preliminary official statement dated november 9, 2012 · the capital appreciation notes are dated...

This

Pre

limin

ary

Off

icia

l Sta

tem

ent a

nd th

e in

form

atio

n co

ntai

ned

here

in a

re s

ubje

ct to

com

plet

ion

or a

men

dmen

t. T

hese

sec

uriti

es m

ay n

ot b

e so

ld, n

or m

ay o

ffer

s to

buy

them

be

acce

pted

, prio

r to

the

time

the

Off

icia

lSt

atem

ent i

s de

liver

ed in

fin

al f

orm

. U

nder

no

circ

umst

ance

s sh

all t

his

Prel

imin

ary

Off

icia

l Sta

tem

ent c

onst

itute

an

offe

r to

sel

l or

the

solic

itatio

n of

an

offe

r to

buy

, nor

sha

ll th

ere

be a

ny s

ale

of, t

hese

sec

uriti

es in

any

juris

dict

ion

in w

hich

such

off

er, s

olic

itatio

n or

sale

wou

ld b

e un

law

ful.

PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER 9, 2012

NEW ISSUE - BOOK-ENTRY ONLY Rating: Moody’s: “MIG – 1”

(See “RATING” herein)

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

$20,000,000* MONTEREY PENINSULA UNIFIED SCHOOL DISTRICT

(Monterey County, California) 2012 General Obligation Bond Anticipation Notes

Dated: Date of Delivery Due: November 1, 2015*

This cover page of the Official Statement contains information for quick reference only. It is not a complete summary of this issue. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page and not otherwise defined shall have the meanings set forth herein.

The Monterey Peninsula Unified School District (Monterey County, California) 2012 General Obligation Bond Anticipation Notes (the “Notes”) are an obligation of the Monterey Peninsula Unified School District (the “District”) being issued thereby to finance the costs of renovating, acquiring, constructing, repairing and equipping of District buildings and other facilities in anticipation of proceeds from general obligation bonds (the “Bonds”) to be issued pursuant to a duly called election of the registered voters of the District held on November 2, 2010, at which the requisite 55% or more of the persons voting on the proposition voted to authorize the issuance and sale of $110,000,000 principal amount of general obligation bonds of the District (the “2010 Authorization”).

The Notes are payable from proceeds of the future sale of Bonds issued pursuant to the 2010 Authorization, from proceeds of the sale of bond anticipation notes in renewal of the Notes (“Renewal Notes”), or from other funds of the District lawfully available for the purpose of repaying the Notes, including State grants. Interest on the Current Interest Notes and accreted interest on the Capital Appreciation Notes shall also be payable from the ad valorem tax lawfully levied to pay the interest on the Notes, when due. The District has covenanted in its resolution authorizing the issuance of the Notes to take all actions required to authorize, sell, and issue, on or before November 1, 2015*, Bonds, Renewal Notes or certificates of participation in an aggregate principal amount sufficient to pay the principal of and interest on the Notes coming due and payable at maturity. See “THE NOTES – Security and Sources of Payment” herein.

The Notes will be issued as current interest notes (the “Current Interest Notes”) and capital appreciation notes (the “Capital Appreciation Notes”). Interest with respect to the Current Interest Notes accrues from the date of delivery thereof (the “Date of Delivery”) and is payable semiannually on May 1 and November 1 of each year, commencing November 1, 2013. The Current Interest Notes will be issued in denominations of $5,000 principal amount or any integral multiple thereof. The Capital Appreciation Notes are dated the Date of Delivery and accrete interest from such date, compounded semiannually on May 1 and November 1 of each year, commencing on May 1, 2013. The Capital Appreciation Notes will be issued in denominations of $5,000 Maturity Value or any integral multiple thereof.

Principal of and interest on and Maturity Value of the Notes will be payable in lawful money of the United States of America by the District upon maturity at the office of U.S. Bank National Association, as the designated registrar, transfer agent, authentication agent and paying agent. The Notes will be issued in fully registered form, and when delivered will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York, which will act as securities depository for the Notes. See “APPENDIX E – Book-Entry Only System” herein.

The Notes are not be subject to redemption prior to maturity.

Maturity Schedule*

$______ Current Interest Notes Maturity

November 1 Principal Amount

Interest Rate

Yield

CUSIP†

$________ Capital Appreciation Notes

Maturity November 1

Denominational

Amount

Approx. Accretion

Rate

Yield

Maturity

Value

CUSIP†

The Notes are offered when, as and if delivered and received by the Underwriters, subject to the approval as to legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, Bond Counsel and Disclosure Counsel. Certain matters are being passed upon for the Underwriters by Kutak Rock LLP, Denver, Colorado. It is anticipated that the Notes, in book-entry form, will be available for delivery through the facilities of The Depository Trust Company in New York, New York on or about November __*, 2012.

The date of this Official Statement is: November __, 2012. ___________________ † CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor's Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the Underwriters nor the District is responsible for the selection or correctness of the CUSIP numbers set forth herein. * Preliminary, subject to change.

The information contained herein has been obtained from sources that are believed to be reliable. No representation, warranty or guarantee, however, is made by the Underwriters as to the accuracy or completeness of any information in this Official Statement, including, without limitation, the information contained in the Appendices hereto, and nothing contained in this Official Statement is or shall be relied upon as a promise or representation by the Underwriters.

No dealer, broker, salesperson or other person has been authorized by the District or the Underwriters to give any information or to make any representations, other than those contained in this Official Statement, and if given or made, such information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Notes by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the Notes shall under any circumstances create any implication that there has been no change in the affairs of the District or other matters described herein since the date hereof.

This Official Statement and the information contained herein are subject to completion or amendment without notice. These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

In connection with the offering of the Notes, the Underwriters may overallot or effect transactions that stabilize or maintain the market price of the Notes at levels above those that might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.

The Underwriters have provided the following sentence for inclusion in this Official Statement: “The Underwriters have reviewed the information in this official statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.”

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used, such as “plan,” “expect,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when their expectations, or events, conditions or circumstances on which such statements are based, occur.

The District maintains a website. However, the information presented on the District’s website is not incorporated into this Official Statement by any reference, and should not be relied upon in making investment decisions with respect to the Notes.

MONTEREY PENINSULA UNIFIED SCHOOL DISTRICT

BOARD OF EDUCATION

Debra Gramespacher, President Curt Parker, Clerk Vice-President

Diane Creasey, Member Jon Hill, Member

Regena Lauterbach, Member Dr. Bettye Lusk, Member Helen B. Rucker, Member

DISTRICT ADMINISTRATION

Dr. Marilyn Shepherd, Superintendent Dan Albert, Associate Superintendent, Business Services

Susan Ziebell, Director of Fiscal Services Janet Lee, Coordinator of Fiscal Services

PROFESSIONAL SERVICES

Bond Counsel and Disclosure Counsel

Stradling Yocca Carlson & Rauth, a Professional Corporation San Francisco, California

Financial Advisor

Keygent LLC El Segundo, California

Underwriters

Stone & Youngberg, a Division of Stifel Nicolaus San Francisco, California

Piper Jaffray & Co. El Segundo, California

Paying Agent, Registrar and Transfer Agent

U.S. Bank National Association Los Angeles, California

i

INTRODUCTION ....................................................................................................................................................... 1 THE DISTRICT ............................................................................................................................................................ 1 PURPOSE OF THE NOTES ............................................................................................................................................. 2 AUTHORITY FOR THE ISSUANCE OF THE NOTES ......................................................................................................... 2 SECURITY AND SOURCES OF PAYMENT FOR THE NOTES ............................................................................................ 2 DESCRIPTION OF THE NOTES ...................................................................................................................................... 2 PAYING AGENT .......................................................................................................................................................... 3 REDEMPTION ............................................................................................................................................................. 3 TAX MATTERS ........................................................................................................................................................... 3 CONTINUING DISCLOSURE ......................................................................................................................................... 3 PROFESSIONALS INVOLVED IN THE OFFERING ........................................................................................................... 4 OTHER INFORMATION ................................................................................................................................................ 4

THE NOTES ................................................................................................................................................................ 4 AUTHORITY FOR ISSUANCE ........................................................................................................................................ 4 PURPOSE OF ISSUE ..................................................................................................................................................... 4 GENERAL PROVISIONS ............................................................................................................................................... 4 DEBT SERVICE SCHEDULE ......................................................................................................................................... 6 SECURITY AND SOURCES OF PAYMENT ...................................................................................................................... 6 RISK FACTORS ........................................................................................................................................................... 6

ESTIMATED SOURCES AND USES OF FUNDS .................................................................................................. 8

APPLICATION OF NOTE PROCEEDS .................................................................................................................. 8 MONTEREY COUNTY INVESTMENT POOL ..................................................................................................... 9

DISTRICT FINANCIAL INFORMATION ............................................................................................................ 10 STATE FUNDING OF EDUCATION .............................................................................................................................. 10 REVENUE SOURCES.................................................................................................................................................. 11 STATE LOTTERY ...................................................................................................................................................... 12 OTHER STATE REVENUES ........................................................................................................................................ 12 OTHER LOCAL REVENUES ....................................................................................................................................... 12 FEDERAL REVENUES ................................................................................................................................................ 12 DEVELOPER FEES ..................................................................................................................................................... 13 REDEVELOPMENT REVENUES .................................................................................................................................. 13 BUDGET PROCEDURES ............................................................................................................................................. 14 GENERAL FUND BUDGET ......................................................................................................................................... 15 ACCOUNTING PRACTICES ........................................................................................................................................ 18 STATE BUDGET MEASURES ..................................................................................................................................... 18

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS ................................................................................................................................................. 21

ARTICLE XIIIA OF THE CALIFORNIA CONSTITUTION ............................................................................................... 21 LEGISLATION IMPLEMENTING ARTICLE XIIIA ......................................................................................................... 21 UNITARY PROPERTY ................................................................................................................................................ 22 ARTICLE XIIIB OF THE CALIFORNIA CONSTITUTION ............................................................................................... 22 ARTICLE XIIIC AND ARTICLE XIIID OF THE CALIFORNIA CONSTITUTION .............................................................. 23 PROPOSITION 26....................................................................................................................................................... 24 PROPOSITION 98....................................................................................................................................................... 24 PROPOSITION 111 ..................................................................................................................................................... 25 PROPOSITION 39....................................................................................................................................................... 26 JARVIS V. CONNELL ................................................................................................................................................. 27 PROPOSITION 1A AND PROPOSITION 22 ................................................................................................................... 27 PROPOSITION 30....................................................................................................................................................... 28 STATE CASH MANAGEMENT LEGISLATION .............................................................................................................. 28

ii

MONTEREY PENINSULA UNIFIED SCHOOL DISTRICT .............................................................................. 29 INTRODUCTION ........................................................................................................................................................ 29 ADMINISTRATION .................................................................................................................................................... 30 LABOR RELATIONS .................................................................................................................................................. 31 RETIREMENT PROGRAMS ......................................................................................................................................... 31 OTHER POST-EMPLOYMENT BENEFITS .................................................................................................................... 33 INSURANCE .............................................................................................................................................................. 34

DISTRICT FINANCIAL MATTERS ...................................................................................................................... 34 COMPARATIVE FINANCIAL STATEMENTS ................................................................................................................. 34 AD VALOREM PROPERTY TAXATION ......................................................................................................................... 36 ASSESSED VALUATIONS .......................................................................................................................................... 37 APPEALS AND REDUCTIONS OF ASSESSED VALUATIONS ......................................................................................... 38 ASSESSED VALUATION AND PARCELS BY LAND USE ............................................................................................... 39 ASSESSED VALUATION PER PARCEL OF SINGLE FAMILY HOMES ............................................................................ 40 ASSESSED VALUATION BY JURISDICTION ................................................................................................................ 41 TAX LEVIES, COLLECTIONS AND DELINQUENCIES ................................................................................................... 41 ALTERNATIVE METHOD OF TAX APPORTIONMENT – TEETER PLAN ........................................................................ 42 PRINCIPAL TAXPAYERS ............................................................................................................................................ 43 TYPICAL TAX RATES ............................................................................................................................................... 44

DISTRICT DEBT STRUCTURE ............................................................................................................................ 44 SHORT-TERM DEBT ................................................................................................................................................. 44 LONG-TERM DEBT ................................................................................................................................................... 44 STATEMENT OF DIRECT AND OVERLAPPING DEBT ................................................................................................... 46

TAX MATTERS ........................................................................................................................................................ 48

CERTAIN LEGAL MATTERS ............................................................................................................................... 49 LEGALITY FOR INVESTMENT IN CALIFORNIA ........................................................................................................... 49 LEGAL OPINION ....................................................................................................................................................... 49 CONTINUING DISCLOSURE ....................................................................................................................................... 50 INFORMATION REPORTING REQUIREMENTS ............................................................................................................. 50 FINANCIAL STATEMENTS ......................................................................................................................................... 50 ABSENCE OF MATERIAL LITIGATION ....................................................................................................................... 50

RATING ..................................................................................................................................................................... 51 UNDERWRITING .................................................................................................................................................... 51

MISCELLANEOUS .................................................................................................................................................. 52

APPENDIX A – CITY OF MONTEREY AND MONTEREY COUNTY GENERAL AND ECONOMIC DATA A-1 APPENDIX B - PROPOSED FORM OF OPINION OF BOND COUNSEL ........................ .................................. B-1 APPENDIX C - 2010-11 AUDITED FINANCIAL STATEMENTS OF THE DISTRICT ... .................................. C-1 APPENDIX D - FORM OF CONTINUING DISCLOSURE CERTIFICATE ...................... .................................. D-1 APPENDIX E - BOOK-ENTRY ONLY SYSTEM ............................................................... .................................. E-1 APPENDIX F – ACCRETED VALUES TABLE .................................................................. .................................. F-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

1

$20,000,000∗ MONTEREY PENINSULA UNIFIED SCHOOL DISTRICT

(Monterey County, California) 2012 General Obligation Bond Anticipation Notes

INTRODUCTION

This Official Statement, which includes the cover page, Table of Contents and Appendices thereto, provides certain information concerning the sale and delivery of the Monterey Peninsula Unified School District (Monterey County, California) 2012 General Obligation Bond Anticipation Notes, in the aggregate principal amount of $20,000,000* (the “Notes”). This introduction is not a summary of the Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement.

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

The District

The Monterey Peninsula Unified School District (the “District”) is the largest unified school district in Monterey County as measured by student enrollment. The District serves students in grades K-12 in Monterey County (the “County”). The District boundaries encompass approximately 67 square miles. The District serves the communities of Monterey, Marina, Sand City, Seaside, Del Rey Oaks, Fort Ord, a portion of Pebble Beach, and unincorporated portions of the County.

The District operates 11 elementary schools, three middle schools, three comprehensive high schools, and one alternative high school. The District has budgeted its average daily attendance for fiscal year 2012-13 to be 9,785. The total assessed valuation of taxable property in the District for fiscal year 2012-13 is $9,346,671,398.

The District is governed by a seven-member Board of Education, each member of which is elected to a four-year term. Elections for positions to the Board are held every two years, alternating between three and four available positions. The management and policies of the District are administered by a Superintendent, appointed by the Board of Education, who is responsible for day-to-day District operations as well as the supervision of the District’s other personnel. Dr. Marilyn Shepherd is the Superintendent of the District. See “MONTEREY PENINSULA UNIFIED SCHOOL DISTRICT” herein.

___________________ ∗ Preliminary, subject to change.

2

Purpose of the Notes

The Notes are being issued to finance the costs of renovating, acquiring, constructing, repairing and equipping of District buildings and other facilities, in anticipation of proceeds from general obligation bonds (the “Bonds”) to be issued by the District pursuant to the 2010 Authorization (defined herein).

Authority for the Issuance of the Notes

The Notes are issued under the authority of the State of California Education Code and a resolution adopted by the Board on August 20, 2012 (the “Resolution”). See “THE NOTES – Authority for Issuance” herein.

Security and Sources of Payment for the Notes

The Notes are obligations of the District payable from (i) proceeds of a future sale of Bonds authorized at a duly called election held in the District on November 2, 2010 and thereafter canvassed pursuant to law, at which the requisite 55% or more of the persons voting on the proposition voted to authorize the issuance and sale of $110,000,000 principal amount of general obligation bonds of the District (the “2010 Authorization”) of which $75,000,896.30 of the 2010 Authorization remains, (ii) proceeds of the sale of bond anticipation notes in renewal of the Notes (the “Renewal Notes”), or (iii) other funds of the District lawfully available for the purpose of repaying the Notes, including State grants. Interest on the Current Interest Notes and the accreted interest on the Capital Appreciation Notes shall also be payable from the ad valorem tax lawfully levied to pay interest on the Notes, when due. On November 5, 2012, the Board adopted a resolution authorizing the levy of a tax for repayment of all or a portion of the interest on the Notes and requesting the County Board of Supervisors to establish a tax rate for such purpose, beginning in fiscal year 2013-14. See “THE NOTES – Security and Sources of Payment” and “MONTEREY PENINSULA UNIFIED SCHOOL DISTRICT” herein.

The District has covenanted in the Resolution to take all actions required to authorize, sell, and issue, on or before November 1, 2015∗, Bonds, Renewal Notes or certificates of participation, or a combination thereof, in an aggregate principal amount which is sufficient to pay the principal of and interest on and Maturity Value of the Notes coming due and payable at maturity. See “THE NOTES – Risk Factors” herein.

Description of the Notes

Current Interest Notes and Capital Appreciation Notes. The Notes will be issued as current interest notes (the “Current Interest Notes”) and capital appreciation notes (the “Capital Appreciation Notes”). The Current Interest Notes will be dated as of their date of delivery (the “Date of Delivery”), will mature on November 1, 2015*, and will bear periodic interest at the rate set forth on the cover page hereof. Interest on the Current Interest Notes will accrue from the Date of Delivery and will be payable semiannually on May 1 and November 1 of each year (each, a “Note Payment Date”), commencing November 1, 2013. Interest on the Current Interest Notes is calculated on the basis of a 360-day year of twelve 30-day months.

The Capital Appreciation Notes will be dated as of their Date of Delivery and will mature on November 1, 2015*. The Capital Appreciation Notes are payable only at maturity, and will not pay interest on a current basis. The maturity value of a Capital Appreciation Note is equal to its Accreted


3

Value upon the maturity thereof (the “Maturity Value”). The “Accreted Value” of a Capital Appreciation Note for any date is equal to the sum of its initial principal amount on its Date of Delivery thereof (its “Denominational Amount”) and the interest accreting thereon between the Date of Delivery thereof and such date. Each Capital Appreciation Note accretes in value from its Denominational Amount on the Date of Delivery to its Maturity Value on November 1, 2015* at the Accretion Rate per annum set forth on the cover page hereof, compounded semiannually on May 1 and November 1 of each year, commencing on May 1, 2013. The Capital Appreciation Notes are payable only at maturity according to the amounts set forth in the Table of Accreted Values as shown in Appendix F attached hereto.

The Notes will be delivered only in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of the Depository Trust Company, New York, New York (“DTC”). DTC will act as security depository for the Notes. See “THE NOTES – General Provisions” and “APPENDIX E – Book-Entry Only System” herein.

Paying Agent

U.S. Bank National Association, located in Los Angeles, California, will act as the registrar, transfer agent, and paying agent for the Notes (the “Paying Agent”). As long as DTC is the registered owner of the Notes and DTC’s book-entry method is used for the Notes, the Paying Agent will send any notices to Owners only to DTC.

Neither the Paying Agent, the District, nor the Underwriters of the Notes have any responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership of interests in the Notes.

Redemption

The Notes are not subject to redemption prior to their stated maturity dates.

Tax Matters

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

Continuing Disclosure

The District has covenanted for the benefit of the holders and beneficial owners of the Notes to make available certain financial information and operating data relating to the District and to provide notices of the occurrence of certain enumerated events. These covenants have been made in order to assist the Underwriters in complying with Rule 15c2-12(b)(5)(i)(C) promulgated under the Securities Exchange Act of 1934, as amended. See “CERTAIN LEGAL MATTERS – Continuing Disclosure” herein and “APPENDIX D - FORM OF CONTINUING DISCLOSURE CERTIFICATE” attached hereto.

4

Professionals Involved in the Offering

Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, is acting as Bond Counsel and Disclosure Counsel to the District with respect to the Notes and will receive compensation from the District contingent upon the sale and delivery of the Notes. Keygent LLC, El Segundo, California, is acting as financial advisor to the District with respect to the Notes. U.S. Bank National Association is acting as the Paying Agent with respect to the Notes. Certain matters are being passed upon for the Underwriters by Kutak Rock LLP, Denver, Colorado.

Other Information

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

Copies of documents referred to herein and information concerning the Notes are available, upon request, and upon payment to the District of a charge for copying, mailing and handling, from the District at Monterey Peninsula Unified School District, 700 Pacific Street, Monterey, California 93940, telephone: (831) 645-1203.

This Official Statement contains brief descriptions of, among other things, the District, the Notes and the Resolution pertaining to the Notes, and certain other matters relating to the security for the Notes. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to documents and agreements are qualified in their entirety by reference to such documents, and agreements and references herein to the Notes are qualified in their entirety by reference to the form thereof included in the Resolution, respectively. Copies of such documents will be available for inspection at the principal office of the Paying Agent after delivery of the Notes. Capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Resolution.

The sale and delivery of the Notes to potential investors is made only by means of the entire Official Statement.

THE NOTES

Authority for Issuance

The Notes are being issued under the authority of Title 1, Division 1, Part 10, Chapter 1, Article 3 of the Education Code of the State of California (comprising Sections 15150 et seq.), and pursuant to a resolution adopted by the Board of Education of the District on August 20, 2012 (the “Resolution”).

Purpose of Issue

The Notes are being issued to finance the repair, upgrading, acquisition, construction and equipping of certain District property and facilities, in anticipation of proceeds from the Bonds to be issued by the District pursuant to the 2010 Authorization.

General Provisions

The Notes will be delivered only in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of DTC, who act as security depository for the Notes. Purchasers will not receive certificates representing their interests in the Notes.

5

The Notes are not subject to redemption prior to maturity.

The Current Interest Notes will bear periodic interest at the rate set forth on the cover page hereof. Interest with respect to the Current Interest Notes accrues from the Date of Delivery, and is payable on each Note Payment Date, commencing November 1, 2013. Interest on the Current Interest Notes will be computed on the basis of a 360-day year of twelve 30-day months. Each Current Interest Note will bear interest from the Note Payment Date next preceding the date of authentication thereof unless it is authenticated as of a day during the period from the 15th day of the month immediately preceding any Note Payment Date (a “Record Date”) to and including such Note Payment Date, in which event it shall bear interest from such Note Payment Date, or unless it is authenticated on or before October 15, 2013, in which event it shall bear interest from the Date of Delivery. The Current Interest Notes will be dated as of the Date of Delivery and will mature on November 1, 2015*. The Current Interest Notes are issuable in denominations of $5,000 principal amount, or any integral multiple thereof.

The Capital Appreciation Notes will be dated as of their Date of Delivery and will mature on November 1, 2015*. The Capital Appreciation Notes are payable only at maturity, and will not pay interest on a current basis. The Capital Appreciation Notes shall accrete in value from their Denominational Amount to their Maturity Value, at the approximate Accretion Rate per annum set forth on the front cover hereof, compounded semiannually on May 1 and November 1 of each year, commencing May 1, 2013. The Maturity Value of a Capital Appreciation Note is equal to its Accreted Value upon the maturity date. Interest with respect to each Capital Appreciation Note is represented by the amount each Capital Appreciation Note accretes in value from its Denominational Amount to the date for which Accreted Value is calculated. The Accreted Value (the “Accreted Value”) of a Capital Appreciation Note is calculated by discounting on a 30-day month, 360-day year basis its Maturity Value on the basis of a constant interest rate (the “Accretion Rate”) compounded semiannually on May 1 and November 1, of each year to the date for which an Accreted Value is calculated, and if the date for which Accreted Value is calculated is between May 1 and November 1, by pro rating the Accreted Values to the closest prior or subsequent May 1 and November 1. See the maturity schedule on the front cover hereof and “APPENDIX F – Accreted Values Table” attached hereto. The Capital Appreciation Notes are issuable in denominations of $5,000 Maturity Value, or any integral multiple thereof, and will mature on November 1, 2015∗.


6

Debt Service Schedule

The following table shows the debt service schedule with respect to the Notes:

Current Interest Notes Capital Appreciation Notes

Period Ending

Annual Principal Payment

Annual Interest

Payment(1)

Annual Principal

Payment(2)

Annual Accreted Interest

Payment(2)

Total Semi-Annual Debt Service

Total (1) Interest payments on the Current Interest Notes will be made on May 1 and November 1 of each year, commencing

November 1, 2013. (2) The Capital Appreciation Notes are payable only at maturity, and interest on such Capital Appreciation Notes is compounded

semiannually on May 1 and November 1, commencing on May 1, 2013.

Security and Sources of Payment

The principal of and interest on and Maturity Value of the Notes, will be payable from the proceeds of the future sale of Bonds pursuant to the 2010 Authorization, Renewal Notes, or from other funds of the District lawfully available for the purpose of repaying the Notes, including State grants. Interest on the Current Interest Notes and accreted interest on the Capital Appreciation Notes shall also be payable from the ad valorem tax lawfully levied to pay interest on the Notes, when due. On November 5, 2012, the Board adopted a resolution authorizing the levy of a tax for repayment of all or a portion of the interest on the Notes and requesting the County Board of Supervisors to establish a tax rate for such purpose, beginning in fiscal year 2013-14.

The District has covenanted in the Resolution to take all actions required to authorize, sell and issue, on or before the maturity date of the Notes, Bonds, Renewal Notes or certificates of participation, or a combination thereof, in an aggregate principal amount sufficient to pay the principal of and interest on and Maturity Value of the Notes coming due and payable at maturity.

