NEW ISSUE - BOOK-ENTRY ONLY RATING: Standard & Poor's: "SP-1-t''

(See"MISCELLANEOUS -Rating" herein)

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subiect, hONeVer to certain qualifications described herein, under existing law, the interest on the Notes is excluded from gross incorne for federal incorne tax purposes and such interest is not an item of tax preference for purposes of the federal alternative ninirnum tax ini:,osed on individuals and corporations, although for the purpose of computing the alternative ninirnum tax inµised on certain corporations, such interest is taken into account in deternining certain incorne and earnings. In the further opinion of Bond Counsel, the interest on the Notes is exeni:it from California personal i ncorne taxes. The Notes are " qualified tax--exerrpt obi igati ans" \\Athi n the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986 (the" Code''), and, in the case of certain financial institutions (\\Athin the meaning of Section 265(b)(5) of the Code) a deduction is allo.ved for eighty ~rcent (8036) of that portion of such financial institutions' interest expense allocable to interest on the Notes. See 'LE GAL MATTE RS - Tax Matters" herein.

$S,(XX),(XX) SAN LEANDRO UNI Fl ED SCHOOL DISTRICT

(County of Alameda, California) 2006 Tax and Revenue Anticipation Nctes

(Bank Qualified)

~..!! Dated: Date of Delivery Due: J uly 10, 2007

The Notes are a general obligation of the San Leandro Unified School District, California (the" District''), issued in the name of the District b,i the Board of Supervisors of Alameda County. The principal amount of the Notes, together with the interest thereon, will be payable from taxes, income, revenue, cash receipts and other moneys received by the District allocable to fiscal year 20CJ5f)7 and which are generally available forthe payment of current expenses and other obligations of the District. As security for the payment of principai of and interest on the Notes, the District has pledged to deposit in the Repayment Fund, as defined herein, on or beforeJ une 30, 2007, moneys sufficient to pay principal of, and interest on, the Notes at maturity. See "THE NOTES -Security for and Sources of Payment" herein.

The Notes are issued in denominations of $1,000 or integral multiples thereof. All principai ofkand all interest on, the Notes will be payable upon maturity (as described herein under "THE NOTES - Boo -Entry System"). The Notes are to be delivered as fully registered Notes, without coupons and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company(" DTC"), New York, New York. DTC will act as securities depository of the Notes. Purchases will be made in book-entry form only. The N ates are not suqj ect to rederrpti on prior to maturity.

The fol lo.vi ng firm, serving as financial ad.ti sor to the District, has structured this financing:

I nterest Rate

4.5000!6

ReofferingYield

3.6C00!6

CUSIP

798458G H 2

The Notes were sold by coni:,etitive bid onJ une 21 20CJ5, to Morgan Stanley DW Inc., as Underwriter. The Notes are offered, when, and if issued and received by the Underwriter, suqject to the appr0.tal of legality by Jones Hall 1A Professional Law Corporation, San Franciscq California, Bond Counsel. The Notes, in lxiok-entry forrn \\All oe available for delivery through the facilities or The Depository Trust Company in New York, New York on or aboutJ uly 11, 20CJ5.

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.

Official Statement Date: June 21, 20CJ5

No dealer, broker, salesperson or other person has been authori:zed b,I the San Leandro Unified School District (the" District'') to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authori:zed b,I the District. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of the Notes b,I a person in any jurisdiction in wiich 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 Notes. Statements contained in this Official Statement wiich involve estimates, forecasts or matters of opinion, wiether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The summaries and descriptions of documents, statutes and constitutional prc:wisions referred to herein do not purport to be comprehensive or definitive, and are qualified in their entireties b,I reference to each such document, statute and constitutional prc:wision.

The information set forth herein, other than that pro.tided b,I the District, has been obtained from sources wiich the District believes to be reliable. The information and expressions of opinion herein are suqject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shal I, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof.

This Official Statement is submitted in connection with the sale of the Notes referred to herein and may not be reproduced or used, in wiole or in part, for any other purpose.

THE PRICES AND OTHER TERMS OF THE OFFERING AND SALE OF THE NOTES MAY BE CHANGED FROM TIME TOTI ME BY THE UNDERWRITER AFTER SUCH NOTES ARE RELEASED FOR SALE AND SUCH NOTES MAY BE OFFERED AND SOLD AT PRICES OTHER THAN THE INITIAL OFFERING PRICES, INCLUDING SALES TO DEALERS WHO MAY SELL SUCH NOTES INTO INVESTMENT ACCOUNTS. IN CONNECTION WITH THE OFFERING OF NOTES, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES FOR SUCH NOTES AT A LEVEL ABOVE THAT WHICH MIGHT PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

THE NOTES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON THE EXEMPTION CONTAINED IN SECTION 3(a)(2) OF SUCH ACT.

ALAM EDA COUNTY County Board of Supervisors

Scott Haggerty Vice President, District 1

Gail Steele Supervisor, District 2

Keith Carson President, District 5

Alice Lai-Bitker Supervisor, District 3

Nate Miley Supervisor, District 4

SAN LEANDRO UNI Fl ED SCHOOL DISTRICT Board of Education

Stephen Cassidy Vice President

ThomasW. "Rick" Richards Mentier

Louis Heystek Mentier

Pauline Russo Cutter President

District Administration

Christine Lim Superintendent

Lisa Hague Clerk

Ray Davis Mentier

Linda Perry Mentier

Leon GI aster Associate Superintendent

B ruce Col b,I Business Manager

PROFESSIONAL SERVICES Financial Advisor

Kelling, Northcross & Nobriga A Division of Zions First National Bank

Oakland, California

Bond Counsel

Jones Hall A Professi anal L iM' Corporation

San Francisco, California

Paying Agent

A I arneda County Treasurer Alameda County

Oakland, California

TABLE OF CONTENTS

INTRODUCTION ..................................................................................................................................................... 1 The District ................................................................................................................................................... 1 Purpose of the Notes ..................................................................................................................................... 1 Authority for I ssuance of the N ates .............................................................................................................. 1 Security and Sources of Payment for the Notes ............................................................................................ 2 Description of the N ates ............................................................................................................................... 2 District Investments ...................................................................................................................................... 2 Tax Matters ................................................................................................................................................... 2 Bank Qualified .............................................................................................................................................. 3 Professionals Involved in the Offering ......................................................................................................... 3 Offering and Delivery of the Notes ............................................................................................................... 3 Other I nformati on ......................................................................................................................................... 3

THE NOTES .............................................................................................................................................................. 4 Authority for I ssuance ................................................................................................................................... 4 Purpose of the Notes ..................................................................................................................................... 4 Estimated Sources and Uses of Funds .......................................................................................................... 4 Description of the N ates ............................................................................................................................... 4 Security for and Sources of Payment.. .......................................................................................................... 5 Investment of Note Proceeds ........................................................................................................................ 6 Note C0.terage Ratio ..................................................................................................................................... 6 Other District Funds ...................................................................................................................................... 6 Book-Entry System ....................................................................................................................................... 7 Payment to Holders ....................................................................................................................................... 9 Availability of Documents ............................................................................................................................ 9

ADVALOREM PROPERTY TAXATION ................................................................................................................ 9

County Services .......................................................................................................................................... 1 O AssessedValuation ..................................................................................................................................... 10 State-Assessed Utility Property .................................................................................................................. 10 Tax Levies, Collections and Delinquencies ................................................................................................ 11 Teeter Plan .................................................................................................................................................. 12

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUE AND APPROPRIATIONS ................................................................................................................................................ 12

ArticleXIIIA ............................................................................................................................................... 12 ArticleXIIIB ............................................................................................................................................... 13 Propositions 98and 1 l 1 .............................................................................................................................. 14 ArticlesXIIIC andXIIID ............................................................................................................................ 15 Future Initiatives ......................................................................................................................................... 16

GENERAL SCHOOL DISTRICT FINANCIAL INFORMATION ........................................................................ 16

State Funding of School Districts ............................................................................................................... 16 BasicAidDistricts ...................................................................................................................................... 17 State Budget ................................................................................................................................................ 17 State Funding of Schools Without A State Budget ..................................................................................... 19 State Funding of School Construction ........................................................................................................ 19 State Retirement Programs ......................................................................................................................... 20 County Office of Education ........................................................................................................................ 20 School District Budget Process ................................................................................................................... 20

Accounting Practices .................................................................................................................................. 22 County I nvestrrent Pool .............................................................................................................................. 22

SAN LEANDRO UNIFIED SCHOOL DISTRICT GENERAL AND FINANCIAL DISTRICT INFORMATION ................................................................................................................................................................................. 23

Introduction ................................................................................................................................................. 23 Average Daily Attendance .......................................................................................................................... 23 Labor Relations ........................................................................................................................................... 24 I nvestrrent of District Funds ....................................................................................................................... 24 2CXX,f)7 B udgetAssurrptions ..................................................................................................................... 24 Comparative Financial Staterrents .............................................................................................................. 26 Debt Structure ............................................................................................................................................. 27 Assessed Valuation ..................................................................................................................................... 27 Note C0.terage Ratio ................................................................................................................................... 28 Other District Funds .................................................................................................................................... 29 Cash FIONs .................................................................................................................................................. 29

ECONOMIC PROFILE ........................................................................................................................................... 31

Introduction ................................................................................................................................................. 31 Population ................................................................................................................................................... 31 EmplO{rrent ................................................................................................................................................ 32 Major EmplO{ers ........................................................................................................................................ 33 Construction Activity .................................................................................................................................. 34

LEGAL MATIERS ................................................................................................................................................. 35

Tax Matters ................................................................................................................................................. 35 Legality for I nvestrrent in California .......................................................................................................... 36 No Litigation ............................................................................................................................................... 36 Legal Opinion ............................................................................................................................................. 36

MISCELLANEOUS ................................................................................................................................................ 36

R~ng .......................................................................................................................................................... 36 Financial Acwisor ........................................................................................................................................ 37 Underwriting ............................................................................................................................................... 37 Continuing Disclosure ................................................................................................................................ 37 Addi ti anal Information ............................................................................................................................... 38

APPENDIX A -EXCERPTS FROM 2004f)5AUDITED FINANCIAL STATEMENTS ..................... A-1 APPENDIX B -FORM OF LEGAL OPINION ....................................................................................... B-1 APPENDIX C-FORM OF CONTINUING DISCLOSURE CERTIFICATE ........................................ C-1 APPENDIX D-EXCERPTS FROM THE ALAMEDA COUNTY

INVESTMENT PORTFOLIO REPORT ...................................................................... 0-1

OFFICIAL STATEMENT

$5,(XX),(XX) SAN LEANDRO UNI Fl ED SCHOOL DISTRICT

(County of Alameda, California) 2006TAX AND REVENUE ANTICIPATION NOTES

I NTR ODU CTI ON

This introduction is not a sumrary of this official statement (the" Official Statement''). It is only a brief description of and guide to, and is qualified by, rrore corrplete and detailed information contained in the entire Official Statement, including the ccwer page and appendices hereto, and the documents sumrari:zed or described herein. A full review should be made of the entire Official Statement. The offering of the Notes to potential investors is made only by rreans of the entire Official Statement.

This Official Statement, which includes the ccwer page, appendices and this Introduction hereto, is pro.tided to furnish information in connection with the sale of $5,000,000 San Leandro Unified School District 2006Tax and Revenue Anticipation Notes (the "Notes"), as described rnore fully herein.

The District

The San Leandro Unified School District (the "District'') pro.tides educational services to residents of the City of San Leandro (the "City") in Alarneda County (the "County"), California (the "State''). The District encompasses a major portion of the City, comprising approximately 12.4 square rniles and has an estimated population of 63,237. More detailed information regarding the area served by the District, the student population of the District, the tax base of the District and the financial position of the District may be found under "GENERAL AND Fl NANCI AL DISTRICT INFORMATION," and "ECONOMIC PROFILE" herein.

Purpose of the Notes

Proceeds of the Notes will be used and expended for any purpose for which the District is authorized to expend funds frorn the general fund of the District, including, but not linited to, current expenses, capital expenditures, investment and reinvestment, and the discharge of other obligations or indebtednessoftheDistrict. See"THE NOTES-PurposeoftheNotes" herein.

Authority for Issuance of the Notes

The Notes are by statute a general obligation of the District issued pursuant to Section 53850 et. seq. of the California Gcwernment Code (the "Gc:wernment Code'') and pursuant to respective authorizing resolutions adopted by the Board of Education of the District (the "Board of Education") and by the Alameda County Board of Supervisors (the "Board of Supervisors"). See "THE NOTES -Authority for I ssuance" herein.

Security and Sources of Payment for the Notes

The principal amount of the Notes, together with interest thereon, will be payable from taxes, income, revenue, cash receipts and other moneys received b,I the District allocable to fiscal year 2cn;;07 which are generally available for the payment of current expenses and other obligations of the District (the "Unrestricted Monies"). As security for the payment of principal of and interest on the Notes, the District has pledged from Unrestricted Revenues certain Pledged Revenues, as defined herein, to be deposited in a Repayment Fund, as defined herein, at certain times on or beforeJune30, 2007. In the event of bankruptcy of either the District or the County, the rights of cwners of the Notes regarding the deposit of the Pledged Revenues into the Repayment Fund may be suqject to the discretion of the bankruptcy court. See "THE NOTES - Security for and Sources of Payment" herein.

Description of the Notes

The Notes will be issued in denominations of $1,000 or any integral multiple thereof, in fully registered form, without coupons. When delivered, the Notes will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), Ne.v York, New York. DTC will act as securities depository for the Notes and all transfers and exchanges will occur through oook--entries made b,I DTC (see "THE NOTES - Book-Entry System" and"- Discontinuation of Book-Entry System; Payment to Beneficial Owners'' herein). All principal of, and all interest on, the Notes is payable at maturity; interest is payable from the date of delivery thereof, calculated on the basis of a 360-day year consisting of twelve 30-day months. The Notes are not suqject to optional redemption prior to maturity. See "THE NOTES - Description of the Notes'' herein.

District Investments

Proceeds from the sale of the Notes wi 11 be deposited in the Treasury of the County in a proceeds fund to the credit of the District. Monies in such proceeds fund will be invested b,I the County Treasurer in the County pool or in other investments as directed b,I the District and as pernitted b,I the laws of the StateofCalifornia See"THE NOTES-lnvestmentofNoteProceeds" herein.

Substantially all operating funds of the District are invested in the Alameda County Treasury. Generally, the County Treasurer pools County funds with school district funds and funds of other public agencies and invests the cash. See "GENERAL SCHOOL DISTRICT Fl NANCI AL INFORMATION - County Investment Pools''.

Tax Matters

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, suqject, hcwever to certain qualifications described herein, under existing law, the interest on the Notes is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, the interest on the Notes is exempt from California personal income taxes. The Notes are "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986 (the "Code"), and, in the case of certain financial institutions (within the meaning of Section 265(b)(5) of the Code), a deduction is allcwed for eighty percent (8036) of that portion of such

2

financial institutions' interest expense allocable to interest on the Notes. See "LEGAL MATTERS -Tax M att er s" herei n.

Bank Qualified

The Notes are deerred b,I the District to be "bank qualified' within the rreaning of Section 265(b)(3)(B) ofthelnternal Revenue Code of 1986. See"LEGAL MATTERS" herein.

Professionals Involved in the Offering

Kelling, Northcross & Nobriga, A Division of Zions First National Bank, Oakland, California, is the District's financial adJisor (the "Financial AdJisor") (see "MISCELLANEOUS - Financial Advisor" herein) and Jones Hall, A Professional Law Corporation, San Francisco, California, is the District's bond counsel (the "Bond Counsel"). The Financial AdJisor and Bond Counsel will receive compensation frornthe District contingent upon the sale and delivery of the Notes.

Offering and Delivery of the Notes

The Notes will be offered when, as and if issued b,I the District and received b,I the Underwriter, suqject to the apprc,,1al of legality b,I Bond Counsel. It is anticipated that the Notes in book-entry only forrnwill be available for delivery through DTC in New York, NewY ork, on or aboutJ uly 11, 2oa=;.

Other Information

This Official Staterrent speaks only as of its date, and the information contained herein is suqject to change. Copies of docurrents referred to herein and information concerning the Notes are available from the San Leandro Unified School District, 14735J uni per Street, San Leandro, CA 94579-1222 (510) 667-3536. The District tnc¥ ini:x,se a charge fcr cq:>,1ing, mailing and handling. See also" MI SCE L LANE OUS - Continuing Disdosure'' herein.

END OF INTRODUCTION

3

THE NOTES

Authority for Issuance

The Notes are a general obligation of the District issued b,I the Board of Supervisors in the name of the District in confornity with the laws of the State, including Article 7.6 (commencing with Section 53850) of Chapter 4, Part 1, Division 2, Title 5 of the Gc:wemment Code, and pursuant to resolutions adopted b,I the Board of Education onJ une 6, 2006, and b,I the Board of Supervisors onJ une 20, 2006, authorizing the sale and issuance of the Notes (together, the "Resolution").

Purpose of the Notes

The Notes are issued in anticipation of future receipt of moneys intended as general fund revenues of the District. Proceeds of the Notes shall be deposited in the general fund of the District in the treasury of the County and shall be used and expended b,I the District for any purpose for which the District is authorized to expend funds from its general fund, including, but not limited to, current expenses, capital expenditures and the discharge of any obi i gati on or indebtedness of the District.

Estimated Sources and Uses of Funds

The proceeds of the N ates are expected to be appl i ed as fol Io.vs:

SAN LEANDRO UNIFIED SCHOOL DISTRICT Estimated Sources and UsesofFunds

SourcesofFun::ls Principal Am:Junt of Notes Origi naJ I ssLe Premium

Total Sources

UsesofFun::ls

Description of the Notes

DE'fX)sit to District Proceeds Fund U n:lerwri ter' s Com~nsation

Total Uses

$5,CXXJ,CXXJ.OO 43 2'D.OO

$5.043.2'D.OO

$5.036.800.00 6 4'D.OO

$5.043.2'D.OO

The Notes in the aggregate principal amount of $5,000,000 will be dated the date of delivery thereof, wi 11 mature on J uly 10, 2007, and wi 11 bear interest from the date of delivery thereof at the rate per annum set forth on the cc:wer page hereof, calculated on the basis of a 360-day year of twelve 3o-day months. All principal of, and all interest on, the Notes is payable at maturity. The Notes will be issued in book-entry form (see "THE NOTES - Book-£ ntry System" and" - Discontinuation of Book-£ ntry System; Payment to Beneficial Owners" herein) and registered in the name of Cede & Co., as nominee of DTC, in denoninations of $1,000 each or any integral multiple thereof. The Notes are not suqject to optional redemption prior to maturity.

4

Security for and Sources of Payment

The Notes of the District are, by statute, general obligations of the District. As security for the payment of principal of and interest on an issue of Notes, the District has pledged the first Unrestricted Moneys received (a) in the month endingJ anuary 31, 2007, an amount equal to forty percent (4036) of the principal amount of the Notes, (b) in the month ending April 30, 2007, an amount equal to forty percent (4036) of the principal amount of the Notes, and (c) in the month ending May 31, 2007, an amount equal to twenty percent ( 2036 ) of the principal amount of the N ates and an amount sufficient to pay the interest on the Notes at maturity and to make up any deficiency in the amounts required to be deposited during any prior month (the" Pledged Revenues"). The Pledged Revenues will be an amount sufficient to pay the principal of and interest on the Notes. The principal of and interest on the Notes constitute a first lien and charge against, and will be paid from, the Pledged Revenues.

To the extent not paid from Pledged Revenues, the Notes will be paid from any other moneys of the District lawfully available therefor. In the event that there are insufficient Unrestricted Moneys received by the District to permit deposit into its Repayment Fund, as defined herein, of the full amount of the District's Pledged Revenues to be deposited in any month on the last business day of such month, then the amount of any deficiency shall be satisfied and made up from any other moneys of the District I awful ly avai I able for the repayment of the N ates and the i nterestthereon.

The Resolution creates a special fund to be held on behalf of the District by the County Treasurer, separate and di sti net from al I other County and District funds and accounts, designated as the Repayment Fund (the "Repayment Fund"). Any moneys placed in the District's Repayment Fund will be for the benefit of the registered cwners of the District's Notes, and until the principal of and interest on the Notes is paid or pr0,1ided for, the District's Repayment Fund will be used solely for the payment of principal of and interest on the District's Notes.

Moneys held in the District's Repayment Fund shall be invested by the County in any one or more investments generally permitted to school districts under the laws of the State of California, consistent with the investment policy of the County and the Resolution (the" Repayment Fund Permitted Investments"). The Repayment Fund Permitted Investments shall specifically include: (a) the County Pooled Investment Fund maintained by the County Treasurer; and, (b) atthe request of the District, (i) the Local Agency Investment Fund maintained by the Treasurer of the State of California; (ii) other investments pernitted under section 53601 of the California G0,1ernment Code; and (iii) investment agreements with financial institutions with senior unsecured credit ratings at least "AA-'' or "Aa3" from one or more nationally recognized statistical rating organizations then rating the Notes. In regard to any investments requested by the District specified in clauses (b)(i), (b)(ii) or (b)(iii) a~e. the County may decline the request of the District upon any reasonable basis, including specifically, any concerns of the County regarding the legality, structure or appropriateness of the investment vehicle generally or the process for the bidding or execution of the investment.

As further security, the District has CO,/enanted in the Resolution that it will not request the County Treasurer to make temporary transfers of funds during the 2006;07 fiscal year until the full amount of Pledged Revenues has been deposited into the Repayment Fund. The Resolution, hcwever, do not preclude the District from issuing subsequent series of tax and revenue anticipation notes during the 2006;07 fiscal year.

Because the County wi 11 be in possession of the taxes and other revenues to be set aside to pay one or more issues of Notes, and such moneys are likely to be invested in its pooled investment fund, should the County go into bankruptcy, a court night hold that the owners of the N ates do not have a valid lien on the amounts set aside in the Repayment Fund. In that case, unless the owners could "trace''

5

the funds, the owners would be merely unsecured creditors of the County. There can be no assurance that the owners could successfully so "trace" the Pledged Revenues and other Unrestricted Moneys, if any, set aside in the Repayment Fund.

Investment of Note Proceeds

Proceeds from the sale of the Notes will be deposited in the Treasury of the County in a proceeds fund (the "Proceeds Fund') to the credit of the District to be withdriM'n, used and expended by the District for any purpose for which it is authorized to expend funds from the general fund of the District, including, but not linited to, current expenses, capital expenditures and the discharge of any obligation or indebtedness of the District.

Moneys held in the District's Proceeds Fund shall be invested by the County in any one or more investments generally permitted to school districts under the I.M's of the State of California, consistent with the investment policy of the County and the Resolution (the "Proceeds Fund Permitted Investments"). The Proceeds Fund Pernitted Investments shall specifically include: (a) the County Pooled Investment Fund maintained by the County Treasurer; and, (b) at the request of the District, (i) the Local Agency Investment Fund maintained by the Treasurer of the State of California; (ii) other investments pernitted under section 53601 of the California Gc:wernment Code; and (iii) investment agreements with financial institutions with senior unsecured credit ratings at least "AA.:.' or "Aa3" from one or more nationally recognized statistical rating organizations then rating the Notes. In regard to any investments requested by the District specified in clauses (b)(i), (b)(ii) or (b)(iii) above, the County may decline the request of the District upon any reasonable basis, including specifically, any concerns of the County regarding the legality, structure or appropriateness of the investment vehicle generally or the process for the bidding or execution of the i nvestment.

Note Ccwerage Ratio

A "Note Cc:werage Ratid' can be calculated for the District by dividing the June 30, 2007, esti mated endi ng cash balance pl us proceeds from the sales of the N ates by the pri nci pal of and i nterest on the Notes. See "GENERAL AND Fl NANCI AL DISTRICT INFORMATION - Note Ccwerage Ratid' for further detail regarding the Note Ccwerage Ratio for the District.

Other District Funds

The District maintains certain segregated and special purpose funds outside its general fund not pledged to the payment of the Notes, which could, if needed and to the extent monies are available therein, be accessed on a temporary basis through District Board of Education action. Such borrcwed amounts must be repaid within the fiscal year borrcwed, or in the follcwing fiscal year under certain circumstances. See "GENERAL AND FINANCIAL DISTRICT INFORMATION" herein for a description of significant other such funds maintained by the District.

6

B ook--E ntry System

The information in this section concerning DTC and DTC's oook--entry system has been furnished b,I DTC for use in disclosure documents, and the District takes no responsibility for the accuracy or corrpleteness thereof. The District cannot and does not give any assurances that DTC will distribute to Direct Participants, or that Direct Participants or Indirect Participants will distribute to the Beneficial CMners, payrrents of principal of, interest, and prenium if any, on the Bonds paid or any rederl1)1:ion or other notices or thattheywill do so on a timely basis or will serve and act in the manner described in this Official Statement. Neither the District nor the County nor the Paying Agent are responsible or liable for the failure of DTC or any Direct or Indirect Participant to make any payments or give any notice to a Beneficial CMner or any error or delay relating thereto. Accordingly, no representations can be made concerning these matters and neither the Direct nor Indirect Participants nor the Beneficial CMners should rely on the fol lONing information with respect to such matters but should instead confirm the same with DTC or the DTC Participants, as the case may be.

