with securities at a minimum of 110% of the deposit amount.

COMMERCIAL PAPER - Money Market instrument representing an unsecured short-term promissory note of a corporation at a specified rate of return for a specified period of time.

COUPON - The stated interest rate on a debt security that an issuer promises to pay.

CREDIT QUALITY -An indication of risk that an issuer of a security will fulfill its obligation, as rated by a rating agency.

CREDIT RATING - A standardized assessment, expressed in alphanumeric characters, of a company's creditworthiness.

CREDIT RISK - The risk to an investor that an issuer will default in the payment of interest and/or principal on a security.

Page 13 of 16

CUSIP - A unique identifier for a security developed by the Committee on Uniform Security Identification Procedures (CUS IP). The identifier is a nine-digit alphanumeric character. The first six characters identify the issuer, the following two identify the issue, and the final character is a check digit.

DERIVATIVES - Securities which derive their value from that of another security or an underlying index, currency or other measure. Floating rate notes (also "floaters") are not considered derivatives.

DISCOUNT INSTRUMENTS - Securities that are sold at a discount to face value.

DIVE RS IFICATION - The practice or concept of investing in a range of securities by sector, maturity, asset class or credit quality in order to reduce and spread financial risk.

DOLLAR WEIGHTED AVERAGE MATURITY - The sum of the amount of each security investment multiplied by the number of days to maturity, divided by the total amount of security investments.

DURATION - Is a measure of the price volatility ofa portfolio and reflects an estimate of the projected increase or decrease in the value of that portfolio based upon a decrease or increase in the interest rates. A duration of 1.0 means that for every one percent increase in interest rates, the market value of the Portfolio would decrease by 1.0 percent.

EARNINGS APPORTIONMENT - Is the quarterly interest distribution to the Pool Participants where the actual investment costs incurred by the Treasurer are deducted from the interest earnings of the Pool.

GOVERNMENT OBLIGATIONS - Securities issued by the U.S. Treasury and Federal Agencies. U.S. Treasuries are direct obligations of the Federal Government. Agencies are not direct obligations of the Federal Government, but involve Federal sponsorship or guarantees.

GOVERNMENT SPONSORED ENTERPRISES (GSE'S) - Private, shareholder-owned companies with a relationship with government agencies. These agencies generally are viewed to have an implied guarantee of the U.S. government. These include:

Federal National Mortgage Association (FNMA) Federal Home Loan Bank (FHLB) Federal Farm Credit Bank (FFCB) Federal Home Loan Mortgage Corporation (FHLMC)

HIGHLY LIQUID - The most eminent type of security that is easily converted to cash because there are many interested buyers and sellers to trade large quantities at a reasonable price.

ILLIQUID-A security that is difficult to buy or sell or has a wide spread between the bid price and offer price in the secondary market. There are few buyers and sellers willing to trade large quantities at a reasonable price.

INTEREST RATE RISK - The risk associated with declines or rises in interest rates which cause an investment in a fixed-income security to increase or decrease in value. Also called "Market Risk".

INVERSE FLOATERS - Floating rate notes which pay interest in inverse relationship to an underlying index.

LIQUID-A security that is easily bought and sold because of the willingness of interested buyers and sellers to trade large quantities at a reasonable price.

LOCAL AGENCY OB LIGATION - An indebtedness issued by a local agency, department, board, or authority within the State of California.

Page14of16

LONG-TE RM- The term used to describe a security when the maturity is greater than one year.

MARKET VALUE - An estimate of the value of a security at which the principal would be sold from a willing seller to a willing buyer at the date of pricing.

MEDIUM TERM NOTES - These are Corporate Notes and Bank Notes that are debt obligations of banks, corporations, and insurance companies. They are issued at a specific rate of return for a specific period of time.

MONEY MARKET MUTUAL FUND - A mutual fund with investments directed in short-term money market instruments only, which can be withdrawn daily without penalty.