Risk Factors

There are certain risks to investors inherent in the purchase of the Notes. The following factors, along with the other information provided in this Official Statement, should be considered by potential investors in evaluating a purchase of Notes. The following, however, do not purport to be an exhaustive listing of risks and other considerations that may be relevant to an investment in the Notes. The following factors are not presented in a priority reflective of their importance or significance to investors.

Tax Rate Levy Limitations under Proposition 39. Proposition 39, including the “Strict Accountability in Local School Construction Bonds Act of 2000,” set forth at Section 15264 et seq. of the Education Code, sets forth limits on the ability of school districts to access their general obligation bond authorization. Proposition 39 provides that the District may not issue general obligation bonds unless the combined tax rate for all general obligation bonds issued under the 2010 Authorization is estimated not to exceed $60 per $100,000 of assessed valuation. At the time the Notes mature, circumstances may be such that compliance with the tax rate minimum established by Proposition 39 would prevent the issuance of the Bonds to pay off the maturing Notes. See “—Slow Growth or Reductions in Assessed Valuation”

7

below. A delay in the ability of the District to access the 2010 Authorization would require the District to identify other sources of funds to pay the maturing Notes.

Sources of Repayment; Limitation as to Term. The Notes are being issued pursuant to the Act, which prescribes the sources of repayment thereof and the maximum term of the Notes. Under the Act, the Notes may have a maximum term of five years from the date of initial issuance thereof. Upon maturity, and pursuant to the Resolution, the District has covenanted to deliver Bonds, Renewal Notes or certificates of participation, or a combination thereof, in an amount sufficient to pay the principal of and interest on and Maturity Value of maturing Notes. The Notes will mature on November 1, 2015∗, and as such could be renewed for an additional two years pursuant to the Act.

Slow Growth or Reductions in Assessed Valuation. Market conditions, reduced then-current levels of assessed valuation throughout the District and other factors could adversely affect the future ability of the District to issue Bonds, certificates of participation or other obligations to pay the maturing Notes. At present, assessed valuation levels within the District permit the District to access the amount of 2010 Authorization necessary to pay the principal of and interest on and Maturity Value of the Notes at maturity. While the District is unable to predict the assessed valuation in the future, the principal amount of the Notes was based on assessed valuation assumptions that should allow for the Notes to be paid at maturity, as well as pay a portion of the interest on the Notes from an ad valorem tax levied for such purpose. Assuming the District does not issue additional general obligation bonds under the 2010 Authorization for new construction projects, the District estimates that assessed valuation within the District would have to decline by more than 50% by the maturity date of the Notes in order to prevent the District from issuing general obligation bonds to repay the Notes.

Based on its current projections, the District anticipates being able to issue Bonds under the 2010 Authorization in an amount sufficient to pay the Notes on or before November 1, 2015*. However, the District is unable to predict its future assessed valuation, and the District’s expectations are based on estimates, facts and circumstances now known to the District. Economic factors beyond the control of the District, such as successful appeals by property owners for reductions in assessed valuation of their properties, destruction of or damage to real property caused by natural forces, including fire, flood and earthquake, and other factors could cause continued slow growth or even a significant reduction in the assessed valuation within the District as a whole. Those circumstances could prevent the District from issuing general obligation bonds under applicable provisions of the California Constitution in an amount sufficient to pay, and by a date prior to the maturity of, the Notes. In that instance, the District would be obligated and is prepared to pay the maturing Notes from the sale of the Bonds, Renewal Notes or certificates of participation, or a combination thereof. See “—Sources of Repayment; Limitation as to Term” above, “DISTRICT FINANCIAL MATTERS – Assessed Valuations” and “DISTRICT FINANCIAL MATTERS – Appeals and Reductions of Assessed Valuations” herein.

Other Factors Limiting the Issuance of District Obligations to Pay the Notes. In addition to the slow growth of or reductions to the District’s assessed valuation, other factors could make it difficult or impossible for the District to issue Bonds, Renewal Notes, certificates of participation or other obligations to pay the maturing Notes, including, but not limited to, the general financial condition of the District at the time it institutes proceedings to issue such obligations or the condition of the prevailing municipal securities market. No assurances can be given that the District will be able to issue any such obligations when and as required to provide for the payment of the Notes at maturity.


8

Reduction in Allowed Inflationary Rate: Initiatives Affecting Assessed Valuation. Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given calendar year, or may be reduced to reflect a reduction in the consumer price index or comparable local data.

Article XIIIA was adopted pursuant to the constitutional initiative process in the State. From time to time, other initiative measures are adopted by the voters in California, and it may be possible that a future initiative might alter the taxable value, reduce the permitted property tax rate or broaden property tax exemptions, further eroding the ability of the District to access the 2010 Authorization prior to the final maturity of the Notes. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” herein.

ESTIMATED SOURCES AND USES OF FUNDS

The proceeds of the Notes are expected to be applied as follows:

Sources of Funds Principal Amount of Notes Net Original Issue Premium Total Sources Uses of Funds

Building Fund Debt Service Fund Costs of Issuance(1)

Total Uses

________________ (1) A portion of the proceeds of the Notes will be used to pay certain costs of issuance, including but not limited to demographics and

filing fees, Underwriters’ discount, printing costs, legal and financial advisory fees, rating agency fees, and the costs and fees of the Paying Agent. See “UNDERWRITING” herein.

APPLICATION OF NOTE PROCEEDS

The proceeds from the sale of the Notes, to the extent of the principal amount thereof, shall be deposited to the credit of the “Monterey Peninsula Unified School District, Election of 2010 General Obligation Bonds, Series B and Bond Anticipation Note Building Fund” (the “Building Fund”), held by the County and kept separate and distinct from all other District and County funds. Such proceeds shall be used to finance the costs of renovating, acquiring, constructing, repairing and equipping of District buildings and other facilities.

Any premium received by the District from the sale of the Notes shall be kept separate and apart in the fund designated as the “Monterey Peninsula Unified School District, Election of 2010 General Obligation Bonds, Series B and Bond Anticipation Note Debt Service Fund” (the “Debt Service Fund”), and such premium shall be used only for payment of principal of and interest on and Maturity Value of the Notes. As needed, proceeds from the sale of any Renewal Notes, Bonds, certificates of participation and other funds of the District lawfully available for the purpose of repaying the Notes, shall also be deposited into the Debt Service Fund or applied directly to the payment of principal of and interest on and

9

Maturity Value of such Notes. Interest earnings on moneys held in the Building Fund shall be retained in the Building Fund. Interest earnings on moneys held in the Debt Service Fund shall be retained in the Debt Service Fund.

In accordance with the Resolution and subject to federal tax restrictions, moneys in the Building Fund and the Debt Service Fund may be invested in any one or more investments generally permitted to school districts under the laws of the State of California or as permitted by the Resolution. Moneys in the Building Fund are expected to be invested in the County Treasury Pool. See “MONTEREY COUNTY INVESTMENT POOL” herein.

MONTEREY COUNTY INVESTMENT POOL

The following information has been provided by the County, and the District, the Financial Advisor and Underwriters take no responsibility for the accuracy or completeness thereof. Further information may be obtained from the County Treasurer.

Under California law, the District is required to pay all monies received from any source into the Monterey County Treasury to be held on behalf of the District. The Treasurer-Tax Collector of the County (the “Treasurer”) has authority to implement and oversee the investment of funds on deposit in commingled funds of the Treasury (the “Treasury Pool”).

On September 30, 2012, the Treasury Pool had a market value of $940,943,562. The portfolio’s estimated earned income for the quarter was $1,159,315, which represents an annualized yield of 0.49%. The weighted average maturity of the portfolio was 449 days. The County Treasurer’s investment portfolio is in compliance with all provisions of the adopted Investment Policy and with applicable provisions of State statutes. The sources of market values and prices were Bloomberg LLP, Union Bank of California, and certain securities dealers. The County Treasurer’s report includes separate reports by maturity range and security classification.

As of September 30, 2012, approximately 31.27% of the Treasury Pool was in cash or invested in instruments with overnight maturities, including repurchase agreements with dealers, money market funds, commercial paper, and investments in the Local Agency Investment Fund (LAIF) managed by the State Treasurer.

Type of Security

Market Value Average

Days to Maturity Money Market Accounts $108,579,632.09 1 State Pool 79,812,000.00 1 CAMP 105,274,130.77 1 Negotiable CDs 20,080,000.00 580 Medium Term Notes 45,780,000.00 988 Commercial Paper Discount Notes 9,977,600.00 249 Federal Agency Coupon Securities 551,344,600.00 625 US Treasury Notes 10,064,400.00 287 Federal Agency Step Up 10,031,200.00 1,577 Total $940,943,562.86 449

Source: County of Monterey Treasurer-Tax Collector.

Neither the District, the Financial Advisor nor the Underwriters have made an independent investigation of the investments in the Treasury Pool and has made no assessment of the current County investment policy. The value of the various investments in the Treasury Pool will fluctuate on a daily

10

basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Additionally, the Treasurer, with the consent of the Treasury Oversight Committee and the County Board of Supervisors may change the County investment policy at any time. Therefore, there can be no assurance that the values of the various investments in the Treasury Pool will not vary significantly from the values described herein.

DISTRICT FINANCIAL INFORMATION

State Funding of Education

As a whole, California school districts receive a significant portion of their funding from State appropriations. As a result, decreases in state revenues significantly affect appropriations made by the legislature to school districts.

Annual state apportionments of basic and equalization aid to school districts for general purposes are computed up to a revenue limit per unit of average daily attendance (“A.D.A.”). Generally, these apportionments amount to the difference between the District’s revenue limit and its property tax allocation. The revenue limit calculations are adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among all California school districts of the same type.

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

The following table shows the District’s average daily attendance and revenue limit per A.D.A. for the last seven years, as well as budgeted figures for fiscal year 2012-13.

11

ENROLLMENT, AVERAGE DAILY ATTENDANCE AND REVENUE LIMIT Fiscal Years 2005-06 through 2012-13

Monterey Peninsula Unified School District

Average Daily

Base Revenue Limit

Funded Revenue Limit

Fiscal Year Enrollment Attendance Per A.D.A.(1) Per A.D.A.(1) 2005-06 10,929 11,021 $5,177 $5,131 2006-07 11,164 11,163 5,529 5,529 2007-08 11,135 11,028 5,781 5,781 2008-09 11,192 11,089 6,110 5,631 2009-10 11,097 10,315 6,372 5,203 2010-11 10,628 9,977 6,429 5,275 2011-12 10,409 9,812 6,490 5,153 2012-13(2) 10,213 9,785 6,702 5,210(3)

____________________ Note: All amounts are rounded to the nearest whole number. (1) The State's practice of deficit revenue limit funding, which reduced the amount of revenue limit funds received by school

districts, was eliminated effective in fiscal year 2000-01, reinstated beginning in fiscal year 2003-04, eliminated again effective in fiscal year 2006-07, and reinstated again in fiscal year 2008-09.

(2) Budgeted. (3) Funded revenue limit per A.D.A. reflects approval of Proposition 30. See “CONSTITUTIONAL AND STATUTORY

PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS – Proposition 30” herein. Source: The Monterey Peninsula Unified School District.

Revenue Sources

Major revenue sources of the District are described below.

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

Funding of the District’s revenue limit is provided by a mix of local property taxes and State apportionments of basic and equalization aid. Generally, the State apportionments will amount to the difference between the District’s revenue limit and its local property tax revenues.

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

In 2009-10, the District received $52,825,954 of revenue limit source income, accounting for approximately 58.4% of its general fund revenue. For 2010-11, the District received $55,025,094 of revenue limit source income, accounting for approximately 57.5% of its general fund revenue. For 2011-12, the District received $53,192,278 of revenue limit source income, accounting for approximately 54.8% of its general fund revenue. For 2012-13, the District has budgeted for $48,090,909 of revenue limit source income, which is approximately 56.3% of its budgeted general fund revenue.

12

State Lottery

In the November 1984 general election, the voters of the State approved a constitutional amendment establishing a State lottery (the “State Lottery”), the net revenues of which are used to supplement money allocated to public education. This amendment stipulated that the funds derived from the State Lottery be used for the education of students and prohibited their use for noninstructional purposes, such as the acquisition of real property, the construction of facilities or the financing of research. Moreover, State Proposition 20 approved in March 2000 requires that 50% of the increase in Lottery revenues over 1997-98 levels must be restricted to use on instructional material. State Lottery net revenues - gross revenues less prizes and administration expenses - are allocated by computing an amount per A.D.A., which is derived by dividing the total net revenues figures by the total A.D.A. for grades K-12, community colleges, the University of California system and other participating educational institutions. Each district receives an amount equal to its total A.D.A. multiplied by the per A.D.A. figure. Allocations to the District in 2011-12 were approximately 1.7% and in 2012-13 are budgeted to be approximately 2.0% of general fund revenues.

Other State Revenues

As discussed above, the District receives State apportionment of basic and equalization aid in an amount equal to the difference between the District’s revenue limit and its property tax revenues. In addition to such apportionment revenue, the District receives other State revenues (“State Sources”). In fiscal year 2009-10, State Sources accounted for approximately 18.1% of total general fund revenues. In fiscal year 2010-11, State Sources accounted for approximately 19.1% of total general fund revenues. In fiscal year 2011-12, State Sources accounted for approximately 17.8% of total general fund revenues. In 2012-13, State Sources are budgeted to equal approximately 18.9% of total general fund revenues.

Other Local Revenues

In addition to property taxes, the District receives additional local revenues from items such as a leases and rentals, interest earnings, interagency services, and other local sources. Other local revenues constituted approximately 9.9% of general fund revenues in fiscal year 2009-10, 8.5% of general fund revenues in fiscal year 2010-11, and 10.0% of such revenues in fiscal year 2011-12. Other local revenues are budgeted to be approximately 10.5% of such revenues in fiscal year 2012-13.

Federal Revenues

The federal government provides funding for several District programs, including special education programs, programs under the No Child Left Behind Act and specialized programs such as Drug-Free Schools. The federal revenues, most of which are restricted, were approximately 13.6% of general fund revenues in fiscal year 2009-10, 14.9% of such revenues in 2010-11, 17.4% of such revenues in 2011-12, and are budgeted to equal approximately 14.3% of such revenues in 2012-13.

13

Developer Fees

The following table lists the annual developer fees generated since fiscal year 2006-07.

DISTRICT DEVELOPER FEES Fiscal Years 2006-07 through 2012-13


Fiscal Year Amount

2006-07 $866,974 2007-08 429,929 2008-09 228,131 2009-10 181,043 2010-11 88,461 2011-12 305,955 2012-13(1) 80,000

(1) Projected. Source: The Monterey Peninsula Unified School District.

Redevelopment Revenues

The District had agreements with the Marina Redevelopment Agency, the Redevelopment Agency of the City of Monterey, the Redevelopment Agency of the City of Seaside, the Redevelopment Agency of the County of Monterey and the Sand City Redevelopment Agency (collectively, the “Agencies”), pursuant to which the District received a portion of the tax increment revenues received by said Agencies. The following table summarizes the revenues received by the District from the Agencies for the years listed below.

REDEVELOPMENT REVENUES Fiscal Years 2006-07 through 2012-13


Fiscal Year Redevelopment Income Received by the District

2006-07 $391,437 2007-08 94,419 2008-09 1,153,837 2009-10 602,902 2010-11 376,889 2011-12 698,786 2012-13(1) 250,000

(1) Projected. Source: The Monterey Peninsula Unified School District.

On December 30, 2011, the California Supreme Court issued its decision in the case of California Redevelopment Association v. Matosantos, finding ABx1 26, a trailer bill to the 2011-12 State budget, to be constitutional. As a result, all Redevelopment Agencies in California ceased to exist as a matter of law on February 1, 2012. The Court in Matosantos also found that ABx1 27, a companion bill to ABx1 26, violated the California Constitution, as amended by Proposition 22. See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS –

14

Proposition 1A and Proposition 22.” ABx1 27 would have permitted redevelopment agencies to continue operations provided their establishing cities or counties agreed to make specified payments to school districts and county offices of education, totaling $1.7 billion statewide.

ABx1 26 was modified by Assembly Bill No. 1484 (Chapter 26, Statute of 2011-12), which, together with ABx1 26, is referred to herein as the “Dissolution Act.” The Dissolution Act provides that all rights, powers, duties and obligations of a Redevelopment Agency under the California Community Redevelopment Law that have not been repealed, restricted or revised pursuant to ABx1 26 will be vested in a successor agency, generally the county or city that authorized the creation of the Redevelopment Agency (each, a “Successor Agency”). All property tax revenues that would have been allocated to such Redevelopment Agencies will be allocated to the Successor Agency, and to be used for the payment of pass-through payments to local taxing entities, and thereafter to any other “enforceable obligations” (as defined in the Dissolution Act), as well to pay certain administrative cost. The Dissolution Act defined “enforceable obligations” to include bonds, loans, legally requirement payments, judgments or settlements, legal binding and enforceable obligations, and certain other obligations. Tax revenues in excess of such amounts, if any, will be distributed to local taxing entities in the same proportions as other tax revenues.

While the District currently expects to continue receiving pass through tax increment revenues from the respective Successor Agency, the District can make no representations as to the extent to which its revenue limit apportionments may be offset by the future receipt of pass through tax increment revenues, or any other surplus property tax revenues pursuant to the Dissolution Act.

Budget Procedures

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

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

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

15

must be made available by the district for public inspection. The law does not provide for conditional approvals; budgets must be either approved or disapproved. No later than August 20, the county superintendent must notify the Superintendent of Public Instruction of all school districts whose budget has been disapproved.

For all dual budget options and for single and dual budget option districts whose budgets have been disapproved, the district must revise and readopt its budget by September 8, reflecting changes in projected income and expense since July 1, including responding to the county superintendent’s recommendations. The county superintendent must determine if the budget conforms with the standards and criteria applicable to final district budgets and not later than October 8, will approve or disapprove the revised budgets. If the budget is disapproved, the county superintendent will call for the formation of a budget review committee pursuant to Education Code Section 42127.1. Until a district’s budget is approved, the district will operate on the lesser of its proposed budget for the current fiscal year or the last budget adopted and reviewed for the prior fiscal year.

Interim Financial Reporting. Under the provisions of AB 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent fiscal year. The county office of education reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that will be unable to meet its financial obligations for the remainder of the current fiscal year or for the subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years.

The District has never had an adopted budget disapproved by the county superintendent of schools nor has it received a negative or qualified certification of any of its Interim Reports.

General Fund Budget

Set forth on the following table are the District’s general fund adopted budgets for fiscal years 2009-10 through 2012-13, and general fund actual results for the fiscal years 2009-10 through 2010-11, with estimated actuals for fiscal year 2011-12, are set forth in the following table:

[REMAINDER OF PAGE LEFT BLANK]

16

GENERAL FUND BUDGET Fiscal Years Ending June 30, 2010 and June 30, 2011(1)


Fiscal Year 2009-10

Fiscal Year 2010-11

Adopted Budget

Audited Actuals

Adopted Budget

Audited Actuals

REVENUES: Revenue Limit Sources: State Apportionment $26,861,875 $13,744,935 $20,565,090 $23,805,134 Local Sources 26,152,316 39,081,019 31,752,503 31,219,960

TOTAL REVENUE LIMIT SOURCES

53,014,191 52,825,954 52,317,593 55,025,094

Federal Sources 11,595,315 12,338,739 9,093,549 14,228,109 Other State Sources 14,227,064 16,349,311 13,639,194 18,237,387 Other Local Sources 8,376,496 8,959,873 7,804,672 8,158,859

TOTAL REVENUES 87,213,066 90,473,877 82,855,008 95,649,449 EXPENDITURES: Certificated Salaries 36,274,214 37,893,093 38,027,788 38,048,231 Classified Salaries 14,101,335 14,674,663 14,266,684 15,239,124 Employee Benefits 18,709,418 19,041,139 18,988,614 18,968,840 Books & Supplies 7,636,593 2,968,511 3,577,771 5,364,367 Contract Services and Operating

Expenditures 8,296,794 9,672,415 10,658,206 11,457,194

Capital Outlay 375,476 371,584 113,826 331,008 Other Outgo 4,011,401 2,321,133 3,557,986 1,665,629 Debt Service:

Principal Retirement 237,602 437,603 756,548 -- Interest 372,156 372,156 343,926 -- TOTAL EXPENDITURES 90,014,989 87,752,297 90,291,349 91,074,393

Excess (Deficiency) of Revenues Over/(Under) Expenditures

(2,801,923) 2,721,580 (7,436,341) 4,575,056

OTHER FINANCING SOURCES/(USES):

Proceeds from capitalized lease obligations

-- -- -- --

Operating Transfers In 549,018 1,394,350 453,981 4,122,306 Operating Transfers Out (528,468) (4,094,093) (734,597) (2,204,595)

TOTAL OTHER FINANCING SOURCES/(USES)

20,550 (2,699,743) (280,616) 1,917,711

NET CHANGE IN FUND

BALANCES (2,781,373) 21,837 (7,716,957) 6,492,767

Fund Balance, July 1 21,286,461 21,286,461 21,308,298 21,308,298

Fund Balance, June 30 $18,505,088 $21,308,298 $13,591,341 $27,801,065

(1) From the District’s Comprehensive Audited Financial Statements for fiscal years 2009-10 and 2010-11. Source: The Monterey Peninsula Unified School District.

\

17

GENERAL FUND BUDGET Fiscal Years Ending June 30, 2012 and June 30, 2013


Fiscal Year 2011-12 Fiscal Year

2012-13

Adopted Budget

Unaudited Actuals(1)

Adopted Budget(1)

REVENUES: Revenue Limit Sources: $50,250,677 $53,192,278 $48,090,909 Federal Sources 15,895,387 16,863,201 12,176,208 Other State Sources 15,196,792 17,276,872 16,127,731 Other Local Sources 8,101,225 9,701,726 8,983,585

TOTAL REVENUES 89,444,081 97,034,077 85,378,433 EXPENDITURES: Certificated Salaries 38,730,075 41,300,783 41,767,986 Classified Salaries 15,364,042 16,976,320 17,474,297 Employee Benefits 21,684,782 21,295,354 22,598,122 Books & Supplies 4,404,164 6,285,278 5,789,461 Contract Services and Operating

Expenditures 13,947,452 10,348,705 9,363,803

Capital Outlay 199,604 226,623 72,610 Other Outgo (excluding transfers of indirect costs)

1,775,367

1,506,397

1,098,202

Transfers of Indirect Costs (316,426) (220,852) (265,157) TOTAL EXPENDITURES 95,789,061 97,718,608 97,899,324

Excess (Deficiency) of Revenues Over/(Under) Expenditures

(6,344,980) (684,531) (12,520,891)



-- -- --

Operating Transfers In 200,000 373,337 200,000 Operating Transfers Out (1,045,274) (1,194,058) (565,751)


(845,274) (820,721) (365,751)

NET CHANGE IN FUND

BALANCES (7,190,254) (1,505,252) (12,886,642)

Fund Balance, July 1 23,499,803 27,801,065 26,295,813

Fund Balance, June 30 $16,309,549 $26,295,813 $13,409,171

(1) From the District’s 2011-12 Unaudited Actuals and 2012-13 Adopted Budget approved by the Board on September 17, 2012. The District did

not assume passage of Proposition 30 in creating the revenue assumptions for its 2012-13 Adopted Budget. Source: The Monterey Peninsula Unified School District.

18

Accounting Practices

The accounting policies of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section 41010 of the California Education Code, is to be followed by all California school districts. Revenues are recognized in the period in which they become both measurable and available to finance expenditures of the current fiscal period. Expenditures are recognized in the period in which the liability is incurred.

State Budget Measures

The following information concerning the State’s budgets has been obtained from publicly available information which the District believes to be reliable; however, the District does not guaranty the accuracy or completeness of this information and has not independently verified such information.

2012-13 Budget. On June 27, 2012, the Governor signed into law the State budget for fiscal year 2012-13 (the “2012-13 Budget”). The Department of Finance has released its summary of the 2012-13 Budget (the “Department of Finance Report”). The following information is drawn from the Department of Finance Report.

The 2012-13 Budget seeks to close a budget gap of $15.7 billion through a combination of measures totaling $16.6 billion. Specifically, the 2012-13 Budget authorizes $8.1 billion of expenditure reductions (including $1.9 billion in reductions to Proposition 98 spending), $6 billion of revenue increases, and $2.5 billion of other measures. The 2012-13 Budget assumed voter approval of a modified tax initiative proposed by the Governor in his May revision to the proposed State budget (the “May Revision”). The tax initiative, labeled as Proposition 30, was approved by voters at the November 6, 2012 general election. See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRCIT REVENUES – Proposition 30” herein. The 2012-13 Budget estimates that the tax initiative will generate approximately $8.5 billion through fiscal year 2012-13. The 2012-13 Budget assumes an attendant increase of $2.9 billion to State funding for school districts and community colleges, resulting in a net benefit to the State’s general fund of $5.6 billion.

With the implementation of all measures, the 2012-13 Budget assumes, for fiscal year 2011-12, total revenues of $86.8 billion and expenditures of $87.0 billion. The State is projected to end fiscal year 2011-12 with a total budget deficit of $3.6 billion. For fiscal year 2012-13, the 2012-13 Budget projects total revenues of $95.9 billion and authorizes total expenditures of $91.3 billion. The State is projected to end the 2012-13 fiscal year with a total budget surplus of $948 million.