DTC will act as securities depository for the Notes. The Notes will be issued as fully,egistered securities registered in the name of Cede & Co. (DTC's partnership noninee) or such other name as may be requested b,I an authorized representative of DTC. One fully,egistered Note certificate will be issued for each maturity of the Notes, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world's I argest depository, is a Ii ni ted--purpose trust company organized underthe New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the prc:wisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and pro.tides asset servicing for ewer 2 million issues of U.S. and non--U.S. equity issues, corporate and municipal debt issues, and money market instruments from ewer 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized oook--entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical mcwement of securities certificates. Direct Participants i ncl ude both U .S. and non--U .S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly--cwned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is cwned b,I a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Gc:wernment Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as b,I the Ne.v York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non­U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Comnission. More information about DTC can be found at www.dtcc.com

Purchases of the Notes under the DTC system must be made b,I or through Direct Participants, which will receive a credit for the Notes on DTC's records. The cwnership interest of each actual purchaser of each Note ("Beneficial owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial owners will not receive written confirmation from DTC of their

7

purchase. B enefi ci al owners are, ho.ve..rer, expected to receive written confi rmati ans prcwidi ng detai Is of the transaction, as well as periodic staterrents of their holdings, from the Direct or Indirect Participant through which the Beneficial owner entered into the transaction. Transfers of o.vnership interests in the Notes are to be accomplished b,I entries made on the oooks of Direct and Indirect Participants acting on behalf of Beneficial owners. Beneficial owners will not receive certificates representing their o.vnership interests in the Bonds, except in the eventthat use of the oook--entry system forthe Notes is discontinued.

To facilitate subsequent transfers, all Bonds deposited b,I Direct Participants with DTC are registered in the narre of DTC's partnership nominee, Cede & Co., or such other narre as may be requested b,I an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the narre of Cede & Co. or such other DTC noninee do not effect any change in beneficial o.vnership. DTC has no kno.vledge of the actual Beneficial owners of the Notes; DTC's records reflect only the identity of the Direct Participants to whose accounts such Notes are credited, which may or may not be the Beneficial owners. The Direct and Indirect Participants will remain responsible for keeping account of thei r holdings on behalf of their custorrers.

Conveyance of notices and other communications b,I DTC to Direct Participants, b,I Direct Participants to Indirect Participants, and b,I Direct Participants and Indirect Participants to Beneficial Owners wi 11 be go..rerned b,I arrangerrents among them, suqj ect to any statutory or regulatory requi rerrents as may be in effect from ti rre to ti rre. B enefi ci al owners of B ands may wish to take certai n steps to augrrent the transmission to them of notices of significant events with respect to the Notes, such as redemptions, tenders, defaults, and proposed arrendrrents to the security docurrents. For exarnpl e, Beneficial owners of Notes may wish to ascertain thatthe nominee holding the Notes for their benefit has agreed to obtain and transmit notices to Beneficial owners. In the alternative, Beneficial owners may wish to pro.ti de thei r names and addresses to the registrar and request that copies of notices be pro.tided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Notes within an issue are being redeerred, DTC's practice is to deternine b,l lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC noninee) will consent or vote with respect to Notes unless authorized b,I a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payrrents on the Notes will be made to Cede & Co., or such other noninee as may be requested b,I an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the issuer or paying agent, on payable date in accordance with their respective holdings sho.vn on DTC's records. Payrrents b,I Participants to Beneficial owners will be go..rerned b,I standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street narre," and will be the responsibility of such Participant and not of DTC (nor its noninee), the Paying Agent, the District or the County, suqject to any statutory or regulatory requirerrents as may be in effect from tirre to tirre. Payrrent of redemption proceeds, distributions, and dividend payrrents to Cede & Co. (or such other noninee as may be requested b,I an authorized representative of DTC) is the responsi bi I ity of the County or the Paying Agent, di sburserrent of such payrrents to Direct Participants will be the responsibility of DTC, and disburserrent of such payrrents to the Beneficial owners will be the responsibility of Direct and Indirect Participants.

8

DTC may discontinue pr0.tiding its services as dep:isitory with respect to the Notes at any time b,I giving reasonable notice to the County or the Paying Agent. Under such circum,tances, in the event that a successor dep:isitory is not obtained, Bond certificates are required to be printed and delivered.

The County may decide to discontinue use of the system of oook--entry transfers through DTC (or a successor securities dep:isitory). In that event, Note certificates wi II be printed and delivered.

Payment to Holders

The follc:M,ing prCNisions g0.terning the payment, transfer and exchange of the Notes apply to holders of the Notes. As long as the DTC oook--entry system described alx:we is in effect, Cede & Co., or such other noni nee of DTC, but not the Beneficial OWners, are holders of the Notes. Only in the event that Notes are printed and delivered to the Beneficial OWners do these pro.tisions then apply directly to Beneficial OWners as holders of the Notes.

Principal of and interest on the Notes will be payable upon presentation and surrender of the Notes in lawful money of the United States of America at the principal office of the Paying Agent, or such other location as the Paying Agent may specify.

Any Note may be exchanged for Notes of any authorized denoninations of the same maturity and interest rate upon presentation and surrender at the principal corporate trust office of the Paying Agent, together with a request for exchange signed b,I the registered o.vner or b,I a person legally empo.vered to do so in a form satisfactory to the Paying Agent. A Note may be transferred only on the Note registration oooks upon presentation and surrender of the Note at the principal corporate trust office of the Paying Agent together with an assignment executed b,I the registered o.vner or b,I a person legally empo.vered to do so in a form satisfactory to the Paying Agent. Upon exchange or transfer, the designated District official shall execute, and the Paying Agent shall authenticate and deliver a mw Note or Notes of any authorized denoni nation or denomi nati ans requested b,I the registered o.vner or b,I a person I egal ly empo.vered to do so, equal i n the aggregate to the unmatured pri nci pal amount of the Note surrendered and bearing interest at the same rate and maturi ng on the same date.

Avai labi I ity of Documents

Additional public documents will be made available upon request through the District. Such public documents include periodic financial reports such as interim reports, appr0.ted budget and audited financial statements. See" I NTR ODUCTI ON - Other Information" herein for contact information.

AD VAL OREM PROPERTY TAXATION

Principal of and interest on the Notes are payable solely from all taxes, revenues, incorre, cash receipts and other unrestricted moneys of the District for the payment thereof. (See "THE NOTES -Security and Sources of Payment'', and "THE NOTES - Available Sources of Repayment'' herein). The information in this section describes ho.v ad valorem property taxes in general are assessed and levied.

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County Services

School districts within each county use the services of that county for the assessment and collection of property taxes for district purposes. District property taxes are assessed and collected b,I the County at the same time and on the same rolls as county, special district and city property taxes.

Assessed Valuation

All property is assessed using full cash value as defined b,I Article XIIIA of the California Constitution (the "Constitution"). State law exempts from taxation $7,000 of the full cash value of an o.vner--occupied d.velling, pro.tided that the o.vner files and qualifies for such exemption. The State is required to reimburse local agencies for the value of taxes on the exempt $7,000. State law also pro.tides exemptions from ad valorem property taxation for certain classes of property based on o.vnership or use, such as churches, colleges, non-profit hospitals and charitable institutions; the State does not reirrburse I ocal agencies for any tax not I e..ried due to these exemptions. State and federal go.ternment property also is not taxed, nor is local go.ternment property located within thejurisdiction of that local go.ternment.

For assessment and collection purposes, property is classified as either "secured' or "unsecured' and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State-assessed property and other property having a tax lien on real property which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Unsecured property comprises all other taxable property. Unsecured property is assessed on the "unsecured roll." Every tax levied b,I a county that becomes a lien on secured property has priority o.ter all present and future private liens arising pursuant to State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on other property o.vned b,I the taxpayer. Valuation of secured property and a statutory tax lien is established as of January 1 prior to the tax year (the tax year is the July 1 -June 30 fiscal year of the State) of the related tax le..ry, and the secured and unsecured tax rolls are certified on or beforeJ uly 1 of the tax year b,I the County Assessor. New property and impro.tements are assessed and added to a "supplemental" roll during the year acquired or when impro.tements are compi eted, and such property is taxed at the secured or unsecured rate then i n effect, as appropriate, for the remaining portion of that year. The next year and thereafter such assets are assessed on the regular tax rolls.

Future grONth in assessed valuation allo.ved under Article XIIIA is allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the grONth occurs. Local agencies and school districts will share the grONth of "base'' re..renues from the tax rate area. Each year's grONth allocation becomes part of each agency's allocation in the follo.vingyear.

State-Assessed Utility Property

The Constitution pro.tides that the State Board of Equalization (the "SBE") rather than counties assess certai n property o.vned or used b,I regulated uti Ii ti es. Such property is grouped and assessed b,I the SBE as "going concern" operating units, which may cross local taxjurisdiction boundaries, ratherthan as individual parcels of real or personal property separately assessed. Such utility property is kno.vn as "unitary property." The SBE assesses property at "fair market value," determined b,lvarious methods and formulae depending on the nature of the property, except that certain railroad property is assessed at a specified percentage of the fair market value deternined b,I the SBE, in conformity with federal liM'. The SBE assesses values as of January 1 prior to the tax year of the related tax le..ry. Property tax on SBE­assessed property is then levied and collected b,I each county in the same manner as county assessed

10

property, but at special county-wide tax rates, and distributed to each taxing agency within that county, suqj ect to certain acjj ustments, accordi ng to the approximate percentage al I ocated to each taxing agency in the prior year.

Ongoing changes in the California electric utility industry structure and in the way in which corrponents of that industry are regulated and o.vned, incl udi ng the sale of electric generation assets to largely unregulated, non-utility corrpanies, may cause property that had been assessed b,I the SBE to be assessed locally instead. A change in property status from assessment b,I the SBE to assessment locally or the reverse may result in a change in property tax revenue received b,l local agencies and an acjjustment in advaloremtax rates and debt capacity for any local agency general obligation bonds.

Tax Levies, Collections and Delinquencies

Secured property tax rates are set annually b,I the first business day of September for the I evy of property taxes in that tax year. The levy is payable in two equal installments due N0.tember 1 and February 1, and payments become delinquent if not postmarked or paid b,I end of the business day on December 10 and April 10, respectively. Taxes on unsecured property (personal property and leasehold interests) are levied at the preceding fiscal year's secured tax rate and have a due date set b,I each county effectively no earlier than July 1 and no later than July 31 of each year. Taxes on unsecured property become del i nquent if not postmarked or paid b,I the end of the business day on August 31, or if added to the unsecured roll after July 31, become delinquent at the end of the month succeeding the month of enrol I ment.

A 1036 penalty attaches to any delinquent payment for secured roll taxes. In addition, property on the secured roll for which taxes are delinquent becomes tax-defaulted. Such property may thereafter be redeemed b,I payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is suqject to sale at auction b,I the County Tax Collector.

A 1036 penalty attaches to delinquent taxes on property on the unsecured rol I, and after the I ast day of the second month after the 1036 penalty attaches, an additional penalty of 1.5% per month begins to accrue and a lien is recorded against the assessee. The taxing authority may collect delinquent unsecured personal property taxes b,I: (a) a civil action against the taxpayer; (b) filing a certificate of delinquency in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on specific property of the taxpayer; and (c) seizure and sale of personal property, impr0.tements or possessory interests bel ongi ng or assessed to the assessee.

Supplemental roll taxes are due on the date the bill is mailed. If the tax bill is mailed within the months of J uly through October, the first i nstal I ment shal I become delinquent at 5 p.m., or the end of the business day, whichever is later, on December 10 of the same year and the second installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on April 10 of the next year; if the bill is mailed within the months of N0.tember throughJ une, the first installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on the last day of the month follo.ving the month in which the bill is mailed and the second installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on the last day of the fourth calendar month follo.ving the date the first installment is delinquent. A 1036 penalty attaches to any delinquent payment for supplemental roll taxes.

A 11 tax due dates and del i nquency dates become the next busi ness day if they fal I on a day that is not a business day.

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Teeter Plan

The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the 'Teeter Plan"), as pro.tided for in Section 4701 et seq. of the State Revenue and Taxation Code, each participating local agency levying secured property taxes, including school districts, receives frorn its county the amount of uncollected taxes credited to its fund, in the sarre manner as if the amount credited had been collected. In return, the county receives and retains delinquent payrrents, penalties and interest as collected, that would have been due the local agency. The Teeter Plan, once adopted b,I a county, remains in effect unless the county board of supervisors orders its discontinuance or unless, priortothe comnencerrent of any fiscal year, the board of supervisors receives a petition for its discontinuance frorn two-thirds of the participating revenue districts in the county. A ooard of supervisors may, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency in the county when delinquencies for taxes levied b,I that agency exceed 3% .

The Teeter Plan applies to the 1% general purpose property tax levy. Whether or not the Teeter Plan also is applied to other tax levies for local agencies, such as the tax levy for general obligation bonds of a local agency, varies b,I county.

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUE AND APPROPRIATIONS

The information in this section concerning certain prc:wisions of Articles XI I IA, XI 11 B, XI I IC and XIIID of the State constitution, Propositions 98 and 111 and certain other law is pro.tided as supplerrentary information only, to outline the principal constitutional and statutory laws under which the operating revenue and finances of K-12 school districts in the State are deternined. F cr specific financial information on the District, see "GENERAL AND Fl NANCI AL DISTRICT INFORMATION" herein.

Article XI I IA

Article XI I IA of the State constitution (the "Constitution") Ii nits, suqject to certain exceptions, the amount of ad valorem taxes on real property to 1% of "full cash value'' as determined b,I the county assessor. Article XI I IA defines "full cash value" to rrean "the county assessor's valuation of real property as shewn on the 1975;76 tax bill under 'full cash value' or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in o.vnershi p has occurred after the 1975 assessrrent," suqject to exemptions in certain circumstances of property transfer or reconstruction. The "full cash value" is suqject to annual acjjustrrent to reflect increases, not to exceed 2% for any year, or decreases i n the consurrer price i ndex or cornparabl e I ocal data, or to reflect reductions in property value caused b,I damage, destruction or other factors.

Article XI I IA requires a vote of two-thirds of those voting in an election to impose ad valorem taxes, and, except to pay debt service on certain voter apprc:wed indebtedness, prohibits the imposition of any additional ad valorern sales or transaction taxes on real property. Article XI I IA does pernit ad valorem taxes to be levied in excess of the basic 1% tax limitation as required to pay debt service (a) on any indebtedness apprc:wed b,I the voters prior to J uly 1, 1978, ( b) on any bonded indebtedness apprcwed b,I two-thirds of the votes cast b,I the voters for the acquisition or irnprc:werrent of real property on or after J uly 1, 1978, or ( c) on any bonded indebtedness apprcwed b,I fifty-five percent of the votes cast b,I the voters of a school or community college district for the construction, reconstruction, rehabilitation or replacerrent of, including furnishing and equipping of, or the acquisition or lease of real property for,

12

school facilities, pro.tided that certain accountability and other requirements are satisfied. In addition, Article XI I IA requires the appr0.tal of two-thirds of all merrbers of the State Legislature to change any State taxes for the purp:ise of increasing tax revenues, while prohibiting the imp:isition b,I the State Legislature of any ne.v advalorern sales or transaction taxes on real property.

Legislation has been enacted and amended a nurrber of times since 1978 to implement Article XI I IA. Under current law, local agencies are no longer permitted to levy directly any property tax except to pay voter--apprcwed indebtedness. The 1% property tax is automatically levied b,I each county in the State and distributed according to a formula among taxing agencies within that county. The formula apportions the tax roughly in proportion to the relative shares of taxes last levied prior to 1989.

That portion of annual property tax revenues generated b,I increases in assessed valuations within each tax rate area within a county, suqject to redevelopment agency claims, if any, on tax increment and suqject to changes in organization, if any, of affectedjurisdictions, is allocated to each jurisdiction within the tax rate area in the same proportion that the total property tax revenue from the tax rate area for the prior year was allocated to suchj urisdictions.

Article XI 11 B

Article XIIIB of the Constitution, apprcwed b,I voters in 1979 and subsequently amended b,I Prop:isitions 98 and 111, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State, to the level of appropriations of the particular g0.ternmental entity for the prior fiscal year, as acjjusted for changes in the cost of living and in population, for transfers in the financial responsibility for pro.tiding services and for certain declared emergencies (the "Gann limit''). As amended, ArticleX 111 B defines:

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

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

The appropriations of an entity of local g0.ternment suqject to Article X 111 B linitations include the proceeds of taxes levied b,I or for that entity and the proceeds of certain State sul:wentions to that entity. "Proceeds of taxes" include, but are not linited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in pro.tiding the regulation, product or service), and (b) the investment of tax revenues. For school districts Article X 111 B constrains appropriations from State and local tax sources, but not federal aid or non-tax income, such as revenues from cafeteria sales or adult education fees.

Appropriations suqject to limitation do not include (a) refunds of taxes, (b) appropriations for debt service, (c) appropriations required to comply with certain mandates of the courts or the federal g0.ternment, (cl) appropriations of certain special districts, (e) appropriations for all qualified capital outlay prqjects as defined b,I the legislature, (f) appropriations derived from certain fuel and vehicle taxes and ( g) appropriations derived from certai n taxes on tobacco products.

Article X 111 B includes a requirement that all revenues received b,I an entity of g0.ternment other than the State in a fiscal year and in the fiscal year immediately follo.ving it in excess of the amount pernitted to be appropriated during that fiscal year and the fiscal year immediately follo.ving it shall be returned b,I a revision of tax rates or fee schedules within the next two fiscal years. If a school district

13

receives any proceeds of taxes in excess of its appropriations lirrit, it may increase its appropriations lirrit to equal that am:Junt b,I taking appropriations Ii mt from the State.

Article X 111 B al so incl ucles a requi rerrent that fi fly percent of al I revenues received b,I the State in a fiscal year and in the fiscal year imrrediately follo.ving it in excess of the am:JUnt perrritted to be appropriated during that fiscal year and the fiscal year imrrediately follo.ving it shall be transferred and allocated to the State School Fund pursuant to Section 8.5 of Article XVI of the Constitution. See "Propositions98and 111" belo.v.

Propositions 98 and 111

On N0.tember 8, 1988 the voters apprcwed Proposition 98, an initiative constitutional arrendrrent and statute called 'The Classroom Instructional lrrpr0.terrent and Accountability Act" ("Proposition 98'). In addition to adding certain prcwisions to the Education Code, Proposition 98 also arrended Article X 111 B and Section 8 of Article XVI of the Constitution and added Section 8.5 of Article XVI to the Constitution, the effects of which are to establish a rrinimum level of State funding for school districts, to al I ocate to school districts, within Ii rrits, State revenues in excess of the State's appropriations lirrit and to exempt such excess funds from school district appropriations limits.

OnJ une 5, 1990, the voters apprcwed Proposition 111 (Senate Constitutional Arrendrrent No. 1) called the "Traffic Congestion Relief and Spending Lirrit Act of 1990'' (" Proposition 111") which further modified Article X 111 B and Sections 8 and 8.5 of Article XVI of the Constitution with respect to appropriations I irritations and school funding priority and allocation.

Article X 111 B, as arrencled b,I both Proposition 98 and Proposition 111, is discussed alx:we under "Article XI 11 B."

The pr0.tisions of Sections 8 and 8.5 of Article XVI, as added to or arrended b,I Propositions 98 and 111, may be summarized as fol Io.vs:

(a) State Funding of Schools (Section 8). Monies to be applied b,I the State for the support of school districts must be at a level equal to the greater of the follo.ving "tests":

(i) The am:JUnt which, as a percentage of the State general fund revenues which may be appropriated pursuant to Article X 111 B, equals the percentage of general fund revenues appropriated for school districts in fiscal year 1986/87;

(ii) The amount actually appropriated to school districts in the prior fiscal year from general fund proceeds and from allocated local proceeds of taxes (excluding any excess state revenues allocated pursuant to Section 8.5), aqjusted for changes in enrollrrent and for the change in the cost of I ivi ng ( operative only in a fi seal year in which the percentage grONth in California per capita personal incorre is less than or equal to the percentage grONth in per capita general fund revenues plus one-half of one percent);

(iii) The amount actually appropriated to school districts in the prior fiscal year from general fund proceeds and from allocated local proceeds of taxes (excluding any excess State revenues al I ocated pursuant to Section 8. 5) aqj usted for changes in enrol I rrent and for the change in per capita general fund revenues, and, in addition, an am:Junt equal to one-half of one percent tirres the prior year appropriations (excluding any excess State revenues) adjusted for changes in enrol I rrent ( operative only in a fi seal year in which the

14

percentage grcwth in California per capita personal incorre is greaterthan the percentage grcwth in per capita general fund revenues plus one-half of one percent).

If the third test is used in any year the difference between the third test and the second test will becorre a "credit'' to schools which will be paid in future years when the general fund revenue grcwth exceeds personal i ncorre grcwth.

The State legislature b,I a two-thirds vote of l:x:Jth houses, with the Gc:wernor's concurrence, may suspend for one year the rninirnurn funding pro.tisions for school districts as pro.tided for in Section 8.

(b) Allocations to the State School Fund (Section 8.5). In addition to the amounts applied to school districts underthe tests discussed abcwe, the State Controller is directed to allocate available excess State revenues (pursuant to Article X 111 B) to the State School Fund. Ho.vever, no such allocation is required at any tirre that the Director of Finance and the Superintendent of Public Instruction mutually determine that current annual expenditures per student equal or exceed the average annual expenditures per student of the 1 O states with the highest annual expenditures per student and the average class size equals or is less than the average class size of the 10 states with the lo.vest class size.

Such al I ocati ans do not constitute appropriations suqj ect to Article X 111 B Ii ni tati ans and are to be made in an equal amount per enrol I rrent.

Articles XI I IC and XI 11 D

On Nc:weniber 5, 1996, the voters of the State apprc:wed Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XI I IC and X 111 D to the Constitution, which contain a number of prc:wisions affecting the ability of local agencies, including school districts, to levy and collect taxes, assessrrents, fees and charges. Among other things, Article XI I IC establishes that every tax is either a "general tax" (imposed for general gcwernrrental purposes) or a "special tax'' (imposed for specific purposes); prohibits special purpose go.ternrrent agencies such as school districts from levying general taxes; and prohibits any I ocal agency from imposing, extending or increasing any special tax beyond its maxi rnum authorized rate without a two-thirds vote. Article X 111 C also pro.tides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles X 111 and XI I IA of the Constitution and special taxes apprc:wed b,I a two-thirds vote under Article XI I IA, Section 4.

Article XI I IC also pro.tides that the initiative po.ver shall not be limited in matters of reducing or repeal i ng I ocal taxes, assessrrents, fees and charges. I n respect to school district general obi i gati on bonds, the Constitution and laws of the State impose a mandatory duty on county tax collectors to levy a property tax sufficient to pay debt service on such bonds coning due in each year. The initiative po.ver cannot be used to reduce or repeal the authority and obi i gati on to I evy such taxes which are pl edged as security for payrrent of such bonds or to otherwise interfere with performance of the mandatory duty of a school district and its county with respect to such taxes which are pledged as security for payrrent of such bonds. Legislation adopted in 1997 pro.tides that Article XI I IC shall not be construed to rrean that any o.vner or beneficial o.vner of a municipal security assumes the risk of, or consents to, any initiative rreasure which would constitute an i mpai rrrent of contractual rights under the contracts clause of the U .S. Constitution.

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Voter appr0.ted special taxes (including those levied pursuant to the Mello-Roos Community Facilities Act), "parcel" taxes and assessments levied pursuanttothe Landscape and Lighting District Act of 1972, that are not pl edged to the payment of bonds, may be suqj ect to reduction or repeal b,I voter initiative underthe prcwisions of ArticleX I I IC.

Article X 111 D deals with assessments and property,elated fees and charges. Article X 111 D explicitly pr0.tides that nothing in Article XII IC orXIIID shall be construed to affect laws existing prior to enactment of Articles XI I IC and X 111 D relating to the imposition of fees or charges as a condition of property development; hcwever it is not clear whether the initiative pcwer is therefore unavailable to repeal or reduce developer and nitigation fees imposed b,I a school district.

The interpretation and application of Article XIIIC and ArticleXIIID will ultimately be deternined b,I the courts with respect to a number of the matters discussed alx:we, and it is not possible at this ti me to predict with certainty the outcome of such deterni nation.

Future Initiatives

Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 98 and 111 were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From time to time other initiative measures could be adopted, further affecting school districts' revenues or ability to expend revenues.

GENERAL SCHOOL DISTRICT FINANCIAL INFORMATION

The information in this section concerning funding procedures of K-12 school districts in the State is pr0.tided as supplementary information only. For specific financial information on the District, see"GENERAL AND Fl NANCI AL DISTRICT INFORMATION" herein.