NEGOTIABLE CERTIFICATE OF DEPOSIT -A Money Market instrument representing a receipt from a bank for a deposit at a specified rate of interest for a specified period of time that is traded in secondary markets.

PAR - The stated maturity value, or face value, ofa security.

PASS-THROUGH SECURITIES -A debt instrument that reflects an interest in a mortgage pool, consumer receivables pool and equipment lease-backed pool that serves as collateral for a bond.

POOL - In this context, the pooled monies of different government agencies administered by the County Treasurer. Each pool member owns a fractional interest in the securities held in the Pool.

PORTFOLIO VALUE - The total book value amount of all the securities held in the Treasurer's Pooled Money Fund.

PRIMARY DEALER - A group of dealers and banks that can buy and sell securities directly with the Federal Reserve BankofNewYork.

PRIVATE PLACEMENTS - Securities that do not have to be registered with the Securities and Exchange Commission because they are offered to a limited number of sophisticated investors.

RANGE NOTES - Notes which pay interest only if the underlying index upon which it is benchmarked, falls within a certain range.

REPURCHASE AGREEMENT-A repurchase agreement consists of two simultaneous transactions. One is the purchase of securities by an investor (i.e., the County), the other is the commitment by the seller (i.e. a broker/dealer) to repurchase the securities at the same price, plus interest, at some mutually agreed future date.

REVERSE REPURCHASE AGREEMENT-The mirror image of Repurchase Agreements. In this instance the County Pool is the seller of securities to an investor (i.e. brokers).

SAFEKEEPING - A custodian bank's action to store and protect an investor's securities by segregating and identifying the securities.

SECURITIES LENDING -A transaction wherein the Treasurer's Pool transfers its securities to broker/dealers and other entities for collateral which may be cash or securities and simultaneously agrees to return the collateral forthe same securities in the future.

SHORT -TE RM - The term used to describe a security when the maturity is one year or less.

TOTAL RETURN - The sum of all investment income plus changes in the capital value of a portfolio for a given period.

Page 15 of 16

VOLUNTARY PARTICIPANTS - Local agencies that are not required to deposit their funds with the County Treasurer.

WEIGHTED AVE RAGE LIFE 0N AL) - The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, WAL tells how many years it will take to pay half of the outstanding principal.

WEIGHTED AVERAGE MATURITY - The remaining average maturity of all securities held in a portfolio. See Dollar Weighted Average Maturity.

WHEN-ISSUED SECURITIES - A security traded before it receives final trading authorization with the investor receiving the certificate/security only after the final approval is granted.

YIELD - The gain, expressed as a percentage that an investor derives from a financial asset.

YIELD TO MATURITY - The percentage rate of return paid if the security is held to its maturity date. The calculation is based on the coupon rate, length of time to maturity, and market price. It assumes that coupon interest paid over the life of the security is reinvested at the same rate.

Page 16 of 16

REPORT/RECOMMENDATION TO THE BOARD OF SUPER.VISORS OF SAN BERNARDINO COUNTY, CALIFORNIA

ANO RECORD OF ACTION

June 27, 2017

FROM: OSCAR VALDEZ, Auditor-Controller/Treasurer/Tax Collector Auditor-Controller/Treasurer/Tax Collector

SUBJECT: TREASURER'S STATEMENT OF INVESTMENT POLICY

RECOMMENDATION($} 1. Renew Treasurer's authority to invest per Government Code Sections 27000 et seq, and

53607. 2. Approve the Treasurer's Statement of Investment Policy. (Presenter: Oscar Valdez, Auditor-Controller/Treasurerrrax Collector 382-7000)

COUNTY AND CHIEF EXECUTIVE OFFICER GOALS AND OBJECTIVES Operate in a Fiscally-Responsible and Business-Like Manner.

FINANCIAL IMPACT Approval of this item will not impact Discretionary General Funding (Ne! County Cost).