In the event the Governor’s tax initiative is rejected by voters in November 2012, the 2012-13 Budget authorizes an additional $6 billion of trigger reductions to become effective on January 1, 2013. The trigger reductions include approximately $5.4 billion of reductions to Proposition 98 funding for schools and community colleges. The 2012-13 Budget indicates that such a reduction be equivalent to the cost of three weeks worth of instruction. This trigger reduction would also eliminate the ability of the State to begin repaying existing apportionment deferrals to schools and community colleges. Additional triggers are as follows: (i) $250 million reduction to each of the University of California and California State University systems, (ii) $50 million reduction to the Department of Developmental Services, (iii) $20 million reflecting the elimination of certain city police grants, (iv) $5 million reduction to local water safety patrols, (v) $10 million reduction to the Department of Forestry and Fire Protection, (vi) $6.6 million reduction to Department of Water Resources flood control programs, which would reduce channel and levee maintenance and floodplain mapping; (vii) $1.1 million reduction to the departments of Parks and Recreation and Fish and Game reflecting a reduced number of state public safety officers, (viii) $1.4

19

million reduction reflecting the elimination of State beach lifeguards, and (ix) $1 million reduction to Department of Justice law enforcement programs.

For fiscal year 2012-13, the Proposition 98 minimum funding guarantee is set at $53.6 billion, including $36.8 billion from the State general fund. This funding level reflects the following significant adjustments and changes:

• Proposition 98 Adjustments. A funding decrease of approximately $630 million due to (1) eliminating the hold-harmless adjustment provided to schools from the elimination of the sales tax on gasoline in fiscal year 2010-11, and (2) a rebenching of the minimum funding guarantee to account for the exclusion of child care programs and the inclusion of special education mental health services from within the guarantee, as well as new and existing property tax shifts. Additionally, the 2012-13 Budget reduces fiscal year 2012-13 appropriations for a number of different programs by $220.1 million, backfilling them with available one-time funds.

• Quality Education Investment Act (“QEIA”). The 2012-13 Budget authorizes the use of a fiscal year 2011-12 overappropriation of the Proposition 98 minimum funding guarantee to prepay legal settlement obligations required by QEIA. As a result, the 2012-13 Budget estimates a one-time savings during fiscal year 2012-13 of $450 million. The 2012-13 Budget also authorizes the use of this overappropriation to prepay QEIA obligations in fiscal years 2013-14 and 2014-15 to achieve projected savings in such fiscal years of $181 million and $40.8 million, respectively.

• K-12 Deferral Reduction. An increase of $2.1 billion in Proposition 98 funding to reduce K-12 inter-fiscal year apportionment deferrals from $9.5 billion to $7.4 billion. This deferral reduction is contingent on voter approval of the Governor’s tax initiative.

• Charter Schools. A funding increase of $53.7 million to the Proposition 98 funding for charter school categorical programs to fund growth in charter school enrollment. In addition, the 2012-13 Budget implementing legislation expands the ability of schools district to convey surplus property to charter schools, while also increasing financing assistance to charter schools by allowing county treasurers to provide them with short-term loans, and by authorizing charter schools to participate in short-term tax and revenue anticipation note borrowing mechanisms already available to schools and county offices of education.

• Educational Mandates. As increase of $86.2 million funding support for K-12 educational mandates through a new voluntary block grant. Participating school districts and county offices of education would receive a $28 per-student allocation, while participating charter schools would receive $14 per student. Districts and county offices of education that choose not to participate in this block grant program would retain their right to submit claims for reimbursement, subject to audits by the State Controller.

• State Preschool Programs. The 2012-13 Budget includes a number of adjustments to State preschool programs, including (i) an increase of $163.9 million in Proposition 98 funding to cover the cost of part-day preschool services, (ii) an increase of $3.4 million to reflect increased fee assessments for preschool programs on families that are currently exempt from such fees (this is expected to offset Proposition 98 expenditures by a like amount); (iii) a decrease of $30 million in Proposition 98 funding to reflect an 8.7% across-the-board reduction to general child care programs, and (iv) a decrease of $11.9

20

million reflect the suspension of the statutory cost of living adjustment for preschool programs.

In addition, the 2012-13 Budget assumes an increase of $1.3 billion in local property taxes for fiscal year 2012-13 resulting from the distribution of cash assets previously held by redevelopment agencies. These increased local property taxes would offset Proposition 98 spending by an identical amount. The 2012-13 Budget notes that the May Revision assumed that K-14 school districts would receive $818 million in property tax revenues during fiscal year 2011-12 to offset State expenditures on Proposition 98 funding. The full amount of these payments were not made due to the timing of the Supreme Court’s ruling in the California Redevelopment Association v. Matosantos case, as well as inconsistent interpretations of ABx1 26 at the local level. See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS – Proposition 1A and Proposition 22.” The 2012-13 Budget seeks to create a one-time process to recapture these property tax revenues by requiring county auditor-controllers to bill successor agencies for the amounts that should have been distributed to the affected taxing agencies.

Additional information regarding the 2012-13 Budget may be obtained from the Department of Finance at www.dof.ca.gov. However, such information is not incorporated herein by any reference.

Recent Litigation Regarding State Budgetary Provisions. On September 28, 2011, the California School Boards Association, the Association of California School Administrators, the Los Angeles Unified School District, the San Francisco Unified School District and the Turlock Unified School District filed a petition for a writ of mandate in the Superior Court of the State of California in and for the County of San Francisco (the “CSBA Petition”). The petitioners allege that the fiscal year 2011-12 State budget improperly diverted sales tax revenues away from the State general fund, resulting in a reduction to the minimum funding guarantee of approximately $2.1 billion. The CSBA Petition seeks an order from the Court compelling the State Director of Finance, Superintendent of Public Instruction and the State Controller to recalculate the minimum funding guarantee in accordance with the provisions of the California Constitution. On May 31, 2012, the court denied the CSBA Petition, finding that Proposition 98 does not prohibit the State from assigning sales tax revenues to a special fund that previously were deposited into the State general fund. The court also found that, upon doing so, the State was not required to rebench the minimum funding guarantee. On July 27, 2012, the petitioners filed a notice of appeal of the court’s decision.

The District makes no representations regarding the viability of the claims in the CSBA Petition, nor can the District predict whether any of the respective petitioners will be successful. Moreover, the District makes no representations as to how any final decision by the court would affect the State’s ability to fund education in fiscal year 2012-13, or in future fiscal years.

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

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

21

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS

Article XIIIA of the California Constitution

Article XIIIA of the State Constitution (“Article XIIIA”) limits the amount of ad valorem taxes on real property to 1% of “full cash value” as determined by the County assessor. Article XIIIA defines “full cash value” to mean “the county assessor’s valuation of real property as shown on the 1975-76 bill under ‘full cash value,’ or thereafter, the appraised value of real property when purchased, newly constructed or a change in ownership has occurred after the 1975 assessment,” subject to exemptions in certain circumstances of property transfer or reconstruction. Determined in this manner, the full cash value is also referred to as the “base year value.” The “full cash value” is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors.

Article XIIIA has been amended to allow for temporary reductions of assessed value in instances where the fair market value of real property falls below the base year value. Proposition 8—approved by the voters in November of 1978—provides for the enrollment of the lesser of the base year value or the market value of real property, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property, or other factors causing a similar decline. In these instances, the market value is required to be reviewed annually until the market value exceeds the base year value. Reductions in assessed value could result in a corresponding increase in the annual tax rate levied by the County to pay debt service on the Bonds or interest on the Notes. See “DISTRICT FINANCIAL MATTERS – Assessed Valuations” herein.

Article XIIIA requires a vote of two-thirds of the qualified electorate of a city, county, special district or other public agency to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. Article XIIIA exempts from the 1% tax limitation any taxes above that level required to pay debt service (a) on any indebtedness approved by the voters prior to July 1, 1978, or (b) as the result of an amendment approved by State voters on June 3, 1986, on any bonded indebtedness approved by two-thirds or more of the votes cast by the voters for the acquisition or improvement of real property on or after July 1, 1978, or (c) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by fifty-five percent or more of the votes cast on the proposition, but only if certain accountability measures are included in the proposition. The tax for payment of the Bonds falls within the exception described in (c) of the immediately preceding sentence. In addition, Article XIIIA requires the approval of two-thirds or more of all members of the State Legislature to change any State taxes for the purpose of increasing tax revenues.

Legislation Implementing Article XIIIA

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

Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the annual adjustment not to exceed 2% are allocated among the various

22

jurisdictions in the “taxing area” based upon their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years.

Beginning in fiscal year 1981-82, assessors in California no longer record property values on tax rolls at the assessed value of 25% of market value which was expressed as $4 per $100 of assessed value. All taxable property is now shown at 100% of assessed value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value.

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

Unitary Property

Some amount of property tax revenue of the District is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions (“unitary property”). Under the State Constitution, such property is assessed by the State Board of Equalization (“SBE”) as part of a “going concern” rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year.

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

Article XIIIB of the California Constitution

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

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

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

23

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

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

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

Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years.

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

Article XIIIC and Article XIIID of the California Constitution

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

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

24

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

Proposition 26

On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity

Proposition 98

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

The Accountability Act also changes how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 school districts. Any such transfer to K-14 school districts would be excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K-14 school districts for

25

subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which could be transferred to K-14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act.

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

Proposition 111

On June 5, 1990, the voters of California approved the “Traffic Congestion Relief and Spending Limitation Act of 1990 (“Proposition 111”), which modified the State Constitution to alter the Article XIIIB spending limit and the education funding provisions of Proposition 98. Proposition 111 took effect on July 1, 1990.

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

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

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

c. Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for “qualified capital outlay projects” as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above 1990 level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, 1990. These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs.

26

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

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

Proposition 39

On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39) to the California Constitution. This amendment (1) allows school facilities bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to repay the bonds and (2) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendments may be changed only with another Statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this proposition are K-12 school districts, including the District, community college districts, and county offices of education. As noted above, the California Constitution previously limited property taxes to 1 percent of the value of property, and property taxes could only exceed this limit to pay for (1) any local government debts approved by the voters prior to July 1, 1978 or (2) bonds to buy or improve real property that receive two-thirds voter approval after July 1, 1978.

The 55% vote requirement applies only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 placed certain limitations on local school bonds to be approved by 55% of the voters. These provisions require that the tax rate per $100,000 of taxable property value projected to be levied as the result of any single election be no more than $60 (for a unified school district), $30 (for a high school or elementary school district), or $25 (for a community college district), when assessed valuation is projected to increase in accordance with Article XIIIA of the Constitution. These requirements are not part of Proposition 39 and can be changed with a majority vote of both houses of the Legislature and approval by the Governor.

27

Jarvis v. Connell

On May 29, 2002, the California Court of Appeal for the Second District decided the case of Howard Jarvis Taxpayers Association, et al. v. Kathleen Connell (as Controller of the State of California). The Court of Appeal held that either a final budget bill, an emergency appropriation, a self-executing authorization pursuant to state statutes (such as continuing appropriations) or the California Constitution or a federal mandate is necessary for the State Controller to disburse funds. The foregoing requirement could apply to amounts budgeted by the District as being received from the State. To the extent the holding in such case would apply to State payments reflected in the District’s budget, the requirement that there be either a final budget bill or an emergency appropriation may result in the delay of such payments to the District if such required legislative action is delayed, unless the payments are self-executing authorizations or are subject to a federal mandate. On May 1, 2003, the California Supreme Court upheld the holding of the Court of Appeal, stating that the Controller is not authorized under State law to disburse funds prior to the enactment of a budget or other proper appropriation, but under federal law, the Controller is required, notwithstanding a budget impasse and the limitations imposed by State law, to timely pay those State employees who are subject to the minimum wage and overtime compensation provisions of the federal Fair Labor Standards Act.

Proposition 1A and Proposition 22

On November 2, 2004, California voters approved Proposition 1A, which amends the State constitution to significantly reduce the State’s authority over major local government revenue sources. Under Proposition 1A, the State cannot (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-third approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amends the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights.

Proposition 22, The Local Taxpayer, Public Safety, and Transportation Protection Act, approved by the voters of the State on November 2, 2010, prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies and eliminates the State’s authority to shift property taxes temporarily during a severe financial hardship of the State. In addition, Proposition 22 restricts the State’s authority to use State fuel tax revenues to pay debt service on state transportation bonds, to borrow or change the distribution of state fuel tax revenues, and to use vehicle license fee revenues to reimburse local governments for state mandated costs. Proposition 22 impacts resources in the State’s general fund and transportation funds, the State’s main funding source for schools and community colleges, as well as universities, prisons and health and social services programs. According to an analysis of Proposition 22 submitted by the Legislative Analyst’s Office (the “LAO”) on July 15, 2010, the expected reduction in resources available for the State to spend on these other programs as a consequence of the passage of Proposition 22 was expected to be approximately $1 billion in fiscal year 2010-11, with an estimated immediate fiscal effect equal to approximately 1 percent of the State’s total general fund spending. The longer-term effect of Proposition 22, according to the LAO analysis, will be an increase in the State’s general fund costs by approximately $1 billion annually for several decades.

28

Proposition 30

On November 6, 2012, voters approved the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as “Proposition 30”), which temporarily increases the State Sales and Use Tax and personal income tax rates on higher incomes. Proposition 30 temporarily imposes an additional tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, 2017. Proposition 30 also imposes an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1, 2013 and before January 1, 2017, for storage, use, or other consumption in the State. This excise tax will be levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending January 1, 2019. Proposition 30 increases the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $340,000 but less than $408,000 for joint filers), (ii) 2% for taxable income over $300,000 but less than $500,000 for single filers (over $408,000 but less than $680,000 for joint filers), and (iii) 3% for taxable income over $500,000 for single filers (over $608,000 for joint filers).

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

State Cash Management Legislation

Since 2002, the State has engaged in the practice of deferring certain apportionments to school districts in order to manage the State’s cash flow. This practice has included deferring certain apportionments from one fiscal year to the next. These “cross-year” deferrals have been codified and are expected to be on-going. Legislation enacted with respect to fiscal year 2012-13 provides for additional inter-fiscal year deferrals

On May 23, 2012, the Governor signed into law Assembly Bill 103 (“AB 103”), which extends certain provisions of existing law designed to manage the State’s cash resources. AB 103 authorizes the deferral of State apportionments during fiscal year 2012-13, as follows: (i) $700 million from July 2012 to September 2012, (ii) $500 million from July 2012 to January 2013, (iii) $600 million from August 2012 to January 2013, (iv) $800 million from October 2012 to January 2013, and (v) $900 million from March 2013 to April 2013. Collectively, these deferrals are referred to as the “Cash Management Deferrals.”

29

As in the prior fiscal years, AB 103 provides for an exemption to the Cash Management Deferrals for a school district that would be unable to meet its expenditure obligations if its State apportionments are delayed. The District, however, has not applied for nor received an exemption from any of the Cash Management Deferrals. In the event any of the Cash Management Deferrals are implemented, the State Controller, State Treasurer and State Director of Finance are required to review, as necessary but no less than monthly, the actual State general fund cash receipts and disbursements in comparison to the Governor’s most recent revenue and expenditure projections. If the Controller, Treasurer and Director of Finance determine that sufficient cash is available to pay the State apportionments being deferred while maintaining a prudent cash reserve, such State apportionments are required to be paid as soon as feasible. AB 103 authorizes the Cash Management Deferrals to be accelerated or delayed by up by one month, except that the March 2013 deferral must be paid no later than April 29, 2013.

Future Initiatives

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


Introduction

The District is the largest unified school district in Monterey County as measured by student enrollment. The District serves students in grades K-12 in Monterey County (the “County”). The District boundaries encompass approximately 67 square miles. The District serves the communities of Monterey, Marina, Sand City, Seaside, Del Rey Oaks, Fort Ord, a portion of Pebble Beach and unincorporated portions of the County.

The District operates 11 elementary schools, three middle schools, three comprehensive high schools, and one alternative high school. The District has budgeted its average daily attendance for fiscal year 2012-13 to be 9,785. The total assessed valuation of taxable property in the District for fiscal year 2012-13 is $9,346,671,398.

30

Administration

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

BOARD OF EDUCATION Monterey Peninsula Unified School District

Name Office Term Expires

Debra Gramespacher President November 2015 Curt Parker Clerk, Vice-President November 2013 Diane Creasey Member November 2015 Jon Hill Member November 2015 Regena Lauterbach Member November 2013 Dr. Bettye Lusk Member November 2013 Helen B. Rucker Member November 2013

The Superintendent of the District is responsible for administering the affairs of the District in accordance with the policies of the Board. Currently, Dr. Marilyn Shepherd is the Superintendent of the District and Dan Albert is the Associate Superintendent, Business Services.

Brief biographies of key District personnel follow:

Dr. Marilyn Shepherd, Superintendent: Dr. Shepherd joined the District as Superintendent in February 2007. In January 2008, Dr. Shepherd was selected as Superintendent of the Year for Region 10 of the Association of California School Administrators. Dr. Shepherd’s 30-year career in education includes experience as a classroom teacher, principal of a special education center, elementary vice principal and principal, a middle school principal, administrator of special education for Fresno Unified School District (“FUSD”), and as the administrator over FUSD early childhood programs, continuation high schools, community day schools, and ten charter schools. Before joining the District, Dr. Shepherd served for three and a half years as the Superintendent of Golden Valley Unified School District in Madera County. Dr. Shepherd received her Bachelor’s degree from California State University Fresno, her Master’s degree from Fresno Pacific University, and her Doctorate in Educational Leadership from the UC Davis/CSU Fresno joint doctoral program in 1996.

Dan Albert, Associate Superintendent, Business Services: Mr. Albert was appointed as the District’s Associate Superintendent, Business Services in August 2011. Prior thereto he served as the Assistant Superintendent, District Operations. He has been an employee of the District since 1986 as a teacher, site principal, and a District administrator. He received his undergraduate degree in Industrial Education with a Master’s degree in Educational Leadership from San Jose State University and has completed the Chief Business Officer Education Partnership Training Program.

Susan Ziebell, Director of Business Services: Ms. Ziebell was appointed as the District’s Director of Business Services in July 2008. She has been with the District for over 20 years. Prior to joining the District, she was the Comptroller of a major hotel. In May 2009, she received a Certificate of Achievement in School Business Operations from The School Business Leadership Development Academy sponsored by California State University of Monterey Bay, School Services of California and the Monterey County Office of Education. She received her Associate Degree from Monterey Peninsula College in Business Administration.

31

Janet Lee, Coordinator of Fiscal Services: Ms. Lee joined the District as Coordinator of Fiscal Services in July 2010. She has been with the District for two years. Prior to joining the District, she was the Chief Business Official Intern at the Monterey County Office of Education. In May 2009, she received a Certificate of Achievement in School Business Operations from The School Business Leadership Development Academy sponsored by California State University of Monterey Bay, School Services of California and the Monterey County Office of Education. She received her Bachelor of Science degree from the University of California, Davis.

Labor Relations

As of August 1, 2012, the District employed 652 full-time equivalent and part-time certificated employees and 668 classified, management and supervisory employees. These employees, except management and some part-time employees, are represented by the two bargaining units as noted below:

DISTRICT EMPLOYEES Monterey Peninsula Unified School District

Labor Organization

Number of Employees in Organization

Contract

Expiration Date Monterey Bay Teachers Association 572 June 30, 2013 California School Employees Association 592 June 30, 2013

Source: The Monterey Peninsula Unified School District.

Retirement Programs

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

CalSTRS. All full-time certificated employees, as well as certain classified employees, are members of the State Teachers’ Retirement System (“CalSTRS”). CalSTRS provides retirement, disability and survivor benefits to plan members and beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers’ Retirement Law. The District is currently required by such statutes to contribute 8.25% of eligible salary expenditures, while current participants contribute 8% of their respective salaries. The State also contributes to CalSTRS, currently in an amount equal to 2.791% of teacher payroll. The State’s contribution reflects a base contribution of 2.017% and a supplemental contribution of 0.774% that will vary from year-to-year based on statutory criteria.

The District’s contribution to CalSTRS was $3,513,203 for fiscal year 2008-09, $3,200,984 for fiscal year 2009-10, $2,785,780 for fiscal year 2010-11, $3,138,301 for fiscal year 2011-12, and is budgeted to be $3,169,684 for fiscal year 2012-13.

CalPERS. Classified employees working four or more hours per day are members of the Public Employees’ Retirement System (“CalPERS”). CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by the State statutes, as legislatively amended, with the Public Employees’

32

Retirement Laws. The District is currently required to contribute to CalPERS at an actuarially determined rate, which is 11.417% of eligible salary expenditures for fiscal year 2012-13, while participants contribute 7% of their respective salaries.

School district contributions to CalPERS are capped at 13.02% of gross expenditures for any given fiscal year. To the extent a district’s contribution rate to CalPERS is less than 13.02%, the State will reduce the such district’s revenue limit for that year by the difference between the maximum contribution rate and a district’s actual contribution rate. Alternatively, if such district’s contribution rate is greater than 13.02%, the State is required to provide additional revenue limit allocations to such district to make up the difference.

The District’s contribution to CalPERS was $1,531,670 for fiscal year 2008-09, $1,586,350 for fiscal year 2009-10, $1,739,919 for fiscal year 2010-11, $2,092,200 for fiscal year 2011-12, and is budgeted to be $2,119,122 for fiscal year 2012-13.

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

Both CalSTRS and CalPERS have substantial statewide unfunded liabilities. The amount of these unfunded liabilities will vary depending on actuarial assumptions, returns on investments, salary scales and participant contributions.

The following table summarizes information regarding the actuarially-determined accrued liability for both CalSTRS and CalPERS.

FUNDED STATUS STRS (Defined Benefit Program) and PERS

As of the June 30, 2011 Valuation Date (Dollar Amounts in Millions) (1)

Plan

Accrued Liability

Value of Trust Assets

Unfunded Liability

Public Employees Retirement Fund (PERS) $58,358 $45,901(2) $(12,457) State Teachers’ Retirement Fund Defined Benefit Program (STRS)

208,405 143,930(3) (64,475)

____________________ (1) Amounts may not add due to rounding. (2) Reflects market value of assets as of June 30, 2011. (3) Reflects actuarial value of assets as of June 30, 2011. Source: CalPERS State & Schools Actuarial Valuation; CalSTRS Defined Benefit Program Actuarial Valuation.

Unlike CalPERS, CalSTRS contribution rates for participant employers and current employees, as well as the State’s base contribution rate, are set by statute and do not currently vary from year-to-year based on actuarial valuations. As a result of the Reform Act (defined below), the contribution rate for CalSTRS participants hired after the Implementation Date (defined below) will vary from year-to-year based on actuarial valuations. See “California Public Employees’ Pension Reform Act of 2013” below. In recent years, the combined employer, employee and State contributions to CalSTRS have been significantly less than actuarially required amounts. As a result, and due in part to investment losses, the

http://www.calstrs.com/

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

33

unfunded liability of CalSTRS has increased significantly. This unfunded liability is expected to continue to increase in the absence of legislation requiring additional or increased contributions. The District can make no representations regarding the future program liabilities of CalSTRS, or whether the District will be required to make larger contributions to CalSTRS in the future. The District can also provide no assurances that the District’s required contributions to CalPERS will not increase in the future.

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

Other Post-Employment Benefits

Plan Description. The District provides post-retirement healthcare benefits (the “Benefits”) to all employees who retire at age fifty-five with five years of service. Certificated and management employees are eligible with at least five years of service, and classified employees are eligible after ten years of service. For more information regarding the Benefits, see “APPENDIX C – 2010-11 AUDITED FINANCIAL STATEMENTS OF THE DISTRICT – Note 8 – Other Post Employment Benefits (OPEB)” herein.

Funding Policy. Expenditures for the Benefits are recognized on a “pay as you go basis” covering the cost of premiums paid for current retirees. During the fiscal year ending June 30, 2011, the District recognized $1,834,076 of expenditures for the Benefits. For fiscal year ending June 30, 2012, the District estimates $1,816,353 of expenditures for the Benefits. For fiscal year ending June 30, 2013, the District has budgeted $1,802,607 of such expenditures.

Net OPEB Obligation. As of June 30, 2011, the District had a net obligation in respect of such Benefits of $2,995,067. The Net OPEB Obligation is based on the District’s contributions towards the ARC during fiscal year 2010-11, plus interest on the prior year’s Net OPEB Obligation and minus any adjustments to reflect the amortization thereof. See Note 8 to the fiscal year 2010-11 audited financial statements of the District included as APPENDIX C hereto.

34

Actuarial Valuation. As of February 1, 2010, the District’s most recent actuarial valuation date (the “Actuarial Study”) with respect to its liability in connection with such Benefits, the liability was unfunded. The Actuarial Study, dated as of February 1, 2010, determined that the actuarial accrued liability with respect to the District’s Benefits is $37,003,247, and that actuarial value of assets was zero, resulting in an unfunded actuarial accrued liability of $37,003,247. The Actuarial Study also concluded that the annual required contribution (“ARC”) as of June 30, 2010 was $2,901,019. The ARC is the annual amount that would be necessary to fund the OPEB in accordance with the Governmental Accounting Standards Board’s Statements No. 43 and 45. See “DISTRICT DEBT STRUCTURE” herein.

Insurance

The District is a member of a Joint Powers Authority (“JPA”), Protected Insurance Program for Schools (“PIPS”), for workers compensation claims. The JPA was formed for the operation of a common risk management and insurance program and is governed by a governing board consisting of representatives of member districts. The governing board controls the operations of PIPS, including selections of management and approval of operating budgets.

The District is a member of the Northern California Schools’ Regional Liability Excess Fund (“NCSRLEF”) JPA, for general liability claims from $25,001 up to $1,000,000 and for property claims from $25,001 up to $141,060,000. NCSRLEF was formed for the operation of a common risk management and insurance program and is governed by a governing board consisting of representatives of member districts. The governing board controls the operations of NCSRLEF, including selections of management and approval of operating budgets.

The District is a member of a Joint Powers Authority, Schools Excess Liability Fund (“SELF”), for general liability claims from $1,000,001 up to $14,000,000. SELF was formed for the operation of a common risk management and insurance program and is governed by a governing board consisting of representatives of member districts. The governing board controls the operations of SELF, including selections of management and approval of operating budgets.