State Funding of School Districts

Annual State apportionments of basic and equalization aid to K-12 school districts for general purposes are made according to a revenue limit per unit of average daily attendance ("A.D.A."). If a district's total revenue limit exceeds its property tax revenue, its annual State apportionments, suqject to certain acjj ustments, amountto the difference between the revenue Ii nit and a district's actual property tax receipts (after any redevelopment agency tax increment or other deductions or "shifts" that may be in effect under State law). A.D.A. is determined b,I school districts twice a year, in December(" First Period A.D.A.") and April ("Second PeriodA.D.A.").

The calculation of the amount of State apportionment a school district is entitled to receive each year is summarized as folio.vs: first, the prior year Statewide revenue limit per A.DA. is recalculated with certain acjjustments for equalization and other factors; second, this adjusted prior year Statewide revenue limit per A.D.A. is inflated according to formulas based on the implicit price deflator for g0.ternment goods and services and the Statewide average revenue limit per A.D.A. for each type of A.D.A., yielding the school district's current year "component'' revenue limits per A.DA.; third, the current year component revenue Ii nits per A.D.A. are applied to the school district'sA.D.A. for either the current or prior year, as the district elects; fourth, revenue Ii nit acjjustments kno.vn as "add--Ons" are calculated for each school district if the school district qualifies for such add--Ons (for example, add-ons to acjjust for small school district size and pr0.tiding meals for needy pupils, among others); and fifth, local

16

property tax revenues are deducted from the total revenue limit calculated for each district to arrive at the amount of State apportionment each school district is entitled to for the current year.

The State revenue limit is calculated three times a year for each school district on the basis of prqjections subnitted b,I the district on or about December 10, based on First PeriodA.D.A., and April 15 andJ une 30, l:x:Jth based on Second PeriodA.D.A. A.D.A. calculations are based on actual attendance and do not include excused absences. Revenue limit calculations are made b,I each school district, reviewed b,I the County Office of Education and submitted to the State Department of Education. The State Department of Education reviews the calculations for accuracy, deternines the amount of State apportionment o.ved to each school district and notifies the State Controller to distribute the apportionments. The first calculation is performed for the First Principal Apportionment in February, the second calculation for the Second Principal Apportionment in June, and the final calculation for the end of the fiscal year Annual Principal Apportionment, in essence a correction that is made in October of the next fi seal year.

See "GENERAL AND Fl NANCI AL DI STRICT INFORMATION" herein for the District's annual revenue limit per A.DA.

Basic Aid Districts

In the event that a school district's property tax revenue exceeds its calculated revenue limit entitlement, that school district retains all of its property tax revenue and State apportionments to that district are limited to the minimum "basic aid" amount of $120 per A.DA. set forth in the Constitution. Such funding may be partially or entirely restricted to categorical entitlements. Such districts are commonly kno.vn as "Basic Aid Districts." See "GENERAL AND FINANCIAL DISTRICT INFORMATION" herein for the District's basic aid status.

State Budget

The State budget appro.tal process begins with the release to the State legislature b,I January 10th of the GC1Jernor's proposed budget for the follo.ving fiscal year. State fiscal years beginJ uly 1st. In May, the Go.ternor submits a revision of the proposed budget that reflects updated estimates of revenues and expenditures. After a series of public hearings and other steps in the legislative process, the budget must be apprC1Jed b,I two-thirds vote in each house of the State legislature and submitted to the GC1Jernor. The GC1Jernor may reduce or eliminate any appropriation b,l line--itemveto. Although the budget is required b,I the Constitution to be apprC1Jed no later thanJ une 15th, it often has not been apprC1Jed until later.

While the Constitution in large part dictates the formulae for deternining the allocation of State revenues to the K-12 education portion of the State budget pursuant to Proposition 98 and other prC1Jisions(see"CONSTITUTIONAL AND STATUTORY PROVISIONS AF FE CTI NG DISTRICT REVENUE AND APPROPRIATIONS" herein), in the State budget process the Go.ternor and State legislature still have significant leeway in deciding whether and b,I ho.v much to exceed or reduce such allocation in the actual funding of K-12 school districts, and to decide what funds will be general purpose or restricted purpose.

17

2005 ;ffi Budget

On January 10, 2005, the Gcwernor's 2005;ffi Budget was released, on May 13, 2005 the GC1Jernor's Budget May Revision 2005--06 was released and on July 11, 2005 the 2005 Budget Act was signed b{the GC1Jernor (together, the" 2005;ffi Budget''). For the State general fund, the 2005;ffi Budget reports for 2003/04 prior year resources available of $5.060 billion and revenue and transfers-in of $74.762 billion, for a total of $79.822 billion in resources; for 2004;05 prqjects prior year resources available of $7.279 billion, revenue and transfers-in of $79.935 billion and allocates the use of $2.012 billion frorn State Econonic RecC1Jery Bonds issued in 2004;05, for a total of $89.226 billion in resources; and for 2005 ;ffi prqj ects prior year resources available of $7.498 bi 11 ion, revenue and transfers­i n of $84.471 billion, for a total of $91.969 billion in resources. General fund expenditures are reported as $76.333 billion for 2003/04, prqjected to be $81.728 billion for 2004;05 and prqjected to be $90.026 billion for 2005;ffi, with general fund ending balances of $7.279 billion, $7.498 billion and $1.943 billion, respectively, for these years.

The 2005;ffi Budget estimated Proposition 98 funding of K-12 education, including local property tax revenue, of $46.292 billion for 2003/04, $46.941 billion for 2004;05 and $49.968 billion for 2005;ffi. Of these amounts, the State general fund would prC1Jide $30.529 billion in 2003/04, $34.009 billion in 2004;05 and $36.591 billion in 2005;ffi; the difference frorn total Proposition K-12 funding was funded frorn local property tax revenue prqjected for each school district. The 2003 Budget Act had no COLA and assumed funding of a 1.34% increase in statewide enrollrrent for 2003/04. The 2004 Budget Act included a 2.41% COLA for school district and county office of education revenue lirnit apportionrrents, and funding of an assurred 0.95% increase in statewide enrollrrent (and indicated that the actual groNth for 2003/04 was 0.75% rather than the budgeted 1.34%). The 2005;ffi Budget included a 4.23% COLA for mast school district and county office of education revenue Ii rnit apporti onrrents, and funding of an assurred 0.6936 increase in A.D.A. statewide. Proposition 98 funding per A.DA. in the 2005;ffi Budget was estimated at $7,018 for 2003/04, $7,023 for 2004;05 and $7,402 for 2005;ffi. Frorn all sources, including federal, local parcel taxes and local debt service taxes, arnong others, the 2005;ffi Budget prqjects total spending per A.DA. of $9,526 in 2003/04, $9,945 in 2004;05 and $10,325 in 2005;ffi. In total dollars statewide, the corresponding amounts are $57.1 billion, $59.6 billion and $62.3 billion, respectively.

2006 ;07 Budget

OnJ anuary 10, 2006, the proposed GC1Jernor's 2006;07 Budget was released, and on May 12 the May Budget Revision was released (together, the "2006;07 Budget''). The 2005;ffi Budget reports for the State general fund for 2004;05 prior year resources available of $7.228 billion and revenue and transfers­in of $82.209 billion, for a total of $89.438 billion in resources; for 2005;ffi reports prior year resources available of $9.507 billion, and prqjects revenue and transfers-in of $92.450 billion, for a total of $101.957 billion in resources; and for 2006;07 prqjects prior year resources available of $9.368 billion, revenue and transfers-in of $93.866 billion, for a total of $103.234 billion in resources. General fund expenditures are reported as $79.804 billion for 2004;05, prqjected to be $92.589 billion for 2005;ffi and are prqjected to be $100.985 billion for 2006;07, with general fund ending balances of $9.507 billion (actual), $9.368 bi II ion (prqjected) and $2.249 billion (prqjected), respectively, for these years.

The 2006;07 Budget estimates Proposition 98 funding of K-12 education, including local property tax revenue, of $47.015 billion for 2004;05, $52.086 billion for 2005;ffi and $55.078 billion for 2006;07. Of these amounts, the State general fund will prC1Jide $33.995 billion in 2004;05, $38.329 billion in 2005;ffi and $41.248 billion in 2006;07; the difference frorntotal Proposition K-12 funding is funded frorn local property tax revenue prqjected for each school district. The 2004 Budget Act (fiscal year 2004;05) included a 2.41% COLA for school district and county office of education revenue Ii nit

18

apportionrrents, and funding of an assurred 0.95% increase in statewide enrollrrent (the 20Cf5/07 Budget reports that the actual 2004/05 increase in A.DA. statewide was 0.47%). The 2005;06 Budget included a 4.23% COLA for most school district and county office of education revenue limit apportionrrents, and assurred a 0.21% decline in A.DA. statewide. The 20Cf5/07 Budget includes a 5.92% COLA for most school district and county office of education revenue Ii nit apportionrrents, and assumes a 0.26% decline in A.D.A. statewide. From all sources, including federal, local parcel taxes and local debt service taxes, among others, the 2005;06 Budget reports total spending per A.D.A. of $9,955 in 2004/05, prqjects $10,749 in 2005;06 and prqjects $11,268 in 20Cf5/07.

State Funding of Schools Without A State Budget

On May 29, 2002, the Court of Appeal of the State of California for the Second Appellate District in White v. Davis et al. (corrbined with HcwardJ arvis Taxpayers Association et al. v. Westly in appeal) held, among other thi ngs, that absent adoption of a budget bi 11 or an errergency appropriation by the Legislature, the State Controller may disburse State funds authorized by (a) a continuing appropriation enacted by the Legislature, (b) a self-executing pr0.tision of the State constitution, including payrrent of certain funds for public schools under Article XVI, Section 8.5 of the State constitution, and (c) mandate of federal liM', such as prompt payrrent of minimum wage and 0.tertirre compensation mandated by the federal Fair Labor Standards Act and benefits under federal food stamp, foster care and adoption, child support and child welfare programs. The Court of Appeal specifically concluded that Article XVI, Section 8.0 of the State constitution does not constitute a self-executing authorization to disburse revenue linit apportionrrent to school districts; legislative appropriation is required for revenue limit disburserrent. On May 1, 2003, the California Suprerre Court in its decision in White v. Davis et al. granted review to two other matters and let these particular conclusions of the Court of Appeal stand without ruling on them

During the 2003 /04 State budget impasse, the State Control I er announced that only "payrrents of prior year obiigations, constitutional authorizations, federal mandates and continuous legislative appropriations would be made." The State Controller concluded that revenue Ii nit apportionrrents to school districts, under pr0.tisions of the Education Code implerrenting Article XVI, Section 8 of the State constitution, are authorized as continuous legislative appropriations, so disbursed these funds without a budget bill or errergency appropriation enacted. The State Controller did not disburse certain categorical and other funds to school districts until the 2003/04 Budget Act was enacted.

State Funding of School Construction

The State makes funding for school facility construction and modernization availabie to K-12 districts throughout the State through the Office of Public School Construction ("OPSC") and the State Allocation Board ("SAB"), from proceeds of State general obiigation bonds authorized and issued for this purpose. Such bonds were authorized in the amount of $13.05 billion, $11.40 billion of which were for K-12 school facilities and $1.65 billion of which were for higher education facilities, on N0.tember 5, 2002 under Proposition 47, passed by 58.9% of the State-wide vote. An additional bond rreasure for education capital prqjects was apprcwed on March 2, 2004 under Proposition 55, passed by 50.6% of the State-wide vote, in an authorization amount of $12.3 billion, $10.0 billion of which is for K-12 school facilities and $2.3 billion of which is for higher education facilities. The G0.ternor has proposed similar future State bond issue authorizations, but none have been placed on a ballot yet.

The SAB allocates bond funds for 5036 of apprcwed new construction costs, 6036 of appr0.ted modernization costs (8036 for modernization prqject applications made prior to February 1, 2002), or up

19

to 10036 of appr0.ted costs of any type if the school district is appr0.ted for "hardship'' funding. The school district is responsible for the portion of costs not funded b,I the State, comnonly funding their portion with their o.vn general obligation bonds, certificates of participation or accurrulated builder's fee revenue. School districts routinely apply for such funding whenever they have prqjects they believe meet OPSC and SAB criteria for funding.

State Retirement Programs

School districts participate in the State of California Teachers Retirement System ("STRS"). STRS c0.ters all full-time and most part-time errployees with teaching certificates. In order to receive STRS benefits, an employee must be at least 55 years old and have pr0.tided five years of service to California public schools. School districts also participate in the State of California Public Employees Retirement System ("PERS"). PERS c0.ters all classified personnel, generally those employees without teaching certificates, who are employed at least four hours per day. In order to receive PERS benefits, an employee must be at least 50 years old and have had five years of c0.tered PERS service as a public employee.

Contribution rates to PERS varies with changes in actuarial assurrptions and other factors, such as changes in benefits and investment performance, and are set b,I a State retirement ooard for PE RS. The contribution rates are set b,I statute for STRS at a constant 8.25% of salary. STRS has a substantial State-wide unfunded liability. Under current law, the liability is the responsibility of the State and not of individual school districts. See "DISTRICT INFORMATION" herein for information regarding the District's contribution to these retirement systems.

County Office of Education

In each county there is a county superintendent of schools (the "County Superintendent") and a county ooard of education. The Office of the County Superintendent, frequently kno.vn as the "County Office of Education" (the "County Office" herein) in each county pr0.tides the staff and organization that carries out the activities and policies of the County Superintendent and county ooard of education for that county.

County Offices pr0.ti de i nstructi anal and support services to school districts wit hi n thei r counties, and various State mandated services county-wide, particularly in special education and juvenile court education services. County Office business services departments act as a control point for a variety of information, including pupi I data col I ecti on, attendance accounting, teacher credential registration, payrol I accounting, retirement and tax information and school district budgets, and al so report such information to the State Department of Education. All school district budgets rrust be appr0.ted b,I their County Office and each district must pr0.tide its County Office with scheduled interim reports throughout the fiscal year. County Offices also act as enforcement entities which intervene in district fiscal matters should a district fail to meet State budget and reporting criteria.

School District Budget Process

School districts are required b,I pr0.tisions of the State Education Code to maintain a balanced budget each year, in which the sum of expenditures and the ending fund balance cannot exceed the sum of revenues and the carry-0.1er fund balance from the previous year. School districts' annual general fund expenditures are characterized in large part b,I rrulti-year expenditure comnitments such as union contracts.Year-to-year fluctuations in State and local funding of school district general funds could result

20

in revenue decreases which, if large enough, may not easily be offset b,I an equal reduction in expenditures until at least the follcwing fiscal year. School districts are required b,I State liM' to maintain general fund reserves which can be drawn upon in the event of a resulting excess of expenditures ewer revenues for a given fiscal year. The State Departrrent of Education imp:ises a uniform budgeting and accounting format for school districts.

School districts must adopt a budget no later than June 30 of each year. The budget must be subnined to the County Superintendent within five days of adoption or b,I July 1, whichever occurs first. A district may be on either a dual or single budget cycle. The dual budget option requires a revised and reack:Jpted budget b,I September 1 that is suqject to State mandated standards and criteria The revised budget must reflect changes in prqjected income and expenses subsequent toJ uly 1. The single budget is only readopted if it is disapprc:wed b,I the County Superintendent, or as needed.

For both dual and single budgets submitted on July 1, the County Superintendent will exanine the adopted budget for corrpliance with the standards and criteria adopted b,I the State Board of Education and identify technical corrections necessary to bri ng the budget into corrpl i ance, and wi 11 deternine if the budget allcws the district to meet its current obligations and is consistent with a financial plan that will enable the district to rreet its multi-year financial commitrrents. On or before August 15, the County Superintendent will apprcwe or disapprc:we the ack:Jpted budget for each school district. Pursuant to State law, the county superintendent has available various rerredies b,I which to imp:ise and enforce a budget that corrplies with State criteria, depending on the circumstances, if a budget is disapprc:wed.

Subsequent to apprc:wal, the County Superintendent throughout the fiscal year is authorized to monitor each school district under his or her jurisdiction pursuantto its adopted budgetto deternine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If a County Superintendent deterni nes that a district cannot meet its current or subsequent year obi i gati ons, the County Superintendent will notify the district's gcwerning board of the deternination and the County Superintendent may do either or both of the follcwing: (a) assign a fiscal acwisor to enable the district to rreet those obi i gati ons or ( b) if a study and recomrrendati ons are made and a district fai Is to take appropriate action to rreet its financial obligations, the County Superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the follcwing for the remainder of the fiscal year: (i) request additional information regarding the district's budget and operations; (ii) develop and imp:ise, after also 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 prc:wision of any collective bargaining agreerrent that was entered into prior to the date upon which the County Superintendent assurred authority.

At minimum, school districts are required b,I statute to file with their County Superintendent and the State Departrrent of Education a First Interim Financial Report b,I December 15th ccwering financial operations from July 1" through Octolber31", and a Second Interim Financial Report b,I March 15th cc:wering financial operations from Ncwember 1" through January 31". Section 42131 of the Education Code requires that each interim report be certified b,I the school board as either (a) "p:isitive," certifying that the district, "based upon current prqjections, will rreet its financial obligations for the current fiscal year and subsequent two fiscal years," (b) "qualified," certifying that the district, "based upon current prqjections, may not meet its financial obligations for the current fiscal year or two subsequent fiscal years," or (c) "negative," certifying that the district, "based upon current prqjections, will be unable to rreet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year." A certification b,I a school board may be revised b,I the County Superintendent. If eitherthe First or Second Interim Report is not "p:isitive," the County Superintendent may require the district to pro.tide a Third

21

Interim Financial Report b,I June 1" ccwering financial operations from February 1" through April 3dh. If not required, a Third Interim Financial Report is not prepared. Each interim report sho.vs fiscal year to date financial operati ans and the current budget, with any budget amendments made in Ii ght of operations and conditi ans to that point. After the close of the fi seal year, an unaudited financial report for the fi seal year is prepared and filed without certification with the County Superintendent and the State Department of Education.

Accounting Practices

The accounting policies of California school districts conform to generally accepted accounting principles, as modified in accordance with policies and procedures of the California School Accounting Manual. This manual, pursuant to Section 41010 of the Education Code, is to be follo.ved b,I all California school districts. Revenues are recognized in the period in which they become both measurable and available to finance expenditures of the current fiscal period. Expenditures are recognized in the period in which the liability is incurred. See also "Note 1" in "APPENDIX A" herein for further discussion of appl i cable accounting policies.

County Investment Pool

In accordance with Education Code Section 41001, each California public school district maintains substantially all of its operating funds in the county treasury of the county in which it is located, and each county treasurer serves as ex officio treasurer for those school districts I ocated wit hi n the county. Each county treasurer has the authority to invest school district funds held in the county treasury. Generally, the county treasurer pools county funds with school district funds and funds from certain other public agencies and invests the cash. These pooled funds are carried at cost. Interest earnings are accounted for on either a cash or accrual basis and apportioned to pool participants on a regular basis.

Each county treasurer is required to invest funds, including those pooled funds described abo.te, in accordance with Gcwernment Code Sections 53601 et seq. In addition, each county treasurer is required to establish an investment policy which may impose further limitations beyond those required b,I the Gc:wernment Code. A cop,1 of the County investment policy and periodic reports on the County investment pool are available from the County Treasurer-Tax Collector, County of Alameda, 1221 Oak Street, Room 131, Oakland, CA 94612--4685 (510) 272--6800. It is not intended that such information be incorporated into this Official Statement b,I such references. Certain information concerning the County's pooled investment portfolio as of March 31, 2cn; is included herein in "APPENDIX D -ALAMEDA COUNTY INVESTMENT PORTFOLIO REPORT."

22

SAN LEANDRO UNIFIED SCHOOL DISTRICT GENERAL AND FINANCIAL DISTRICT INFORMATION

Introduction

The San Leandro Unified School District pro.tides educational services to residents of the City of San Leandro and portions of the City of Oakland. The District serves a population of approximately 63,237.

The District operates eight elementary schools (K-5), two niddle schools (6-S), one high school (9-12), one continuation school, and one adult education school.

The District's 2005/CX'i pupi I-teacher ratios are 20: 1 for grades K-3, and 30: 1 for grades 4-12.

The District is go..rerned b,I a Board of Education consisting of se..ren merrbers. Merrbers are elected to four-year term, in staggered elections. The day-to-day operations are managed b,I a Board­appointed Superintendent of Schools. Christine A. Lim has served in this capacity sinceJ uly 2003.

Average Daily Attendance

The follo.ving table reflects the District's historical Second Period A.DA. for the last four years and a prqjection for 2006!)7.

SAN LEANDRO UNIFIED SCHOOL DISTRICT Average Daily Attendance Second Period Report

Academic Year

2002;()3 (b)

2003;()4 (b)

2004;()5 (b)

2005;()3 (b)

2ro5fJ710

(al Incl Wes grades K-12; exclu::les ROP an::l a:lult ed. (bJ Au::lited Finan:::ial Staterrents. (cJ Estimated - Secon::l Interim Rerx,tt adopted on March 21, 20C6.

23

Average Daily Atten::lan::::e(ai

8.223 8.269 8.392 8.414

8.242

Labor Relations

The District errploys sex, full-time equivalent certificated and 261 full-time equivalent classified employees. There are four formal bargaining organizations that are active in the District.

Lai:xJr Organization

San Lean:lro Teac~rsAssociation

SAN LEANDRO SCHOOL DISTRICT Labor Relations

N um~r of E rrployees In Organization

Teamsters Union Local 856/Ala./Tffia& B uildi tl'J Trades CaliforniaSchools E mployeesAssociation

516 61

180

Source: T~ District.

Investment of District Funds

Contract Expiration Date

J ure 30. ;,ro7 J ure 30. ;,ro7 J ure 30. ;,ro7

Substantially all District operating funds are held b,I the Alameda County Treasurer and invested pursuant to the County's investment policies. The County's cash management and investment program is generally coordinated on a "pooled" basis. See "APPENDIX D - ALAMEDA COUNTY­EXCERPTS FROM THE COUNTY INVESTMENT PORTFOLIO REPORT" herein.

20CJ5f)7 Budget Assumptions

The corrparative financial tables and cash flo.vs that follo.v are based on prelininary budget estimates pro.tided b,I the District. In accordance with pro.tisions of the State Education Code, the District must adopt a budget on or before July 1 of each year. Subsequent to July 1, copies of the District's adopted budget will be available upon requesttothe District.

The largest part of each school district's general fund revenue is received from revenue limit sources. Each school district calculates its o.vn revenue limit per unit of A.D.A. according to State formula. The revenue Ii nit defines the fixed amount of general purpose revenue a school district receives from local property taxes and State aid. Property taxes that are paid to.vard the revenue Ii nit are based on a school district's portion of the one percent ad valorem tax levy on real property collected b,I each county. State aid is an amount equal to the difference between the calculated revenue limit and the amount of local property taxes received. Except for basic aid districts, changes in revenue limit income received from year to year are generally based on the cost of I ivi ng acjj ustment to the revenue Ii mit ("COLA") established b,I the State and the year to year grONth in A.D.A. The District is not a basic aid district. The District has assumed A.DA. grONth as reflected in the table abo.te, and 5.1936 COLA for the 20CJ5f)7 revenue limit income in the table belo.v. See "GENERAL SCHOOL DISTRICT INFORMATION- State Funding of Education" and "-Average Daily Attendance'' herein.

24

10 (bi

10

Fiscal Year

2002;{)310

2003;{)410

2004f)S(bJ

2oosp:/bJ 2606!)7'0

Au::lited Finan:::ial Staterrents. Unaudited Finan:::ial Statements.

SAN LEANDRO UNIFIED SCHOOL DISTRICT Revenue Limit I ncome

RevenLe Limit I 11'.:0tre Percent of Ge~ral Fund RevenLes

$40, 130,670 40,342,558 42,047,061 44,464,548 46,291,355

72.48% 74.06 72.98 74.36 75.34

Secon:l Interim Rerx)tt adopted on March 21, 2006.

The largest part of each school district's general fund expenditures are used to pay certificated and classified salaries and employee benefits. Changes in salary and benefit expenditures from year to year are generally based on changes in staffing le.tels, negotiated salary increases, and the c:werall cost of employee benefits. Even with no negotiated salary increase, normal mcwement of "step and column" on the salary scale results in increased expenditures (if no other staffing changes are made).

The District expects a reduction of 1 full-time equivalent certificated and a reduction of 6 full­time equivalent classified employees for the 2CJ:J5/07 fiscal year. The District expects a 6.92% negotiated salary increase for certificated employees, and a 6.92% negotiated salary increase for classified employees for the 2CJ:J5/07 fiscal year. overall salaries and benefits are prqjected to increase by 6.036 in the 2CJ:J5/07 fiscal year.

10 (bi

10

Fiscal Year

2002!)310

2003f)4(b)

2oosp:/bJ 2005!)610

2606!)710

Au::lited Finan:::ial Staterrents. Unaudited Finan:::ial Statement.