BACKGROUND INFORMATION Government Code Sections 27000.1 and 53607 provide for an annual renewal by the Board of Supervisors of its delegation of investment authority to the County Treasurer. Approval of Recommendation No. 1 will effectuate this renewal.

On April 24, 2017, !he Treasury Oversight Committee reviewed revisions to the County Investment Policy recommended by the Treasurer and noted no exceptions to !he Treasurer's recommendations. The major changes recommended by the Treasurer are:

• Increase the maturity of Medium Term Notes by two months to participate in securities that have a slightly longer maturity date or have a longer settlement, as authorized by California State Government Code Section 53601 (k).

• Allow purchase of Asset-Backed Securities as authorized by California State Government Code Section 53601 (o).

Approval of Recommendation No. 2 will approve the Treasurer's Statement of Investment Policy as detailed in the attachment.

cc: A Te,. Valde:t CAO-Garth File - Audilor-Controllerl

Treasurerrrax Collector wlattach jr 7/24117

ITEM 17

1

Page 1 of 2

IIIIOTION

BY __ _

TREASURER'S STATEMENT OF INVESTMENT POLICY JUNE 27, 2017 PAGE 2 OF 2

PROCUREMENT NIA

This item has been reviewed by County Counsel (Phebe W. Chu, Deputy County Counsel, 387-5455) on June 2, 2017; Finance (Deborah Garth, Administrative Analyst, 387-5426) on June 12, 2017; and County Finance and Administration (Katrina Turturro, Deputy Executive Officer, 387-5423) on June 14, 2017.

6/27117 #17

APPENDIX G

COUNTY INVESTMENT POOL MONTHLY REPORT

G-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

San Bernardino County Pool Summary (as of 6;30;2017)

Bankers Acceptrnces 0.00 0.00 0.00 O.CP/4

Certificates of Deposit l ,433,000,000.00 l ,433,000,214.50 1,432,646,149.70 23.0% 19%

Collateralized CD 0.00 0.00 0.00 O.CP/4

Commercial Paper l, 119,600,000.00 l, 117,893,393.30 l, 117,821,797.80 18.0% 11%

Corporate Notes 85,000,000.00 85,007,359.09 84,746,350.00 l.4% 1.25%

F edeml Agencies l,668,511,000.00 l,667,670,276.90 1,664, 110, 116.65 26. 796 1.11%

Money Market Funds 182,000,000.00 182,000,000.00 182,000,000.00 2.9°/4 0.53%

Municipal Debt 0.00 0.00 0.00 O.CP/4

Repurchase Agreements 0.00 0.00 0.00 O.CP/4

Bank De posit Account 50,000,000.00 50,000,000.00 50,000,000.00 0.8% 0.45%

J ointPowers Authority 192,000,000.00 192,000,000.00 192,000,000.00 3.1% 0.96%

S upranationals 835,000,000.00 833,874,833.45 830,009,009.30 13.3% 1.20%

U.S. Treasuries 6 75,000,000.00 673,308,811.50 674, 162,250.00 10.8% 1.49%

Total Securities 6,240, 111,000.00 6,234,754,888.74 6,227,495,673.45 l 00.0'/4 1.16%

Cash Balance 388,899,802.59 388,899,802.59 388,899,802.59

Total Investments 6,629,010,802.59 6,623,654,691.33 6,616,395,476.04

Accrued Interest 10,994,026.34 10,994,026.34

Total Portfolio 6,629,010,802.59 6,634,648,717.67 6,627,389,502.38

I. V 1eld for lhe inonev n 1arket fumb I".> d vve1yhled aver dye of tile n 1orllh--end v1ellh for tile f- ederdted, Goldn 1a11, drid f- 1delitv inonev n 1arh.el fu1 Kh. L S la.ll~llc~ for tile totdl portfolio 1r1c lude n 1011ev lndrh.el fund".>.