DISTRICT FINANCIAL MATTERS

Comparative Financial Statements

The District’s general fund finances the legally authorized activities of the District for which restricted funds are not provided. General fund revenues are derived from such sources as State school fund apportionments, taxes, use of money and property, and aid from other governmental agencies. Audited financial statements for the District for the fiscal year ended June 30, 2011, and prior fiscal years are on file with the District and available for public inspection at the office of the Associate Superintendent, Business Services of the District, 700 Pacific Street, Monterey, California 93940, telephone: (831) 645-1203. The audited financial statements for the fiscal year ended June 30, 2011 are included in APPENDIX C hereto.

For fiscal years ended June 30, 2003 and later, the District has implemented GASB Statements Nos. 34 and 35. Among the changes implemented under these revised accounting rules is a change in the financial reporting format. While historical total revenue and expenditures figures are comparably consistent to prior years, the breakdown of revenues and expenditures follows functional categories rather than object-oriented categories.

35

The following table reflects the District’s revenues, expenditures and fund balances for fiscal years 2006-07 through 2010-11:

GENERAL FUND REVENUES, EXPENDITURES AND FUND BALANCES Fiscal Years 2006-07 through 2010-11


REVENUES:

Audited Actuals 2006-07





Revenue Limit Sources: State Apportionment $31,056,604 $31,927,014 $28,978,248 $13,744,935 $23,805,134 Local Sources 29,999,998 29,547,473 31,652,575 39,081,019 31,219,960

TOTAL REVENUE LIMIT SOURCES

61,056,602 61,474,487 60,630,823 52,825,954 55,025,094

Federal Sources 8,765,796 9,262,279 13,889,259 12,338,739 14,228,109 Other State Sources 20,428,967 19,397,740 14,621,932 16,349,311 18,237,387 Other Local Sources 8,488,824 8,250,133 10,511,622 8,959,873 8,158,859

TOTAL REVENUES 98,740,189 98,384,639 99,653,636 90,473,877 95,649,449 EXPENDITURES: Certificated Salaries 39,947,997 41,334,510 41,329,788 37,893,093 38,048,231 Classified Salaries 12,998,120 14,467,367 14,866,858 14,674,663 15,239,124 Employee Benefits 18,207,279 19,172,050 20,821,437 19,041,139 18,968,840 Books & Supplies 4,875,516 5,163,858 4,013,140 2,968,511 5,364,367 Contract Services and

Operating Expenditures 8,454,544 9,475,859 8,693,841 9,672,415 11,457,194

Capital Outlay 1,330,070 328,887 140,910 371,584 331,008 Other Outgo 6,842,303 4,979,116 3,504,860 2,321,133 1,665,629 Debt Service: Principal Retirement -- 77,940 423,531 437,603 -- Interest 257,284 106,959 398,202 372,156 --

TOTAL EXPENDITURES 92,913,113 95,106,546 94,192,567 87,752,297 91,074,393 Excess (Deficiency) of

Revenues Over/(Under) Expenditures

5,827,076 3,278,093 5,461,069 2,721,580 4,575,056



489,192 37,559 -- -- --

Operating Transfers In 453,834 407,509 1,013,919 1,394,350 4,122,306 Operating Transfers Out (1,799,851) (1,052,890) (1,148,217) (4,094,093) (2,204,595)


(856,825) (607,822) (134,298) (2,699,743) 1,917,711

NET CHANGE IN FUND

BALANCES 4,970,251 2,670,271 5,326,771 21,837 6,492,767

Fund Balance, July 1 8,319,168 13,289,419 15,959,690 21,286,461 21,308,298

Fund Balance, June 30 $13,289,419 $15,959,690 $21,286,461 $21,308,298 $27,801,065

____________________ Source: The Monterey Peninsula Unified School District.

36

Ad Valorem Property Taxation

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

Taxes are levied for each fiscal year on taxable real and personal property which is located in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.” A supplemental roll is developed when property changes hands or new construction is completed. Each county levies and collects all property taxes for property falling within that county’s taxing boundaries.

Property taxes on the secured roll are due in two installments, November 1 and February 1 of the calendar year. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent installment plus a $10 cost on the second installment. Property on the secured roll with delinquent taxes is sold to the State on or about June 30 of the calendar year. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a $15 redemption fee and a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and is then subject to sale by the tax-collecting authority of the relevant county.

Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent if they are not paid by August 31. In the case of unsecured property taxes, a 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue beginning November 1 of the fiscal year, and a lien may be recorded against the assessee. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the assessee; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on specific property of the assessee; (3) filing a certificate of delinquency for record in the County Recorder’s office in order to obtain a lien on specified property of the assessee; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.

State law exempts from taxation $7,000 of the full cash value of an owner-occupied dwelling, but this exemption does not result in any loss of revenue to local agencies, since the State reimburses local agencies for the value of the exemptions.

All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions.

Assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) is allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools share the growth of “base” revenues from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year. The availability of revenue from growth in tax bases to such entities may be affected by the establishment of redevelopment agencies which, under certain circumstances, may be entitled to revenues resulting from the increase in certain property values.

37

Assessed Valuations

The assessed valuation of property in the District is established by the Monterey County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the “full cash value” of the property, as defined in Article XIIIA of the California Constitution. For a discussion of how properties currently are assessed, see “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” herein.

Certain classes of property, such as churches, colleges, not-for-profit hospitals, and charitable institutions, are exempt from property taxation and do not appear on the tax rolls.

Property within the District has a total assessed valuation for fiscal year 2012-13 of $9,346,671,398. Shown in the following table are the assessed valuations for the District for the period 2000-01 through 2012-13.

ASSESSED VALUATIONS Fiscal Year 2000-01 through 2012-13


Secured

Utility

Unsecured

Total(1)

Annual % Change(2)

2000-01 $4,819,331,842 $664,542 $458,666,824 $5,278,663,208 -- 2001-02 5,220,227,479 664,481 469,353,068 5,690,245,028 7.80% 2002-03 5,564,750,094 663,635 557,164,834 6,122,578,563 7.60 2003-04 5,972,896,305 5,763,449 584,776,971 6,563,436,725 7.20 2004-05 6,488,695,110 798,220 580,016,926 7,069,510,256 7.71 2005-06 7,372,025,391 800,042 607,571,255 7,980,396,688 12.88 2006-07 8,223,390,710 797,871 618,298,289 8,842,486,870 10.80 2007-08 9,041,467,966 793,072 629,981,996 9,672,243,034 9.38 2008-09(3) 9,298,068,167 4,224,529 733,183,732 10,035,476,428 3.76 2009-10(3) 9,094,194,809 4,430,368 727,188,245 9,825,813,422 (2.09) 2010-11 8,866,314,026 4,432,030 669,549,777 9,540,295,833 (2.91) 2011-12 8,725,406,839 4,435,730 644,533,961 9,374,376,530 (1.74) 2012-13 8,717,060,123 450,500 629,160,775 9,346,671,398 (0.30)

(1) Total before redevelopment increment. (2) Source: Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus. (3) Source: The County. Source: California Municipal Statistics, Inc.

For fiscal year 2012-13, the total assessed valuation of taxable property within the District decreased by $27,705,132, representing a decrease of approximately 0.3% from the prior year. Economic and other factors beyond the District’s control, such as general market decline in property values, disruption in financial markets that may reduce availability of financing for purchasers of property, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by the State and local agencies and property used for qualified education, hospital, charitable or religious purposes), or the complete or partial destruction of the taxable property caused by a natural or manmade disaster, such as earthquake, flood or toxic contamination, could cause a reduction in the assessed value of taxable property within the District. Any such reduction would result in a corresponding increase in the annual tax rate levied by the County to pay the debt service with respect to the Bonds issued to repay the Notes. See “The NOTES – Security and Sources of Payment” herein.

38

Appeals and Reductions of Assessed Valuations

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

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

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


39

Assessed Valuation and Parcels by Land Use

The following table shows the assessed valuation and parcels by land use in the District for fiscal year 2012-13.

ASSESSED VALUATION AND PARCELS BY LAND USE Fiscal Year 2012-13

Monterey Peninsula Unified School District 2012-13 % of No. of % of Assessed Valuation (1) Total Parcels Total Non-Residential: Agricultural $1,666,412 0.02% 100 0.39% Commercial 1,698,187,571 19.48 1,611 6.22 Vacant Commercial 45,164,012 0.52 235 0.91 Industrial 248,662,867 2.85 230 0.89 Vacant Industrial 14,217,479 0.16 62 0.24 Recreational 117,985,395 1.35 21 0.08 Government/Social/Institutional 38,992,310 0.45 1,488 5.75 Miscellaneous 48,922,952 0.56 474 1.83 Subtotal Non-Residential $2,213,798,998 25.40% 4,221 16.30% Residential: Single Family Residence $4,792,844,450 54.98% 16,130 62.29% Condominium/Townhouse 551,691,202 6.33 2,375 9.17 Mobile Home 12,247,099 0.14 523 2.02 Mobile Home Park 31,285,672 0.36 12 0.05 2-4 Residential Units 288,069,493 3.30 973 3.76 5+ Residential Units/Apartments 408,143,222 5.83 470 1.82 Miscellaneous Residential 14,222,519 0.16 70 0.27 Vacant Residential 304,757,468 3.50 1,119 4.32 Subtotal Residential $6,503,261,125 74.60% 21,672 83.70% Total $8,717,060,123 100.00% 25,893 100.00% (1) Local secured assessed valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc.

40

Assessed Valuation Per Parcel of Single Family Homes

The following table is an analysis of the District’s assessed valuation per parcel of single family homes for fiscal year 2012-13.

ASSESSED VALUATION PER PARCEL OF SINGLE FAMILY HOMES Fiscal Year 2012-13

Monterey Peninsula Unified School District No. of 2012-13 Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 16,130 $4,792,844,450 $297,139 $236,640 2012-13 No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $49,999 986 6.113% 6.113% $37,986,906 0.793% 0.793% 50,000 - 99,999 2,421 15.009 21.122 176,007,942 3.672 4.465 100,000 - 149,999 1,660 10.291 31.414 206,178,307 4.302 8.767 150,000 - 199,999 1,669 10.347 41.761 292,016,876 6.093 14.859 200,000 - 249,999 1,785 11.066 52.827 399,833,600 8.342 23.202 250,000 - 299,999 1,641 10.174 63.001 444,584,020 9.276 32.478 300,000 - 349,999 1,574 9.758 72.759 506,490,086 10.568 43.045 350,000 - 399,999 1,077 6.677 79.436 399,379,232 8.333 51.378 400,000 - 449,999 735 4.557 83.993 309,693,621 6.462 57.840 450,000 - 499,999 430 2.666 86.658 203,272,059 4.241 62.081 500,000 - 549,999 543 3.366 90.025 286,601,798 5.980 68.061 550,000 - 599,999 357 2.213 92.238 204,806,236 4.273 72.344 600,000 - 649,999 240 1.488 93.726 148,903,520 3.107 75.441 650,000 - 699,999 147 0.911 94.637 99,056,387 2.067 77.507 700,000 - 749,999 141 0.874 95.511 101,527,050 2.118 79.626 750,000 - 799,999 105 0.651 96.162 80,783,275 1.685 81.311 800,000 - 849,999 118 0.732 96.894 97,155,419 2.027 83.338 850,000 - 899,999 66 0.409 97.303 57,643,945 1.203 84.541 900,000 - 949,999 50 0.310 97.613 46,085,812 0.962 85.503 950,000 - 999,999 36 0.223 97.836 35,128,665 0.733 86.236 1,000,000 and greater 349 2.164 100.000 659,709,694 13.764 100.000 Total 16,130 100.000% $4,792,844,450 100.000% (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc.

41

Assessed Valuation by Jurisdiction

The following table is an analysis of the District’s assessed valuation by jurisdiction for fiscal year 2012-13.

ASSESSED VALUATION BY JURISDICTION(1)

Fiscal Year 2012-13 Monterey Peninsula Unified School District

Assessed Valuation % of Assessed Valuation % of Jurisdiction Jurisdiction: in District District of Jurisdiction in District City of Del Rey Oaks $223,653,488 2.39% $223,653,488 100.00% City of Marina 1,412,361,465 15.11 1,429,168,541 98.82 City of Monterey 4,373,187,771 46.79 4,373,187,771 100.00 City of Sand City 223,484,768 2.39 223,484,768 100.00 City of Seaside 1,713,389,873 18.33 1,713,389,873 100.00 Unincorporated Monterey County 1,400,594,033 14.98 25,047,614,867 5.59 Total District $9,346,671,398 100.00% Total Monterey County 49,118,019,144 19.03 (1) Before deduction of redevelopment incremental valuation. Source: California Municipal Statistics, Inc.

Tax Levies, Collections and Delinquencies

Taxes are levied for each fiscal year on taxable real and personal property which is situated in the District as of the preceding January 1. A supplemental tax is levied when property changes hands or new construction is completed.

A 10% penalty attaches to any delinquent payment for secured roll taxes. In addition, property on the secured roll with respect to which taxes are delinquent becomes tax-defaulted. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty (i.e., interest) to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to auction sale by the County Tax Collector.

In the case of unsecured property taxes, a 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue beginning December 1 of the fiscal year, and a lien is recorded against the assessee. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on specific property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder’s office in order to obtain a lien on specified property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.

The County levies and collects all property taxes for property falling within its taxing boundaries. The County levies (except for levies to support prior voter-approved indebtedness) and collects all property taxes for property falling within the County’s taxing boundaries.

42

The annual secured tax levies and delinquencies are included for the District for the fiscal years shown below.

SECURED TAX CHARGES AND DELINQUENCIES Fiscal Years 2005-06 through 2011-12


Secured Amt. Del. % Del. Tax Charge(1) June 30 June 30 2005-06 $26,168,757.00 $527,156.49 2.01% 2006-07 29,169,911.00 935,853.94 3.21 2007-08 31,254,962.00 1,614,928.65 5.17 2008-09 32,426,064.00 1,286,602.00 3.97 2009-10 31,837,128.00 966,943.65 3.04 2010-11 31,124,238.00 656,106.66 2.11 2011-12 30,652,153.00 519,415.94 1.69

(1) 1% general fund apportionment. Source: California Municipal Statistics, Inc.

Alternative Method of Tax Apportionment – Teeter Plan

Certain counties in the State of California operate under a statutory program entitled Alternate Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”). Under the Teeter Plan local taxing entities receive 100% of their tax levies net of delinquencies, but do not receive interest or penalties on delinquent taxes collected by the county. The County has not adopted the Teeter Plan, and consequently the Teeter Plan is not available to local taxing entities within the County, such as the District. The District’s receipt of property taxes is therefore subject to delinquencies.

The District is a member of the Monterey County Educational Delinquent Tax Finance Authority (“MCEDTFA”). MCEDTFA is a joint exercise of powers agency formed for the purpose of purchasing delinquent ad valorem property taxes of its members in accordance with Section 6516.6 of the Government Code of the State of California. The District anticipates that MCEDTFA will from time to time purchase delinquent ad valorem tax receivables from the District at a purchase price equal to 108.5% of such receivable.

43

Principal Taxpayers

The following table lists the 20 largest local secured taxpayers in the District in terms of their 2012-13 secured assessed valuations.

20 LARGEST LOCAL SECURED TAXPAYERS Fiscal Year 2012-13 Assessed Valuations


2012-13 % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Pacific Holdings LP Shopping Center $96,108,005 1.10% 2. Pebble Beach Company Hotel 85,207,360 0.98 3. Cannery Row Hotel Development Venture LP Hotel 64,782,978 0.74 4. The Cannery Row Company Hotel 51,321,527 0.59 5. Marina Community Partners LLC Residential Development 50,781,973 0.58 6. P Monterey LP Apartments 42,089,094 0.48 7. Inns of Cannery Row Hotel 41,578,158 0.48 8. Shea Marina Village LLC Shopping Center 40,529,092 0.46 9. SWVP Monterey LLC Hotel 39,442,832 0.45 10. San Carlos Associates LLC Hotel 38,924,010 0.45 11. Custom House Hotel Co. Ltd. Hotel 34,479,835 0.40 12. Sunbay Resorts Associates LLC Apartments 33,632,784 0.39 13. LV44 LP Apartments 33,257,085 0.38 14. Muller-Ryan LLC Office Building 32,960,780 0.38 15. California-American Water Co. Water Company 32,120,629 0.37 16. 1000 Aguajito LLC Hotel 27,190,665 0.31 17. Monterey County Bank Residential Properties 23,825,135 0.27 18. Hyatt Equities LLC Hotel 21,627,944 0.25 19. Canada Woods LLC Recreational 21,337,003 0.24 20. Target Corporation Shopping Center 20,500,000 0.24 $831,696,889 9.54% (1) 2012-13 local secured assessed valuation: $8,717,060,123. Source: California Municipal Statistics, Inc.

44

Typical Tax Rates

The following table summarizes the total ad valorem tax rates levied by all taxing entities in a typical tax rate area within the District during the period from fiscal year 2007-08 to fiscal year 2012-13.

SUMMARY OF AD VALOREM TAX RATES Typical Total Tax Rates (TRA 3-000)(1)

Fiscal Years 2007-08 through 2012-13 Monterey Peninsula Unified School District

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 General 1.00000% 1.00000% 1.00000% 1.00000% 1.00000% 1.00000% Monterey Peninsula Unified School District -- -- -- -- .02879 .027965 Monterey Peninsula Community College District .01994 .01978 .02241 .02146 .02357 .022367

Total 1.01994% 1.01978% 1.02241% 1.02146% 1.05236% 1.050332% (1) TRA-3-000 – 2012-13 Assessed Valuation: $2,807,217,580. Source: California Municipal Statistics, Inc.

DISTRICT DEBT STRUCTURE

Short-Term Debt

On February 24, 2012, the District issued its 2011-12 tax and revenue anticipation notes in an aggregate principal amount of $1,295,000 (the “Cross Year TRANs”) to fund seasonal cashflow deficits of the District. The Cross Year TRANs mature on December 31, 2012, with a yield of 0.28%. The Cross Year TRANs are a general obligation of the District, payable from any lawfully available funds of the District. The District expects to pay the Cross Year TRANs from State apportionments accrued to fiscal year 2011-12.

Long-Term Debt

A schedule of changes in long-term debt for the year ended June 30, 2011 is shown below:

Balance

July 1, 2010 Additions Deductions Balance

June 30, 2011 General Obligation Bonds Payable -- $34,999,104 -- $34,999,104 Certificates of Participation $7,130,000 -- $7,130,000 -- Capitalized Lease Obligations 287,677 -- 287,677 -- Lighting Retrofit Loans 1,179,207 -- 1,179,207 -- Net OPEB Obligations 1,842,257 2,993,132 1,840,322 2,995,067 Compensated absences 764,878 -- 156,491 608,387

Totals $11,204,019 $37,992,236 $10,593,697 $38,602,558 Source: The Monterey Peninsula Unified School District.

45

General Obligation Bonds. The 2010 Authorization was approved by voters at an election held on November 2, 2010, at which the requisite 55% or more of the persons voting on the proposition voted to authorize the issuance and sale of $110,000,000 principal amount of general obligation bonds of the District. On March 10, 2011, the District issued its Election of 2010 General Obligation Bonds, Series in the aggregate principal amount of $34,999,103.70 (the “Series A Bonds”).

The following table shows the total annual debt service with respect to the District’s outstanding general obligation bonded debt, assuming no optional redemptions are made.

GENERAL OBLIGATION BOND DEBT SERVICE SCHEDULE Monterey Peninsula Unified School District

Period Ending August 1

Total Debt Service

Series A Bonds 2013 $2,574,262.50 2014 1,839,262.50 2015 1,839,262.50 2016 1,939,262.50 2017 1,939,262.50 2018 1,964,262.50 2019 2,044,262.50 2020 2,124,262.50 2021 2,209,262.50 2022 2,299,262.50 2023 2,389,262.50 2024 2,489,262.50 2025 2,584,262.50 2026 2,689,262.50 2027 2,799,262.50 2028 2,909,262.50 2029 3,024,262.50 2030 3,149,262.50 2031 3,272,562.50 2032 3,405,887.50 2033 3,542,387.50 2034 3,681,237.50 2035 3,826,612.50 2036 3,981,312.50 2037 4,139,050.00 2038 4,308,675.00 2039 4,478,462.50 2040 4,657,262.50 2041 4,843,350.00 Total $86,943,525.00

Source: The Monterey Peninsula Unified School District.

46

Statement of Direct and Overlapping Debt

Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc. dated as of August 1, 2012. The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith.

The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency.

The first column in the table names each public agency which has outstanding debt as of the date of the report and whose territory overlaps the District in whole or in part. Column 2 shows the percentage of each overlapping agency’s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in column 3, which is the apportionment of each overlapping agency’s outstanding debt to taxable property in the District.


47

STATEMENT OF DIRECT AND OVERLAPPING DEBT Monterey Peninsula Unified School District

2011-12 Assessed Valuation: $9,374,376,530 Redevelopment Incremental Valuation: (2,135,833,550) Adjusted Assessed Valuation: $7,238,542,980 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 8/1/12 Hartnell Joint Community College District 0.015% $18,047 Monterey Peninsula Community College District 30.165 35,299,290 Monterey Peninsula Unified School District 100.000 34,527,199(1) City of Marina 98.519 8,201,707 Monterey County Water Resources Agency Benefit Assessment District, Zone 2C 5.567 1,766,687 City of Marina Community Facilities District No. 2003-1 100.000 1,270,000 City of Marina 1915 Act Bonds 94.216-100. 643,226 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $81,726,156 OVERLAPPING GENERAL FUND DEBT: Monterey County General Fund Obligations 16.210% $29,577,577 Monterey County Judgment Obligations 16.210 276,381 Hartnell Joint Community College District General Fund Obligations 0.015 268 City of Marina Pension Obligations 98.519 2,876,755 City of Monterey General Fund Obligations 100.000 11,005,000 City of Seaside Pension Obligations 100.000 6,200,000 Monterey County Regional Fire Protection District Pension Obligations 10.945 1,013,507 Monterey Bay Unified Air Pollution Control Authority 9.551 167,620 TOTAL OVERLAPPING GENERAL FUND DEBT $51,117,108 COMBINED TOTAL DEBT $132,843,264 (2) (1) Excludes the Notes described herein. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and

non-bonded capital lease obligations. Ratios to 2011-12 Assessed Valuation: Direct Debt ($34,527,199) ................................................... 0.37% Total Overlapping Tax and Assessment Debt ........................ 0.87% Ratios to Adjusted Assessed Valuation: Combined Total Debt ........................................................... 1.84% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/12: $0 Source: California Municipal Statistics, Inc.

48

TAX MATTERS

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

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

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

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

The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Notes will be selected for audit by the IRS. It is also possible that the market value of the Notes might be affected as a result of such an audit of the Notes (or by an audit of similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the Notes to the extent that it adversely affects the exclusion from gross income of interest on the Notes or their market value.

49

It is possible that subsequent to the issuance of the Notes there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the Notes or the market value of the Notes. Recently, proposed legislative changes have been introduced in Congress, which, if enacted, could result in additional federal income or state tax being imposed on owners of tax-exempt state or local obligations, such as the Notes. The introduction or enactment of any of such changes could adversely affect the market value or liquidity of the Notes. No assurance can be given that subsequent to the issuance of the Notes such changes (or other changes) will not be introduced or enacted or interpretations will not occur. Before purchasing any of the Notes, all potential purchasers should consult their tax advisors regarding possible statutory changes or judicial or regulatory changes or interpretations, and their collateral tax consequences relating to the Notes.

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

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

A copy of the proposed form of opinion of Bond Counsel is attached hereto as APPENDIX B.

CERTAIN LEGAL MATTERS

Legality for Investment in California

Under provisions of the California Financial Code, the Notes are legal investments for commercial banks in California to the extent that the Notes, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and, under provisions of the Government Code of the State, are eligible for security for deposits of public moneys in the State.

Legal Opinion

Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, Bond Counsel, will render an opinion with respect to the Notes substantially in the form attached hereto as APPENDIX B. Copies of such approving opinion will be available at the time of delivery of the Notes. The payment of fees of bond counsel is contingent upon the closing of the Notes transaction.

50

Continuing Disclosure

The District has covenanted for the benefit of Owners and Beneficial Owners of the Notes to provide certain financial information and operating data relating to the District (the “Annual Report”) by not later than nine months following the end of the District’s fiscal year (the District’s fiscal year ends on June 30), commencing with the report for the 2011-12 fiscal year and to provide notices of the occurrence of certain enumerated events. The Annual Reports and notices of material events will be filed by the District with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the notice of material events is set forth in “APPENDIX D - Form of Continuing Disclosure Certificate” hereto. These covenants have been made in order to assist the Underwriters in complying with Rule 15c2-12(b)(5)(i)(C) promulgated under the Securities Exchange Act of 1934, as amended.

Within the past five years, the District failed to file its required annual report for fiscal year 2010-11 in a timely manner. The District subsequently filed its required annual report for fiscal year 2010-11 in March of 2012. The District is currently in compliance with its existing continuing disclosure obligations for the past five years.

Information Reporting Requirements

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

The financial statements with supplemental information for the year ended June 30, 2011, the independent auditor’s report of the District, and the related statements of activities and of cash flows for the year then ended, and the report dated December 12, 2011 of Crowe Horwath LLP (the “Auditor”), are included in this Official Statement as APPENDIX C. In connection with the inclusion of the financial statements and the report of the Auditor thereon in APPENDIX C to this Official Statement, the District did not request the Auditor to, and the Auditor has not undertaken to, update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to the date of its report. Absence of Material Litigation

At the time of delivery of and payment for the Notes, the District will certify that there is no action, suit, litigation, inquiry or investigation before or by any court, governmental agency, public board or body served, or to the best knowledge of the District threatened, against the District in any material respect affecting the existence of the District or the titles of its officers to their respective offices or seeking to prohibit, restrain or enjoin the sale, execution or delivery of the Notes.