SAN LEANDRO UNIFIED SCHOOL DISTRICT Salaries and Benefits

Salaries an::l Be~fits Percent of Ge~ral Fun::! Ex[En:litures

$48,1%,821 47, 117,004 49,277,399 50,720,606 53,767, 159

85.47% 86.03 85.97 84.06 87.50

Secon:l Interim Rerx)tt adopted on March 21, 2006.

25

Comparative Financial Statements

The follo.ving table reflects the District's revenues, expenditures and fund balances from fiscal year 2003/04 to budget year 2CXX,;07:

SAN LEANDRO UNIFIED SCHOOL DISTRICT General Fund Revenues, Expenditures and Fund Balance

Estimated

Actuals Actuals Actuals

2003,t)4" 2004,05" 2005/0Ci (b)

Revenues

RevenLe Limit Sources $ 44,464,548

State Aid $ 18,258,671 $ 26,565,710

Property Taxes 22,003,887 15,481,351

Federal RevenLe 3,0'D,475 3,187,330 3,245,702

Ot~r State RevenLe 7,174,959 8,381,497 8,336,604

Ot~r Local RevenLe 3,903,936 4,000,923 3,749,533

Total Revenues 54,471,928 57,616,811 59,796,387

Expenditures

Cettificated Salaries 32,558,559 34,325,131 35,229,994

Classified Salaries 7,346,429 7, 140,479 7,476,647

Employee Be~fits 7,212,016 7,811,789 8,013,965

Booksan:l Supplies 1,541,527 1,655,127 3,047,889

Services, Ot~r O~ratitl'J Expenses 4,913,563 5,302,921 5,857,120

Capital Outlay 0 142,517 31,975

Ot~rOutgo 1,199,173 939,588 681,949

Total Expenditures 54,771,267 57,317,552 60,339,539

Other Financing Sources;(Uses)

I nterfund Transfers In / Ot~r Sources 1,132,622 281,997 422,359

I nterfund Transfers Out / Ot~r Uses 0 (789,219) (820,078)

Total Other Financing Sources;(Uses) 1,132,622 ('D7,222) (397,719)

ExcessofRevenuesOver (Under) Expenditures 833,283 (207,963) (940,871)

Beginning Fund Balance 1,221,821 2,055,104 1,847,141

Prior Year Adjustments 0 0 0

Ending Fund Balance $ 2,055,104 $1,847,141 $ 906,270

(al Au::lited Finan:::ial Staterrents. (bJ Secon::l Interim Rerx,tt adopted on March 21, 20C6.

26

Projected

Bwget

2!JChfJ7 (b)

$46,291,355

3,120,702

8,294,707

3,733,533

61,440,297

37,561,443

8,127,011

8,078,706

2,055,991

4,956,'D5

16,975

654,767

61,451,397

722,359

(785, 186)

(62,827)

(73,927)

906,270

0

$ 832,343

Debt Structure

The District has never defaulted on the payment of principal or interest on any of its indebtedness.

Short-Term Obligations. On July 7, 2005, the District issued $5,000,000 tax and revenue anticipation notes dueJ uly 6, 2006. The notes are general obligations of the District, secured and payable from general fund revenues received during or allocable to, the 2005/CX'i fiscal year.

Long-Term Obligations. For a description of the District's long-term debt, see" APPENDIX A -Excerpts from 2004;05Audited Financial Statements."

Subsequent to the date of the Audited Financial Statement, June 30, 2005, the District issued a 2G-year aqjustable---rate real property lease in the amount of $1,500,000 on February 17, 2006, to add a mw building for its Adult Education program to the existingJ ohn Muir Middle School campus.

Assessed Valuation

The follo.ving table represents the five-year history of assessed valuation in the District. For more information regarding ho.v property is assessed in the State of California, see "AD VALOREM PROPERTY TAXATION -Assessed Valuation" herein.

Fiscal Year

2001 f)2 2002;{)3 2003;04 2004;{)5 2005/Xi

SAN LEANDRO UNIFIED SCHOOL DISTRICT Assessed Valuation

Local Secured

$4.S60.(Xi3.854 5.357.651.631 5.778.727.027 6.234.970.952 6.674.177.388

$3.523.381 3.400.453 3.852.093 6.026.320 5.721.600

Unsecured

$1.584.560.481 1.495.878.130 1.447.322.281 1.282.295.214 1.281.191.659

Source California Municipal Statistics, Irr:.

27

$6.548.147.716 6.856.930.214 7.229.901.401 7.523.292.486 7.961.090.647

Note Ccwerage Ratio

Prqjected Unrestricted Moneys available for Note repayrrent onJ une 30, 2006, pro.tides c0.terage of 1.27 tirres the principal and interest due on the Notes at maturity. See "THE NOTES - Security and Sources of Payment" herein.

SAN LEANDRO UNIFIED SCHOOL DISTRICT Note Coverage Ratio

Projected Beginnitl'JCashBalan::::e,July l, 20C6

Projected 2!XJ:jf07 Cash Receipts ( I rr::I u::li tl'J Note Proceeds)

Less Projected 2CJ:i3f)7 Disburserrents (Excluditl'J Note Repaym::nt)

E mi rg Cash Balan::e,J ure 30, 2007

Note Repayrrent

NOTE COVERAGE RATIO

28

$ 1,741,941

67, 132,222

(62,236,583)

$ 6,637,580

$5,224,375

l.27 l

Other District Funds

The District maintains a substantial balance in the follo.ving funds. Such funds are generally restricted i n purp:ise, but may be accessed on a terrporary basis b,I Board action. For a more detai I ed description of the transfer of restricted fund monies, see "THE NOTES - Other District Funds" herein.

Special Re.;enue Funds

Adult Edu:::ation

Cafeteria

Child Developm::nt

Deferred Maintenan:::e

Special Reserve (Econ. U rr::ettai nty)

Sp:=<::ial Reserve(RetireeBe~fits)

Sel f-1 nsurance F un::l

Subtotal for Special RevenLe Fun:ls

Capital Project Funds

Builditl'.J

Capital Facilities

County Sch::x:JI Facilities

Subtotal for Capital Project Fun:ls

Total Other District Funds

(al Au::lited Finan:::ial Staterrent. (bJ Secon::l Interim Rerx,rt adopted on March 21, 20C6. (cJ T~ District.

Cash Flo.vs

J une 30. 2()05. Balan::::e(al

$2.463.410

573.312

0

787.428

1.754.353

300.000

6.314

5.884.817

3.761.893

3.765.846

2.290.076

9.817.815

$15.702.632

June30.20C6. J une 30. 2()07. Estimated Balan::::e(bJ Estimated Balan::::e(cJ

$ 448.961 $ 250.000

554.986 350.000

0 0

1.137.995 700.000

1.835.671 1.sw.000

300.000 0

954.357 950.000

5.231.970 4.150.000

683.622 0

2.699.014 1.500.000

62.186 0

3.444.822 1.500.000

$8.676.792 $5.650.000

The District's general fund expenditures tend to be heaviest in the middle and end of the school year and Ii ghtest during the summer months. Receipts have fol lo.ved an uneven pattern, primarily because secured tax installment payment dates are in December and April.

Exhibit I which folio.vs sho.vs fiscal year 2005/CX'i actual cash receipts and disbursements through January 2cn;, and estimates for the remainder of the fiscal year. Exhibit 11 which fol lo.vs sho.vs prqjected cash receipts and disbursements for fiscal year 2CXX,;07when the Notes will be outstanding. The prqjected cash flo.vs for fiscal year 2cn;;07 take into accountthe receipt and payment of the Notes.

29

San Leandro School District 2CXX3Taxand RevenueAnticipatim Nctes

XXJSfX:jACTUAL CASH FLOW (Actuals tlTouglJ aruaiy 31, 2Clli, ProjECtffi Febua!y througlJ ure 2CTh) GENERAL FUND

July Aug_ist Septenl:xr Octoter Nc:venber Ds:enrn January FEbruary March Ap-il May June Total Beginning Cash (IJ 2, 100,8)4 9,336,882 9,866,707 9, 173,345 8,744,092 5,924,514 9,677,257 7,107,988 10,845,089 8,810,941 8,c:62,955 5,805,817 2,100,804

Ra::eipts

RBIEfl.lE'Limit: Ptq)E'ltyTax 22,6():1. 102,9::6 1,094,456 25,734 29,892 5,404,%9 497 3,823,957 lffi,708 3,472,869 l, 165,48) 79,%8 15,410,040 RBIEfl.lE'Limit: Sta:eAid 1,674,325 3,348,651 2,232,434 2,272,109 2,241,769 2,241,769 2,241,769 4,268,CX::O 2, 134,CX::O 2, 134,CX::O 2, 131,682 0 26,920,508 ether Ra::eir,ts 658,7fJ2. 687,841 2C6,133 l,89J,558 832,579 832,5% 2,273,876 l , 402, CX::O l , 402, CX::O 1,402,CX::O 1,402,(X}) 1,479,141 14,469,516 Traisfers In 0 0 0 0 0 0 0 0 0 0 0 0 0 PriorYearRa::eirts 3,086,751 161,614 1,002,837 528,332 125,049 103,779 135,225 4,387 4,387 4,387 4,387 4,387 5,165,520 Na:e Proceais & lrterest Earnings 5,c:67,613 0 0 0 0 0 0 0 0 0 0 131,831 5, 199,444 Ta:al Ra::eipts 1Q510,005 4,301,012 4,535,860 4,716,733 3,229,289 8,583,113 4,651,367 9,498,344 3,727,lf:15 7,013,256 4,703,549 1,695,327 67,165,029

DisbursernE!11:s

Salaries au BEllEfits 2,055,270 3,079,997 4,603,027 4,484,225 5,046,070 4,255,525 4,442,594 4,551,CX::O 4,551,CX::O 4,551,CX::O 4,551,cm 4,549,898 50,720,6(6 ether Dislurserrats 2%,548 670,695 618,582 659,656 645,020 571,939 522,459 791,CX::O 791,CX::O 791,ClX) 791,CX::O 7g),ffi2 7,939,011 T raisfers CU 0 0 0 0 0 0 0 0 0 0 0 0 0 PriorY ear Disturserrats 922,l&l 20,495 7,613 2,105 357,777 2,856 255,583 41Q242 419,242 419,242 419,242 419,242 3,664,830 Na:e PaymEJt PIEdge 0 0 0 0 0 0 2,CX::O,CX::O 0 0 2, CX::O, ClX) l, 199,444 0 5, 199,444 Ta:al Disbursemnts 3,274,007 3,771,187 5,22Q222 5,145,936 6,048,867 4,830,370 7,220,636 5,761,242 5,761,242 7,761,242 6,%0,687 5,759,202 67,523,891

NEI: lncrease;Oa::rease 7,236,078 529,825 (693,362) (429,253) (2,819,578) 3,752,743 (2,569,&>9) 3,737,101 (2,034,148) (747,'>ll) (2,257, 138) (4,c:63,875) (35~'63)

Erding Cash Q336,882 9,ffi6,707 9, 173,345 8,744,092 5,924,514 9,677,257 7,107,988 10,845,089 8,810,941 8,c:62,955 5,805,817 1,741,941 1,741,941

xx::61)7 PROJECTED CASH FLOW GENERAL FUND

July Aug_ist Septenl:xr Octoter Nc:venl:xr Ds:enrn January FEbruary March Ap-il May June Total Beginning Cash (IJ 1,741,9:1-1 7,314,553 ~OQ325 6,659,163 5,638,527 3,C09,040 6,868,421 4,393,805 8,813,(6() 7,223,957 7,056,0X> 5,259, 119 1,741,941

Ra::eipts RBIEfl.lE'Limit: Ptq)E'ltyTax 23,533 107,134 l,13Q421 26,791 31,120 5,627,030 517 3,981,c:63 19:1-,379 3,615,550 1,213,363 83,254 16,043,155 RBIEfl.lE'Limit: Sta:eAid 1,743,114 3,486,229 2,324, 153 2,365,458 2,333,871 2,333,871 2,333,871 4,443,349 2,221,674 2,221,674 2,219,262 0 28,026,525 ether Ra::eir,ts 664,413 693,710 207,892 1,9::6,689 839,683 839,700 2,293,278 1,413,%2 1,413,%2 1,413,%2 1,413,%2 1,191,762 14,292,976 Traisfers In 0 0 0 0 0 0 0 0 0 0 0 0 0 PriorYearRa::eirts 1,750,ClX) 875,CX::O 875,CX::O 0 0 0 0 0 0 0 0 0 3,500,CX::O Na:e Proceais & lrterest Earnings 5,043,250 0 0 0 0 0 0 0 0 0 0 2&>,316 5,269,566 Ta:al Ra::eipts Q224,310 5,162,073 4,546,466 4,298,938 3,3)4,674 8,8C0,601 4,627,666 9,838,374 3,830,016 7,251,187 4,846,587 1,501,331 67,132,222

DisbursernE!11:s Salaries au BEllEfits 217~721 3,M,998 4,87Q510 4,753,572 5,349,164 4,511,135 4,709,440 4,824,358 4,824,358 4,824,358 4,824,358 4,823,189 53,767,159 ether Dislurserrats 222,977 504,302 465, 118 566,CXJ2 484,997 430,034 392,842 594,761 59:1-,761 594,761 594,761 524,056 5,%9,423 T raisfers CU 0 0 0 0 0 0 0 0 0 0 0 0 0 PriorY ear Disturserrats 1,250,ClX) 625,CX::O 625,CX::O 0 0 0 0 0 0 0 0 0 2,500,CX::O Na:e PaymEJt PIEdge 0 0 0 0 0 0 2,CX::O,CX::O 0 0 2, CX::O, ClX) 1,224,375 0 5,224,375 Ta:al Disbursemnts 3,651,698 4,394,301 5,%Q628 5,319,574 5,834,161 4,941,219 7,102,282 5,41Qll9 5,419,119 7,419,119 6,643,49:1- 5,347,245 67,460,958

NEI: lncrease;Oa::rease 5,572,612 767,772 (l,423,162) (l,020,636) ( 2, 629, 487) 3,859,382 (2,474,616) 4,41Q255 (l,530,103) (167,931) (l,7%,'Ui) (3,845,914) (32~736)

Erding Cash 7,314,553 8;002,325 6,65~ 163 5,638;527 3,009,om 6,~8;421 4,393,005 &;SI 3,u3D 7,223,957 7,D56,IT83 5,259, 119 1,413,205 1,413,205

(iJ BajnnirgCash inclllli Cash BalancefranSpc'Cial Reseivefor Other Than captaJ Projects. Spc'Cial Resevecash iscarriedthrcu:joutcashflc:w, ard is irdLK:Ed inJ ure 2007 erdrg b:llance

ECONOMIC PROFILE

The inforrration in this section on the econonic profile of the area is pro.tided as supplerrentary inforrration. The District enconµasses only a portion of Alarreda County.

Introduction

Alarreda County is located on the east side of the San Francisco Bay and extends from the Cities of Berkeley and Albany in the north to the City of Fremont in the south. It is the sixth most populous county in the State, with most of its population concentrated in a highly urbanized area between the San Francisco Bay and the East Bay Hills.

The northern part of Alameda County has direct access to San Francisco Bay and the city of San Francisco. It is highly diversified with residential areas as well as traditional heavy industry, the University of California at Berkeley, the Port of Oakland, and sophisticated manufacturing, computer services and biotechnology firm,. The niddle of Alameda County is also highly developed, including older established residential and industrial areas. The southwestern corner of Alameda County has seen strong grcwth in residential development and rranufacturing. Many high-tech firm, have rno.ted frorn neighboring Silicon Valley in Santa Clara County into this area The southeastern corner of Alarreda County has seen the rmst development in recent years due to land availability. Agriculture and the rural characteristics of this area are disappearing as the region rraintains its position as the fastest graving resi den ti al , comrrerci al and i ndustri al part of A I ameda County.

Population

The fol Io.vi ng table surnrnari zes population figures for the County.

2CXXJ 2001 2002 2003 2004 2005 20C6

ALAMEDA COUNTY Population

Source AdjustedJanuaJY l estimates provided by t~ State Departrrent of Finan:::e.

31

1.443.741 1.465.CXXJ 1.481.S\XJ 1.487.700 1.4%.%8 1.500.228 1.510.303

EmplO(ment

The follo.ving table sumnarizes employment and unerrplO{ment in the Oakland---fremont­Hayward Metropolitan Division, which includes Alameda County.

OAKLAND MSA Civilian Labor Force, Employment and Unemployment

Annual Averages

Civilian Lai:xJr Force(aJ E mpl oyrrent U ~mpl oy m::nt

Total

U ~rrployrrent Rate(bJ

2001

1,228,800 57 S\XJ

1,286,700

4.5%

10 (bi

Based on place of residerr::e; March 2005 Berr::hmark. T~ u~mploym::nt rate is calculated using unroun:led data

2002 2003

1,206,200 1,188,500 81800 84 300

1,288,600 1,272,800

6.4% 6.6%

Source California E mployrrent De.;eloprrent Departrrent, Lai:xJr Market Information Division

2004 2005

1,186,400 1,1%,200 72 S\XJ 63 500

1,259,300 1,259,700

5.8% 5.(1?6

The follo.ving table summarizes the historical nurrbers of workers in the Oakland Metropolitan Statistical Area, which is comprised of l:x:Jth Alameda and Contra Costa Counties, by industry.

OAKLAND MSA Estimated Number of Wage and Salary Workers by I ndustry1~

(in thousands)

2001 2002 2003

Agricultural 3,000 3,000 2,600 Natural Resources an::! Minitl'J 1,600 1,200 900 Constru:::tion 69,700 66,600 67,100 M anufacturi tl'J 113,200 103,600 98,600 Trade, Transrx,rtation an::l Utilities 210,600 204,600 197,200 Information 37,700 35,200 32,600 Finan:::ial Activities 58,600 62,500 67,700 Professional an::l Busi~ssServices 159,600 149,600 144,S\XJ Edu:::ational an::l Health Services 112,500 114,700 117,600 Leisure and Hospitality 77,S\XJ 79,S\XJ 80,400 Ot~r Services 35,800 37,800 37,500 G overnrrent 178 800 184 200 182 300

2004

1,500 1,200

69,800 98,200

193,800 31,300 67,600

147,700 117,200 80,600 36,600

179 700 Total All Industries 1,057,800 1,042,800 1,028,200 1,025,200

2005

1,500 1,100

74,600 95,400

195,200 30,400 70,500

150,600 118,600 82,600 35,800

180600 1,035,800

(aJ T~ in:lustty employrrent data are rDN based urx,n t~ North Arrerican I n:lustty Classification System (NAI CS). N6iVly released data are mt comparable tot~ data based on t~ Standard I n:lustrial Classification (SIC). Items may mt add to totals dLe to in:le~n:lent roun:litl'J. March 2005 Benchmark

Source California E mployrrent De.;eloprrent Departrrent, Lai:xJr Market Information Division.

32

Major Employers

The follo.ving table summarizes the major employers in the County:

Employer

Ne.;v United Motor Manufacturitl'J Lawrerr::e Berkeley National Lab Coo~r Co's Irr::. Kai ser F oun:lati on Hospital s Alarreda County

Oracle Corp. (PeopleSoft)

University of California FalxoAutotTDtive Corp. PG&E East Bay Regional Headquarters Federal Express Corp. Children's Hospital & Research Sybase In::. AltaBatesSummitMedical Center

Clorox Co.

W ashi tl'Jton T ONnshi p Health:::are Eden Medical Center San:lia National Lai:xJratories Per~nte Medi cal Group

Chi ran Corp.

Sysco Focd Services

Prcduct5etvice

ALAMEDA COUNTY M ajar Employers

Manufactures autotTDbi I es & tru:::ks Comrrercial research & developrrent; multi--prcgram national lai:xJratoty Manufa:::tures contact lenses; manufactures gynecolcgical supplies & applian::::es Medical h:Jspitals County governrrent De.;elops prepackaged software for human resources & finan:::ial, manufacturitl'J & hig~r edu:::ation applications 4year university Manufactures ITTJtor vehicles axles Busi~ss consultitl'J services Air courier services; groun:l courier services Medical h:Jspital Computer integrated systems design services Medical mspital Manufactures rx,lis~s & sanitation agents, I ighter fluid, charcoal, prepared seasonitl'JS & sau:::es Medical h:Jspital Private h:Jspital & rredical center Norr::omrrercial research & developrrent lai:xJratories Medical facilities Manufactures pharmaceutical preparations; rmnufactures biolcgical vacci~s & ot~r immunizing prcdu:::ts; rmnufactures diagnostic substan::::es Distributesge~ral li~groceries

Source 2005 Harris I nfoSource; FebruaJV 20C6.

33

Employees

7,0CIJ 5,0CIJ 4,0CIJ 3,857 3,5%

3,'ID

3,440 2,'ID 2,'ID 2,477 2,300 2,100 1,746

1,555

1,225 1,218 1,200 1,140

1,025

1,025

Construction Activity

The fol Io.vi ng table summarizes historical residential bui I ding perni t valuation forthe County.

(al As of J anuaJV l.

2001 2002 2003 2004 2005

(bJ DC€s mt irr::I We alterations an::l additions. (cJ lnclu::lesall residential builditl'Jactivity.

ALAMEDA COUNTY Residential Building Permit Valuation

(Dollars in Thousands)

3.249 3.555 4.469 5.378 4.376

Source "California B uilditl'J Permit Activity," Ecommic Scierr::es Corrx,ration.

Commercial Activity

Val uati orfcl

$ 665.961 889.870 942.388

1.180.179 1.008.662

The fol Io.vi ng table summarizes historical taxable transacti ans in the County.

Source State Board of Equalization.

2000 2001 2002 2003 2004

ALAMEDA COUNTY Taxable Transactions (Dollars in Thousands)

40.866 41.709 41.430 42.550 42.939

34

Taxable Transactions

$23.763.516 22.758.085 21.264.629 21.375.029 22.996.365

LEGAL MATTERS

Tax Matters

In the opinion of Jones Hall, A Professional LiM' Corporation, San Francisco, California, Bond Counsel, suqject, hcwe..rer, to the qualifications set forth belcw, under existing law, the interest on the Notes is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporati ans, pro.tided, ho.ve..rer, that, for the purpose of computing the alternative mini mum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in deternining certain income and earnings. The Notes are "qualified tax-exempt obligations'' within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986 (the "Code"), and, in the case of certain financial institutions (within the meaning of Section 265(b)(5) of the Code), a deduction is allo.ved for eighty percent (8036) of that portion of such financial institutions' interest expense allocable to interest on the N ates.

The opinions set forth in the preceding paragraph are suqject to the condition that the District compiies with all requirements of the Code that must be satisfied subsequent to the issuance of the Notes in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The District will comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Notes. Bond Counsel expresses no opinion regarding other federal tax consequences arising with respect to the Notes.

In the further opinion of Bond Counsel, interest on the Notes is exempt from California personal i ncome taxes.

Purchasers should be .M'are thatthe Internal Re..renue Service has issued Notice 94-84which may have certain tax ranifications with respect to the Notes. This Notice pro.tides generally that, in the case of short-term tax-exempt obligations, such as the Notes, the Internal Revenue Service is studying whether interest payable at maturity on the obligations should, or should not, be included in stated redemption price at maturity, for purposes of the Rule, that original issue discount represents the excess of the stated redemption price at maturity ewer issue price.

Notice 94-84 states that until the Internal Re..renue Service pro.tides further guidance, taxpayers may treat stated interest on certain short-term obligations, such as the Notes, either as includable in stated redemption price at maturity or as not included in stated redemption price at maturity. A taxpayer, ho.vever, must treat stated interest payable at maturity on all short-term tax-exempt bonds in a consistent manner. A short-term tax-exempt bond is defined as a tax-exempt bond with a term that is not more than 1 year from the date of issue.

Purchasers of the Notes are cautioned that the opinion of Bond Counsel does not identify the amount of interest that is excluded from gross income for federal income tax purposes.

Purchasers of the Notes should consult theirtax adJisors regarding effects of Notices 94-84 upon individual tax circumstances.

35

Owners of the N ates should al so be .M'are that the o.vnershi p or di sposi ti on of, or the accrual or receipt of interest on, the Notes may have federal or state tax consequences other than as described alx:we. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Notes other than as expressly described alx:we.

Legality for Investment in California

Under the pr0.tisions of the Financial Code of the State, the Notes are legal investments for commercial banks in the State to the extent that the Notes, in the informed opinion of the bank, are prudent for the investment funds of its depositors, and under pr0.tisions of the G0.ternment Code the Notes are eligible to secure deposits of public moneys in the State.

No Litigation

No litigation is pending or threatened against the District concerning the validity of the Notes of the District and a certificate of the District to that effect will be available at the time of original delivery of the Notes. The District is not .M'are of any litigation pending or threatened questioning the political existence of the District or contesting the District's ability to collect or receive the Pledged Revenues, or contesting its ability to pay the principal of and interest on the Notes.