131 0.35

46 0.11

576 1.54

443 l 19

3 0.01

3 0.01

3 0.01

578 1.55

920 2.44

341 0.91

1. \.larker price's; a re dc'riw'd from dosinq bid price's; a-; ot the last husinc's;s; dav nt the month as <;t 1pplied by r .T. lnteraniw' Data, R lnnmberq, or Tek'rate. r rices that tall bet\.\·een datd po1rll".> dfe 1r1lerpoldled.

©PFM

San Bernardino County Pool Sector Distribution (as of 6,80;2017)

U.S. Treasuries

10 8'/4 Banker's Acceptances so C e rtifica te s of De pas it $1,432,646,150

Collateralized CD so Commercial Paper $1,117,821,798

Joint Powers C orpora te Nate s $84,746,350 Authoritv Federal Agencies $1,664,110,117

3.1%

Bank Deposit_. Money Market Funds S182,000,000

Account Municipal Debt so 0.8% I ommercial

Repurchase Agreements so I Paper Money Market J 18.0% Bank DepositAccount $50,000,000

Funds 2.9'/4 J oint Powe rs Authority S192,000,000

S upranationals 5830,009,009

Agencies 1.4% U.S. Treasuries 5674, 162,250 26.7%

©PFM 2

San Bernardino County Pool Credit Quality Distribution (as of 6,80;2017)

S&P RATINGS

©PFM

A-1 -

Not Rated 37/4

04%

A-1 - (S hart-Term)

A-1 (S hart-Tenn)

AAA (Long-Tenn)

AA - (Long-Tenn)

AA (Long-Term)

AA-(Long-Term)

A - (Long-Tenn)

A (Long-Tem1)

Not Rated

AAA

AA-37.1%

51,408,945,658

S 1,136,408,070

51,038,795,405

52,313,317,435

S24,984,880

S25,023,225

S50,021,000

$0

5230,000,000

MOODY'S RATINGS

Not Rated 3.7%

P-1 41.2%

Aa2_/ LAa3 04%

0.4%

P-1 (S hort-Tem1)

Aaa (Long-Tem1)

Aa3 (Long-Tem1)

Aa2 (Long-Tem1)

Aa 1 (Long-Tem1)

A3 (Long-Term)

A2 (Long-Term)

A 1 (Long-Term)

Not Rated

Aaa 54.3%

S2,545,353,728

S3,352, 112,840

525,023,225

524,984,880

so so so

550,021,000

5230,000,000

3

San Bernardino County Pool Maturity Distribution (as of 6,B0,12017)

$1,200,000

$1,000,000 $954,817

5800,000

"' u C $668,604 '1l "' :::,

5600,000 0 .c I-

$574,293

$507,472

$424,000

5400,000 $404,388 $407,456

$356,351 $367,821

$274,523 5272,406 $299,850 $304,287

5200,000

$0 I I $210,989 5200,239

I I - 0 .c M 01 ·c I

~ N QJ

> 0

0 0 0 0 0 0 0 0 0 0 0 0 lD cr, N 00 " lD "' st M N 0 00 00

I I - - N M st "' lD " cr, 0 0 I I I I I I I I I -

M lD I ~

cr, N 00 " lD "' st M N OJ N M st U"l \j) " 0 >

en 0

Maturity Range (Days)

Mab.Jrity range assumes no securities are called.

©PFM 4

s Be 1n u p IP Ii iel Su

May 2016 0.77%

June 2016 0.81%

J 2016 0.84%

August 2016 0.86%

s 2016 0.88%

October 2016 0.88%

November 2016 0.93%

December 2016 l0CT/4

January 201 7 102%

February 2017 108%

March 2017 1.1 (T/4

2017 1.11%

June 2017 1.16%

I. C tO".>".> yield~ 11ol 1r1clud1ng 11or1tdt1 lll KJ d".>~eb (rn1 npen".>dllng ba11k IJdla.1 Ke".>) or ddl rrn 11~lra.uve co~b for I ndr1dge1ne111 of ti 1e pool. 7. All historic-alvields rc's;tated to indude money market hinds.

©PFM 5