51

RATING

The Notes have been assigned a rating of “MIG-1” by Moody’s Investors Service (“Moody’s”). The rating reflects only the view of the rating agency, and any explanation of the significance of such rating should be obtained from the rating agency at the following address: Moody’s Investors Service, 7 World Trade Center at 250 Greenwich Street, New York, New York 10007. There is no assurance that the rating will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by the rating agency if, in the judgment of the rating agency, circumstances so warrant. The District undertakes no responsibility to oppose any such revision or withdrawal. Any such downward revision or withdrawal of the rating obtained may have an adverse effect on the market price of the Notes.

UNDERWRITING

The Notes are being purchased for reoffering by Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus and Piper Jaffray & Co. (collectively, the “Underwriters”). The Underwriters have agreed, pursuant to a Note Purchase Agreement (the “Note Purchase Agreement”) by and between the District and the Underwriters, to purchase the Notes at the purchase price of $____________ (representing the aggregate principal amount of the Notes of $____________, plus original issue premium of $____________, less an Underwriters’ discount of $____________ and less $_________ to be retained by the Underwriters to pay costs of issuance of the Notes and deposited with a fiscal agent for payment thereof). The Note Purchase Agreement relating to the Notes provides that the Underwriters will purchase all of the Notes, if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in such Note Purchase Agreement. The Underwriters may offer and sell the Notes to dealers and others at a price lower than the offering price stated on the cover page hereof. The offering price may be changed from time to time by the Underwriters.

Piper Jaffray & Co., (“Piper”) and Pershing LLC, a subsidiary of The Bank of New York Mellon Corporation, entered into an agreement (the “Agreement”) which enables Pershing LLC to distribute certain new issue municipal securities underwritten by or allocated to the Piper, including the Notes. Under the Agreement, Piper will share with Pershing LLC a portion of the fee or commission paid to Piper.

52

MISCELLANEOUS

The references herein to the Resolution and the Notes are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and for full and complete statements of such provisions reference is made to said documents. Copies of the documents mentioned under this heading are available for inspection at the District and following delivery of the Notes will be on file at the Principal Office of the Paying Agent in Los Angeles, California.

References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive. Reference is made to such documents and reports for full and complete statements of the content thereof. Any statement in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Notes.

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


By: Superintendent

A-1

APPENDIX A

ECONOMIC AND DEMOGRAPHIC PROFILE OF THE COUNTY OF MONTEREY AND THE CITY OF MONTEREY

The following information concerning the City of Monterey (the “City”) and the County of

Monterey (the “County”) is included only for the purpose of supplying general information thereof. The Notes are not an obligation of the County of Monterey.

Introduction The District is in Monterey County, which is located near the midpoint of California’s Pacific Coast. Incorporated in 1850 as one of the state’s original 27 counties, the County is approximately 130 miles south of San Francisco and 240 miles north of Los Angeles. The County covers an area of approximately 3,300 square miles, with a population in excess of 419,000 persons.

The Monterey Peninsula, famed for its scenic beauty, is a year-round tourist attraction. Pebble Beach, Cypress Point, Spyglass Hill, Poppy Hills and The Links at Spanish Bay are well known Monterey Peninsula golf courses. The Monterey Bay Aquarium and the City of Carmel also are attractions that draw tourists to the Monterey Peninsula. Agriculture, tourism, and government are major contributors to the County’s economy. The Salinas Valley, located in the eastern portion of the County, is a rich agricultural center and one of the nation’s major vegetable producing areas.

The City of Monterey was founded in 1770 and incorporated in 1850, serving as California's first capital. Monterey is a charter city which operates under a City Council/City Manager form of government. The Council is responsible for appointing the City Manager, who serves as the professional administrator of the City and is responsible for coordinating all day-to-day operations and administration.

Population

The following table presents population figures for the City, County and the State of California from 2001 through 2012.

POPULATION ESTIMATES The City of Monterey, County of Monterey and the State of California

2001-2012

Year(1) City of Monterey Monterey County State of California 2001 29,246 404,569 34,256,789 2002 29,477 407,440 34,725,516 2003 29,700 410,276 35,163,609 2004 29,097 411,544 35,570,847 2005 29,588 409,557 35,869,173 2006 29,034 406,935 36,116,202 2007 28,819 406,890 36,399,676 2008 27,924 409,387 36,704,375 2009 27,799 412,233 36,966,713 2010 27,921 415,108 37,253,956 2011 28,018 416,968 37,427,946 2012 28,460 420,668 37,678,563

(1) January 1 data. Source: California State Department of Finance, Demographic Research Unit. March 2010 Benchmark.

A-2

Personal Income

The following tables summarize personal income and per capita personal income in the County, State of California and United States from 2005 through 2011.

PERSONAL INCOME County of Monterey, State of California, and United States

2005-2011

Year

County of Monterey

California

United States

2005 $15,095,056 $1,387,661,013 $10,476,669,000 2006 16,419,274 1,495,533,388 11,256,516,000 2007 17,013,938 1,566,400,134 11,900,562,000 2008 17,029,068 1,610,697,843 12,380,225,000 2009 16,453,221 1,526,531,367 12,168,161,000 2010 16,968,639 1,587,403,857 12,353,577,000 2011 --(1) 1,676,564,972 12,981,740,848

(1) Data is not yet available. Note: Dollars in Thousands. Source: U.S. Department of Commerce, Bureau of Economic Analysis.

PER CAPITA PERSONAL INCOME(1)

County of Monterey, State of California, and United States 2005-2011

Year

County of Monterey

California

United States

2005 $37,259 $38,767 $35,424 2006 40,861 41,567 37,698 2007 42,284 43,240 39,461 2008 41,941 43,853 40,674 2009 40,104 42,395 39,635 2010 40,754 42,514 39,937 2011 --(2) 44,481 41,663

(1) Per capita personal income is the total personal income divided by the total mid-year population estimates of the U.S. Bureau of the Census. All dollar estimates are in current dollars (not adjusted for inflation). (2) Data is not yet available. Source: U.S. Department of Commerce, Bureau of Economic Analysis.

A-3

Employment

The following table summarizes labor force, employment and unemployment data for the City, County and State of California from 2007 through 2011.

CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT City of Monterey, Monterey County and State of California

2007-2011(1)

Year

Area

Labor Force

Employment

Unemployment(2)

Unemployment Rate(3)

2007 City of Monterey 17,000 16,500 500 3.1%

Monterey County 205,800 191,200 14,700 7.2 State of California 17,928,700 16,970,200 958,500 5.3

2008 City of Monterey 17,400 16,800 600 3.7 Monterey County 212,200 194,500 17,800 8.4 State of California 18,191,000 16,938,300 1,307,600 7.2

2009 City of Monterey 17,300 16,400 900 5.3 Monterey County 215,400 190,100 25,300 11.8 State of California 18,204,200 16,141,500 2,062,700 11.3

2010 City of Monterey 17,700 16,600 1,000 5.8 Monterey County 220,900 193,000 28,000 12.8 State of California 18,176,200 15,916,300 2,259,900 12.4

2011 City of Monterey 17,800 16,800 1,000 5.6 Monterey County 222,900 195,200 27,600 12.5 State of California 18,103,800 15,974,800 2,129,000 11.8

(1) Data is based on annual averages, unless otherwise specified, and is not seasonally adjusted. (2) Includes persons involved in labor-management trade disputes. (3) Includes all persons without jobs who are actively seeking work. Source: U.S. Department of Labor – Bureau of Labor Statistics, California Employment Development Department. March 2010 Benchmark.

A-4

Industry

The District is included in the Salinas (Monterey County) Metropolitan Statistical Area (the “MSA”). The distribution of employment in the MSA is presented in the following table for the calendar years 2007 through 2011. These figures are multi county-wide statistics and may not necessarily accurately reflect employment trends within the communities served by the District.

INDUSTRY EMPLOYMENT & LABOR FORCE ANNUAL AVERAGES Salinas (Monterey County) Metropolitan Statistical Area

2007-2011(1)

2007 2008 2009 2010 2011 Total Farm 41,600 43,300 42,800 45,100 45,900 Mining and Logging 200 200 200 200 200 Construction 7,000 6,100 4,600 4,100 3,900 Manufacturing 6,100 6,100 5,700 5,600 5,600 Service Providing: 115,400 115,800 111,700 111,700 111,900

Wholesale Trade 4,900 5,100 4,900 4,900 4,900 Retail Trade 17,000 16,700 15,100 15,200 15,800 Transportation, Warehousing & Utilities 3,600 3,600 3,400 3,300 3,300 Information 2,100 2,000 1,700 1,700 1,600 Financial Activities 6,000 5,500 4,700 4,300 4,200 Professional & Business Services 11,900 11,600 10,900 11,500 11,800 Education & Health Services 12,700 13,100 13,600 13,600 13,600 Leisure & Hospitality 21,100 21,400 20,300 20,000 20,400 Other Services 4,600 4,600 4,600 4,600 4,600 Government 31,500 32,200 32,600 32,600 31,700

Total (all industries) 170,300 171,500 165,100 166,700 167,400

Note: Items may not add to total due to independent rounding. Source: California Employment Development Department, Labor Market Information Division. March 2010 Benchmark.

A-5

Employers

The following tables summarize the largest employers by number of employees in the County and City during 2011.

LARGEST EMPLOYERS County of Monterey

2011

Employer Name Location Industry Breast Care Center Monterey Diagnostic Imaging Centers Bud of California Soledad Fruits & Vegetables - Growers & Shippers D'Arrigo Brothers Co. Salinas Fruits & Vegetables - Growers & Shippers Desert Packing Shop Salinas Agricultural Products Dole Fresh Vegetables Soledad Food Products & Manufacturers Growers Co. Inc Salinas Fruits & 4Vegetables & Produce - Retail Hilltown Packing Co. Salinas Harvesting - Contract HSBC Card Svc Inc Salinas Credit & Debt Counseling Services Mann Packing Co. Salinas Fruits & Vegetables - Growers & Shippers Marine Pollution Study Lab Moss Landing Boat Dealers Sales & Service McCormick & Co. Dist. Center Salinas Spices - Manufacturers Mee Memorial Hospital King City Hospitals Misionero Vegetables Gonzales Fruits & Vegetables - Growers & Shippers Monterey County Social Svc Cmmtt Salinas County Government - Social/Human Resources Monterey County Social Services Salinas Government Offices - County Natividad Medical Center Salinas Hospitals Naval Postgraduate School Monterey Schools - Universities & Colleges Pebble Beach Co. Pebble Beach Resorts Pebble Beach Resorts Pebble Beach Resorts Salinas Valley Memorial Healthcare Salinas Hospitals Special Education School Div. Salinas Schools Taylor Farms California Inc. Salinas Fruits & Vegetables - Growers & Shippers US Defense Department Seaside Federal Government - National Security

Source: California Employment Development Department, Labor Market Information Division. Major Employers in Monterey

County.

LARGEST EMPLOYERS City of Monterey

2011

Rank Name of Business Number of Employees Type of Business

1. Community Hospital of the Monterey Peninsula 2,299 Hospital 2. Defense Language Institute 1,564 Defense Training 3. Monterey Peninsula Unified School District 1,200 Primary & Secondary Education 4. Naval Postgraduate School 602 Military Training 5. CTB McMillan McGraw Hill 550 Publisher 6. City of Monterey 508 Government 8. California Capital Insurance Company 395 Insurance 9. Monterey Plaza Hotel 380 Hotel

10. Pacific Gas and Electric 355 Public Utilities Source: City of Monterey Comprehensive Annual Financial Report for the year ending June 30, 2011.

http://www.labormarketinfo.edd.ca.gov/aspdotnet/databrowsing/empDetails.aspx?menuchoice=emp&geogArea=0604000053&empId=209965235























A-6

Commercial Activity

The following tables summarize taxable transactions in the County and City from 2007 through 2011.

TAXABLE SALES County of Monterey

(Dollars in Thousands) 2007-2011

Year

Retail

Permits

Retail Stores Taxable

Transactions

Total Permits

Total Outlets Taxable

Transactions 2007 4,857 $4,021,150 11,161 $5,680,652 2008 4,993 3,714,682 11,168 5,399,594 2009 6,880 3,255,804 10,125 4,705,845

2010 6,921 3,423,370 10,204 4,955,562 2011(1) 6,953 1,719,817 10,268 2,467,382

(1) Reflects taxable sales through the first half of 2011. Note: In 2009, retail permits expanded to include permits for food services. Source: “Taxable Sales in California (Sales & Use Tax),” California Board of Equalization.

TAXABLE SALES City of Monterey

(Dollars in Thousands) 2007-2011

Year

Retail

Permits

Retail Stores Taxable

Transactions

Total Permits

Total Outlets Taxable

Transactions 2007 811 $510,831 1,671 $664,089 2008 804 490,146 1,612 647,167 2009 1,033 449,818 1,520 591,741

2010 993 468,178 1,520 619,157 2011(1) 1,002 232,045 1,461 300,201

(1) Reflects taxable sales through the first half of 2011. Note: In 2009, retail permits expanded to include permits for food services. Source: “Taxable Sales in California (Sales & Use Tax),” California Board of Equalization.

A-7

Building Activity

The following tables provide summaries of the building permit valuations and the number of new dwelling units authorized in the County and City from 2007 through 2011.

BUILDING PERMITS AND VALUATIONS County of Monterey

2007-2011

2007 2008 2009 2010 2011 Valuation ($000): Residential $369,570 $213,572 $115,974 $142,944 $133,608 Non-residential 216,178 138,513 97,441 86,127 64,880 Total* $585,748 $352,085 $213,415 $229,071 $198,489 Residential Units: Single family 559 239 118 118 135 Multiple family 557 169 95 167 27 Total 1,116 408 213 285 162

Note: Totals may not add to sums due to rounding. Source: Construction Industry Research Board.

BUILDING PERMITS AND VALUATIONS City of Monterey

2007-2011

2007 2008 2009 2011 Valuation ($000): Residential $17,820 $12,115 $8,876 $12,534 Non-residential 81,169 42,381 23,439 12,760 Total* $98,989 $54,497 $32,315 $25,295 Residential Units: Single family 7 7 3 7 Multiple family 0 3 14 5 Total 7 10 17 12

Note: Totals may not add to sums due to rounding. Source: Construction Industry Research Board.

B-1

APPENDIX B

PROPOSED FORM OF OPINION OF BOND COUNSEL

Upon issuance and delivery of the Notes, Stradling Yocca Carlson & Rauth, Bond Counsel, proposes to render its final approving opinion with respect to the Notes substantially in the following form.

[Closing Date] Board of Education Monterey Peninsula Unified School District

Members of the Board of Education:

We have examined a certified copy of the record of the proceedings relative to the issuance and sale of $____________ Monterey Peninsula Unified School District 2012 General Obligation Bond Anticipation Notes (the “Notes”). As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation.

Based on our examination as bond counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that:

1. Such proceedings and proofs show lawful authority for the issuance and sale of the Notes pursuant to Title 1, Division 1, Part 10, Chapter 1, Article 3 of the Education Code of the State of California (comprising Sections 15150 et seq.), and pursuant to a resolution adopted by the Board of Education of the Monterey Peninsula Unified School District (the “District”) on August 20, 2012 (the “Resolution”).

2. The Notes constitute valid and binding obligations of the District, payable from proceeds of the sale of a portion of certain general obligation bonds (the “Bonds”) authorized at a duly called election held in the District on November 2, 2010 and thereafter canvassed pursuant to law, or from other funds of the District lawfully available for the purpose of repaying the Notes, including State grants. Interest on the Notes shall also be payable from the ad valorem tax lawfully levied to pay principal of and interest on the Bonds.

3. Under existing statutes, regulations, rulings and judicial decisions, 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 calculating the federal alternative minimum tax imposed on individuals and corporations. It should be further noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of corporations.

4. Interest on the Notes is exempt from State of California personal income tax.

5. The difference between the issue price of a Note (the first price at which a substantial amount of the Notes of a maturity is to be sold to the public) and the stated redemption

B-2

price at maturity with respect to such Notes constitutes original issue discount. For purposes of the previous sentence, the stated redemption price at maturity includes the aggregate sum of all debt service payments on Capital Appreciation Notes. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Noteowner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Noteowner will increase the Noteowner’s basis in the applicable Note. Original issue discount that accrues to the Noteowner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax.

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

The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Resolution and the Tax Certificate relating to the Notes permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest for federal income tax purposes with respect to the Notes if any such action is taken or omitted based upon the advice of counsel other than ourselves. Other than expressly stated herein, we express no opinion regarding tax consequences with respect to the Notes.

The opinions expressed herein as to the exclusion from gross income of interest on the Notes are based upon certain representations of fact and certifications made by the District and others and are subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the issuance of the Notes to assure that such interest will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the Notes to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Notes. The District has covenanted to comply with all such requirements.

It is possible that subsequent to the issuance of the Notes there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the Notes or the market value of the Notes. No assurance can be given that subsequent to the issuance of the Notes such changes or interpretations will not occur.

B-3

The rights of the owners of the Notes and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted to the extent constitutionally applicable and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases.

Respectfully submitted,

Stradling Yocca Carlson & Rauth

C-1

APPENDIX C

2010-11 AUDITED FINANCIAL STATEMENTS OF THE DISTRICT

MONTEREY PENINSULAUNIFIED SCHOOL DISTRICT

Monterey, California

FINANCIAL STATEMENTSJune 30, 2011


FINANCIAL STATEMENTSWITH SUPPLEMENTARY INFORMATION

For the Year Ended June 30, 2011

TABLE OF CONTENTS

Independent Auditors' 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 theStatement of Net Assets

Statement of Revenues, Expenditures and Change in FundBalances - Governmental Funds

Reconciliation of the Statement of Revenues, Expenditures andChange in Fund Balances - Governmental Funds - to theStatement of Activities

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

Statement of Revenues, Expenses and Change in Fund Net AssetsProprietary Fund - Self-Insurance Fund

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

Statement of Fiduciary Net Assets - Trust and Agency Funds

Statement of Change in Fiduciary Net Assets - Trust Fund

Notes to Basic Financial Statements

Page

1-2

3-8

9

10

11

12

13

14

15

16

17

18

19

20-43



For the Year Ended June 30,2011

TABLE OF CONTENTS(Continued)

Required Supplementary Information:

General Fund Budgetary Comparison Schedule

Schedule of Other Postemployment Benefits (OPEB) Funding Progress

Notes to Required Supplementary Information

Supplementary Information:

Combining Balance Sheet - All Non-Major Funds

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

Combining Statement of Changes in Assets and Liabilities - AllAgency Funds

Organization

Schedule of Average Daily Attendance

Schedule of Instructional Time

Schedule of Expenditure of Federal Awards

Reconciliation of Unaudited Actual Financial Report with AuditedFinancial Statements

Schedule of Financial Trends and Analysis

Schedule of Charter Schools

Notes to Supplementary Information

Independent Auditors' Report on Compliance with State Laws andRegUlations

Independent Auditors' Report on Internal Control over FinancialReporting and on Compliance and Other Matters Based on anAudit of Financial Statements Performed in Accordance withGovemment Auditing Standards

Page

44

45

46

47

48

49-51

52

53

54

55-57

58

59

60

61-62

63-65

66-67




TABLE OF CONTENTS(Continued)

Independent Auditors' Report on Compliance with RequirementsThat Could Have a Direct and Material Effect on Each MajorProgram and on Internal Control over Compliance in Accordancewith OMS Circular A-133

Independent Auditors' Report on Compliance with RequirementsApplicable to the First 5 Monterey County Program and onInternal Control over Compliance in Accordance with aProgram-Specific Audit

Findings and Recommendations:

Schedule of Audit Findings and Questioned Costs

Status of Prior Year Findings and Recommendations

Page

68-69

70-71

72-77

78

A Crowe Horwath.

INDEPENDENT AUDITORS' REPORT

Crowe Horwath LLPIndependent Member Crowe HOIW8Ih International

Board of EducationMonterey Peninsula Unified School DistrictMonterey, California

We were engaged to audit the accompanying financial statements of the governmentalactivities, each major fund and the aggregate remaining fund information of Monterey PeninsulaUnified School District. as of and for the year ended June 30, 2011. which collectively compriseMonterey Peninsula Unified School District's basic financial statements as listed in the Table ofContents. These financial statements are the responsibility of the District's management. Ourresponsibility is to express opinions on these financial statements based on our audit.

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

In our opinion the financial statements referred to above present fairly, in all materialrespects, the respective financial position of the governmental activities. each major fund andthe aggregate remaining fund information of Monterey Peninsula Unified School District as ofJune 30, 2011, and the respective changes in financial position and cash flows. whereapplicable. for the year then ended, in conformity with accounting principles generally acceptedin the United States of America.

In accordance with Government Auditing Standards, we have also issued our reportdated December 12. 2011 on our consideration of Monterey Peninsula Unified School District'sinternal control over financial reporting and our tests of its compliance with certain provisions oflaws. regulations, contracts and grant agreements and other matters. The purpose of thatreport is to describe the scope of our testing of internal control over financial reporting andcompliance and the results of that testing, and not to provide an opinion on the internal controlover financial reporting or on compliance. That report is an integral part of an audit performedin accordance with Government AUditing standards and should be considered in assessing theresults of our audit.

INDEPENDENT AUDITORS' REPORT(Continued)

Management's Discussion and Analysis and the Required Supplementary Information,such as the General Fund Budgetary Comparison Schedule and the Schedule of OtherPostemployment Benefits Funding Progress, are not required parts of the basic financialstatements, but are supplementary information required by accounting principles generallyaccepted in the United States of America. We have applied certain limited procedures. whichconsisted principally of inquiries of management regarding the methods of measurement andpresentation of the required supplementary information. However. we did not audit theinformation and express no opinion on it.

Our audit was conducted for the purpose of forming opinions on the financial statementsthat collectively comprise Monterey Peninsula Unified School District's basic financialstatements. The accompanying financial and statistical information listed in the Table ofContents, 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, andNon-Profit Organizations. is presented for purposes of additional analysis and is not a requiredpart ·of the basic financial statements of Monterey Peninsula Unified School District. Suchinformation has been subjected to the auditing procedures applied in the audit of the basicfinancial statements and, in our opinion, is fairly stated, in all material respects, in relation to thebasic financial statements taken as a whole.

~~tdCrowe Horwath LLP

Sacramento. CaliforniaDecember 12, 2011


Members of the Board:

Diane Creasey

Debra Gramespacher

Regena Lauterbach

Bettye lusk

Curt Parker

Helen Rucker

Jon Hill

MANAGEMENT'S DISCUSSION AND ANALYSIS

Monterey Peninsula Unified School District (the "District") is the largest unified school district in Monterey County.

The District currently operates 24 schools, consisting of 11 elementary schools, 3 middle schools, 3 comprehensive

high schools, 1 continuation high school, 1 ROC/P, 1 adult school, 2 child development centers, 1 middle school

Community Day School, and 1 high school Community Day School.

As of June 30. 2011, the District budget included 609 certificated full-time equivalents (FiE) and 560 classified FTE.

For the 2010-11 school year the District's CBED October enrollment was 10,628, a decrease of 469 over the 2009

10 year. For the current school year 2011-12, enrollment is 10,411, a decrease of 217 over the prior year. More

than 50 percent of the District's students are eligible for free and reduced priced meals. The District serves a

diverse student population and students speak more than 40 languages.

Mission Statement

On June 16, 2003, the Board of Trustees for Monterey Peninsula Unified School District adopted a new Mission

Statement. The Mission Statement states:

Through dynamic, engaging learning experiences and colloborotive partnerships within our diverse coastal

community, the Monterey Peninsula Unified School District ensures that each student will attain the

intellectual, social and personal knowledge to passionately seek the challenges of the future.

In the 2007-08 school year, the District formed a Blueprint for Success Committee with a district goal of 100% of

our students will meet or exceed district standards. The strategies to achieve this are: District-Wide

Accountability, Dynamic Work-force, Professional Development and School Configuration. For more information,

please visit the District's website at www.mpusd.kI2.ca.us.

The Mission Statement and Blueprint for Success are the basis and guiding principles of the District.

3

FINANCIAL INFORMATION OF THE SCHOOL DISTRICT

Financial Reports

The District has accounts for the value of fixed assets and includes these values as part of the financial statements.

The District displays 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 financial health or

position. Over time, increases or decreases in the District's net assets are one indicator of whether the financial

position is improving or declining.

Statement of Net Assets

The Statement of Net Assets for the 2010-11 year shows the District's net assets as $98,884,240. This amount

includes the value of the land, buildings, and equipment (less depreciation) owned by the District as well as all

liabilities. The table below summarizes the change in net assets from 2009-10 to 2010-11.

Statement of Net Assets30-Jun-10 30-Jun-11

Assets $ 123,137,614 $ 147,498881Uabilities $ 19,127518 $ 48,614641

Ending Net Assets $ 104,010,096 $ 98,884.240

Statement of Activities

The Statement of Activities for the 2010-11 year shows the District's change in net assets as $(5,125,856) for

Governmental Activities.

30-Jun-10 30-Jun-11Program Revenues $ 33534,964 $ 32708,079General Revenues $ 69,197,251 $ 72 614,044

Expenses $99934,822 $ 110447,979Change in Net Assets $ 2797393 $ (5 125,8561

Capital Assets

The net Capital Assets as of June 30th, 2011 are $72,951,656. This represents a decrease of $3,867,021 over the

prior year. This decrease is primarily from accumulated depreciation.

Long-Term Debt

The long-Term Debt as of June 30th, 2011 is $38,602,558. This represents an increase of $27,398,539 over the

prior year. This increase is from the issuance of a general obligation bond and the refinancing of the Certificate of

Participation.

4

Financial Condition of the General Fund

The ending balance for Monterey Peninsula Unified School District's General Fund in 2010-11 is $27,801,065.