There may be one or more lawsuits and claims pending against the District. The aggregate amount of the uninsured liabilities of the District, and the timing of any anticipated payments of judgments which may result from suits and claims will not materially affect the finances of the District or impair its ability to repay the Notes. A certificate of the District to this effect will be available at the time of original delivery of the Notes.

Legal Opinion

The opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel to the District with respect to the Notes, appr0.ting the validity of the Notes and stating that, in the opinion of Bond Counsel, interest on the Notes is excluded from gross income for federal income tax purposes and is exempt from personal income taxation by the State will be pr0.tided free of charge to the purchasers at the time of the original delivery of the Notes. See" APPENDIX B - FORM OF LEGAL OPINION."

MISCELLANEOUS

Rating

Standard & Poor's has assigned its municipal note rating of "SP-1+'' to the Notes. Such rating reflects only the views of such organization and any desired explanation of the significance of such rating should be obtained from the rating agency at the follo.ving address: Standard & Poor's, 55 Water Street, New York, NY 10044.

Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies, and assumptions of its o.vn. Certain information pr0.tided by the District to Standard & Poor's does not appear in this official statement. There is no assurance that a rating assigned

36

will continue for any given period of time or that a rating will not be revised dcwnward or withdriM'n entirely b,I a rating agency, if in thejudgment of the rating agency, circumstances so warrant. Any such dcwnward revision orwithdr.M'al of a rating may have an ad.terse effect of the market price of the Notes.

Financial Advisor

The District has entered into an agreement with Kelling, Northcross & Nobriga, A Division of Zions First National Bank, whereunder the Financial Advisor pr0.tides financial recommendations and guidance to the District with respect to preparation and sale of the Notes. The Financial Ad.tisor has read and participated in the drafting of certain portions of this Official Statement and has supervised the corrpl eti on and edi ti ng thereof. The Financial A cf.ti sor has not audited, authenticated or otherwise verified the information set forth in the Official Statement, or any other related information available to the District, with respect to accuracy and completeness of disclosure of such information, and the Financial A cf.ti sor makes no guaranty, warranty or other representation respecting accuracy and completeness of the Official Statement or any other matter related to the Official Statement.

Underwriting

Pursuant to the terms of a public bid dated June 21, 2006, Morgan Stanley DW Inc., as underwriter (the "Underwriter"), has agreed to purchase the Notes from the County on behalf of the District at the purchase price of $5,036,800. The Underwriter has represented to the District that the Notes were reoffered to the public at the price or yield set forth on the c0.ter page of this Official Statement, at an aggregate reoffering price to the public of $5,043,250. Based on these representations, the Underwriter's corrpensation was $$6,450. The Underwriter will be obligated to take and pay for all of the N ates, if any Note is purchased.

Continuing Disclosure

The District has c0.tenanted for the benefit of holders and beneficial o.vners of the Notes to pr0.tide notices of the occurrence of certain enumerated events, if material. The notices of material events will be filed b,I the District with each Nationally Recognized Municipal Securities Information Repository (NRMSIR) or with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). The specific nature of the information to be contained in the notices of material events is set forth in APPENDIX C - FORM OF CONTINUING DISCLOSURE CERTIFICATE. The c0.tenant has been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). The District has never failed to comply in all material respects with any previous undertakings with regard to said Rule to pr0.tide annual reports or notices of material events.

37

Additional Information

The purpose of this Official Statement is to supply information to prospective buyers of the Notes. Quotations from and summaries and explanations of the Notes, the Resolutions pro.tiding for issuance of the Notes, and the documents, statutes and constitutional prcwisions referenced herein, do not purport to be complete, and reference is made to said documents, statutes, and constitutional prc:wisions for full and complete statements of their prc:wisions. This Official Statement has been revie.ved and apprc:wed b,I the District.

SAN LEANDRO UNIFIEDSCHOOL DISTRICT

By: ;S/Leon Glaster Assistant Superintendent

38

APPENDIX A

EXCERPTS FROM 2004;05AUDITED FINANCIAL STATEMENTS

Appendix A

PERRY-SMITH'°'LLP ACCOUNTANTS

SAN LEANDRO UNIFIED SCHOOL DISTRICT

COUNTY OF ALAMEDA

SAN LEANDRO, CALIFORNIA

FINANCIAL STATEMENTS

WITH SUPPLEMENTARY INFORMATION

FOR THE YEAR ENDED JUNE 30, 2005

AND

INDEPENDENT AUDITOR'S REPORT

****-',* ~ -0 1 c, 1

Experience. Capacity. Perspective.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION

For the Year Ended June 30, 2005

TABLE OF CONTENTS

Independent Auditor's Report

Management's Discussion and Analysis

Basic Financial Statements:

Government-Wide Financial Statements:

Statement of Net Assets

Statement of Activities

Fund Financial Statements:

Balance Sheet - Governmental Funds

Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets

Statement of Revenues, Expenditures and Change in Fund Balances - Governmental Funds

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

Statement of Revenues, Expenditures and Change in Fund Balance -Budget (Non-GAAP) and Actual - Major Fund - General Fund

1-2

3-9

10

11

12

13

14

15

16

Statement of Fund Net Assets - Proprietary Fund - Self-Insurance Fund 17

Statement of Revenues, Expenses and Change in Fund Net Assets Proprietary Fund - Self-Insurance Fund 18

Statement of Cash flows - Proprietary Fund - Self-Insurance Fund 19

Statement of Fiduciary Net Assets -Agency Funds 20

Notes to Basic Financial Statements 21-40

SAN LEANDRO UNIFIED SCHOOL DISTRICT

FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION

For the Year Ended June 30, 2005

Supplementary Information:

TABLE OF CONTENTS (Continued)

Combining Balance Sheet - Alt Non·MaJor Funds

Combining Statement of Revenues, Expenditures and Change in Fund Balances - All Non-Major Funds

Combining Statement of Changes in Assets and Liabilities - Agency Funds

Organization

Schedule of Average Daily Attendance

Schedule of Instructional Time

Schedule of Expenditure of Federal Awards

Reconciliation of Unaudited Actual Financial Report with Audited Financial Statements

Schedule of Financial Trends and Analysis

Schedule of Charter Schools

Notes to Supplementary Information

Independent Auditor's Report on Compliance with State Laws and Regulations

Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

Independent Auditor's Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMS Circular A-133

Findings and Recommendations:

Schedule of Audit Findings and Questioned Costs

Status of Prior Year Findings and Recommendations

41

42

43-44

45

46

47

48

49

50

51

52

53-54

55

56-57

58-67

68-69

(THIS I' AGE INTENTIONALLY LEFT BLANK)

PERRY-SMIT~ ACCOUNfAt\TS

INDEPENDENT AUDITOR'S REPORT

Board of Trustees San Leandro Unified School District San Leandro, California

400 Capitol Mall, Suite 1200 Sacramento, CA 95814

www perry·s111ith com 916.441.1000

We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of San Leandro Unified School District, as of and for the year ended June 30, 2005, which collectively comprise San Leandro Unified Schoo! District's basic financial statements as listed in the Table of Contents. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of San Leandro Unified School District as of June 30, 2005, and the respective changes in financial position and cash flows, where applicable, for the year then ended, in conformity with acoounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated January 13, 2006 on our consideration of San Leandro Unified School District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

Management's Discussion and Analysis is not a required part of the basic financial statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principalty of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

p ER _f:?Y-S i\11 :-:-h"'L1.f' ACCOUNTANTS

INDEPENDENT AUDITOR'S REPORT (Continued)

Our audit was conducted for the purposes of forming opinions on the financial statements that collectively comprise San Leandro Unified School District's basic financial statements. The accompanying financial and statistical information listed in the Table of Contents, including the Schedule of Expenditure of Federal Awards, which is required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the basic financial statements of San Leandro Unified School District. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

Sacramento, California January 13, 2006

LEARNING TO MME UllfFEREHCE

SAN LEANDRO UNIFIED SCHOOL DISTRICT CHRISTINE LIM, SUPERINTENDENT 14735 Juniper Street

San Leandro, CA 94579

Members of the Board: Stephen Cauidy Pauline Cutter Ray Davis Lisa Hague Louis Heystek Linda Perry Rick Richards

Management's Discussion and Analysis

The San Leandro Unified School District is located in Alameda County. The District currently operates 14 schools, consisting of 8 elementary school (grades K-5), 2 middle schools (grades 6-8), 1 comprehensive high school {grades 9-12). 1 continuation high school, 1 adult school and 1 independent study program. As of June 301h, 2005, the District employed on a regular basis 700 certificated e1nployees and 449 classified employees.

Student enrollment for grades K-12 has been growing for lhe last 3 years. For the 2004-2005 school year the District's October enrollment \Vas 8,894. More than 44 percent of Lhc Dislricl's sludents are eligible fOr free and reduced priced meals. The District serves a diverse student population and students speak more than 40 languages.

Mission Statement and Strategies

On April 16, 1996 the Board of Trustees for the San Leandro Unified School District adopted a new Mission Statement. This statement states:

The mission of the San Leandro Unified School District is to educate students to achieve and demonstrate academic excellence and become conful.ent, collaborative and competitive in a global society, by utilizing state-of-the-art technologies and imwvative teaching strategies within a well-maintained, secure learning environment~ in a region rich in heritage and diverse in culture, where we value our traditions while welcoming change.

3

Coupled with this mission statement are the following Strategies:

We will develop and implement an innovative curriculum, including technology, while emphasizing character development.

» We will develop and implement an innovative curriculum, including technology, while emphasizing character development.

» We will develop and implement systematic, ongoing methods of assessment at major transition points which measure students' progress toward achieving academic excellence.

> We will design and implement a staff development program that affects the changes essential to the achievement of the mission.

» We will reach out and actively involve families and the entire community to educate our children.

» We will develop and implement means to ensure that our facilities meet our students' needs.

» We will secure funding and resources necessary to fulfill our mission and objectives.

> We will implement, periodically update and measure objectives of the technology plan(s) adopted by SLUSD.

This Mission Statement and Strategic Plans are the basis and guiding prtnctples for the District.

FINANCIAL INFORJ\'1ATION OF THR SCHOOL DISTRICT

Financial Reports

ln June 1999, the Governmental Accounting Standards Board (GASB) issued Statement No. 34, Basic F'inanci.al Slal..ements-and Management's Discussion and Analysis-For Stale and Local Governments. This new standard significantly changed t11e way school distrtcts report their finances to the public. The focus of financial reporUng is now on the overall status of the local educational agency"s (LEA) financial health instead of on the individual funds.

Fiscal year 2002-2003 was the first year lhe District has accounted for the value of fixed assets and included these values as part of the financial statements. For the first time we displayed the value of all assets including buildings, land, equipment, and depreciation. Net assets, the difference between the District's assets and liabilities, are one way to measure the District's fmancial health or position. Over time, increases or decreases in the Distrtct's net assets are one indicator of whether its :financial position is improving or declining.

4

Financial Condition of the General Fund

The ending balance for the San Leandro Unified School District has decreased in 2004-05 due lo expending of beginning balance funds. Public education received a cost of living increase in 2004-2005 and the San Leandro Unified School District received a cost of living allowance (COLA) per unit of Average Daily Attendance (ADA) of $117 in revenue limit income. While revenue lintlt amounts vruy throughout the State, the District is now funded slightly below the "average revenue limit per ADA" for unified districts in California. Since revenue limit income is 1nore than ninety percent of the entire unrestricted budget, the District is hard pressed to cover cost increases for employee salaries and benefits, other fixed costs and also consider new programs. The following tables summarize fund balance changes and operational fund financial statements:

June 30, 2004

Revenues $ 55.604,550

Expenditures (54,771.267)

Difference , $ 833,283

June 30, 2005

$ 57.898.808

$ (58.106,771)

$ (207,963]

Change in Fund Balance

Fund Balance dune 30, 2004 $ 2.055.104 Fund Balance dune 30, 2005 $ 1.847.141

Chan<>'e S {207.963)

Statement of Net Assets

The Sraternent of Net Assets for the 2004-2005 year shows the District's net assets as 836,713,l 12. This arnount includes the value of the land, buildings, and equiptnent {less depreciation) owned by the District as well as all liabilities such as bond repayn1ent obligations. The table belmv summarizes the change in net assets from 2003-2004 to 2004-2005.

Assets

Statement of Net Assets June 30, 2004 June 30, 2005

$ 96,442,496 $ 101.518,952

Llahillties $ 61,660,312 S 64,805,840

Endinrs Net Assets $ 34,782, 184 S 36,713, 112

5

Capital Assets

The net Capital Assets as of June 3Qth, 2005 are $68,921,610. Tilis represents an increase of 810,305,918 over the piioryear. This increase is from the District Modernization Projects and Building Projects.

Long-Term Liabilities

The Long-Tenn Liabilities as of June 30th, 2005 is $53,617,535. This represents a decrease of $454,879 over the prior year. This decrease is from principal payments on outstanding debt instruments.

Statement of Activities

The Statement of Nei Activities for the 2004-2005 audil show the District's change in net assets as $1, 930. 928 for Governmental Activities.

6/30/04 6/30/05 Proi;,-am Revenues $38,448,406 818,915,371 General Revenues 48,646,052 52,037,259 Expenses 63,319,256 69,021,702 Change in Net Assets $23,775,202 $1,930,928

General Fund Revenues

Most of the District's General Fund revenue is generated from the District's revenue limit, which yields funds based on a state-delerm:ined dollar amount times the average number of students who are in attendance {ADA) throughout the school year. Public education-~unlike any other public agency--receives most of its revenue based on the population it serves.

The second biggest source of revenue is State categorical income that must be spent for selected State-detennined progrruns. lhe two largest categorical programs, son1etimes called "restricted progra:n:1-<;;," are funding for a portion of Special Education services and the K-3 Class~Size Reduction eflOrts.

Federal income is a small portion of the entire district income. Again, most of the Federal income is restricted since it n1ust be expended for purposes that are determined by the grantor and not the local Board of Education.

The District's total resources for expenditure in the budget year include a ~beginning balance," which ret1ects a carryover of unexpended balances from the prior year.

6

Sources Available Revenue Limit $42,047.061 Federal Revenue 3,187,330 Other State Revenue 8,381.497 Local Revenue 4,000,923 Other Financing Sources 281,997

Total Revenue $57,898,808 Beginning Fund Balance 2.055,104

Total General Fund Sources $ 59,935,912

Sources of Revenue Local

Other State Revenue \

15% I

Federal Revenue

6%

General Fund Expenditures

Revenue 7%

' Revenue limit

72%

Employee salary and benefit costs consume 850/o of the District's general fund expenditures. Over 69% of the District's expenditures go directly Lo the classroom for instructional salary and benefit costs. ·

A significant portion of California school district income is restricted income and, as such, can only be expended for selected purposes as determined by the granting agency. The balance of the District's inco1ne is unrcstrtcted since it can be expended as detcrnlined by the local agency for general educational purposes.

General Fund Expenditures Salartes and Benefits $ 49,277,399 Books and Supplies 1.655, 127 Operating Costs 5,302,921 Capital/Other 1.871.324

Total Expenditures $58.106.771

7

Expenditures by Object

Operating Expemses Capital/Other 9% ---, 3%

I

"'

Expenditures by Function

Plant Ser.ices Otller Outgo General l0% 2%

Pupil Seruces

S%

lnstruction-Rela!e<:I I Ser.,ces _,.

10%

General Fund Budget versus Actuals

General Fund

Actuals

Revenues s 57,898.808

Expenditure;; $ {58,106,771)

Difference s (207,963)

Budget vs. Actual

Budget

$ 58,418,026

$(59,524,598)

$ {1,106,572)

$ $

$

Instruction 69%

Difference

{519,218)

1,414,827

898,609

The District's Net Increase in General Fund Balance was favorable to the Budget by $898,609. TI1e majority of this was from deferred restricted revenues and categorical progrrun under spending. These will cany forward to the next fiscal year.

8

Factors Bearing on the District's Future

The State of California continues to have a structural budget deficit. The current budget proposal for next year is balanced using beginning balance and prior year borrowing. While the state revenues are expected to increase 4.4%J, expenditures are increasing 8.8%. This combination makes the state budget volatile in tenns of risk. The District Budget is dependant upon State funding, over 840/o of the Dislricts funds are determined by the State.

The District receives most ofit funds based upon student daily attendance {A.D.A). In 2005~06, the District has declined in enrollment and the corresponding attendance. Tilis decline will result in a significant revenue reduction in the 2006-07 school year. Additionally, the District currently receives the approximate average State revenue limit per A.D.A. for unified districts. Declining enrollment and averctge funding will challenge the District's ability to balance expendilures to maintain quality programs and enhance employee compensation.

The District is going forward with a Parcel Tax in April 2006 to increase local funding for educational programs.

Contacting the District's Financial Management

If you have any questions regarding this report or need additional .financial information, contact Bruce E. Colby, Business Manager, {510) 667-3501.

9

BASIC FINANCIAL STATEMENTS

SAN LEANDRO UNIFIED SCHOOL DISTRICT

STATEMENT OF NET ASSETS

ASSETS

Cash and investments (Note 2) Accounts receivable:

Federal government State government Local government and other

Prepaid expenditures Stores inventory Capital assets, net of accumulated

depreciation (Note 4)

Total assets

LIABILITIES

Accounts payable Deferred revenue

June 30, 2005

Tax and Revenue Anticipation Notes (TRANs) payable (Note 2) Claims liabilities (Note 9) Long~term llabil!ties (Note 5):

Due within one year Due after one year

Total liabilities

NET ASSETS

Invested in capital assets, net of related debt Restricted (Note 6) Unrestricted

Total net assets

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

10

$

i

Governmental Activities

23,792,457

1,058,774 6,667,501

279,122 746,243

53,245

6f! 921 §:1Q

101 518 952

3,916,134 408,963

6,694,458 168,750

1,902,144 51715391

64805840

18,135,687 18,481,812

95613

36 713 112

Governmental activities (NOW 4): Instruction Instruction-related services

Supervision of instruc6on lnstructlonal library, rne<lta and

technology School site administration

Pupil services: Home-to-school trarisportabon Food services All other pupil seMoos

General administration: Data processing All other general admmis!ration

Plant services Enterpnse activities Interest and other charges

on long·term liabilities Other outgo

Total governmental activities

SAN LEANDRO UNIFIED SCHOOL DISTRICT

STATEMENT OF ACTIVmES

For the Year Ended June 30, 2005

Program Revenues Operating

Grants and Contributions

42,286,770

1,612,275

539,390 4,522.419

677,397 2,211,845 1,955,403

313,904 2,530,362 B.097,220

535,311

2,694,455 1044951

69021 702

General revenues: Taxes and subventions:

696,033

50,176

~211

Taxes levied for general purpooes Taxes levlml for debt seIVice Taxes !!Mml for other specific purposes

6,567,640

1,014,228

4,136 121,281

244,068 1,376,769

296,428

6,567 616,496 365,382

9052,l§

1ij7~,il:~Q

Federal and State aid not restricted 1l;I specific purposes lnterast and investment earnings Misaillaneous

Total general revenues

Change In net assets

Ne! assets, July 1. 2004

Net assets, June 30, 2005

The acoompanying notes are an Integral part of t11ese financial statements.

11

$

Capital Grants and

Contributions

4,224,930

4 224 930

$

Net (ExptH1$e) RtwMlueaand

ChanlJE!li In Net Asl!AA!

Govemmoota! Actrvrues

(29,474,200)

(598.047)

(535,254) (4,401,138)

(433,329) 62,957

(1,858,975)

(305,337) (1.661,686) (7,731,838)

(535,311)

(2,694,455) 1139716)

(50 106 331)

15,736,454 2,790,793

8205 31,886,$11

493,742 1121454

52Q37259

1,930,928

34 762184

36713112

ASSETS

Cash and investments: cash in County Treasury Cash In revolving fund Gash with Fiscal Agent Local Agency Investment Fund

Accounts receivable: Federal government State govemmenl Local government and other

Due from other funds Stores Inventory

Tota! assets

LIABILITIES AND FUND BALANCES

Liabilities: Accounts payable TRANs payab~ Deferred revenue Due to other funds

Total liabilities

Fund balances

Total liabmt.ies and fund balances

SAN LEANDRO UNIFIED SCHOOL DISTRICT

BALANCE SHEET

GOVERNMENTAL FUNDS

June 30, 2005

General Obligation Capital

General Sood FacilitlG$ Fund Fund EYDd

$ 306,451 $ 4,451,997 $ 78,501 40,000

6,694,458 116,248 3,665,735

725,225 4,151,285

181,017 6,994 69,573 107,762 225,688

231

I 12 2064ZiJ I 4 §§4 §Ill 3 230 Q57

• 2,189,451 • 916,682 $ 164,211 6,694,458

272,547 1 202 §32: § 104

10,359,288 922,786 164,211

1 MZHl 3Z61 !U!:a 3 7§!:j 646

$ 12 206 429 I 4 684 679 • 3 930 057

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

12

$

I

$

I

All Total Non-Major Governmental

Funds Funds

7,687,462 $ 12,524,411 40,000

6,810,706 3.665,735

333,549 1.058,774 2,516,216 6.667,501

20,432 278,016 834,423 1,167,873

53014 53245

1144509§ $ 32 266 261

575,540 $ 3.845,884 6,694,458

136,416 408,963 322 2!t6 1 536 232

1,039,252 12,485,537

lQ4Ql:is!~ 19 780 724

11445 096 32 266 261

SAN LEANDRO UNIFIED SCHOOL DISTRICT

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

June 30, 2005

Tota! fund balances • Governmental Funds

Amounts reported for governmental activities In the statement of net assets are different because:

Capital assets used for governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of the assets is $109,453,576 and the accumulated depreciation is $40,531.966 (Note 4).

Long-term liabilities are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term liabilities at June 30, 2005 consisted of (Note 5):

Capitalized lease obligations $ General obligation bonds Accreted interest Certificates of participation Compensated absences

Unamortized costs associated with the Issuance of long-term liabilities are not financial resources and, therefore, are not reported as assets in governmental funds.

Internal service funds are used to conduct certain activ~ies for which costs are charged to other funds. Assets and liabilities are reported with governmental activities in the statement of net assets.

Total net assets - governmental activities

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

13

$

1,749,649 47,226,274

2,367,542 1,810,000

464 070

I

19,780,724

68,921,610

(53,617,535)

746,243

882 070

~ Zj31j2

SAN LEANDRO UNIAED SCHOOL DISTRICT SAN LEANDRO UNIFIED SCHOOL DISTRICT

STATEMENT OF REVENUES, EXPENDITURES AND RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES CHANGE IN FUND BALANCES- GOVERNMENTAL FUNDS -

GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES

For the Year Ended June 30, 2005 For the Year Ended June 30, 2005

General Net change in fund balances - Total Governmental Funds $ (9,120,919) Ob!igatlon Capita! All Total

Ganeral Bond Facl!itles Non.Major Governmental Amounts reported for governmental activities in the statement Fund Fund Fund Funds Fundt of activities are different because:

Revenues: Revenue !imlt sources: Proceeds from the issuance of long-term liabilities are

State apportionment $ 26,565,710 $ 5,873,616 $ 32,439,326 recognized as other financing sources in governmental Local sources 15481 35j 15481 351 funds, but increases the long-term liabilltles in the

statement of net assets (Note 5). $ (9,997 ,246) Total revenue limit 42 047 061 5 873 616 47 920 677

Federal sources 3,187,330 1,975,184 5,162,514 Accretion of interest on General Obligation Bonds is not

Other State sources 8,381,497 538,696 8,920,195 recorded in the governmental funds, but Increases the

Other local sources 4 000 923 s 520 220 I 526 918 3 932 609 8 980 670 long-term liabilities in the statement of net assets (Note 5). (867,143)

Total revenues §7616811 520 ?.6Q 52!2 918 12 320 1Q7 70 984 056 Repayment of principal on long-term liabilities Is an expend· iture in the governmental funds, but decreases the long~term

Expenditures: liabilities in the statement of net assets (Note 5). 11,506,605 Certificated salaries 34,325,131 960,653 35,285,784 Classlfled salaries 7,140,479 243,181 64,209 1,199,237 8,647,106 Net revenues of internal service funds are reported with Employee benefits 7,811,789 15,783 16,319 453,493 8,297,384 governmental activities in !he statement of activities. 334,727 Books and supplies 1,655,127 71,934 46,856 1,442,432 3,216,349 Contract servk:es and operating Acquisition of capital assets is an expenditure In the

expenditures 5,302,921 464,940 202,376 970,085 6,940,322 Capital outlay 142,517 8,618,497 129,287 4,284,943 13,175,244 governmental funds, but increases capital assets in

Other outgo 909,297 909,297 the statement of net assets (Note 4). 12,587,653

Debt service; Principal retirement 26,068 9,720,000 576,882 1,183,655 11,506,605 Depreciation of capital assets is an expense that ls not Interest 4 223 255 310 14961§§ l 755 721 recorded in the governmental funds (Note 4). (2,281,735)

Total expenditures 57 317 552 19134 335 1 29;1 239 11990686 89 733 812 Amortization of debt Issuance costs is an expense that Is

Excess (deficiency) of revenues not recorded in the governmental funds. (43,677)

over (under) expenditures 299 259 (18614115) (764 3211 329 421 (18 749 756) In the statement of activities, expenses related 10 compen~

Other financing souroos (uses): sated absences are measured by the amounts earned Operating transfers in 199,751 420,810 620,561 during the year. In the governmental funds, expenditures Operating transfers out (789,219) (199,751) (988,970) are measured by the amount of financial resources used Proceeds from capitalized lease (Note 5). £187 337) 11051847

obllgations 82,246 82,246 Proceeds from issuance of General Change in net assets of governmental activities • 1930928

Obligation Bonds 9 915 000 9 915 ooo Total other financing so1.1rces {uses} (1227 222) 9 915 000 221 O:ill: 9 628 837

Net change in fund balances (207,963) (8,699,115) (764,321} 550,480 (9,120,919)

Fund balances, July 1, 2004 i0;55 :!~ 12461008 4530167 98553§.i 28 901 643

Fund balances, June 30, 2005 s 1 847141 I 3761893 I 3 765 846 ' 10405 844 19 780 724

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

14 15

SAN LEANDRO UNIFIED SCHOOL DISTRICT

STATEMENT OF REVENUES, EXPENDITURES ANO CHANGE IN FUND BALANCE • BUDGET (NON-GAAP) AND ACTUAL

MAJOR FUND • GENERAL FUND

For the Year Ended June 30, 2005

Buda!:!

Q[igini'!! El!!al Revenues:

Revenue limit sources: State apportionment $ 20,402,345 ' 26,631,193 Local sources 21 1a§ oog 15476~0

Total revenue limit 41589245 42 107 693

Federal sources 2,978,468 3,590,034 Other State sources 7,149,526 8,731,145 Other local sources a !124 018 3 a28 §6a

Total revenues 55241317 58 257 540

Expenditures: Certificated salaries 33,175,755 34,524,167 Classified salaries 7,121,387 7,098,811 Employee benefits 7,451,518 7,866,402 Books and supplies 1,480,079 2,825,558 contract services and operating

expenditures 5,739,416 5,696,487 Capital outlay 62,795 57,537 Other outgo 918,300 918,348 Debt service payments:

Principal retirements 17,154 Interest 2538

Tot.al expenditures :& 949 2§Q 59 OQ7 002

• 1685 of revenues (under) over expenditures (707 933) (749 4621

Other financing sources (uses): Operating transfers in 352,125 160,486 Operating transfers out (158,431) (517,596) Proceeds from capitalized leases

obligations

Total otherftnancing sources (uses) 193!;!9!1: l32711Q)

Net change in fund balance

Fund balances, July 1, 2004

Fund balances, June 30, 2005

(514,239) (1,106,572)

2Q52 l~ 2 Q55 :lQ4

' 1540865 I 948 532

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

16

Actual

$ 26,565,710 15481351

42 Q47 0§1

3,187,330 8,381,497 4 000 223

57§1§811

34,325,131 7,140.479 7,811,789 1,655,127

5,302,921 142,517 909,297

26,068 4223

57 317 2§2

299 259

199,751 (789,219)

82246

£l;!Q7 222)

(207,963)

2 05§ 104

I 1847141

Variance Favorable

{Unfavorable)

' (65,483) 4851

IBO 6321

(402,704) (349,648) 172 255

(640 729)

199,036 (41,668) 54,613

1,170,431

393,566 (84,980)

9,051

(8,914) {1 685)

1689450

1 048 721

39,265 (271,623)

82246

/150112)

898,609

I 898 609

SAN LEANDRO UNIFIED SCHOOL DISTRICT

STATEMENT OF FUND NET ASSETS· PROPRIETARY FUND

SELF-INSURANCE FUND

June 30, 2005

ASSETS

Cash in County Treasury Accounts receivable:

Local government and other Due from other funds

Total assets

LIABILITIES

Accounts payable Due to other funds Unpaid daims and claim adjustment expenses

Total liabilities

NET ASSETS

Restricted

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

17

$ 751,605

1,106 368 410

11211~1

70,250 51

168 750

239 051

$ 882 070

SAN LEANDRO UNIFIED SCHOOL DISTRICT

STATEMENT OF REVENUES, EXPENSES ANO CHANGE IN FUND NET ASSETS~ PROPRIETARY FUND

SELF~NSURANCE FUND

For the Year Ended June 30, 2005

Operating revenues: Self-insurance premiums

Operating expenses: Classified salaries Employee benefits Books and supplies Contract services

Total operating expenses

Operating loss

Non-operating revenue: interest income Other local revenue lnterfund transfers

Total non-operating revenue

Increase in net assets

Total net assets, July 1, 2004

Total net assets, June 30, 2005

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

18

$ 938 686

2,042 424

11,542 993 175

1007183

(68.497)

10,614 24,201

368 409

~3Z~

334.727

~73~J

I ~~i QZQ

SAN LEANDRO UNIFIED SCHOOL DISTRICT

STATEMENT OF CASH FLOWS~ PROPRIETARY FUND

SELF-INSURANCE FUND

For the Year Ended June 30, 2005

Cash flows from operating activities: Cash received from seff~insurance premiums Cash paid for services Cash paid for claims

Net cash used in operating activities

Cash flows provided by investing activities: Interest income received

Cash flows provided by financing activities: Cash received from other funds

Increase in cash and cash equivalents

Cash and cash equivalents, July 1, 2004

Cash and cash equivalents, June 30, 2005

Reconciliation of operating loss to net cash used in operating activities:

Operating loss Adjustments to reconcile operating Joss to net cash

used in operating activities: Decrease in:

Accounts payable Unpaid claims and claim adjustment expenses

Total adjustments

Net cash used in operating activities

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

19

$ 938,686 (1,257.755)

(84 375)

1403 444)

35 854

195 699

(171,891)

923 496

$ 751 605

$ 168 497)

(250,572) 184 375)

1334 947)

!! (403 444)

SAN LEANDRO UNIFIED SCHOOL DISTRICT

STATEMENT OF FIDUCIARY NET ASSETS

AGENCY FUNDS

June 30, 2005

ASSETS

Cash and investments: Cash on hand and in banks (Note 2)

LIABILITIES

Due to students

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

20

$ 490 790

$ 490 790

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

San Leandro Unified School District (the ~District'') accounts for its financial transactions in accordance with the policies and procedures of the California Department of Education's California Schoof Accounting Manual. The accounting policies of the District conform to generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board and the American Institute of Certified Public Accountants. The following is a summary of the more significant policies:

Reporting Entity

The Board of Trustees ls the level of government which has governance responsibilities over all activities related to public school education in the District. The Board is not Included in any other governmental "reporting entity'' as defined by the Governmental Accounting Standards Board since Board members have decision--making authority, the power to designate management, the responsibility to significantly influence operations and primary accountability for fiscal matters.

Basis of Presentation - Financial Statements

In June 1999, the Governmental Accounting Standards Board (GASB) unanimously approved Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments. Certain of the significant changes in the Statement include the following:

The financial statements Include:

A Management Discussion and Analysis (MD & A) section providing an analysis of the District's overall financial position and results of operations.

Financial statements prepared using full accrual accounting for all of the District's activities, including infrastructure.

Change in the fund financial statements to focus on the major funds.

These and other changes are reflected in the accompanying financial statements (including notes to basic financial statements).

Basis of Presentation - Government-Wide Financial Statements

The Statement of Net Assets and the Statement of Activities display information about the reporting government as a whole. Fiduciary funds are not included in the government-wide financial statements. Fiduciary funds are reported only in the Statement of Fiduciary Net Assets at the fund financial statement level.

21

1.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis of Presentation - Government-Wide Financial Statements {Continued)

The Statement of Net Assets and the Statement of Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions.

Program revenues: Program revenues included in the Statement of Activities derive directly from the program itself or from parties outside the District's taxpayers or citizenry, as a whole; program revenues reduce the cost of the function to be financed from the District's general revenues.

Allocation of indirect expenses: The District reports all direct expenses by function in

the Statement of Activities. Direct expenses are those that are clearly identifiable with a function. Depreciation expense is specifically identified by function and is included in the direct expense of each function. Interest on general long-term liabilities is considered an indirect expense and is reported separately on the Statement of Activities.

Basis of Presentation ~ Fund Accounting

The accounts of the District are organized on the basis of funds or account groups, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balances, revenues and expenditures. District resources are allocated to and accounted for in Individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controlled. The District's accounts are organized into three broad categories which, in aggregate, include six fund types as follows:

A Governmental Fund Types

1 - General Fund:

The General Fund is the general operating fund of the District and accounts for all revenues and expenditures of the District not encompassed within other funds. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. General operating expenditures and the capital improvement costs that are not paid through other funds are paid from the General Fund.

22

1.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis of Presentation ~ Fund Accounting (Continued)

A

B

c

Governmental Fund Types {Continued)

2 - Special Revenue Funds:

The Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. This classification includes the Adult Education, Cafeteria, Deferred Maintenance, Child Development, Special Reserve and Post-Employment Benefits Funds.

3 - Debt Service Fund:

The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. This classification includes the Bond Interest and Redemption Fund.

4 - Capital Projects Funds:

The Capital Projects Funds are used to account for resources used for the acquisition of capital facilities by the District. This classification includes the General Obligation Bond, County School Facilities and Capital Facilities Funds.

Proprietary Fund Types

1 - Internal Service Fund:

The Internal Service Fund is used to account for the operations of self­sustaining District operations rendering services to others on a cost­reimbursement basis. This classification includes the Self~lnsurance Fund.

Fiduciary Fund Type

1 - Agency Funds:

Agency Funds are used to account for the various funds for which the District has an agency relationship with the activity of the fund. This classification consists of the Student Body Funds. The Student Body Funds account for the receipt and disbursement of monies from the student activity organizations.

23

1.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis of Accounting

Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied.

Governmental activities in the government-wide financial statements and the proprietary and fiduciary fund financial statements are presented on the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred.

Modified Accrual

The governmental funds financial statements are presented on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual; i.e., both measurable and available. "AvailableH means collectible within the current period or within 60 days after year end. Expenditures are generally recognized under the modified accrual basis of accounting when the related liability is incurred. The exception to this general rule is that principal and interest on general obligation long-term liabilities, if any, is recognized when due.

Budgets and Budgetary Accounting

By State law, the Board of Trustees must adopt a final budget by July 1. A public hearing is conducted to receive comments prior to adoption. The Board of Trustees satisfied these requirements.

The District employs budgetary control by major object code and by Individual appropriation account Expenditures cannot legally exceed appropriations by major object code. The budgets are revised during the year by the Board of Trustees to provide for unanticipated revenues and expenditures. The originally adopted and final revised budgets for the General Fund are presented in the basic financial statements.

Stores Inventory

Inventory recorded in the General and Cafeteria Funds are valued at latest invoice cost. The inventory consists mainly of consumable supplies. Inventory is recorded as an expenditure at the time items are transferred from the warehouse to the schools and offices.

24

1.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Capital Assets

Capital assets purchased or acquired, with an original cost of $5,000 or more, are recorded at historical cost or estimated historical cost. Contributed assets are reported at fair market value as of the date received. Additions, improvements and other capital outlay that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Capital assets are depreciated using the straight~line method over 4 30 years depending on asset types.

Cafeteria Food Purchases

The Cafeteria purchases food through the State of California Office of Surplus Property and is only required to pay handling charges on these purchases. The Statement of Revenues, Expenditures and Changes in Fund Balances reflects only the handling charges incurred. Supplies expenditures would .have been greater had the District paid fair market value for the government surplus food commodities.

Compensated Absences

Compensated absences in the amount of $464,070 are recorded as a liability of the District. The liability is for the earned but unused benefits.

Accumulated Sick Leave

Accumulated sick leave benefits are not recognized as liabilities of the District The District's policy is to record sick leave as an operating expenditure in the period taken since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits for certain STRS and CalPERS employees when the employee retires.

Deferred Revenues and Program Advances

Revenues from Federal, State and local special projects and programs are recognized when qualified expenditures have been incurred. Funds received but not earned are recorded as deferred revenue until earned.

25

1.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Restricted Net Assets

Restrictions of the ending net assets indicate the portions of net assets not appropriable for expenditure or amounts legally segregated for a specific future use. The restrictions for revolving cash fund, prepaid expenditures and stores inventory reflect the portion of net assets represented by revolving fund cash, prepaid expenditures and stores inventory, respectively. These amounts are not available for appropriation and expenditure at the balance sheet date. The restriction for unspent categorical revenues represents the portion of net assets restricted to specific program expenditures. The restrictions for adult education, deferred maintenance, food service operations and capital projects represent the portion of net assets to be expended by the District for adult education, deferred maintenance, food service operations and capital projects, respectively. The restriction for debt service represents the portion of net assets available for the retirement of debt. The restriction for post-employment benefits represents the fund balance of the Post-Employment Benefits Fund. The restriction for self-insurance represents the portion of net assets available for self-insured activities.

Property Taxes

Secured property taxes are attached as an enforceable lien on property as of March 1. Taxes are due in two installments on or before December 10 and April 10. Unsecured property taxes are due in one installment on or before August 31. The County of Alameda bills and collects taxes for the District. Tax revenues are recognized by the District when received.

Encumbrances

Encumbrance accounting Js used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are pald. All encumbrances are liquidated at June 30.

Eliminations and Reclassifications

In the process of aggregating data for the statement of net assets and the statement of activities, some amounts reported as interfund activity and balances in the funds were eliminated or reclassified. lnterfund receivables and payables were eliminated to minimize the "grossing up" effect on assets and liabilities within the governmental activities column.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Accordingly, actual results may differ from those estimates.

26

2. CASH

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

Cash and investments at June 30, 2005 consisted of the following:

Pooled Funds: Cash in County Treasury

Cash with Fiscal Agent: Cash with Fiscal Agent Restricted for repayment of

Tax and Revenue Anticipation Notes

Investments: Cash in Local Agency Investment Fund

Deposits: Cash on hand and in banks Revolving cash fund

Pooled Funds

$ 13.276.016

$ 116,248

$ 6,694,458

$ 3,665,735

$ 490.790 $ 40,000

In accordance with EdlJcation Code Section 41001, the District maintains substantially all of its cash in the interest-bearing Alameda County Treasurer's Pooled Investment Fund and California's Local Agency Investment Fund, These pooled funds are carried at cost which approximates market value. Interest earned is deposited monthly into participating funds. Any investment losses are proportionately shared by all funds in the pool.

Because the District's deposits are maintained in a recognized pooled investment fund under the care of a third party and the Distrlct's share of the Pooled Investment Fund does not consist of specific, identmable investment securities owned by the District, no disclosure of the individual deposits and investments or related custodial credit risk classifications is required.

In accordance with applicable State laws, the Alameda County Treasurer and Local Agency Investment Fund may invest in derivative securities. However, at June 30, 2005, the Alameda County Treasurer and Local Agency Investment Fund have represented that the Pooled Investment Funds contain no derivatives or other investments with similar risk profiles.

Tax and Revenue Anticipation Notes

On July 13, 2004, the District issued $6,500,000 of Tax and Revenue Anticipation Notes (TRANs) by participating in the California Cash Reserve Program with other school districts throughout the State of California. The TRANs matured on July 12, 2005, with interest at 1.656o/o and provided for anticipated cash flow deficits from operations. At June 30, 2005, cash with fiscal agent totallng $6,694,458 was restricted for repayment of the TRANs. The TRANs were a general obligation of the District, and were repaid from revenues and cash receipts generated by the District during the year ended June 30, 2005.

27

2.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

CASH {Continued)

Local Agency Investment Fund

San Leandro Unified School District places certain funds with the State of California's Local Agency Investment Fund (LAIF). The District Is a voluntary participant in LAIF, which is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California and the Pooled Money Investment Board. The State Treasurer's Office pools these funds with those of other governmental agencies In the State and invests the cash. The fair value of the District's investment in the pool is reported in the accompanying financial statements based upon the District's pro-rata share of the fair value provided by LAIF for the entire LAlF portfolio (in relation to the amortized cost of that portfolio). The monies held in the pooled investments funds are not subject to categorization by risk category. The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. Funds are accessible and transferable to the master account within twenty-four hours notice. Included in LAI F's investment portfolio are collateralized mortgage obligations, mortgage-backed securities, other asset-backed securities, and floating rate securities Issued by Federal agencies, government-sponsored enterprises and corporations. LAIF is administered by the State Treasurer. As of June 30, 2005, this fund was yielding approximately 2.85% interest annually. LAIF investments are audited annually by the Pooled Money Investment Board and the State Controller's Office. Copies of this audit may be obtained from the State Treasurer's Office: 915 Capitol Mall; Sacramento, California 95814. The Pooled Money Investment Board has established policies, goals, and objectives to make certain that their goal of safety, liquidity and yield are not jeopardized.

Deposits - Custodial Credit Risk

Cash balances held in banks and revolving funds are insured up to $100,000 by the Federal Depository Insurance Corporation (FDIC). At June 30, 2005, the carrying amount of the District's accounts was $530,790, and the bank balances were $524,493. Of the bank balances, $360,993 was insured by the FDIC and $163,500 was collateralized.

Interest Rate Risk

The District does not have a fonnal investment policy that limits cash and investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. At June 30, 2005, the District had no significant interest rate risk related to cash and investments held.

Credit Risk

The District does not have a formal investment policy that limits its investment choices other than the limitations of State law.

28

2.

3.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

CASH (Continued)

Concentration of Credit Risk

The District does not place limits on the amount it may invest in any one Issuer. At June 30, 2005, the District had no concentration of credit risk.

INTERFUND TRANSACTIONS

lnterfund Activity

Transactions between funds of the District are recorded as interfund transfers. The unpaid balances at year end, as a result of such transactions, are shown as due to and due from other funds.

lnterfund Receivables/Payables

lnterfund receivable and payable balances at June 30, 2005 were as follows:

lnterfund lnterfund Fund Receivables Payables

General Fund $ 107.762 $ 1,202,832 Special Revenue Funds:

Adult Education 534,423 57,133 Gafeteria 44,102 Deferred Maintenance 225,688 Child Development 38 Post-Employment Benefits 300,000

Capital Projects Funds: General Obligation Bond 225.688 6.104 County School Facilities 335

Self-Insurance Fund 368 410 s1

Totals $ 1 QJ6 2§~ m 1 Q~2!;!~

29

3.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

INTERFUND TRANSACTIONS (Continued)

lnterfund Transfers

lnterfund transfers consist of operating transfers from funds receiving revenue to funds through which the resources are to be expended.

lnterfund transfers for the 2004-2005 fiscal year were as follows:

Transfer from the General Fund to the Deferred Maintenance Fund for the State-required match.

Transfer from the General Fund to the Post­Employment Benefits Fund to establish the fund.

Transfer from the General Fund to the Self Insurance Fund to pay for property and liability insurance.

Transfer from the Adult Education Fund to the General Fund for indirect costs.

Transfer from the Cafeteria Fund to the General Fund for indirect costs.

$ 120,810

300.000

368,409

75,027

124 724

$ 988 970

4. CAPITAL ASSETS

A schedule of changes in capital assets for the year ended June 30, 2005 Is shown below:

Balance Balance July 1, June 30, 2004 Additions Deductions 2005

Laod I 1,405,851 I 1,405,851 Buildings and improvements 55,348,306 $ 38,858, 771 94,207,077 Site improvements 9,795,729 2,307,076 12,102,805 Furniture and equipment 1,361,750 255,722 1,617,472 Work-in-process 28 954287 120 371 $ (28 954 287) 120 371

Totals, at cost 96865~ 41 Mt ~O £28 254287) 109 453 576

Less accumulated depreciation: Buildings and improvements (28,141,043) (2,090,889) (30,231,932) Site improvements (9,540, 176) (71,204) (9,611,380) Furniture and equipment (569012) (119642) {688 6M)

Total accumulated depreciation (38 250 231) (2281735) /40531966)

Capital assets, net !i 5821§~22 $ J226Q2Q§ $ {28 954 287) $ 68~1§lQ

30

4.

5.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

CAPITAL ASSETS (Continued}

Depreciation expense was charged to governmental activities as follows:

Instruction Instructional library, media and technology School site administration Food services All other general administration Data processing Plant services

Total depreciation expense

LONG-TERM LIABILITIES

Capitalized Lease Obligations

$ 2.140.265 4,563 2,282 9,128

66, 171 6,846

52480

$ 2 281 735

The District leases equipment and relocatable classrooms under capital lease agreements. Future minimum lease payments are as follows:

Year Ending Lease June 30 Payments

2006 $ 550,847 2007 559,679 2008 452.294 2009 167.846 2010 143 860

Total payments 1.874.526

Less amount representing interest (124 ~ZZ)

Net minimum lease payments $ J 71i !H9

31

5.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

LONG-TERM LIABILITIES (Continued)

General Obligation Bonds Serles A

On August 5, 1997, the District issued $15,500,000 of General Obligation Bonds as the first series under the $53,850,000 bond measure approved by voters on March 4, 1997. The Bonds require annual principal payments beginning in August 1998 until August 2022 plus interest. Annual interest rates for the principal payments range from 4.4% to 6.0%, yielding approximately 5.5%. With the issuance of the 2004 Refunding General Obligation Bonds, the 1997 Series A General Obligation Bonds were defeased, and the remaining obligation of $9,720,000 has been removed from the District's long-term liabilities.

General Obligation Bonds Series B

On August 1, 2000, the District issued $10,000,000 principal amount of General Obligation Bonds as part of the $53,850,000 bond measure approved by voters on Marcil 4, 1997. The Bonds, which mature on August 1, 2025, require annual principal payments beginning August 1, 2001. Interest is payable semi-annually on February 1 and August 1 with rates ranging between 4.75% and 7.75%. The Bonds mature as follows:

Year Ending June 30 Princi12a1 Interest Total

2006 $ 100.000 $ 498,549 $ 598,549 2007 190,000 487,311 677,311 2008 130,000 476,861 606,861 2009 140,000 470,449 610,449 2010 170,000 463,066 633,086

2011-2015 1,420,000 2,106,069 3,526,069 2016-2020 2,005,000 1,712,897 3,717,897 2021-2025 3,990,000 959,200 4,949,200 2026-2030 1 210 000 JJZ25 1 ,4~ U:5

$ ~ 355 000 ii 7 2Q{j 1:1Z $ 1§ 563 1~z

32

5.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

LONG-TERM LIABILITIES (Continued)

General Obligation Bonds Series C

On July 25, 2002, the District issued $7,000,000 of General Obligation Bonds as part of the $53,850,000 bond measure approved by voters on March 4, 1997. The Bonds require semi-annual payments beginning in February 2003 until August 2027 plus interest. Annual interest rates for the principal payments range from 3. 125% to 7 .0%. The Bonds mature as follows:

Year Ending June 30 Princi12al Interest Total

2006 $ 120,000 $ 318,768 $ 438,768 2007 130,000 312,536 442,536 2008 140,000 308,230 448,230 2009 140,000 303,505 443,505 2010 140,000 298,465 438,465

2011-2015 760,000 1,405,464 2,165,464 2016-2020 1,060,000 1,220,528 2,280,528 2021-2025 1,945,000 892,703 2,837,703 2026-2030 i 465 000 204 125 2 669 125

$ 6 900,000 $ 5 264 ~24 $ 121§4 ~24

General Obligation Bonds Series D

On July 25, 2002, the District Issued $15,997,013 principal amount of Capital Appreciation Bonds as part of the $53,850,000 bond measure approved by voters on March 4, 1997. The Bonds, which mature on August 1, 2023, require annual principal payments beginning August 1, 2004. Interest is payable semi-annually on February 1 and August 1 with rates ranging between 4.40o/o and 5.55%. The Bonds mature as follows:

Year Ending Accre1ed June 30 Princi9al Interest Interest Total

2006 $ 377,235 $ 51, 135 $ 1,630 $ 430,000 2007 462,401 61,943 25,656 550,000 2008 603,398 80,825 65,777 750,000 2009 667,809 92,637 114,554 875,000 2010 711,062 102,036 171,902 985,000

2011-2015 4,693,780 675,942 2,155,277 7,524,999 2016-2020 4,318,571 657,119 4,104.310 9,060,000 2021-2025 3,872 Ql§: 645 905 6 8:!2 077 1:l ~30 000

$ 15 70§ 274 $ 2~7,5:1~ $ 1~ 4511§~ i 31§24999

33

5.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

LONG-TERM LIABILITIES (Continued)

General Obligation Bonds Series E

On June 8, 2004, the District issued $5,350,000 of General Obligation Bonds as part of the $53,850,000 bond measure approved by voters on March 4, 1997. The Bonds require semi-annual payments beginning in February 2005 until August 2028 plus interest. Annual interest rates for the principal payments range from 4.75% to 5.00%. The Bonds mature as follows:

Year Ending June 30 Principal Interest Total

2006 $ 425,000 $ 254,063 $ 679,063 2007 450,000 232,188 682,188 2008 475,000 209.656 684.656 2009 198.375 198,375 2010 198,375 198,375

2011-2015 991,875 991,875 2016-2020 991,875 991.875 2021-2025 1,500,000 882,813 2,382,813 2026-2030 2 500 ooo 225 000 2 725 000

i 5 350 000 !i 4184 220 i 9 5;3~ 22!:l

Refunding General Obligation Bonds

On, the District issued $9,915,000 of Refundfng General Obligation Bonds to advance refund and def ease the 1997 Series A General Obligation Bonds. The Bonds require annual principal payments beginning in August 1998 until August 2022 plus interest. Annual interest rates for the principal payments range from 4.4% to 6.0°/o, yfelding approximately 5.5%. The Bonds mature as follows:

Year Ending June 30 Principal Interest Total

2006 $ 200,000 $ 422.913 $ 622,913 2007 200.000 414,913 614,913 2008 200,000 406,913 606,913 2009 590,000 388,163 978,163 2010 730,000 362,463 1,092,463

2011-2015 2,440.000 1,545.063 3,985,063 2016-2020 3,125,000 953.031 4,078,031 2021-2025 2 430 000 184 188 2 614 188

$ 9 91::J QOQ $ 4 s11 ~~z I 115~2 647

34

5.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

LONG-TERM LIABILITIES (Continued)

Certificates of Participation

1997 Series B:

In February 1997, the District issued Series B Certificates of Participation (COPs) through the Alameda-Contra Costa Schools Financing Authority in the amount of $2,670,000 with variable interest rates payable from 1998 through 2016. The COPs were used to finance the acquisition of portables and other capital assets. As of June 30, 2005, the District had outstanding borrowings under the COPs of $1,810,000. The COPs bear interest at 4.5%.