Public education received a -0.39% cost of living adjustment (COLA), a decrease of $25 per average daily

attendance (ADA). In addition, the Revenue Umit was reduced by a 17.963% deficit. Revenue limit amounts vary

throughout the State and the District is funded at the "average revenue limit per ADA" for unified districts in

california. Although the Revenue limit income decreased, the District was able to cover cost increases for

employee salaries and benefits due to step and column movement, other fixed costs, and maintain programs by

taking proactive measures over the past few years such as making reductions early, spending conservatively,

restructuring programs and staff, and maximizing the use of one-time funds and flexibility provisions. The

following table summarizes fund balance changes in the General Fund financial statements:

Summarv of Financial 0 eratlons30-Jun-10 30-Jun-ll Change in Fund Balance

Revenues $ 91,868,227 $ 99771,755 Fund Balance June 30 2010 $ 21308,298Expenditures $ (91 846,390) $ (93 278,988) Fund BalanceJune 30 2011 $ 27 801,065

Difference $ 21837 $ 6492,767 Chan!!e $ 6492,767

General Fund Revenues

Most of the District's General Fund revenue is generated from the Revenue Limit, which yields funds based on a

State-determined dollar amount multiplied by the average daily attendance of students 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-determined

programs. The largest categorical program also known as restricted programs is Special Education.

Federal income is a small portion of the entire District income but it is growing as new Federal commitments are

added. Again, most of the Federal income is restricted since it must 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 reflects a

carryover of unexpended balances from the prior year. Under the requirement of state law, a portion of the

beginning balance must remain as a Reserve for Economic Uncertainties.

Sources AvailableRevenue Limit $ 55025,094

Federa I Revenue $ 14228,109Other State Revenue $ 18237,387

Local Revenue $ 8,158,859Other Financin!! Sources $ 4122306

Total Revenue $ 99.771,755Bee:innine Fund Balance $ 21308,298

Total General Fund Sources $ 121,080,053

5

Sources of Revenue

OlhC'r FII1,)l1cil1gSources

local Revellue

Other Slale'Revcllue

19%

14'1\..

3%4

•·..

RevcnuC'limll55%

II ReVCl111(' limit

OlhC'r Slale- RCVClllll'

.loc,)1 Revenue

Olher Fill,)llcil1g SOllrccs

General Fund Expenditures

Employee salary and benefit costs are 78% of the District's General Fund expenditures. Approximately 53% of the

District's expenditures go directly to the classroom for instructional costs.

There are two types of income: restricted and unrestricted. A significant portion of California school district

income is restricted and, as such, can only be expended for selected purposes as determined by the granting

agency. The unrestricted income can be expended as determined by the local agency for general educational

purposes.

General Fund Ex endituresSalaries and Benefits S 72,256,195

Books and Sunnlies $ 5,364,367Ooeratinl!: Costs S 11,457,194

Caoital/Other S 1,996,637Other Financing Uses $ 2,204,595

Total Exnenditures S 93,278,988

6

General Fund Expenditures by Object

Other Fill,lt\Clllp'

c.,pil<lI!Othcr Uses

12%

Book~ ,1n<1 SliP )Iii'sG%

S.,I;ui('~ ;lnn

Benefits11S%

• Book~ ,111<1 Sllpplic~

Oper.1l1llp, Co~t~

• C,'Pll"I!OlhN

OthN FIIl"nnnp, ll~r~

General Fund Expenditures by Function

OlhcrOlitgo

InlereSl (lollp,-terl11 li,lbilities)

• AnCillary. COllllllllllllv & EnlerpriseServices

Pupil Services

General AdlllllllSlr,1llon

• Instruction

.lnSlruction-Relaled ServICes

Interesl(IOllg-tcnll

1i"bllitlt's~Olh('rOlllp,o1'" ·w'u • u

Inslrucllon-Re!,)le(~'''''''''",:,,~Services

14 u-\.

Plar1lServlCCs13~",

GenNaI '"A{lministl"Hlon

4% )

Ancill,1r~ '/PUPilserviccsCommunity 12%&. Enterprise

Services1':...

7

General Fund Budget versus Actuals

General Fund Approved Budget vs. Actual

Actuals Budget Difference

Revenues $ 99,771,755 $ 105,062,469 $ (5,290,714)

Expenditures $ (93,278,988) $ (103,775,452) $ 10,496,464

Difference $ 6,492,767 $ 1,287,017 $ 5,205,750

The District's Net Increase in General Fund Balance was $5,205,750 more than the adopted budget.

Factors Bearing on the District's Future

By December 15, 2011, the Director of Business Services is required to determine whether revenues are coming inas forecast or are falling short (uses the higher of either the Legislative Analyst's Office's (LAO) November 2011forecast or the Department of Finance's (DOF) December forecast).

If the revenues are not as strong as projected, automatic spending reductions are triggered in the following orderas of January 1,2012:

• Less than $1 billion below forecast - no changes are required• Between $1-2 billion below forecast - $23 million cut to child care and reductions to community colleges

and other state-funded programs• More than $2 billion below forecast - all previous cuts are implemented plus up to 4% reduction to

revenue limits, $248 million cut to school transportation, and reduction to community collegesThe LAO's November 2011 report forecasts a $3.7 billion shortfall therefore school districts across California areanticipating a $260 per ADA Revenue Limit reduction for the trigger cuts.

The LAO estimates that, even with the trigger reductions, the state will end 2011-12 with a deficit of $3 billion andwill be facing another economic crisis as it tries to balance the 2012-13 budget. The state will face a nearly $10billion operating shortfall in 2012-13. With the uncertainty of the 2012-13 budget, it is the District's goal to meetboth planned and unplanned financial challenges, while spending as much of the current year's resources aspossible on the current year's programs and students.

The District has been strategic and prudent in managing its fiscal affairs during this very difficult time and has beenable to maintain a healthy ending fund balance. The ending fund balance will aid the District in maintainingprograms in the current year and the next two years.

Contacting the District's Financial Management

If you have any questions regarding this report or need additional financial information, contact Susan Ziebell,

Director of Business Services at (831) 645-1232.

8

BASIC FINANCIAL STATEMENTS


STATEMENT OF NET ASSETS

June 30, 2011

ASSETS

Cash and investments (Note 2)ReceivablesStores inventoryPrepaid expensesNon-clepreciable capital assets (Note 4)Depreciable capital assets, net of accumulated

depreciation (Note 4)

Total assets

LIABILITIES

Accounts payableDeferred revenueLong-term liabilities (Notes 5 and 8):

Due after one year

Totalliabilities

NET ASSETS

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

$

GovernmentalActivities

52,738,93421,595,584

40,865171,842

6,437,428

66.514.228

147.498.881

7,527,9082,484,175

38,602.558

48,614.641

38,033,37740,005,78420,845,079

Total net assets

The accompanying notes are an integralpart of these financial statements.

9

$ 98,884,240

Govemmental activities (Note 4):InstructionInstruction-related services:

Supervision of instructionInstructional library, media and

technologySchool site administration

Pupil services:Home-to-schooltransportationFood servicesAll other pupil services

General administration:Data processingAll other general administration

Plant servicesAncillary servicesCommunity servicesEnterprise activitiesInterest on long-term liabilitiesOther outgo

Total governmental activities


STATEMENT OF ACTIVITIES


Net (Expense)Revenues and

Changes InProgram Revenues Net Assets

Charges Operating Capitalfor Grants and Grants and Govemmental

Expenses Services Contributions Contributions Activities

$ 58,902,214 S 1,073,878 $ 15,848,025 $ (755,862) S (42,736,173)

4,410,403 1,557 3,535,737 (873,109)

1,054,012 124 637,295 (416,593)8,544,023 100,317 1,352,036 (7,091,670)

1,917,281 44,369 1,032,801 (840,111)3,578,842 809,374 3,102,029 332,5615,446,278 172,361 1,382,875 (3,891,042)

555,545 (555,545)4,605,230 27,579 660,118 (3,917,533)

16,954,531 6,051 2,099,268 (14,849,212)323,789 119 9,270 (314,400)266,194 539 21,430 (244,225)

1,303,668 (1,303,668)916,256 (916,256)

1,669,713 174,735 1,372,054 (122,924)

$ 110,447,979 $ 2,411,003 $ 31,052,938 $ (755,862) (77,739,900)

General revenues:Taxes and subventions:

Taxes levied for general purposes 33,428,603Taxes levied for other specific purposes 376,889

Federal and state aid not restricted to specific purposes 36,470,217Interest and investment eamings 98,942Interagency revenues 725,109Miscellaneous 1,191,672Special and extraordinary items 322,612

Total general revenues 72,614,044

Change in net assets (5,125,856)

Net assets, July 1, 2010 104,010,096

Net assets, June 3D, 2011 $ 98,884,240

The accompanying notes are an integralpart of these financial statements,

10


BALANCE SHEET

GOVERNMENTAL FUNDS

June 30, 2011

All TotalGeneral Building Non-Major Governmental

Fund Fund Funds Funds

ASSETS

Cash and investments:Cash in County Treasury $ 20,097,562 $ 25,541,288 $ 5,254,923 $ 50,893,773Cash on hand and in banks 151,360 151,360Cash in revolving fund 22,000 22,000Cash with Fiscal Agent 80,825 80,825

Receivables 18,123,939 31,005 2,008,129 20,163,073Due from other funds 100,224 11 2,114,852 2,215,087Stores inventory 40,865 40,865

Total assets $ 38,343,725 $ 25,653,129 $ 9,570,129 $ 73,566,983

LIABILITIES ANDFUND BALANCES

Liabilities:Accounts payable $ 5,037,680 $ 827,940 $ 1,094,214 $ 6,959,834Deferred revenue 2,471,721 12,454 2,484,175Due to other funds 3,033,259 155 67,340 3,100,754

Totalliabilities 10,542,660 828,095 1,174,008 12,544,763

Fund balances:Nonspendable 22,000 40,865 62,865Restricted 2,765,252 24,825,034 8,355,256 35,945,542Assigned 21,632,373 21,632,373Unassigned 3,381,440 3,381,440

Total fund balances 27,801,065 24,825,034 8,396,121 61,022,220

Totalliabilities and fund balances $ 38,343,725 $ 25,653,129 $ 9,570,129 $ 73,566,983


11


RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEETTO THE STATEMENT OF NET ASSETS

June 30, 2011

Total fund balances - Governmental Funds

Amounts reported for governmental activities in the statement ofnet assets are different because:

Capital assets used for governmental activities are not financialresources and, therefore, are not reported as assets ingovernmental funds. The cost of the assets is $160,007,317and the accumulated depreciation is $87,055,661 (Note 4).

Debt issue costs are recognized as expenditures in the periodthey are incurred. Unamortized debt issue costs included inprepaid expense on the statement of net assets are:

In governmental funds, interest on long-term debt is notrecognized until the period in which it matures and is paid. Inthe government-wide statement of activities, it is recognized inthe period that it is incurred. The additional liability forunmatured interest owing at the end of the period was:

Long-term liabilities are not due and payable in the currentperiod and, therefore, are not reported as liabilities in thefunds. Long-term liabilities at June 30, 2011 consisted of(Note 5):

General Obligation bonds payableNet OPES obligations (Note 8)Compensated absences

Internal service funds are used to conduct certain activities forwhich costs are charged to other funds on a full cost-recoverybasis. The net assets of the Self-Insurance Fund are:

Total net assets - governmental activities

$ (34,999,104)(2,995,067)

(608,387)

$ 61,022,220

72,951,656

171,842

(565,280)

(38,602,558)

3,906.360

$ 98,884.240


12


STATEMENT OF REVENUES. EXPENDITURES ANDCHANGE IN FUND BALANCES

GOVERNMENTAL FUNDS

For the Year Ended June 3D. 2011

All TotalGeneral Building Non-Major Governmental

Fund Fund Funds Funds

Revenues:Revenue limit sources:

State apportionment $ 23,805,134 $ 23,805,134Local sources 31,219,960 31,219,960

Total revenue limit 55,025,094 55,025,094

Federal sources 14,228,109 $ 4,214,276 18,442,385Other state sources 18,237,387 3,241,550 21,478,937Other local sources 8,158,859 $ 800,959 2,178,064 11,137,882

Total revenues 95,649,449 800,959 9,633,890 106,084,298

Expenditures:Certificated salaries 38,048,231 1,387,119 39,435,350Classified salaries 15,239,124 17,642 2,723,283 17,980,049Employee benefits 18,968,840 6,344 1,785,916 20,761,100Books and supplies 5,364,367 375,072 2,669,021 8,408,460Contract services and operating

expenditures 11,457,194 1,965,338 2,234,395 15,656,927Capital outlay 331,008 334,474 93,161 758,643Other outgo 1,665,629 1,665,629Debt service:

Principal retirement 7,925,181 671,703 8,596,884Interest 350,978 350,978

Total expenditures 91,074,393 10,975,029 11,564,598 113,614,020

Excess (deficiency) of revenuesover (under) expenditures 4,575,056 (10,174,070) (1,930,708) (7,529,722)

Other financing sources (uses):Operating transfers in 4,122,306 4,153,450 8,275,756Operating transfers out (2,204,595) (7,326,430) (9,531,025)Proceeds from issuance of General

Obligation Bonds 34,999,104 34,999,104

Total other financing sources (uses) 1,917,711 34,999,104 (3,172,980) 33,743,835

Net change in fund balances 6,492,767 24,825,034 (5,103,688) 26,214,113

Fund balances, July 1, 2010 21,308,298 13,499,809 34,808,107

Fund balances, June 30, 2011 $ 27,801,065 $ 24,825,034 $ 8,396,121 $ 61,022.220


13


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

TO THE STATEMENT OF ACTIVITIES


Net change in fund balances - Total Govemmental Funds

Amounts reported for governmental activities in the statement ofactivities are different because:

Acquisition of capital assets is an expenditure in thegovernmental funds, but increases capital assets in thestatement of net assets (Note 4).

Depreciation of capital assets is an expense that is notrecorded in the governmental funds (Note 4).

Repayment of principal on long-term liabilities is an expenditurein the governmental funds, but decreases the long-termliabilities in the statement of net assets (Note 5).

In governmental funds, proceeds from debt are recognized asOther Financing Sources. In the government-widestatements, proceeds from debt are reported as increases toliabilities. Amounts recognized in governmental funds asproceeds from debt, net of issue costs amortized for theperiod is:

Amortization of costs associated with the issuance of liabilitiesare not uses of financial resources and, therefore, are notreported as expenditures in govemmental funds.

In governmental funds, interest on long-term debt is recognizedin the period that it becomes due. In the government-widestatement of activities, it is recognized in the period that it isincurred. Unmatured interest owing at the end of the period,less matured interest paid during the period but owing fromprior period was:

In the statement of activities, expenses related to compensatedabsences and net OSES obligations are measured by theamounts earned during the year. In the governmental funds,expenditures are measured by the amount of financialresources used (Notes 5 and 8).

Internal service funds are used to conduct certain activities forwhich costs are charged to other funds on a full cost-recoverybasis. The change in net assets for the Self-Insurance Fundis:

Change in net assets of governmental activities

$

$ 26,214,113

758,644

(4,625,665)

8,596,884

(34,999,104)

(80,825)

(565,280)

(996,319)

571.696 (31,339.969)

$ (5.125,856)


14


STATEMENT OF FUND NET ASSETS - PROPRIETARY FUND

SELF-INSURANCE FUND

June 30, 2011

ASSETS

Cash and investments:Cash in County TreasuryCash with Fiscal Agent

ReceivablesDue from other funds

Total assets

LIABILITIES

Accounts payableDue to other funds

Totalliabilities

NET ASSETS

Net assets - restricted


15

$ 1,162,846428,130

1,432,511931,890

3.955.377

2,79446.223

49.017

$ 3.906,360


STATEMENT OF REVENUES, EXPENSES AND CHANGE INFUND NET ASSETS - PROPRIETARY FUND

SELF~NSURANCEFUND

For the Year Ended June 3D, 2011

Operating revenues:Self-insurance premiums

Operating expenses:Classified salariesEmployee benefitsBooks and suppliesContract services

Total operating expenses

Operating loss

Non-operating revenue:Interest incomeTransfers from other funds

Non-operating revenue

Change in net assets

Net assets, July 1, 2010

Net assets, June 30, 2011


16

$ 15,640,767

185,41977,61319,585

16,042.238

16.324.855

(684.088)

5151.255.269

1.255.784

571.696

3,334.664

$ 3.906.360


STATEMENT OF CASH FLOWS - PROPRIETARY FUND

SELF-INSURANCE FUND


Cash flows from operating activities:Cash received from self-insurance premiumsCash paid to suppliersCash paid for employee benefitsCash paid for salaries and benefits

Net cash used in operating activities

Cash provided by financing activities:Cash received from other funds

Cash provided by investing activities:Interest income

Decrease in cash and investments

Cash and investments, JUly 1, 2010

Cash and investments, June 30, 2011

Reconciliation of operating loss to net cashprovided by operating activities:

Operating lossAdjustments to reconcile operating loss to

net cash used in operating activities:Decrease in receivablesIncrease in due from other fundsDecrease in accounts payableIncrease in due to other funds

Total adjustments

Net cash used in operating activities


17

$ 15,489,097(771,813)

(15,997,302)(263.032)

(1,543,050)

1,255,269

515

(287,266)

1.878,242

$ 1.590,976

$ (684.088)

228,140(379,810)(752,228)

44,936

(858.962)

$ (1,543.050)


STATEMENT OF FIDUCIARY NET ASSETS

TRUST AND AGENCY FUNDS

June 30, 2011

Trust AgencyFund Funds

Scholarship StudentFund Organizations Total

ASSETS

Cash and investments (Note 2):Cash in County Treasury $ 183,728 $ 183,728Cash on hand and in banks $ 194.103 194,103

Receivables 204 204

Total assets 183,932 194,103 378.035

LIABILITIES

Due to student groups 194,103 194.103

Totalliabilities 194,103 194,103

NET ASSETS

Net assets - restricted (Note 6) $ 183,932 $ $ 183,932


18


STATEMENT OF CHANGE IN FIDUCIARY NET ASSETS

TRUST FUND


Additions:Other local sources

Deductions:Scholarships

Change in net assets

Net assets, July 1, 2010

Net assets, June 30, 2011


19

ScholarshipTrust

$ 31,157

43.079

(11,922)

195.854

$ 183.932


NOTES TO BASIC FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Monterey Peninsula Unified School District (the "District") accounts for its financialtransactions in accordance with the policies and procedures of the CaliforniaDepartment of Education's California School Accounting Manual. The accountingpolicies of the District conform to accounting principles generally accepted in the UnitedStates of America as prescribed by the Governmental Accounting Standards Board.The following is a summary of the more significant policies:

Reporting Entity - Monterey Peninsula Unified School District Financing Corporation

The Board of Education is the level of government which has governanceresponsibilities over all activities related to public school education in the School District.The District and the Monterey Peninsula Unified School District Financing Corporation(the "Corporation") have a financial and operational relationship which meets thereporting entity definition criteria of the GASB Codification of Governmental Accountingand Financial Reporting Standards, Section 2100, for inclusion of the Corporation as ablended component unit of the District. Accordingly, the financial activities of theCorporation have been included in the basic financial statements of the District.

The Corporation was formed in 2005, pursuant to the general California nonprofitcorporation laws, to provide financial assistance to the District for construction andacquisition of major capital facilities. Certificates of Participation issued by theCorporation are included as long-term liabilities in the government-wide financialstatements. At the end of the lease term, title of all Corporate property will pass to theDistrict for no additional consideration.

The financial activities of the Corporation are presented in the Special Reserve forCapital Outlay Fund.

The follOWing are those aspects of the relationship between the District and theCorporation which satisfy GASB Codification of Governmental Accounting and FinancialReporting Standards, Section 2100, criteria:

A - Manifestation of Oversight

1 - The Corporation's Board of Directors was appointed by the District'sGoverning Board. The Corporation has no employees. The District'sChief Business Officer functions as the agent of the Corporation. Thisindividual receives no additional compensation for work performed in thiscapacity.

20


NOTES TO BASIC FINANCIAL STATEMENTS(Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reporting Entity - Monterey Peninsula Unified School District Financing Corporation(Continued)

B - Accounting for Fiscal Matters

1 - The District is able to impose its will upon the Corporation, based on thefollowing:

All major financing arrangements, contracts, and othertransactions of the Corporation must have the consent of theDistrict.

The District exercises significant influence over operations of theCorporation as it is anticipated that the District will be the solelessee of all facilities owned by the Corporation.

2 - The Corporation provides specific financial benefits or imposes specificfinancial burdens on the District based upon the following:

Any deficits incurred by the Corporation will be reflected in thelease payments of the District.

Any surpluses of the Corporation revert to the District at the endof the lease period.

The District has assumed a "moral obligation", and potentially alegal obligation, or any debt incurred by the Corporation.

C - Scope of Public Service and Financial Presentation

The Corporation was formed for the sole purpose of providingfinancing assistance to the District for construction and acquisitionof major capital facilities. Upon completion, the District intends tooccupy all Corporation facilities under a lease-purchaseagreement effective through the year 2024.

Basis of Presentation - Financial Statements

The basic financial statements include a Management's Discussion and Analysis(MD & A) section providing an analysis of the District's overall financial position andresults of operations, financial statements prepared using full accrual accounting for allof the District's activities, inclUding infrastructure, and a change in the fund financialstatements to focus on the major funds.

21




Basis of Presentation - Government-Wide Financial Statements

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

The Statement of Net Assets and the Statement of Activities are prepared using theeconomic resources measurement focus and the accrual basis of accounting.Revenues, expenses, gains, losses, assets and liabilities resulting from exchange andexchange-like transactions are recognized when the exchange takes place. Revenues,expenses, gains, losses, assets and liabilities resulting from nonexchange transactionsare recognized in accordance with the requirements of Govemmental AccountingStandards Board Codification Section (GASB Cod. Sec.) N50.118-.121.

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

Allocation of indirect expenses: The District reports all direct expenses by function inthe Statement of Activities. Direct expenses are those that are clearly identifiable with afunction. Depreciation expense is specifically identified by function and is included inthe direct expense of each function. Interest on general long-term liabilities isconsidered an indirect expense and is reported separately on the Statement ofActivities.

Basis of Presentation - Fund Accounting

The accounts of the District are organized on the basis of funds or account groups. eachof which is considered to be a separate accounting entity. The operations of each fundare accounted for with a separate set of self-balancing accounts that comprise itsassets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate.District resources are allocated to and accounted for in individual funds based upon thepurpose for which they are to be spent and the means by which spending activities arecontrolled. The District's accounts are organized into three broad categories which, inaggregate, include seven fund types as follows:

A Govemmental Fund Types

1. General Fund:

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

22




Basis of Presentation - Fund Accounting (Continued)

A - Governmental Fund Types (Continued)

2. Special Revenue Funds:

The Special Revenue Funds are used to account for the proceeds ofspecific revenue sources that are legally restricted to expenditures forspecified purposes. This classification includes the Adult Education, ChildDevelopment, Cafeteria and Deferred Maintenance Funds.

3. Capital Projects Funds:

The Capital Projects Funds are used to account for resources used forthe acquisition or construction of capital facilities by the District. Thisclassification includes the Building, Capital Facilities, County SchoolFacilities and Special Reserve for Capital Outlay Funds.

4. Debt Service Funds:

The Bond Interest and Redemption Fund is used to account for theaccumulation of resources for, and the payment of, general long-termliabilities principal, interest and related costs.

B Proprietary Funds

1. Self-Insurance Fund:

The Self-Insurance Fund is an internal service fund used to account forservices rendered on a cost-reimbursement basis within the District. TheSelf-Insurance Fund is used to purchase workers' compensation, dentaland vision benefits for employees of the District.

c - Fiduciary Funds

1. Scholarship Trust Fund

The Scholarship Trust Fund is used to account for amounts held by theDistrict as Trustee, to be used to provide scholarships to students of theDistrict.

2. Agency Funds

Student Body Funds:

Student Body Funds are used to account for revenues and expendituresof the various student body organizations. All cash activity, assets andliabilities of the various student bodies of the District are accounted for inStudent Body Funds.

23




Basis of Accounting

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

Accrual

Governmental activities in the government-wide financial statements and the proprietaryand fiduciary fund financial statements are presented on the accrual basis ofaccounting. Revenues are recognized when earned and expenses are recognized whenincurred.

Modified Accrual

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

Budgets and Budgetary Accounting

By state law, the Board of Education must adopt a final budget by July 1. A publichearing is conducted to receive comments prior to adoption. The Board of Educationcomplied with these requirements.

Stores Inventory

Stores inventory is valued using the purchases method in that the expense is recordedat the time of purchase. Inventories are recorded as an expenditure or expense at thetime the individual inventory items are transferred from the warehouse to the schools orused in meal production.

Cafeteria Food Purchases

Cafeteria purchases include food purchased through the State of California Office ofSurplus Property, for which the District is required to pay only a handling charge. TheStatement of Revenues, Expenses and Change in Fund Balance reflects only thehandling charges paid for these purchases. The state does not require the CafeteriaFund to record the fair market value of these commodities. The expenditures for theseitems would have been greater had the District paid fair market value for thegovernment surplus food commodities.

24




Capital Assets

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

Compensated Absences

Compensated absence benefits in the amount of $608,387 are recorded as a liability ofthe District. The liability is for the earned but unused benefits.

Sick Leave Benefits

Sick leave benefits are not recognized as liabilities of the District. The District's policy isto record sick leave as a operating expenditure or expense in the period taken sincesuch benefits do not vest nor is payment probable; however, unused sick leave is addedto the creditable service period for calculation of retirement benefits for certain STRSand CalPERS employees, when the employee retires.

Deferred Revenue

Revenue from federal, state, and local special projects and programs is recognizedwhen qualified expenditures have been incurred. Funds received but not earned arerecorded as deferred revenue until earned.