The following is a schedule of the future payments for the Series B Certificates of Participation:

Year Ending June 30

2006 2007 2008 2009 2010

2011-2015 2016-2020

Total payments

Less amount representing interest

Net minimum lease payments

Changes in Long~Tenn Liabilities

$ 211.450 210,600 209,621 213,138 211,475

1,065,335 214 238

2.335.857

(525 857)

$ 1 810000

A schedule of changes in long~tenn liabilities for the year ended June 30, 2005 is as follows:

Balance 9alance Amounts July 1, Jl.)ne 30, Due Within 2004 Additions Deductions """ Qo2'.W!r

Capitalized lease obligalions ' 2,145,353 82,246 4n.950 ' 1,749,1}19 $ 498,n4 General Obligation Bol'lds 48,187,013 9,915,000 10,875,739 47,226,274 1,222,235 Accreted ITTterest 1,528,315 867,143 27,916 2,367,542 51,135 Cerllficates of Participatioo 1,935,000 125,000 1,810,000 130,000 Cornpen$a!e<:1 atmenOl:ls 276733 187 337 4§4070

54 072 414 11051726 I 11 506 605 53 617 535 I 1 §!22144

35

5.

6.

7.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS {Continued)

LONG-TERM LIABILITIES (Continued)

Changes in Long-Term liabilities (Continued)

Payments on the capitalized lease obligations are made from various District funds. Payments on the General Obligation Bonds are made from the Bond Interest and Redemption Fund. Payments on the Certificates of Participation are made from the Capital Facilities Fund. Payments on compensated absences are made from the fund for which the related employee worked.

RESTRICTED NET ASSETS

The restricted net assets as of June 30, 2005 consist of the following:

Restricted for: Revolving cash fund Prepaid expenditures Stores inventory Unspent categorical revenues Adult education Deferred maintenance Food service operations Capital projects Debt service Post employment benefits Self-insurance

Total

EMPLOYEE RETIREMENT SYSTEMS

$ 40.000 746.243

53,245 574,449

2,463,410 787,428 520,298

9,877,404 2,237,265

300,000 882 070

!I 18481 812

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

Plan Description and Provisions

California Public Employees' Retirement System {Ca!PERS}

Plan Description

The District contributes to the School Employer Pool under the California Public Employees' Retirement System (CalPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CaiPERS. The plan provides retfrement and disability benefits, annual cost-of-living adjustments, and death benefrts to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislatfvely amended, within the Public Employees' Retirement Law. CaiPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS annual financial report may be obtained from the Ca!PERS Executive Office, 400 P Street, Sacramento, California 95814.

36

7.

8.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued}

EMPLOYEE RETIREMENT SYSTEMS (Continued)

Plan Description and Provisions (Continued)

California Public Employees' Retirement System (CalPERS) (Continued)

Funding Policy

Active plan members are requir.ed to contribute 7% of their salary, and the District is required to contribute an actuarially determined rate. In addition, the District pays the employee portion for certain employees. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year 2004-2005 was 9.952% of annual payroll. The contribution requirements of the plan members are established by state statute. The District's contributions to CalPERS for the fiscal years ending June 30, 2003, 2004 and 2005, including the portion paid on behalf of certain employees, were $220,385, $800,546 and $788,897, respectively, and equal 100<Vo of the required contributions for each year.

State Teachers' Retirement System (STRS)

Plan Description

The District contributes to the State Teachers' Retirement System (STRS}, a cost­sharing multlple~employer public employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement, disability and survivor benefits to beneficiaries. Benefit provisions are establiShed by state statutes, as legislatively amended, within the State Teachers' Retirement Law. STRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the STRS annual financial report may be obtained from the STRS Executive Office, 7667 Folsom Boulevard, Sacramento, California 95826.

Funding Policy

Active plan members are required to contribute 8% of their salary. The required employer contribution rate for fisc.al year 2004-2005 was 8.25% of annual payroll. The contribution requirements of the plan members are established by state statute. The District's contributions to STRS for the fiscal years ending June 30, 2003, 2004 and 2005 were $2,667,492, $2,626,354 and $2,799,862, respectfvely, and equal 100% of the required contributions for each year.

POST~RETIREMENT HEALTHCARE BENEFITS

In addition to the pension benefrts described in Note 7, the District provides post~ retirement healthcare benefits to all employees retiring from the District in accordance with the terms of its union contracts. The District provides full and partial payment for health premiums for all eligible employees, based on retirement date. The District also reimburses the entire amount of Medicare premiums. In 2005, 345 retirees were covered under the plan, at a cost of $1,314,048.

37

9.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

SELF-INSURANCE FUND

The schedule below reflects the change to the claims payable account in the Self­Insurance Fund as follows:

Beginning Ending Balance Additions Deletions Balance

2002-2003 $ 387,500 $ $ 337,500 $ 50.000 2003-2004 $ 50,000 $ 287,500 $ 84,375 $ 253, 125 2004-2005 $ 253,125 $ $ 84,375 $ 168,750

In September, 2002, the District entered into an agreement to settle two civil rights employment discrimination lawsuits. The District, without admitting any liability or wrongdoing, agreed to pay $1,087,500. The first payment, $750,000, was paid in 2002-2003. The balance, $337,500 is payable in four annual Installments of $84,375, plus interest at 8%, beginning August 1, 2003.

10. JOINT POWERS AGREEMENTS

The District participates in four joint ventures under Joint Powers Agreements (JPAs) with Eden Area Regional Occupational Program (EAROP), East Bay Schools Insurance Group (EBSIG), Alameda County Schools insurance Group (ACSIG) and School Project tor Utility Rate Reduction (SPURR). The relationships between the District and the JPAs are such that none of the JPAs is a component unit of the District for financial reporting purposes.

Eden Area Regional Occupational Program

Eden Area Regional Occupational Program (EAROP) operates the area's regional occupation programs and center for its four members: San Leandro, Hayward, Castro Valley and the San Lorenzo Unified School Districts. EAROP is governed by a board consisting of a representative from each member District. The board controls the operations of EAROP, including selection of management and approval of operating budgets, independent of any influence by the member districts beyond their representation on the board. Each member district pays its share of costs based on the ADA of the students in the programs and shares surpluses and deficits proportionately to their participation in EAR OP.

East Bay Schools Insurance Group

East Bay Schools Insurance Group {EBSIG) arranges for and provides property and liability insurance for its members; which indude various schools in the East Bay. EBSJG is governed by a board consisting of a representative from each member District. The Board controls the operations of EBSIG, including selection of management and approval of operating budgets, independent of any influence by the member districts beyond their representation on the board. Each member district pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionate to their participation in EBSIG

36

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

10. JOINT POWERS AGREEMENTS (Continued)

East Bay Schools Insurance Group (Continued)

The District maintains a limit of liability up to $50,000 with a deductible of $5,000. EBSIG obtains excess coverage from other parties that provide an overall limit of UabiHty for the District of $1,000,000.

Alameda County Schools Insurance Group

Alameda County Schools Insurance Group (ACSIG) arranges for and provides workers' compensation coverage for its members, which include various schools in the East Bay. ACSIG is governed by a board consisting of a representative from each member district. The board controls the operations of ACSIG, including selection of management and approval of operating budgets, independent of any influence by the member districts beyond their representation on the board. Each member district pays a premium commensurate with the level of coverage requested, and shares surpluses and deficits proportionate to their participation in ACSIG.

ACSIG provides statutory coverage and the District does not maintain any deductible for workers' compensation coverage.

School Project for Utility Rate Reduction

School Project for Utility Rate Reduction (SPURR) is a joint venture of approximately 150 schools and provides for direct purchase of gas, electricity and other utility service.

Condensed financial information for each of the JPAs for the year ended June 30, is a follows:

EAROP ESSIG ACSIG SPURR June 30, June 30, June 30, June 30,

2005 2005 2004 2004

Tota! assets $ 6,256,735 $ 1,544.409 $ 28,525,067 $ 8,896,554 Total liabilities $ 546,593 $ 1,112,616 $ 18, 132,835 $ 7,553,202 Net assets $ 5,710,142 $ 431,793 $ 10,392,232 $ 1,343,352 Tota! revenues $ 7,582,896 $ 3,001,394 $ 84,520,908 $ 25,089,019 Total expenditures $ 6,834,010 $ 3,369,098 $ 79,440,869 $ 24,721,436 Change in net assets $ 748,886 $ (367,704) $ 5,080,039 $ 367,583

39

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS (Continued)

11. EXCESSES OF EXPENDITURES OVER APPROPRIATIONS

Excesses of expenditures over appropriations in individual funds for the year ended June 30, 2005 were as follows:

General Fund: Classified salaries Capital outlay

Fund Excess

Expenditures

$ $

41,668 84,980

Budget revisions for expenditures in excess of budgeted amounts were not made at the end of the fiscal year.

12. CONTINGENCIES

The District is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management. the amount of ultimate liability with respect to these actions wilt not materially affect the financial position or results of operations of the District.

The District has received Federal and State funds for specific purposes that are subject to review and audit by the granter agencies. Although such audits could result in expenditure disallowances under 1erms of the grants, it is management's opinion that any required reimbursements or future revenue offsets subsequently determined will not have a material effect on the District's financial position.

13. SUBSEQUENT EVENT

On July 6, 2005, the District issued $5,000,000 of Tax and Revenue Anticipation Notes (TRANs). The TRANs mature on July 6, 2006, with interest at 2.55% and provide for anticipated cash flow deficits from operations. The TRANs are a general obligation of the District, and are payable from revenues and cash receipts generated by the District during the year ended June 30, 2006.

40

(THIS I' AGE INTENTIONALLY LEFT BLANK)

ASSETS

Cash in County Treasury Accoun\s receivable:

Federal government State government local government and other

Due from other funds Inventory

Total assets

LIABILITIES AND FUND BALANCES

Liabilities: Accounts payable Deferred revenue Due to other funds

Tota11iabillties

FLmd balances

Total liabilities and fund balances

Revenues: Revenue limit sources:

State apportionment Federal sources Other State sources Other local sources

T olal revenues

Expenditures: Certificated salaries Classified salaries Employee benefits Books and supplies Contract sel'Vices and operating

expenditures Capital outlay Debt service:

Principal retirement Interest

Total expenditures

Excess {deficiency) of revenues over {under) expenditures

Other financing sources (uses): Opernting transfers in Operating transfers out

Total other financing sources (uses)

Net change in fund balances

FIHld balances, July 1, 2004

FIHld balances, June 30, 2005

Adult Education

Fung

$ 2,192,988

162,021 141,165

5,466 534,423

I 30~£!~

• 379,104 136,416 57133

572,653

2463410

I 30~~~

SAN LEANDRO UNIFIED SCHOOL DISTRICT

COMBINING BALANCE SHEET

All NON·MAJOR FUNDS

June 30, 2005

Child Deferred Special 0e'11:!lopment Cafeteria Maintenance Reserve

Fund

•

I

$

I

38

ill

38

38

38

Fund Fund fund

• 304,961 • 1,043,670 $ 1,750.234

171,528 97,783

348 2,288 4,119

53014

I 627 634 I 1 £!i22~~ I 17~~~~

• 10,220 • 32,842

44102 225688

54,322 258,530

573 312 787 428 $ 1 754 353

I §27 ~~~ I l 1215 95~ I 17~4~~

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

41

SAN LEANDRO UNIFIED SCHOOL DISTRICT

Post- County Employment Schools

B&nefits Facllitles Fund Fund

s 165,661

2,277,268 856

$ 300,000

I 300 000 I 2 443 785

• 153,374

335

153,709

I 300 000 2 290 078

I ~~~ I 2 443 785

COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES

ALL NON.MAJOR FUNDS

For the Year Ended June 30, 2005

Post· County Adult Child Deferred Spectal Employment Schools

Education Development Cafeteria Maintenance Reserve Benefits Facilities E1md Fun!;;! Eund Fund Fung Fund Fund

• 1,648,686 $ 4,224,930 613,188 • 1,361,996

62,884 89,563 • 354,131 142 934 QSO 632 11251 I 35107 4104

2 467 692 2 402191 J§!l 3§2 35107 4 229 034

960,653 364,087 821,818 13,332 252,371 198,734 2,388 190,889 1,100,647 150,896

514,734 63,195 263,763 128,393 134,677 42,827 19,640 4,087,799

2417411 2 227 221 283 403 4 382 808

50281 174 970 81 979 35107 {153 774)

120,810 $ 300,000 (75027) (124 724}

£75 Q27) (124 724) 12QSlQ 3QQ QQQ

(24,746) 50.246 202,789 35,107 300,000 {153,774)

2 488 156 ~3 0§.§ 584 639 1 z:rn: 24!:! 2 443 850

I 2463410 ot I iZ3 312 I 7874~ I J 754 ~~ I ~~g 000 i 2 290 076

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

42

Bond Interest and Redemption

Fund Tota1

$ 2,229,910 $ 7,687.462

333,549 2,516,216

7,355 20,432 834,423

53014

I 2~7 2§2 fll 1 ~~~£!a!J

' 575,540 136,416 3272J18

1,039,252

' 2,237265 10 405 844

I 2 237 265 fl 11445096

Bond Interest and Redemption

Fund Total

• 5,873,616 1,975,184 • 32,120 538,698

2 788 581 3 932 609

2 !l:2Q ZOl 12 320 107

960,653 1,199,237

453,493 1,442,432

970,085 4,284,943

1,183,655 1,183,655 149§ 18!l: 14961!YI

2 679 843 11990686

140 858 329 421

420,810 1199 751)

221 059

140,858 550,480

2096407 9 855 364

I 22JI~li. ilQ:t~W

SAN LEANDRO UNIFIED SCHOOL DISTRICT SAN LEANDRO UNIFIED SCHOOL DISTRICT

COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES

AGENCY FUNDS AGENCY FUNDS (Continued)

For the Year Ended June 30, 2005 For the Year Ended June 30, 2005

Balance Balance Balance Balance July 1, June 30, July 1, June 30, 2004 Additions Dedus:tions 2005 2004 Additigns Deductions 2005

Student Body Funds Student Body Funds (Continued)

San Le!;!ndro High Adult Schoo!

Assets: Assets: Cash on hand and In banks $ 230 343 I 624653 I 608 878 I 246118 Cash on hand and in banks $ 3 306 I 137161 $ 11a 989 I 24478

Liabilities: Liabilities: Due to student groups s 230 343 I §24 6§3 I §QB 878 I 24§ 118 Due to student groups s 3~6 I 337 161 I 115989 I 24 478

Lincoln Continuation High Total Student Body Funds

Assets: Assets: Cash on hand and in banks I 3 965 I 638 s 1 917 I 2686 Cash on hand and in banks I 431 453 I 1 407 8Q2 I 1348465 $ 490199

Liablllties: Liabilitles: Due to student groups I 3 Q65 I 6'lll $ l 9l7 $ 2686 Due lo student groups $ 431 453 $ 1407802 I 1 34§ 46~ $ 490790

Bancroft Junior High

Assets: Cash on hand and in bankS $ 63492 I 180 289 $ 154083 $ 89698

Liabilities: Due to student groups s 63492 $ J80 2§2 i 1§;4 083 I 89698

JQ!!n M1iir ,IJlntor High

Assets: Gash on hand and in banks I :11829 I 1~3os I 173034 I 53103

Liabilities: Due to student groups $ 41 829 I 1~308 $ lZ3W I 53103

Elem~ntaey §chools

Assets: Cash on hand and tn banks I 88 518 $ 280 753 I 294564 I 74 701

Liabilities: Due to student groups $ 88§18 I 299 753 $ 294 564 $ 74 707

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

43 44

SAN LEANDRO UNIFIED SCHOOL DISTRICT

ORGANIZATION

June 30, 2005

San Leandro Unified School District was established on July 1, 1952 and is comprised of an area located in Alameda County, approximating the City of San Leandro and Sheffield VIiiage in Oakland. There were no changes in the boundaries of the District during the year. The District is currently operating eight elementary schools, two middle schools, one high school, a continuation high school, an independent study program and an adult school.

The members of the Board of Trustees of San Leandro Unified School District holding office during the audit period and their term of office expiration dates are as follows:

Name

Pauline Russo Cutter T.W. "Rick" Richards Ray Davis Linda Perry Louis Heystek Stephen Cassidy Lisa Hague

GOVERNING BOARD

Office

President Vice-President

Clerk Member Member Member Member

ADMINISTRATION

Christine Um Superintendent

Leon Glaster Assistant Superintendent

Michael Martinez Assistant Superintendent

Cindy Cathey Assistant Superintendent

45

Term Expires

2006 2008 2008 2008 2006 2008 2006

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AVERAGE DAILY ATIENDANCE

Elementary: Kindergarten First through Third Fourth through Sixth Seventh and Eighth Opportunity Schools Home and Hospital Special Education

Total Elementary

Secondary: Regular Classes Continuation Education Home and Hospital

For the Year Ended June 30, 2005

Regional Occupational Programs Special Education

Total High School

Classes for Adults: Concurrently Enrolled Not Concurrently Enrolled

Total Classes for Adults

ADA Totals

Summer School: Elementary Secondary

See accompanying notes to supplementary information.

46

Second Period Report

549 1,848 2,004 1,317

12 2

143

5875

2,391 70

3 274

73

2 811

3 489

492

9178

Annual Report

532 1,805 2,062 1,311

12 2

14§

5870

2,358 88 4

320 72

2842

4 563

§§Z

~2Z9

Hours of Attendance

57,067 52494

1~ ~§1

Grade Level

Kindergarten

Grades 1 to 3

Grades 4 to 8

Grades 9 ta 12

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF INSTRUCTIONAL TIME

For the Year Ended June 30, 2005

1986-87 Minutes Require-

men!

36,000

50,400

54,000

64,800

1982-83 2004-05 Actual Actual

Minutes Minutes

36,960 37,800

44,000 58,020

56,760 57,200

58,960 66,524

See accompanying notes ta supplementary information.

47

Number of Days

Traditional Calendar

180

180

180

180

Federal Catalog

Status Number

In Compliance 84.027

In Compliance 84.027 84.027

In Compliance 84.027 84.173

In Compliance

84.010 84.213 84.318

84.367 84.186 84.287

84.298 84.365 84.365 84.002 84.048

84.048 84.002 10.555

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS

For the Year Ended June 30, 2005

Pass-Through

Entity Federal Grantor/Pass-Through Identifying

Grantor/Program or Cluster Tltfe Number

Special Education Cluster: Basic Local Entitlement 13379 Low Incidence 13459 Staff Development 13613 Preschool Local Entlllement 13682 Preschool Grant, Part 8 13430

Subtotal Special Education Cluster

NCLB: Title I Basic Grants Low Income & Neglected 13797 NCLB: Title I, Part B, Even Start Family Literacy 13001 NCLB: Tille II, Part D, Enhancing Education Through

Technology 14334 NCLB: Tille II, Part A, Improving Teacher Quality 14341 NCLB: Tille IV, Safe and Drug Free Schools 14347 NCLB: Tille IV 21st Century Community Learning

Centers 14349 NCLB: Title V, Part A, Innovative Educational Strategies 14354 NCLB: Title Ill, Immigrant Education Program NCLB: Title Ill, Limited English Proficiency Program Adult Education: Englfsh Literacy & Civics Education Vocatlonal Programs: Vocational and Applied

Technology, Secondary 1C Vocational Programs: Adult, Section 131 Adult Basic Education National School Lunch Program

Total Expenditures of Federal Awards

See accompanying notes 10 supplemen1ary Information.

48

14346 10084 14109

03577 13924 13973 13755

Federal Expend-

itures

$ 1,221,476 2,058 2,531

82,104 ~iiZQ7

j 35;3: §:7§

879,599 319,234

22,374 276,663

36,520

327,790 41,860 35,685

168,278 171,545

44,685 15,708

106,701 1 ~1i!il:2

~ Qj~~!:il4

SAN LEANDRO UNIFIED SCHOOL DISTRICT

RECONCILIATION OF UNAUDITED ACTUAL FINANCIAL REPORT WITH AUDITED FINANCIAL STATEMENTS

For the Year Ended June 30, 2005

June 30, 2005 Unaudited Actual Financial Report Fund Balance

Understatement of State apportionment and related accounts receivable

June 30, 2005 Audited Financial Statement Fund Balance

June 30, 2005 Unaudited Actual Financial Report Fund Balance

Adjust LAIF and Cash with Fiscal Agent balances to June 30, 2005 statement balances

June 30, 2005 Audited Financial Statement Fund Balance

There were no adjustments to any other funds of the District

See accompanying notes to supplementary information.

49

County Schools Facilities

Fund

$ 1,838,473

451 603

$ 2 290 076

Capital Facilities

Fund

$ 3,825,435

(59 589)

$ 3 765 846

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF FINANCIAL TRENDS ANO ANALYSIS

For the Year Ended June 30, 2005

(Budgeted) 2006 2005 2004 2QQ3

General Fung

Revenues and other financing sources $ 58 518 821 $ 57 898 808 $ 55 604 550 $ 55 526 087

Expenditures 57,965,205 57,317,552 54,771,267 56,389,359 Other uses and transfers out 472264 789 219

Total outgo 584:}7 ~8!! §a 1011 zz1 ::i::l; 771 267 58~J;!Jfil:l

Change in fund balance $ !tl as, $ ,2g1 ii~l i 833 283 i rnsa 2z2l Ending fund balance $ 1 928 493 I 1/l47141 $ 2 055 104 i 1 221 821

Available reserves • I 17~~~ $ 1 754 353 ~ 2 896 §.Q1 $ 1 140952

Special Reserve Fund balance i 1 7/l4 J::i~ $ 1 7~~::i~ • 1 719 246 i 1 821 ~lQ

Designated for economic uncertainties $ ' $ '

Undesignated fund balance ' ' $ 1 177 255 $ 11~~::i.2

Available reserves as a percentage of total outgo 3.Q~ 3.0~ 5.~?& 5.2%

Total long~term !!abilities I 51715391 $ 2~ §17 5~::i • 54 072 41~ I 49 593039

Average dally attendance at P~2, excluding classes for adults 8717 §§a§ 852~ 8487

The General Fund fund balance has deCf"eased by $237 ,952 over the past three years. The Ois1fict budgets an increase of $81,352 for the fiscal year ending June 30, 2006, For a district this size, the State of California recommends available reserves of at least three percent of total General Fund expenditures, transfers out and other uses be maintaine<l. The District has met this requirement

~ Available reserves Includes the balance of the Special Reserve Fund.

The District has Incurred operating deficits in two of the past three years, and anticipates incurring an operating deficit during the 2005-2006 fiscal year.

Total long-term liablllties have increased by $4,024,496 over the past two years.

Average dally attendance has Increased by 199 over the past two years. The District anticipates an increase of 31 ADA for the fiscal year ended June 30, 2006.

See accompanying notes to supplementary information.

50

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF CHARTER SCHOOLS

For the Year Ended June 30, 2005

Charter Schools Chartered by District

There are no charter schools operating within the District.

See accompanying notes to supplementary Information.

51

Included in District Financial Statements, or

Separate Report

SAN LEANDRO UNIFIED SCHOOL DISTRICT

NOTES TO SUPPLEMENTARY INFORMATION

1. PURPOSE OF SCHEDULES

A Schedule of Average Daily Attendance

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

B Schedule of Instructional Time

The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections 46201 through 46206.

C Schedule of Expenditure of Federal Awards

OMB Circular A-133 requires a disclosure of the financial activities of all Federally funded programs. This schedule was prepared to comply with A-133 requirements.

D Reconciliation of Unaudited Actual Financial Report with Audited Financial Statements

This schedule provides the information necessary to reconcile the Unaudited Actual Financial Report to the audited financial statements.

E Schedule of Financial Trends and Analysis

This schedule provides trend information on the District's financial condition over the past three years and its anticipated condition for the 2005-2006 fiscal year.

F Schedule of Charter Schools

This schedule provides information for the California Department of Education to monitor financial reporting by Charter Schools.

2. EARLY RETIREMENT INCENTIVE PROGRAM

Education Code Section 14503 requires certain disclosure in the financial statements of districts which adopt Early Retirement Incentive Prog'rams pursuant to Education Code Sections 22714 and 44929. For the fiscal year ended June 30, 2005, the District did not adopt this program.

52

INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH STATE LAWS AND REGULATIONS

Board of Trustees San Leandro Unified School District San Leandro, California

We have audited the compliance of San Leandro Unified School District with the types of compliance requirements described in the State of California's Standards and Procedures for Audits of California K-12 Local Educational Agencies (the "Audit Guide") to the State laws and regulations listed below for the year ended June 30, 2005. Compliance with the requirements of State laws and regulations is the responsibility of San Leandro Unified School District's management. Our responsibility Is to express an opinion on San Leandro Unified School District's compliance based on our audit.

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

Description

Attendance Reporting Kindergarten Continuance Independent Study Continuation Education Adult Education Regional Occupational Center/Programs Instructional Time and Staff Development Reform Program Instructional Time:

School Districts County Offices of Education

Community Day Schools Class Size Reduction Program:

General requirements Option one Classes Option two classes Districts with only one school serving K·3

Instructional Materials: Genera! requirements Grades K-8 Grades 9-12

Ratio of Administrative Employees to Teachers Early Retirement Incentive Program Gann Limit Calculation

53

Audit Guide Procedures Procedures Performed

8 Yes 3 Yes 22 Yes 10 Yes 9 Yes 6 No (See Below) 7 Yes

4 Yes 3 Not Applicable 9 Not Applicable

7 Yes 3 Yes 4 Not Applicable 4 Not Applicable

12 Ye, 1 Yes 1 Yes 1 Yes 4 Not Applicable 1 Yes

INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH STATE LAWS AND REGULATIONS

(Continued)

Description

School Construction Funds: School District Bonds S1ate School Facilities Funds

Alternative Pension Plans Proposition 20 Lottery Funds State Lottery Funds California School Age Families Education Program School Accountability Report Card

Audit Guide Procedures

3 1 2 2 2 3 3

Procedures Perfgrmed

Yes Yes

Not Applicable Yes Yes

Not Applicable No (See Below)

The District acts as a passthrough entity for the ROP program run by Eden Area ROP. The District does receive funding, however, all funding is remitted directly to Eden Area ROP. Eden Area ROP is responsible for fulfilling state compliance requirements and 1s required to have an annual audit performed. Therefore, no compliance testing for ROP was performed.

The 2004-2005 School Accountability Report Cards specified by Education Code Section 33126 are not required to be completed, nor were they completed, prior to the completion of our audit procedures for the year ended June 30, 2005. Accordingly, we could not perform the portions of audit steps (a), (b) and (c) of Section 19837 of the 2004-2005 Audit Guide relating to the comparison of tested data from the 2004-2005 fiscal year to the 2004· 2005 School Accountability Report Cards.

In our opinion, San Leandro Unified School District complied with the State laws and regulations referred to above for the year ended June 30, 2005, except as described in the Schedule of Audit Findings and Questioned Costs section of this report. Further, based on our examination, for items not tested, nothing came to our attention to indicate that San Leandro Unified School District had not complied with the State laws and regulations.

This report is intended solely for the information of the Board of Trustees, management, the State Controller's Office, the California Department of Education and the California Department of Finance, and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited.

Sacramento, California January 13, 2006

54

INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS

Board of Trustees San Leandro Unified School District San Leandro, California

We have audited the financial statements of San Leandro Unified School District as of and for the year ended June 30, 2005, and have issued our report thereon dated January 13, 2006. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in

Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered San Leandro Unified School District's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters invoMng the internal control over financial reporting and its operation that we consider to be material weaknesses.

Compliance and Other Matters

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

This report is Intended solely for the information of the Board of Trustees, management, the California Department of Education, the California State Controller's Office and Federal awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited.

Sacramento, California January 13, 2006

55

INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER

COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

Board of Trustees San Leandro Unified School District San Leandro, California

Compliance

We have audited the compliance of San Leandro Unified School District with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of Its major Federal programs for the year ended June 30, 2005. San Leandro Unified School District's major Federal programs are identified in the accompanying schedule of Federal financial assistance. Compliance with the requirements of laws, regulations, contracts and grant agreements applicable to each of its major Federal programs is the responsibility of San Leandro Unified Schoo! District's management. Our responsibility is to express an opinion on San Leandro Unified School District's compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perfonn the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about San Leandro Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on San Leandro Unified School District's compliance with those requirements.

In our opinion, San Leandro Unified School District complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2005. The results of our auditing procedures disclosed no instances of noncompliance with requirements that are required to be reported in accordance with OMB Circular A-133.

Internal Control Over Compliance

The management of San Leandro Unified School District is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. Jn planning and performing our audit, we considered San Leandro Unified School District's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133.

56

INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER

COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 (Continued)

Internal Control Over Compliance (Continued)

Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grant agreements that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the nonnal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses.

This report is intended solely for the infonnation of the Board of Trustees, management, the California Department of Education, the California Stale Controller's Office and Federal awarding agencies and pass~through entities, and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited.

Sacramento, California January 13, 2006

57

FINDINGS AND RECOMMENDATIONS

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS

Year Ended June 30, 2005

SECTION I • SUMMARY OF AUDITOR'S RES UL TS

FINANCIAL STATEMENTS

Type of auditor's report issued:

Internal control over financial reporting: Material weakness(es) Identified? Reportable oondition(s) identified not considered

to be material weakness(es)?

Noncompliance material to financial statements noted?

FEDERAL AWARDS

Internal control over major programs: Material weakness(es) identified? Reportable condition(s) identified not considered

to be material weakness(es)?

Type of auditor's report issued on compliance for major programs:

Any audit findings disclosed !hat are required to be reported in accordance with Circular A-133, Section .510(a)?

Identification of major programs:

CFDA Number(s)

Unqualified

Yes _x_ No

Yes _x_ None reported

Yes _x_ No

Yes _X_No

Yes _x_ None reported

Unqualified

Yes _x_No

Name of Federal Program gr Cluster

84.027, 84.173 Special Education Cluster

Dollar threshold used to distinguish between Type A and Type B programs:

Auditee qualified as low-risk auditee?

STATE AWARDS

Internal control over State programs: Material weakness(es} identified? Reportable condition(s) identified not considered

lo be material weaknesses?

Type of auditor's report issued on compliance for State programs:

58

$ 300,000

_X_Yes No

Yes _x_ No

__ Yes _x_ None reported

Qualified

1.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued)

Year Ended June 30, 2005

SECTION II • FINANCIAL STATEMENT FINDINGS

INTERNAL CONTROLS· STUDENT BODY ACCOUNTING (30000)

California Education Code Section 48930 and California Department of Education's ffAccounting Procedures for Student Organization Handbook.~

At San Leandro High School: Student clubs often do not use sub~receipt books in the initial receipt of cash. Cash receipts are often turned in without detailed schedules defining the number of items received and the unit price per item. The following duties are not properly segregated:

Receipt of club deposits. Preparation and execution of bank deposits. Reconciliation of bank deposits to the cash receipts for the periods covered by the deposits.

The Bank does not require dual signatures on the associated student body account.

At Bancroft Middle School: Student clubs often do not use sub-receipt books in the initial receipt of cash. The cash receipts book is not always used for deposits made by student dubs with the ASB Secretary/Office Manager. Cash receipts are often turned in without detailed schedules defining the number of items received and the unit price per item. Expenditures are not being approved by the Student Council along with the Advisor and student and governing board of representatives. Sales and revenue producing activities are not being approved by a student council. Check Request/Reimbursement forms are not consistently being filled out for disbursements. Items of purchase are not always in accordance with the intentions of the student program nor are they reflected in minutes. Further, not all funds raised are being spent in the same year limiUng the students who will benefit from the money they raised. Associated Student Body monles are not always spent to enhance the wetfare of the general student body and not a particular group. Monthly report of financial transactions are not prepared and submitted to the teachers, students, advisor and/or Principal for review. Reconciliations being performed and reviewed by the Principal and District Office are not book to bank reconciliations. The book to bank reconciliations that are being prepared are not reviewed by someone independent of the reconciliation.

59

1.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued)

Year Ended June 30, 2005

SECTION II· FINANCIAL STATEMENT FINDINGS (Continued)

INTERNAL CONTROLS· STUDENT BODY ACCOUNTING {30000) (Continued)

Condition (Continued)

At Roosevelt Elementary School: Cash receipts are often turned in without detailed schedules defining the number of items received and the unit price per item. Receipts are not issued when funds are turned in to the ASS Secretary/Office Manager, Actual deposits are not reconciled with cash receipt books. An actual book to bank reconciliation is not being performed.

Possible misappropriation of student body funds

District personnel may not have adequate training and/or enough personnel. Proper internal controls have not been implemented.

Fiscal Impact

Not applicable

Recommendation

The District should review current student body accounting policies and procedures and implement adequate controls to address internal control deficiencies.

Corrective Action Plan

The District Office will provide a formal training session for all site administrators and staff involved in Student Body funds. As part of this training, the District will develop and document proper procedures and forms for site and District Office staff to use for all transactions. Additionally, the District is limiting site checking accounts to the middle and high schools. All elementary school checking balances will be transferred to the District General Fund and managed through the District's current miscellaneous receipts process and normal procurement processes. District Office staff will periodically visit the sites and verify that proper procedures are being followed.

60

2.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AUDIT FINDINGS ANO QUESTIONED COSTS (Continued)

Year Ended June 30, 2005

SECTION II· FINANCIAL STATEMENT FINDINGS {Continued)

INTERNAL CONTROLS. BANK RECONCILIATIONS (30000)

Internal controls - safeguarding of assets

Condition

Bank reconciliation for ASB accounts and the Cafeteria account were not prepared in a timely manner. Further, the revolving fund reconciliation was improperly prepared.

Funds could be potentially misappropriated.

Cause

Internal controls over bank reconciliations were not being implemented. Further, since employees are 10 month employees and are not in attendance when June 30th bank statements arrive, they are not following up on the completion of the reconciliation when school is back in session.

Fiscal Impact

Not applicable.

Recommendation

Bank reconciliations for ail funds should be timely prepared and reviewed on a monthly basis. In addition, in the absence of the staff in charge of the funds, another staff should assume the duty and be able to reconcile the bank statements.

Corrective Action Plan

The District Office will develop a reconciliation check off list for all accounts and follow­up to ensure that they are done in a timely manner. Additionally, the District Office will assign an alternate 12 month employee to reconcile June 30th statements in the absence of staff.

61

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued)

Year Ended June 30, 2005

SECTION Ill • FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

62

3.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued)

Year Ended June 30, 2005

SECTION IV· STATE AWARD FINDINGS ANO QUESTIONED COSTS

ADULT EDUCATION (40000)

Attendance Accounting and Reporting in California Public Schools, Title 5, CCR, Sections 401 and 421 (b) and Ed Code Section 44809 - Each LEA must develop and maintain accurate and adequate records to support the attendance reported to the State.

There was one student who was recorded on scantron as having zero hours in the month selected, however per revlew of Attendance by Section report, student was recorded as having one hour of attendance.

Overstatement of ADA.

The attendance system did not accurately read attendance from the attendance scantron. Per review of scantron, it appears as though student was marked as present and then was erased, however not erased thoroughly enough.

Fiscal Impact

The extrapolated effect of the finding is an overstatement of .58 ADA, representing approximately $2,829.

Recommendation

The District should develop a review process to ensure the attendance system ls accurately reading the attendance scantrons. In addition, the District should revise and re-submit the second period report of attendance to the State.

Corrective Action Plan

The District revised the attendance records prior to submitting the Annual Report of Attendance to the State.

63

4.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued)

Year Ended June 30, 2005

SECTION IV~ STATE AWARD FINDINGS AND QUESTIONED COSTS (Continued)

ATTENDANCE (10000)

Attendance Accounting and Reporting in California Public Schools. Title 5, CCR, Sections 401 and 421 (b), and Education Code Section 44809 - Each LEA must develop and maintain accurate and adequate records to support the attendance reported to the State.

At Wilson Elementary School there were four students who were reported as being present for a particular day, despite having absence notes indicating students as being absent At Bancroft Middle School, there was one student who was reported as being present for a portion of the day, despite having a phone log indicating the student was absent.

The apportionment claimed is overstated.

The error was the result of a clerical mistake in accounting for attendance and no review of absence notes and phone logs to the attendance records.

Fiscal Impact

The extrapolated effect of these errors is a total overstatement of 6.55 ADA, representfng approximately $31,821 in revenue limit funding.

Recommendation

The District should revise and resubmit the Second Period and Annual Report of Attendance removing the disallowed ADA.

Corrective Action Plan

The District will revise the Second Period and Annual Report of Attendance with the corrections noted above.

64

5.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued)

Year Ended June 30, 2005

SECTION IV· STATE AWARD FINDINGS AND QUESTIONED COSTS (Continued)

ATTENDANCE REPORTING· ANNUAL REPORT OF ATTENDANCE (10000)

Attendance Accounting and Reporting in California Public Schools, Title 5, CCR, Sections 401 and 421 (b ), and Education Code Section 44809 - Each LEA must develop and maintain accurate and adequate records to support the attendance reported to the State.

The ADA for Continuation Education was reported as 87.86. However, the supporting documentation only showed 67.86 as the total ADA that should be claimed.

Effect

Overstatement of ADA.

The error was the result of a clerical mistake when entering the information into the report.

Fiscal Impact

The effect of this error is a total overstatement of 20 ADA, representing approximately $99,749 in revenue limit funding.

Recommendation

The District should revise and resubmit the Annual Report of Attendance to reflect the correct ADA figure for Continuation education.

Corrective Action Plan

The District will revise the Annual Report of Attendance with the corrections noted above.

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6.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued)

Year Ended June 30, 2005

SECTION IV~ STATE AWARD FINDINGS AND QUESTIONED COSTS (Continued)

INDEPENDENT STUDY (10000)

Criteria

Attendance Accounting and Reporting in California Public Schools, Title 5, CCR, Sections 401 and 421 (b) and Ed Code Section 44809 • Each LEA must develop and maintain accurate and adequate records to support the attendance reported to the State.

Condition

Apportionment was improperly claimed for a net effect of 5 ADA. Further, one student's assignment sheet did not agree to their attendance sheet but had no ADA impact

Overstatement of ADA.

Student attendance that is recorded per their attendance sheet or assignment sheet is not being transferred correctly to the summary sheets used to calculate ADA.

Fiscal Impact

The extrapolated effect of the finding is an overstatement of .64 ADA, representing approximately $3, 192.

Recommendation

The District should develop a review process to ensure that attendance is being transferred correctly to the summary sheets used to calculate ADA. In addition, the District should revise and re·submit the Second Period and Annual Reports of Attendance to the State.

Corrective Action Plan

The District will review, document and train staff on proper procedures. in addition, the District will revise and resubmit the Second Period and Annual Reports of Attendance.

66

7.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued)

Year Ended June 30, 2005

SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS (Continued)

INSTRUCTIONAL MATERIALS (40000)

Title 5, California Code of Regulations, Section 19828. For Kindergarten and grades 1 through 8, instructional materials purchased by the District are required to be "adopted by the State Board of Education in Marcil 1999 or later, are in one of the four eligible subject areas, and bear the copyright date and are of the editions of the materials adopted by the State Department of Education". For grades 9 through 12, instructional materials purchased by the District are required to be ~reviewed and approved through a resolution adopted by the District's governing board as being aligned with State Board of Education-adopted content standards".

The District made an expenditure in the instructional materials resource code that was not State approved.

Textbooks were purchased with instructional materials funding that were not approved by the State Department of Education.

Cause

A purchased textbook was not on the State Board of Education - approved list

Fiscal Impact

The questioned cost of the exception was $1,177, which extrapolated based on our population testing Is a questioned cost of $7,037.

Recommendation

We recommend the District transfer the unapproved expenditures to the appropriate resource code and verify all expenditures in the instructional material resource code for compliance with State adopted standards.

Corrective Action Plan

The District will review the details of the expenditure and transfer amount to the Prop 20 Lottery Program. Additionally, District staff will attach a copy of the State approved list for each purchase to verify compliance at time of purchase.

67

STATUS OF PRIOR YEAR

FINDINGS AND RECOMMENDATIONS

SAN LEANDRO UNIFIED SCHOOL DISTRICT

STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS

Year Ended June 30, 2005

Findl ng/Recommendation

2004-1 Associated Student Body

Associated Student Body bank recon­ciliations did not contain evidence of review by an independent employee. Further, ASB receipts were not consistently issued for the initial receipt of funds. We recommend the District ensure the bank reconciliations are reviewed and initialed by an independent employee. Further, receipts should be issued for the initial receipt of funds.

2004·2 Attendance

Errors were noted between the teacher scantrons and the attendance system which caused misstatements of ADA. We recommend the District develop pro­cedures to review the attendance system to ensure ADA is being properly recorded.

2004-3 Independent Study

Independent study agreements were not consistently signed and dated on or before the day attendance begins to be reco«led for students. Further, one student received credit for full attendance when a note indicated that the student had missing assignments and appointments. Teachers' Independent monthly summary sheets were not clear to recalculate. We recommend the District Implement a review process of all Master Agreements and the monthly Independent Study Record Sheets.

2004-4 Kindergarten Continuation

The District tetained 9 kindergarten students but did not use the proper State approved retention form. We recommend the District implement procedures to ensure the pre-approved retention agreements are utilized and completed in entirety.

Current Status

Not implemented.

Not implemented.

Not implemented.

Implemented.

68

District Explanation If Not Implemented

See current year findings and recommendations.

See current year findings and recommendations.

See current year findings and recommendations.

SAN LEANDRO UNIFIED SCHOOL DISTRICT

STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS (Continued)

Year Ended June 30, 2005

Finding/Recommendation

2004-5 Instructional Time and Staff Development Reform Program

The District could not provide supporting documentation for the Instructional Time and Staff Development Reform Program claim form originally submitted. We recommend the District develop procedures to revlew the Claim form and ensure the amounts recorded are accurate.

Current Status

Implemented.

69

District Explanation If Not Implemented

APPENDIX B

FORM OF LEGAL OPINION

AppendixB

FORM OF BOND COUNSEL OPINION

[Letterhead of Jones Hall]

Board of Trustees San Leandro Unified School District 14735 Juniper Street San Leandro, CA 94579-1222

July 11, 2006

OPINION: $5,000,000 San Leandro Unified School District (Alameda County, California) 2006 Tax and Revenue Anticipation Notes

Members of the Board of Trustees:

We have acted as bond counsel to the San Leandro Unified School District (the "District") in connection with the issuance by the Board of Supervisors of Alameda County (the "Board") of $5,000,000 principal amount of San Leandro Unified School District (Alameda County, California) 2006 Tax and Revenue Anticipation Notes, dated July 11, 2006 (the "Notes"), pursuant to Article 7.6 ( commencing with section 53850), Chapter 4, Part 1, Division 2, Title 5 of the California Government Code, and a resolution of the Board adopted on June 6, 2006 (the "Resolution"). We have examined the law and such certified proceedings and other papers as we deemed necessary to render this opinion.

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

Based upon our examination, we are of the opinion, as of the date hereof, that:

1. The District is duly created and validly existing as a school district with the power to cause the Board to issue the Notes in its name and to perform its obligations under the Resolution and the Notes.

2. The Resolution has been duly adopted by the Board and creates a valid first hen on the funds pledged under the Resolution for the security of the Notes.

AppendixB

3. The Notes have been duly authorized, issued and delivered by the Board and are vahd and binding general obligations of the District enforceable in accordance with their terms.

4. The interest on the Notes is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinion set forth in the preceding sentences are subject to the condition that the District comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Notes in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Notes in gross income for federal income tax purposes to be retroactive to the date of issuance of the Notes. We express no opinion regarding other federal tax consequences arising with respect to the Notes.

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

The rights of the owners of the Notes and the enforceability thereof may be subject to bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity.

Respectfully submitted,

A Professional Law Corporation

AppendixB

APPENDIX C

FORM OF CONTINUING DISCLOSURE CERTIFICATE

AppendixC

CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the SAN LEANDRO UNIFIED School District (the "District") in connection with the issuance by the Board of Supervisors of Alameda County (the "Board") in the name of the District of $5,000,000 San Leandro Unified School District (Alameda County, California) 2006 Tax and Revenue Anticipation Notes (the "Notes"). The Notes are being issued pursuant to a resolution adopted by the Board of Trustees of the District on June 6, 2006, and a resolution adopted by the Board on June 20, 2006 (collectively, the "Resolution"). The District covenants and agrees as follows:

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

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

"Dissemination Agent" shall mean the District, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section 3(a) of this Disclosure Certificate.

"Participating Underwriter" shall mean any of the original underwriters of the Notes required to comply with the Rule in connection with offering of the Notes.

"Repository" shall mean each State Repository.

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

"State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.

AppendixC

Section 3. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 3, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Notes, if material:

(1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions or events affecting the tax-exempt status of the security. (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities. (11) Rating changes.

(b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall as soon as possible determine if such event would be material under applicable Federal securities law.

( c) If the District determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the District shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Notes pursuant to the Resolution.

Section 4. Termination of Reporting Obligation. The District's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Notes. If such termination occurs prior to the final maturity of the Notes, the District shall give notice of such termination in the same manner as for a Listed Event under Section 3( c ).

Section 5. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the District.

Section 6. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Section 3(a) it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Notes, or type of business conducted;

AppendixC

(b) the undertakmgs herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Notes, after takmg into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Notes, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Notes.

Section 7. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event.

Section 8. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate any holder or beneficial owner of the Notes may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.

Section 9. 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 District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Notes.

AppendixC

Section 10. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Notes, and shall create no rights in any other person or entity.

Date: July 11, 2006

SAN LEANDRO UNIFIED SCHOOL DISTRICT

By Leon Glaster,

Assistant Superintendent

AppendixC

APPENDIX D

EXCERPTS FROM THE ALAMEDA COUNTY INVESTMENT PORTFOLIO REPORT

AppendixD

ALAMEDA COUNTY TREASURER'S OFFICE

COMPOSITION OF TREASURER'S CASH POOL March 31, 2006

The foUowlng summarizes the proffle of !he invewnent por11olio by category as of March 31, 2006 (eee Attachment 1A for graphic illustration of Treasurer's investments by call!gory):

Book Value Marht Cost Value••

lAIF $40,000,000 $40,3911,076

Bankers Acceptance 41,249,390 41,575,265 Collateralized Time Deposit& 46,600,000 46,953,175 Negotiable Cer1lfieates of Deposits 282,001,989 283,150,510 Commercial Peper 209 ,563 ,332 212,491,265 Money Markel Funds 1ea,ooo,ooo 166,753,438 Federal Agency Notes & Bonds 1, 15El,41!11,00B 1,149,749,944 Federal Agency Discount Notes 339,884,538 345,793,675 Medium term Note!! 164,291,5411 163,636,267 US Treasury Coupon 24,9911,630 24,965,797 US Tre,isury Oiswunt 112,112, 104 115,945,212 Total lnvootment9 $2,583,788,598 $2,591,412,624 Cash in Bank and on Hand 54,309,072 54,3oe,on

Total Treasurer's Poof ,$2,638,0l!?,670 $2,6'45, 721,696

Footnot&a:

Of !he total cash and inveslmentholdlngsllsb,d above $1,34S,l!09,790 or 51. 13% oo~d of cash and investments maturing within lhree monlhs of 111is report. · See .Attachment IE! for fuU graphic IHustrmion of Treasurers investment by mlltt.lrily.

""Market value of inv""'m•nts Includes aecrued Interest.

# The Federal Agency notes holding& consisted oflhe following breakdown;

E!uile\ Issues Callable Issues

To!al

$104,359,650 1052127416

$1, 156,4!17,066

% Held

1.52% 1.56% 1.77%

10.69% 7.94% 6.29%

43.84% 12.88% 623% 0.95% 4.27%

97.94% 2.06%

100.00%

3.96% 39.88%

43,84%

Attachment I

%Allowed by Sec 53601

N.A. 30%

no limit 30",{, 25% 20%

no limit no llml! 30%

no llm!t