Restricted Net Assets

Restrictions of the ending net assets indicate the portions of net assets not appropriablefor expenditure or amounts legally segregated for a specific future use. The restrictionsfor revolving cash fund, stores inventory and prepaid expenses reflect the portion of netassets represented by revolving fund cash, stores inventory and prepaid expenses,respectively. These amounts are not available for appropriation and expenditure at thebalance sheet date. The restriction for unspent categorical program revenuesrepresents the portion of net assets restricted to specific program expenditures. Therestriction for special revenue programs represents the portion of net assets restrictedfor special purposes. The restriction for capital projects represents the portion of netassets restricted for capital projects. The restriction for debt service represents theportion of net assets restricted for debt service. The restriction for scholarshipsrepresents the portion of net assets restricted for the payment of scholarships.

25




Fund Balance Classifications

Governmental Accounting Standards Board Codification Sections 1300 and 1800, FundBalance Reporting and Governmental Fund Type Definitions (GASB Cod. Sec. 1300and 1800) implements a five-tier fund balance classification hierarchy that depicts theextent to which a government is bound by spending constraints imposed on the use ofits resources. The five classifications, discussed in more detail below. arenonspendable, restricted, committed, assigned and unassigned.

A - Nonspendable Fund Balance:

The nonspendable fund balance classification reflects amounts that are not inspendable form, such as revolving fund cash and stores inventory.

B - Restricted Fund Balance:

The restricted fund balance classification reflects amounts subject to externallyimposed and legally enforceable constraints. Such constraints may be imposedby creditors, grantors, contributors, or laws or regulations of other governments,or may be imposed by law through constitutional provisions or enablinglegislation. These are the same restrictions used to determine restricted netassets as reported in the government-wide, proprietary fund, and fiduciary trustfund statements.

C - Committed Fund Balance:

The committed fund balance classification reflects amounts sUbject to internalconstraints self-imposed by formal action of the Board of Education. Theconstraints giving rise to committed fund balance must be imposed no later thanthe end of the reporting period. The actual amounts may be determinedsubsequent to that date but prior to the issuance of the financial statements.Formal action by the Board of Education is required to remove any commitmentfrom any fund balance. At June 30, 2011, the District had no committed fundbalances.

D - Assigned Fund Balance:

The assigned fund balance classification reflects amounts that the District'sBoard of Education has approved to be used for specific purposes, based on theDistrict's intent related to those specific purposes. The Board of Education candesignate personnel with the authority to assign fund balances, however, as ofJune 30, 2011, no such designation has occurred.

E - Unassigned Fund Balance:

In the General Fund only, the unassigned fund balance classification reflects theresidual balance that has not been assigned to other funds and that is notrestricted, committed, or assigned to specific purposes.

26




Fund Balance Classifications (Continued)

E - Unassigned Fund Balance: (Continued)

In any fund other than the General Fund, a positive unassigned fund balance isnever reported because amounts in any other fund are assumed to have beenassigned. at least. to the purpose of that fund. However, deficits in any fund,including the General Fund that cannot be eliminated by reducing or eliminatingamounts assigned to other purposes are reported as negative unassigned fundbalance.

Fund Balance Policy

The District has an expenditure policy relating to fund balances. For purposes of fundbalance classifications, expenditures are to be spent from restricted fund balances first,followed in order by committed fund balances (if any), assigned fund balances and lastlyunassigned fund balances.

While GASB Cod. Sec. 1300 and 1800 do not require Districts to establish a minimumfund balance policy or a stabilization arrangement, GASB Cod. Sec. 1300 and 1800 dorequire the disclosure of a minimum fund balance policy and stabilization arrangements.if they have been adopted by the Board of Education. At June 30, 2011, the District hasnot established a minimum fund balance policy nor has it established a stabilizationarrangement.

Propertv 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. Unsecuredproperty taxes are due in one installment on or before August 31. The County ofMonterey bills and collects taxes for the District. Tax revenues are recognized by theDistrict when received.

Encumbrances

Encumbrance accounting is used in all budgeted funds to reserve portions of applicableappropriations for which commitments have been made. Encumbrances are recordedfor purchase orders, contracts, and other commitments when they are written.Encumbrances are liquidated when the commitments are paid. All encumbrances areliquidated at June 30.

Eliminations and Reclassifications

In the process of aggregating data for the Statement of Net Assets and the Statement ofActivities, some amounts reported as interfund activity and balances in the funds wereeliminated or reclassified. Interfund receivables and payables were eliminated tominimize the "grossing up" effect on assets and liabilities within the governmentalactivities column.

27




Estimates

The preparation of basic financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions. These estimates and assumptions affect the reportedamounts of assets and liabilities and disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues and expendituresduring the reporting period. Accordingly, actual results may differ from those estimates.

2. CASH AND INVESTMENTS

Cash and investments at June 30, 2011 consisted of the following:

Governmental ActivitiesGovernmental Proprietary Fiduciary

Funds Fund Total Activities

Pooled funds:Cash in County Treasury $ 50,893,773 $ 1,162,846 $ 52,056,619 $ 183,728

Deposits:Cash on hand and in banks 151,360 151,360 194,103Cash in revolving fund 22,000 22,000

Total deposits 173,360 173,360 194,103

Cash with Fiscal Agent 80,825 428,130 508,955

Total $ 51,147,958 $ 1,590,976 $ 52.738,934 $ 377,831

Pooled Funds

In accordance with Education Code Section 41001, the District maintains substantiallyall of its cash in the Monterey County Treasury. The County pools these funds withthose of school districts in the County and invests the cash. These pooled funds arecarried at cost which approximates fair value. Interest earned is deposited monthly intoparticipating funds. Any investment losses are proportionately shared by all funds in thepool.

Because the District's deposits are maintained in a recognized pooled investment fundunder the care of a third party and the District's share of the pooled investment funddoes not consist of specific, identifiable investment securities owned by the District, nodisclosure of the individual deposits and investments or related custodial credit riskclassifications is required.

In accordance with applicable state laws, the Monterey County Treasurer may invest inderivative securities. However, at June 30, 2011, the Monterey County Treasurer hasrepresented that the Treasurer's pooled investment fund contained no derivatives orother investments with similar risk profiles.

28



2. CASH AND INVESTMENTS (Continued)

Deposits - Custodial Credit Risk

The District limits custodial credit risk by ensuring uninsured balances are collateralizedby the respective financial institution. Under Section 343 of the Dodd-Frank Wall StreetReform and Consumer Protection Act, interest-bearing cash balances held in banks areinsured up to $250,000 and noninterest-bearing cash balances held in banks are fullyinsured by the Federal Deposit Insurance Corporation (FDIC) and are collateralized bythe respective financial institution. As of June 30, 2011, the carrying amount of theDistrict's accounts were $367,463 and bank balances were $1,084.600, of which all wasfully insured.

Cash with Fiscal Agent

Cash with Fiscal Agent in the BUilding Fund totaling $80,825 is the proceeds from longterm liabilities held by a trustee. The amount held by the trustee is fully collateralized.

Cash with Fiscal Agent in the Self-Insurance Fund totaling $428,130 is the amount heldto pay self insurance claims.

Interest Rate Risk

The District does not have a formal investment policy that limits cash and investmentmaturities as a means of managing its exposure to fair value losses arising fromincreasing interest rates. At June 30, 2011, the District had no significant interest raterisk related to cash and investments held.

Credit Risk

The District does not have a formal investment policy that limits its investment choicesother than the limitations of state law.

Concentration of Credit Risk

The District does not place limits on the amount it may invest in anyone issuer. AtJune 30, 2011, the District had no concentration of credit risk.

3. INTERFUND TRANSACTIONS

Interfund Activity

Transactions between funds of the District are recorded as interfund transfers. exceptfor certain Self-Insurance Fund activities which are recorded as income and'expenditures of the Self-Insurance Fund and the funds which incur payroll costs,respectively. The unpaid balances at year end, as a result of such transactions, areshown as due to and due from other funds.

29



3. INTERFUND TRANSACTIONS (Continued)

Interfund Receivables/Payables

Individual interfund receivable and payable balances at June 30, 2011 were as follows:

Interfund InterfundFund Receivables Payables

Major Funds:General $ 100,224 $ 3,033,259BUilding 11 155

Non-Major Funds:Adult Education 1,349 748Child Development 6,373Cafeteria 4,615 47,678Deferred Maintenance 2,100,000Capital Facilities 2,654County School Facilities 8,734 154Special Reserve for Capital Outlay 154 9,733

Proprietary Funds:Self-Insurance 931,890 46.223

Totals $ 3,146,977 $ 3.146.977

Interfund Transfers

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

Interfund transfers for the 2010-2011 fiscal year were as follows:

Transfer from the County Schools Facilities Fund to the SpecialReserve for Capital Projects Fund to return unused COPSmatching funds,

Transfer from the Special Reserve for Capital Projects Fund to theGeneral Fund to transfer COPS funds.

Transfer from General Fund to the Self-Insurance Fund toreimburse SERP expenditures and to contribute to propertyand liability insurance expenditures.

Transfer from the General Fund to the Deferred Maintenance Fund for matching expenditures.

Transfer from Adult Education Fund to the General Fund for rentexpenditures and to sweep excess fund balance to the GeneralFund,

Transfer from the Cafeteria Fund to the General Fund to allocateindirect cost.

30

$ 3,188,348

3,099,594

1,255,269

915,986

819,898

105,215



3. INTERFUND TRANSACTIONS (Continued)

Interfund Transfers (Continued)

Transfer from the Child Development Fund to the General Fund toallocate indirect costs. $ 97,176

Transfer from the General Fund to the Child Development toreimburse unauthorized expenditures. 33,340

Transfer from the Special Reserve for Capital Projects Fund tothe County School Facilities Fund to a cover negative fundbalance for a modernization project. 15,776

Transfer from the Adult Education Fund to the General Fund toallocate indirect costs. 423

$ 9.531,025

4. CAPITAL ASSETS

A schedule of changes in capital assets for the year ended June 30, 2011 is shownbelow:

Balance Transfers Transfers BalanceJuly 1, and and June 30,2010 Additions Deductions 2011

Non-depreciable:Land $ 5,693,918 $ 5,693,918Work-in-process 4,161,304 $ 257,624 $ (3,675,418) 743,510

Depreciable:Improvement of sites 26,291,100 9,268 26,300,368Buildings 113,490,803 3,667,578 117,158,381Equipment 9.795,081 499.592 (183,533) 10,111,140

Totals, at cost 159.432,206 4.434,062 (3,858,951 ) 160.007,317

Less accumulated depreciation:Improvement of sites (19,522,130) (1,175,829) (20,697,959)Buildings (56,199,162) (3,098,401 ) (59,297,563)Equipment (6,892,237) (351.435) 183,533 (7,060,139)

Total accumulateddepreciation (82,613,529) (4,625.665) 183,533 (87,055,661)

Capital assets, net $ 76,818.677 $ (191,603) $ (3,675.418) $ 72.951.656

31



4. CAPITAL ASSETS (Continued)

Depreciation expense was charged to governmental activities as follows:

InstructionInstructional supervision and administrationInstructional library, media and technologySchool site administrationHome-to-school transportationFood servicesAll other pupil servicesData processingPlant servicesAll other general administration

Total depreciation expense

5. LONG-TERM LIABILITIES

General Obligation Bonds

$ 2,453.698606

14,57322,922

114.99932.759

2.0143.792

1.916,43663.866

$ 4.625.665

On November 2, 2010, the District was authorized by the voters through the passage ofMeasure P to issue $110,000.000 in General Obligation Bonds for the purpose ofprepayment of the District's outstanding Certificates of Participation, other leaseobligations, and to finance the costs of renovating, acquiring, constructing, repairing andequipping District facilities.

In March 2011, the District issues Series A consisting of current interest and capitalappreciation bonds with total proceeds to the District of $34,999,104. The bonds maturethrough August 2041 and bear an interest rate ranging from 1.98% to 6.93%.

The annual payments required to amortize the 2010 Series A Bonds outstanding as ofJune 30, 2011, are as follows:

Year EndedJune 30. Principal Interest Total

2012 $ 1,640,009 $ 1,640,0092013 $ 471,906 1,839.262 2,311,1682014 556,211 1,839.263 2,395,4742015 1,839.262 1,839,2622016 1,839,263 1,839,263

2017-2021 326,135 9,196,312 9,522,4472022-2026 637,688 9.196.313 9,834,0012027-2031 1,602,164 9,170,462 10,772,6262032-2036 9,730,000 7,728.063 17,458,0632037-2041 17,095,000 3,978,281 21,073,281

2042 4.580.000 131.675 4,711.675

$ 34.999.104 $ 48.398.165 $ 83.397.269

32



5. LONG-TERM LIABILITIES (Continued)

Schedule of Changes in Long-Term Liabilities

A schedule of changes in long-term liabilities for the year ended June 30, 2011 is shownbelow:

Balance Balance AmountsJuly 1, June 30, Due Within2010 Additions peductions 2011 One Year

General Obligation BondsPayable $ 34,999,104 S 34,999.104

certificates of Participation $ 7.130.000 $ 7,130,000Capitalized lease obligations 287,677 287,677Lighting retrofit loans 1,179.207 1,179,207Net OPES obligations (Note 8) 1,842,257 2,993.132 1,840,322 2,995,067Compensated absences 764.878 156,491 608.387

$ 11.204.019 S 37,992,236 S 10,593,697 $ 38,602,558 $

Payments on Certificates of Participation, the capitalized lease obligations and thelighting retrofit loans were made from the Building and Special Reserve for CapitalOutlay Fund. Payments on the net OPES obligations and compensated absences weremade from the fund for which the related employee worked.

6. NET ASSETS I FUND BALANCES

The restricted net assets consisted of the following at June 30, 2011:

Restricted for:Revolving cashStores inventoryPrepaid expensesUnspent categorical program revenuesSpecial revenue programsCapital projectsDebt serviceSelf insuranceScholarships

Total restricted net assets

Governmental FiduciaryActivities Funds

$ 22,00040,865

171,8422,765,2523,311,756

29,062,384725,325

3,906,360$ 183.932

$ 40.005,784 $ 183.932

33



6. NET ASSETS I FUND BALANCES (Continued)

Fund balances. by category. at June 30. 2011 consisted of the following:

Nonspendable:Revolving cash fundStores inventory

Subtotal nonspendable

$

GeneralFund

22.000

22,000

BuildingFund

$

AllNon-Major

Funds

40.865

40.865

$

Total

22.00040,865

62,865

$ 27,801,065 $ 24.825,034 $ 8.396,121 $ 61,022,220

Restricted:Unspent categorical revenuesSpecial revenue programsCapital projectsDebt service

Subtotal restricted

Assigned:Board assignments

Unassigned:Designated for economic

uncertaintyUndesignated

Subtotal unassigned

Total fund balances

2.765,252

$ 24.825.034

2,765,252 24,825,034

21,632.373

2.792.285589,155

3,381,440

3,311.7564,318.175

725,325

8,355,256

2,765.2523,311.756

29.143.209725.325

35.945.542

21,632,373

2,792,285589,155

3,381.440

7. EMPLOYEE RETIREMENT SYSTEMS

Qualified employees are covered under multiple-employer defined benefit pension plansmaintained by agencies of the State of California. Certificated employees are membersof the State Teachers' Retirement System (STRS), and classified employees aremembers of the California Public Employees' Retirement System (CaIPERS).

34



7. EMPLOYEE RETIREMENT SYSTEMS (Continued)

Plan Description and Provisions

California Public Employees' Retirement System (CaIPERS)

Plan Description

The District contributes to the School Employer Pool under the California PublicEmployees' Retirement System (CaIPERS), a cost-sharing multiple-employer publicemployee retirement system defined benefit pension plan administered by CaIPERS.The plan provides retirement and disability benefits, annual cost-ot-living adjustments,and death benefits to plan members and beneficiaries. Benefit provisions areestablished by state statutes, as legislatively amended, within the Public Employees'Retirement Law. CalPERS issues a separate comprehensive annual financial reportthat includes financial statements and required supplementary information. Copies ofthe CalPERS annual financial report may be obtained from the CalPERS ExecutiveOffice, 400 Q Street, Sacramento, California 95811.

Funding Policy

Active plan members are required to contribute 7% of their salary, and the District isrequired to contribute an actuarially determined rate. The actuarial methods andassumptions used tor determining the rate are those adopted by the CalPERS Board ofAdministration. The required employer contribution rate for fiscal year 2010-2011 was10.707% of annual payroll. The contribution requirements of the plan members areestablished by state statute. The District's contributions to CalPERS for the fiscal yearsending June 30, 2009, 2010 and 2011 were $1,531,670, $1,586,350 and $1,739,919,respectively, and equal 100% 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 multiple-employer public employee retirement system defined benefit pensionplan administered by STRS. The plan provides retirement, disability and survivorbenefits to beneficiaries. Benefit provisions are established by state statutes, aslegislatively amended, within the State Teachers' Retirement Law. STRS issues aseparate comprehensive annual financial report that includes financial statements andrequired supplementary information. Copies of the STRS annual financial report may beobtained from the STRS Executive Office, 100 Waterfront Place, West Sacramento,California 95605.

35



7. EMPLOYEE RETIREMENT SYSTEMS (Continued)

Plan Description and Provisions (Continued)

State Teachers' Retirement System (STRS) (Continued)

Funding Policy

Active plan members are required to contribute 8% of their salary. The reqUiredemployer contribution rate for fiscal year 2010-2011 was 8.25% of annual payroll. Thecontribution requirements of the plan members are established by state statute. TheDistricfs contributions to STRS for the fiscal years ending June 30, 2009, 2010 and2011 were $3,513.203. $3,200,984 and $2,785,780, respectively, and equal 100% ofthe required contributions for each year.

8. OTHER POSTEMPLOYMENT BENEFITS (OPEB)

In addition to the pension benefits described in Note 7, the District provides postemployment healthcare benefits to all employees who retire at age fifty-five (55) with fiveyears of service. These benefits are paid as the expense is incurred.

Certificated Employees

Certificated employees may retire early and may choose one of the following earlyretirement programs:

1. Consultancy

The term of any consultancy agreement cannot exceed five years. The medicalbenefits paid by the District terminate automatically at the end of the fiscal yearin which the retiree reaches the age of sixty-five (65).

Regular ConSUltancy - Consultants with projects other than substituteteaching must pay for medical coverage. The conSUltancy pay isincreased by the dollar amount equivalent to the annual dollar increase inmedical costs charged to retired employees.

Substitute Teacher Consultancy - Consultants whose project is substituteteaching each year, will have their medical coverage paid by the District,including the annual increase for the duration of their consultancycontract. All other benefits are paid by the retiree.

Extension of Term - A consultant who has completed the five-year termof regular conSUltancy or substitute teacher conSUltancy may extend theterm of such agreement if the consultant is less than sixty-five (65) yearsof age.

36



8. OTHER POSTEMPLOYMENT BENEFITS (OPEB) (Continued)

Certificated Employees (Continued)

2. Medical Benefits Walkaway for Fiscal Years 1989-1990 and 1990-1991

Retirees not serving as consultants who retired during fiscal years 1989-1990 or1990-1991 may elect to have medical coverage at the rate in effect at the time ofretirement plus 50% of any annual increase in cost thereafter.

3. Health and Welfare Benefits Walkaway for Fiscal Year 1991-1992

Retirees not serving as consultants who retired during 1991-1992 may elect tohave the following benefits:

Medical - Fully paid medical premiums plus 95% of annual increase forretiree only.

Dental - Fully paid dental premiums plus 75% of annual increase forretiree only.

Vision - Fully paid vision premiums plus 75% of annual increase forretiree only.

Prescription Drugs - Fully paid prescription drug premiums plus 100% ofannual increase for retiree only.

4. Medicare Part B 1991-1992

The District pays the Medicare Part B premiums for retirees who are eligible.Payment is the Social Security Administration rate that is in effect at the time ofretirement plus 100% of any increase in cost thereafter. The District-paid benefitterminates upon the retiree reaching the age of seventy-five (75).

5. Health and Welfare Benefits Walkaway for Fiscal Years 1992-1993 and1993-1994





37





6. Medicare Part B 1992-1993, 1993-1994 and 1994-1995

The District pays the Medicare Part B premiums for those retirees who areeligible. Payment is the Social Security Administration rate that is in effect at thetime of retirement piUS 100% of any increase in cost thereafter. The District-paidbenefit terminates upon the retiree reaching the age of seventy (70).







8. Medical Benefits Walkaway for 1995-1996

Retirees not serving as consultants who retired during fiscal year 1995-1996 mayelect to have medical coverage at the rate in effect at the time of retirement plus50% of any annual increase in cost thereafter.





Prescription Drugs - Fully paid prescription drug premiums plus 100% ofannual increase for retiree only,

38





10. Health and Welfare Benefits Walkaway for Fiscal Years 1997-1998. 1998-1999.1999-2000 and 2000-2001

Retirees not serving as consultants who retired dUring 1997-1998, 1998-1999,1999-2000 and 2000-2001 may elect to have the following benefits:





District-paid benefits are discontinued when the retiree reaches the age of sixtyfive (65) or whenever the retiree becomes eligible for Medicare. Retirees agedsixty-five (65) or older may continue coverage at their own expense providingthey have Medicare B or Medicare A and B.

Classified Employees

1. Medical Benefits Walkaway for 1991-1992 through 1993-1994

Retirees who retired during fiscal years 1991-1992 through 1993-1994 may electto have medical coverage at the rate in effect at the time of retirement plus anyannual increase in cost thereafter.


Retirees who retired during 1994-1995 may elect to have the following benefits:



Vision - FUlly paid vision premiums plus 50% of annual increase forretiree only.

39




Classified Employees (Continued)

3. Medical Benefits Walkaway for 1995-1996. 1997-1998, 1998-1999. 1999-2000and 2000-2001

Retirees who retired during fiscal years 1995-1996, 1997-1998, 1998-1999,1999-2000 and 2000-2001 may elect to have medical coverage at the rate ineffect at the time of retirement plus any annual increase in cost thereafter.

Benefits are discontinued when the retiree reaches age sixty-five (65) orwhenever the retiree becomes eligible for Medicare. Retirees aged sixty-five(65) or older may continue coverage at their own expense providing they haveMedicare B or Medicare A and B.

Beyond age 65, the District only pays the required CalPERS contribution toward Medicalcoverage. The minimum district contribution is currently 30% of $349.41 per month forsingle coverage and $573,82 per month for two-party coverage. The District contributionwill increase 5% of $349.41 and $573.82 monthly amount per year until it reaches100%. The District contribution will remain at this level until the indexed Section 22892minimums exceed these amounts.

The District's annual other postemployment benefit (OPEB) cost (expense) is calculatedbased on the annual reqUired contribution of the employer (ARC), an amount actuariallydetermined in accordance with the parameters of GASB Cod. Sec. P50,1 08-.1 09. TheARC represents a level of funding that, if paid on an ongoing basis, is projected to covernormal cost each year and amortize any unfunded actuarial liabilities (or funding excess)over a period not to exceed thirty years. The following table shows the components ofthe District's annual OPEB cost for the year, the amount actually contributed to the plan,and changes in the District's net OPEB obligation:

Annual required contribution

Interest on net OPEB obligation

Adjustment to annual reqUired contribution

Annual OPEB cost (expense)

Contributions made

Increase in net OPEB obligation

Net OPEB obligation - beginning of year

Net OPEB obligation - end of year

40

$ 2,901,019

92,113

2,993,132

(1,840.322)

1,152,810

1,842,257

$ 2,995.067




The District's annual OPES cost, the percentage of annual OPES cost contributed to theplan, and the net OPES obligation (previously recorded in the Self-Insurance Fund) forthe year ended June 30, 2011 and preceding two years were as follows:

Percentageof Annual

Fiscal Year Annual OPES Cost Net OPESEnded OPES Cost Contributed Obligation

June 30, 2009 $ 7,768,662 22.4% $ 6,028,554June 30, 2010 $ (1,966,624) 112.9% $ 1,842,257June 30, 2011 $ 2,993,132 61.5% $ 2,995,067

As of February 1, 2010, the most recent actuarial valuation date, the plan was unfunded.The actuarial accrued liability for benefits was $37.0 million, and the actuarial value ofassets was zero, resulting in an unfunded actuarial accrued liability (UAAL) of $37.0million. The covered payroll (annual payroll of active employees covered by the plan)was 53.7, and the ratio of the UAAL to the covered payroll was 69 percent. The OPESplan is currently operated as a pay-as-you-go plan.

Actuarial valuations of an ongoing plan involve estimates of the value of reportedamounts and assumptions about the probability of occurrence of events far into thefuture. Examples include assumptions about future employment, mortality, and thehealthcare cost trend. Amounts determined regarding the funded status of the plan andthe annual required contributions of the employer are subject to continual revision asactual results are compared with past expectations and new estimates are made aboutthe future. The schedule of funding progress, shown above, presents multiyear trendinformation about whether the actuarial value of plan assets is increasing or decreasingover time relative to the actuarial accrued liabilities for benefits.

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

In the February 1, 2010 actuarial valuation, the entry age normal actuarial cost methodwas used. The actuarial assumptions included a 5.0 percent investment rate (net ofadministrative expenses), which is based on assumed long-term investment returns onplan assets and/ or the employer's assets, and an annual healthcare cost trend rate of4.0 percent initially. Soth rates included a 3.0 percent inflation assumption. The UAALis being amortized as a level percentage of projected payroll. The remainingamortization period at June 30, 2011, was 27 years.

41



9. JOINT POWERS AUTHORITIES

Protected Insurance Program for Schools Joint Powers Authority

The District is a member of a Joint Powers Authority, Protected Insurance Program forSchools (PIPS), for workers' compensation claims. The Authority was formed for theoperation of a common risk management and insurance program and is governed by aGoverning Board consisting of representatives of member districts. The GoverningBoard controls the operations of PIPS, including selections of management andapproval of operating budgets.

Condensed financial information for PIPS for the year ended June 30, 2010 (the mostrecent information available), is as follows:

Total assetsTotal liabilitiesNet assetsTotal revenuesTotal expensesChange in net assets

Northern California Regional Liability Excess Fund

$117,734,937$ 69,742,511$ 47,992,426$ 5,305,101$ 596,363$ 4,708,738

The District is a member of a Joint Powers Authority, Northern California RegionalLiability Excess Fund (NCRLEF), for General Liability claims from $25,001 up to$1,000,000 and for Property claims from $25,001 up to $141,060,000. The Fund wasformed for the operation of a common risk management and insurance program and isgoverned by a Governing Board consisting of representatives of member districts. TheGoverning Board controls the operations of NCRLEF, inclUding selections ofmanagement and approval of operating budgets.

Condensed financial information for NCRLEF for the year ended June 30, 2011 is asfollows:


$ 60,461,646$ 34,033,515$ 26,428,131$ 37,118,988$ 36,392,464$ 726,524

Schools Excess Liability Fund

The District is a member of a Joint Powers Authority, Schools Excess Liability Fund(SELF), for General Liability claims from $1,000,001 up to $14,000,000. The Fund wasformed for the operation of a common risk management and insurance program and isgoverned by a Governing Board consisting of representatives of member districts. TheGoverning Board controls the operations of SELF, inclUding selections of managementand approval of operating budgets.

42



9. JOINT POWERS AUTHORITIES (Continued)

Schools Excess Liability Fund (Continued)

Condensed financial information for SELF for the year ended June 30. 2011 is asfollows:


$174,774,000$141.524,000$ 33.250,000$ 9,165,000$ 12,425,000$ (3,260,000)

The relationship between the District and the Joints Powers Authorities is such that theJoint Powers Authorities are not component units of the District for financial reportingpurposes.

10. CONTINGENCIES

The District is subject to legal proceedings and claims which arise in ordinary course ofbusiness. In the opinion of management, the amount of ultimate liability with respect tothese actions will not materially affect the financial statements or results of operations ofthe District.

The District has received federal and state funds for specific purposes that are SUbjectto review and audit by the grantor agencies. Although such audits could result inexpenditure disallowances under terms of the grants, it is management's opinion thatany required reimbursements or future revenue offsets subsequently determined will nothave a material effect on the District's financial statements or results of operations.

43

REQUIRED SUPPLEMENTARY INFORMATION


GENERAL FUND

BUDGETARY COMPARISON SCHEDULE


Budget VarianceFavorable

Original Final Actual (Unfavorable)

Revenues:Revenue limit sources:

State apportionment $ 20.565,090 26,679.713 $ 23,805,134 $ (2.874,579)Local sources 31,752,503 30,150,151 31,219,960 1,069,809

Total revenue limit 52,317,593 56,829,864 55,025,094 (1 ,804,770)

Federal sources 9,093,549 17,465,355 14,228,109 (3.237.246)Other state sources 13,639,194 18,698,288 18,237,387 (460,901)Other local sources 7,804,672 8,518,737 8,158,859 (359,878)

Total revenues 82,855,008 101,512,244 95,649,449 (5,862,795)

Expenditures:Certificated salaries 38.027,788 39.169.329 38,048,231 1,121,098Classified salaries 14.266,684 15.818,363 15,239,124 579,239Employee benefits 18.988,614 20.047,424 18,968,840 1,078,584Books and supplies 3.577.771 7.662.632 5,364.367 2,298,265Contract services and operating

expenditures 10,658,206 16,254,205 11.457.194 4,797,011Capital outlay 113,826 769.109 331,008 438,101Other outgo 3,557.986 1,677,477 1.665.629 11,848Debt service:

Principal retirement 756,548Interest 343,926

Total expenditures 90,291,349 101,398,539 91,074,393 10,324,146

(Deficiency) excess of revenues(under) over expenditures (7,436,341) 113,705 4,575,056 4.461,351

Other financing sources (uses):Operating transfers in 453,981 3,550,225 4,122,306 572,081Operating transfers out (734,597) (2,376,913) (2,204.595) 172,318

Total other financing sources (uses) (280,616) 1,173,312 1,917,711 744,399

Net change in fund balance (7,716.957) 1,287.017 6,492,767 5,205,750

Fund balance. July 1. 2010 21,308,298 21.308,298 21,308.298

Fund balance, June 30. 2011 $ 13,591,341 $ 22,595,315 $ 27,801,065 $ 5,205,750


44

613012009 June 2, 20096/3012010 February 1, 2010613012011 February 1, 2010

FiscalYear

Ended

ActuarialValuation

Date


SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB)FUNDING PROGRESS

For the Year Ended June 3D, 2011

Schedule of Funding ProgressUnfunded UAALasa

Actuarial Actuarial PercentageActuarial Accrued Accrued ofValue of Liablllty liability Funded Covered CoveredAssets (AAL) (UAAL) Ratio Payroll Payroll

S S 77,715,411 $ 77,715,411 0% $ 60,193,300 129.0%$ S 37,003,247 $ 37,003,247 0% $ 59,411,800 62.3%$ $ 37,003,247 S 37,003,247 0% S 53,673,776 68.9%


45


NOTES TO REQUIRED SUPPLEMENTARY INFORMATION

1. PURPOSE OF SCHEDULES

A - Budgetary Comparison Schedule

The District employs bUdget control by object codes and by individualappropriation accounts. Budgets are prepared on the modified accrual basis ofaccounting in accordance with accounting principles generally accepted in theUnited States of America as prescribed by the Governmental AccountingStandards Board. The bUdgets are revised during the year by the Board ofEducation to provide for revised priorities. Expenditures cannot legally exceedappropriations by major object code. The originally adopted and final revisedbudgets for the General Fund are presented as Required SupplementaryInformation. The basis of budgeting is the same as GAAP.

B Schedule of Other Postemployment Benefits Funding Progress

The Schedule of Funding Progress presents multi-year trend information whichcompares, over time, the actuarially accrued liability for benefits with theactuarial value of accumulated plan assets.

46

SUPPLEMENTARY INFORMATION


COMBINING BALANCE SHEET

ALL NON-MAJOR FUNDS

June 30. 2011

County Special BondAdult Child Deferred Capital School Reserve for Interest and

Education Development Cafeteria Maintenance FacUitles Facilities Capital Outlay RedemptionFund Fund Fund Fund Fund Fund Fund Fund Total

ASSETS

Cash in County Treasury $ (18.179) $ (314,985) $ (188,988) $ 145,228 $ 1.633.368 $ 1.495.598 $ 1.777,556 $ 725,325 $ 5,254,923Cash on hand and in banks 151.360 151,360Receivables 278,631 474,181 908.322 489 15.759 318 330,429 2,008.129Due from other funds 1,349 4.615 2,100,000 8,734 154 2,114,852Stores inventory 40,865 40.865

Total assets $ 261,801 $ 159.196 $ 916,174 $ 2.245,717 $ 1,649,127 $ 1.504,650 $ 2,108.139 $ 725,325 $ 9,570.129

LIABILITIES ANDFUND BALANCES

Liabilities:Accounts payable $ 61.899 $ 81,352 $ 19,310 $ 453 $ 46,940 $ 679,395 $ 204,865 $ 1,094,214Deferred revenue 12,454 12,454Due to other funds 748 6.373 47,678 2.654 154 9,733 67.340

Total liabilities 62,647 87.725 79,442 453 49,594 679,549 214.598 1,174,008

Fund balances:Nonspendable 40.865 40.865Restricted 199.154 71,471 795,867 2,245,264 1.599.533 825.101 1.893.541 $ 725,325 8,355,256

Fund balances 199.154 71.471 836,732 2,245,264 1.599,533 825.101 1.893.541 725,325 8,396,121

Total liabilities and fundbalances $ 261,801 $ 159,196 S 916,174 S 2,245,717 $ 1.649.127 $ 1,504,650 $ 2,108,139 $ 725.325 $ 9.570.129


47


COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND (DEFICIT) BALANCES

ALL NON-MAJOR FUNDS


County Special BondAdult Child Deferred Capital School Reserve for Interest and

Education Development Cafeteria Maintenance Facilities Facilities Capital Outlay RedemptionFund Fund Fund Fund Fund Fund Fund Fund Total

Revenues:Federal sources $ 297,976 $ 984,299 $ 2,932.001 $ 4.214,276Other state sources 1,313,025 1,996.285 264.073 $ 444,618 $ (776,451) 3.241,550Other local sources 90.216 73.005 835.279 (884) $ 92,710 20.589 $ 341,824 $ 725.325 2,178.064

Total revenues 1,701,217 3.053.589 4,031,353 443.734 92,710 (755.862) 341,824 725.325 9.633,890

Expenditures:Certificated salaries 654.589 732.530 1,387,119Classified salaries 213,143 1.233.716 1,276,424 2,723,283Employee benefits 291.810 961,937 532,169 1,785,916Books and supplies 44,362 37,059 1,635.612 4,635 947,353 2,669,021Contract services and

operating expenditures 112,538 198.342 (1,185) 50.487 148,423 137,960 1,587,830 2,234.395Capital outlay 88,569 4,592 93.161Debt service:

Principal retirement 671,703 671.703

Total expenditures 1,316,442 3.163,584 3,531,589 50,487 153.058 142,552 3.206,886 11,564.598

Excess (deficiency) ofrevenues over (under)expenditures 384.775 (109,995) 499,764 393,247 (60.348) (898,414) (2.865,062) 725.325 (1,930.708)

Other financing sources (uses):Operating transfers in 33,340 915,986 15,776 3,188,348 4,153,450Operating transfers out (820.321) (97.176) (105.215) (3.188,348) (3.115,370) (7.326,430)

Total other financingsources (uses) (820.321) (63.836) (105.215) 915,986 (3.172.572) 72.978 l3.172.980)

Net change in fund balances (435,546) (173,831) 394.549 1,309.233 (60,348) (4,070,986) (2,792,084) 725.325 (5.103,688)

Fund balances, July 1.2010 634.700 245.302 442.183 936,031 1.659.881 4.896.087 4.685,625 13.499.809

Fund balances, June 30, 2011 $ 199.154 $ 71.471 S 836.732 $ 2,245,264 $ 1.599.533 $ 825,101 $ 1.893.541 $ 725,325 $ 8.396,121

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

48


COMBINING STATEMENT OF CHANGES INASSETS AND LIABILITIES

ALL AGENCY FUNDS


Balance BalanceJuly 1, June 30,2010 Additions Deductions 2011

Student Body

Central Coast High School

Assets:Cash on hand and in banks $ 1,688 $ $ 1,636 $ 52

Liabilities:Due to student groups $ 1,688 $ $ 1,636 $ 52

Monterey High School

Assets:Cash on hand and in banks $ 55,889 § 223,127 $ 246,288 $ 32,728

Liabilities:Due to student groups $ 55,889 $ 223,127 $ 246,288 $ 32,728

Seaside High School

Assets:Cash on hand and in banks m 69,267 m 159,549 m 156,716 m 72,100

Liabilities:Due to student groups m 69,267 m 159,549 m 156,716 m 72,100

Marina High School

Assets:Cash on hand and in banks m 30,819 m 59,015 m 54.478 m 35,356

Liabilities:Due to student groups m 30,819 $ 59,015 m 54.478 m 35,356

Fitch Middle School

Assets:Cash on hand and in banks m 5,276 m m 5,276 m

Liabilities:Due to student groups $ 5,276 $ $ 5,276 $

Colton Middle School

Assets:Cash on hand and in banks m 12,113 m 36,192 m 32,638 $ 15,667

Liabilities:Due to student groups $ 12.113 m 36,192 m 32,638 m 15,667

(Continued)

49

(Continued)

50


COMBINING STATEMENT OF CHANGES INASSETS AND LIABILITIES

ALL AGENCY FUNDS(Continued)


BalanceJuly 1,2010 Additions Deductions

BalanceJune 30.

2011Student Body (Continued)

All Student Bodv Funds

Assets:Cash on hand and in banks $ 217,630 $ 560,793 i 584,320 $ 194,103

Liabilities:Due to student groups $ 217,630 $ 560,793 $ 584,320 $ 194.103


51


ORGANIZATION

June 30, 2011

Monterey Peninsula Unified School District, a political subdivision of the State ofCalifornia, was established on July 1, 1966. The District operates three high schools, onecontinuation school, two middle schools, one K-8 school, eleven elementary schools, onecommunity day school. one adult education school, two independent charter schools, two childdevelopment centers, four preschools and one independent study center. The territory coveredby the District includes approximately 235 square miles located in Monterey County. Therewere no changes in the boundaries of the District during the current year.

GOVERNING BOARD

Name

. Diana CreaseyDebra GramespacherDr. Bettye LuskCurt ParkerHelen B. RuckerRegena LauterbachRichard G. Glenn

Office

PresidentClerk Vice President

MemberMemberMemberMemberMember

ADMINISTRATION

Marilyn K. Shepherd, Ed.D.Superintendent

Term Expires

November 2011November 2011November 2013November 2013November 2013November 2013November 2011

Kari YeaterAssociate Superintendent, Program Improvement & Secondary Education

Dr. Lily DeBlieuxAssistant Superintendent, Elementary Education

Leslie CodianneAssociate Superintendent, Student Support Services

Dan AlbertAssociate Superintendent, Business Services/District Operations

Ann KiltyExecutive Director, Adult Education/Regional Occupational ProgramlTransitions/Education

Options

Judy DurandExecutive Director, Human Resources/Risk Management

Susan ZiebellDirector of Fiscal Services

52


SCHEDULE OF AVERAGE DAILY ATTENDANCE


SecondPeriodReport

AnnualReport

Elementary:KindergartenFirst through ThirdFourth through SixthSeven and EightCommunity Day SchoolHome and HospitalSpecial Education

Total Elementary

Secondary:Regular ClassesSpecial EducationContinuation EducationCommunity Day SchoolHome and Hospital

Total Secondary

See accompanying notes tosupplementary information.

53

8742,4802,2121,277

62

242

7,093

2,60585

18194

2.884

9.977

8702,4652,2031,268

72

243

7.058

2,58981

17096

2.855

9.913


SCHEDULE OF INSTRUCTIONAL TIME


Statutory Reduced1986-87 1986-87 Statutory Reduced NumberMinutes Minutes , 1882-83 1982-83 2010-11 of DaysRequire- Require- Actual Actual Actual Traditional

Grade Level ment ment Minutes Minutes Minutes Calendar Status

Kindergarten 36,000 35,000 31,680 30,800 50,045 179 In Compliance

Grade 1 50,400 49,000 42,240 41,067 50,045 179 In Compliance










Grade 11 64,800 63.000 55,440 53,900 64,970 179 In Compliance



54


SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS


FederalCatalogNumber

Federal Grantor/Pass-ThroughGrantor/Program or Cluster Title

PassThrough

EntityIdentifying

Number

FederalExpend

Itures

U.S. Department of Education - Passed through California Departmentof Education

NClB: Title I Cluster:84.010 NClB: Title I, Part A, Basic Grants, low Income and

Neglected 14329 $ 1,679,96684.389 ARRA: NClB: Title I, Part A, Basic Grants, low

Income and Neglected 15005 186,707

Subtotal NClB: Title I Cluster 1.866.673

NClB: Title I, School Improvement Grant Cluster:84.377 NClB: Title I, School Improvement Grant (SIG) 15127 394,59784.388 NClB: ARRA Title I, School Improvement Grant (SIG) 15020 3,269.333

Subtotal NClB: Title I, School improvement Grant Cluster 3,663,930

Special Education Cluster:84.027 IDEA: Basic local Assistance Entitlement,

Part B, Sec. 611 (Formerly 94-142) 13379 2,028,24084.391 ARRA: IDEA Part B, Sec 611, Basic local

Assistance 15003 770.390

Subtotal Special Education Cluster 2.798.630

NClB: Title IV, 21st Century Community learning Cluster:84.287 NClB: Title IV, Part B, 21st Century Community

learning Centers - ASSETs Equitable Access 14603 98,97984.287 NClB: Title IV, Part B, 21 st Century Community

learning Centers - ASSETs Family Literacy 14604 80,03184.287 NClB: Title IV, Part B, 21st Century Community

learning Centers - Equitable Access 14765 118,55684.287 NClB: Title IV, Part B, 21st Century Community

learning Centers - Family Literacy 14788 118,97584.287 NClB: Title IV, 21 st Century Community learning

Centers - High School ASSETs 14535 948,37984.287 NClB: Title IV, 21st Century Community learning

Program 14349 1,172,09684.287 NClB: Title IV, 21st Century Community learning

Centers Technical Assistance 14350 52.886

Subtotal NClB: Title IV, 21st Century Communitylearning Cluster 2,589.902

(Continued)

55


SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS(Continued)


Pass-Through

Federal Entity FederalCatalog Federal Grantor/Pass-Through Identifying Expend-Number Grantor/Program or Cluster Title Number itures

U.S. Department of Education - Passed through California Departmentof Education (Continued)

NClB: Title II, Part D, Enhancing Education ThroughTechnology (EEIT) Cluster:

84.318 NClB: Title II, Part D, Enhancing Education ThroughTechnology, Formula Grant 14334 $ 10,659

84.386 ARRA: NClB: Title II, Part D, Enhancing EducationThrough Technology, Competitive Grant 15126 156,516

84.386 ARRA: NClB: Title II, Part D, Enhancing EducationThrough Technology, Formula Grant 15019 13,191

Subtotal NClB: Title II, Part D, EEIT Cluster 180,366

84.367 NClB: Title II, Part A, Improving Teacher Quality 14341 507,50484.367 NClB: Title II, Part A, Administrator Training 14344 4,03884.365 NClB: Title III, Limited English Proficiency 14346 309,59684.196 NClB: Title X, McKinney Vento Homeless Assistance 14332 41,84884.387 ARRA: NClB: Title X, McKinney Vento Homeless

Assistance Grant 14332 97,64384.186 NClB: Title IV, Safe and Drug Free Schools and

Communities, Formula Grants 14347 7,52784.041 Federal Impact Aid 10015 1,147,62384.394 ARRA: State Fiscal Stabilization Fund 25008 3,813,627

84.002A Adult Education: Adult Basic Education &ESl 14508 174,02284.002A Adult Education: English Literacy &Civics Education

local Grant 14109 114,89984.002A Adult Education: Adult Secondary Education 13978 9,05584.048 Carl D. Perkins Career and Technical Education:

Secondary, Section 131 (Vocational Education) 14894 69,620

Total U.S. Department of Education 17.396.503

U.S. Department of Health and Human Services - Passed throughCalifornia Department of Education

93.596

93.575

93.60093.77893.778

Child Dev: Federal General Child Care &Development(CCTR) and CA State Preschool Program (CSPP)

Child Dev: Child Care Initiative Project (CCIP)/)Resource and Referral Contracts (CRRP)

Head StartMedi-Cal Billing OptionUnrestricted: Medi-Cal Administrative Activities (MAA)

Total U.S, Department of Health and Human Services

(Continued)

56

13609

13942100161001310060

541,722

1,529441,048

69,502152.965

1.206.766


SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS(Continued)


FederalCatalogNumber

Federal Grantor/Pass-ThroughGrantor/Program or Cluster Title

PassThrough

EntityIdentifying

Number

FederalExpend.

itures

U.S. Department of Agriculture - Passed through California Departmentof Education

10.555 National School Lunch Program 13755 $ 2,932,001

U.S. Department of Defense

*12.558

Junior ROTCDepartment of Defense: Impact Aid

Total U.S. Department of Defense

Total Federal Expenditures

140,427113,243

253,670

$ 21,788,940

* District is unable to provide CFDA number.


57


RECONCILIATION OF UNAUDITED ACTUAL FINANCIAL REPORTWITH AUDITED FINANCIAL STATEMENTS


Self-Cafeteria Insurance

Fund Fund

June 30, 2011 Unaudited Actual FinancialReport Ending Fund Balance $ 937,987 $ 4,120,099

Adjustment to adjust cash to the book balance (101,255) (213.739)

June 30, 2011 Audited Financial StatementsEnding Fund Balance $ 836,732 $ 3,906,360

There were no audit adjustments proposed to any other funds of the District.

See accompanying notes tosupplementary information,

58


SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS


(Budget)2012 2011 2010 2009

General Fund

Revenues and otherfinancing sources $ 93,576,587 $ 99,771,755 $ 91,868,227 $ 100,667,555

Expenditures 96,767,170 91,074,393 87,752,297 94,192,567Other uses and transfers out 1,045,274 2,204,595 4,094,093 1,148,217

Total outgo 97,812.444 93,278,988 91,846,390 95,340,784

Change in fund balance $ (4,235,857) $ 6,492,767 $ 21,837 $ 5,326,771

Ending fund balance $ 23,565,208 $ 27,801,065 $ 21,308,298 $ 21,286.461

Available reserves $ 2,924,850 $ 3,381,440 $ 5,718,922 $ 4,555,349

Designated for economicuncertainties $ 2,924,850 $ 2,792,285 $ 2,744.442 $ 3,259,835

Undesignated fund balance $ $ 589,155 $ 2,974.480 $ 1,295,514

Available reserves aspercentages of totaloutgo 3.0% 3.6% 6,2% 4,8%

All Funds

Totallong-term liabilities $ 38,602,558 $ 38,602,558 $ 11,204,019 $ 10,169,027

Average daily attendanceat P-2, excluding Adult 9,810 9,977 10,315 11,089

The General Fund fund balance has increased by $11,841,375 over the past three years, The fiscal year2011-2012 bUdget projects a decrease of $4,235,857. For a district this size, the state recommendsavailable reserves of at least 3% of total General Fund expenditures, transfers out, and other uses. Forthe year ended June 30, 2011 the District has met this requirement.

The District has incurred operating surpluses in each of the past three years, and anticipates incurring anoperating deficit during the 2011-2012 fiscal year,

Total long-term liabilities have increased by $28,433,531 over the past two years.

Average daily attendance has decreased by 1,112 over the past two years, The District anticipates adecrease of 167 ADA for the 2011-2012 fiscal year,


59


SCHEDULE OF CHARTER SCHOOLS


Charter Schools Chartered by District

The International School of Montereylearning for Life Charter School

Included In DistrictFinancial Statements, or

Separate Report

Separate Report.Separate Report.


60


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 attendingclasses of the District. The purpose of attendance accounting from a fiscalstandpoint is to provide the basis on which apportionments of state funds aremade to school districts. This schedule provides information regarding theattendance 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 asprovided by the Incentives for Longer Instructional Day. This schedulepresents information on the amount of instructional time offered by the District,and whether the District complied with the provisions of Education CodeSections 46201 through 46206.

C - Schedule of Expenditure of Federal Awards

OMB Circular A-133 requires a disclosure of the financial activities of allfederally funded programs. This schedule was prepared to comply with A-133requirements, and is presented on the modified accrual basis of accounting.

The following schedule provides a reconciliation between revenues reported onthe Statement of Revenues, Expenditures and Change in Fund Balances andthe related expenditures reported on the Schedule of Expenditure of FederalAwards. The reconciling amounts represent Federal funds that have beenrecorded as revenues that have not been expended by June 30, 2011.

Description

Total Federal revenues, Statement ofRevenues, Expenditures and Changein Fund Balances

Add: Medi-Cal Billing Option Funds spentfrom prior year awards

State Fiscal Stabilization Funds spendfrom prior year awards

Total Schedule of Expenditure of FederalAwards

61

CFDANumber

84.394

93.778

Amount

$ 18.442,385

27,761

3.318,794

$ 21.788.940


NOTES TO SUPPLEMENTARY INFORMATION(Continued)

1. PURPOSE OF SCHEDULES (Continued)

D - Reconciliation of Unaudited Actual Financial Report with Audited FinancialStatements

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

E Schedule of Financial Trends and Analysis

This schedule provides information on the District's financial condition over thepast three years and its anticipated condition for the 2011-2012 fiscal year, asrequired by the State Controller's Office.

F Schedule of Charter Schools

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

2. EARLY RETIREMENT INCENTIVE PROGRAM

Education Code Section 14502 requires certain disclosure in the financial statements ofdistricts which adopt Early Retirement Incentive Programs pursuant to Education CodeSections 22714 and 44929. For the fiscal year ended June 30, 2011, the District did notadopt this program.

62

INDEPENDENT AUDITORS' REPORTON COMPLIANCE WITH STATE LAWS AND REGULATIONS


We have audited the compliance of Monterey Peninsula Unified School District with thetypes of compliance requirements described in the State of California's Standards andProcedures for Audits of Calffornia K-12 Local Educational Agencies (the "Audit Guide") to thestate laws and regulations listed below for the year ended June 30, 2011. Compliance with therequirements of state laws and regulations is the responsibility of Monterey Peninsula UnifiedSchool District's management. Our responsibility is to express an opinion on MontereyPeninsula Unified School Districfs compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generallyaccepted in the United States of America; the standards applicable to financial audits containedin Government Auditing Standards, issued by the Comptroller General of the United States; andthe State of California's Standards and Procedures for Audits of California K-12 LocalEducational Agencies. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether noncompliance with the state laws and regulations listedbelow occurred. An audit includes examining, on a test basis, evidence about MontereyPeninsula Unified School District's compliance with those requirements and performing suchother procedures as we considered necessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion. Our audit does not prOVide a legal determinationof Monterey Peninsula Unified School Districfs compliance with those requirements.

Audit Guide ProceduresDescription Procedures Performed

Regular and Special Day Classes 8 YesKindergarten Continuance 3 YesIndependent Study 23 YesContinuation Education 10 YesInstructional Time:

School Districts 6 YesCounty Offices of Education 3 No, see below

Instructional Materials:General requirements 8 Yes

Ratio of Administrative Employees to Teachers 1 YesClassroom Teacher Salaries 1 YesEarly Retirement Incentive Program 4 No, see belowGann Limit Calculation 1 YesSchool Accountability Report Card 3 No, see belowPublic Hearing Requirements - Receipt of Funds 1 YesClass Size Reduction Program:

General requirements 7 YesOption one classes 3 YesOption two classes 4 No, see belowDistricts with only one school serving K-3 4 No, see below

After School Education and Safety Program:General requirements 4 YesAfter school 4 YesBefore school 5 Yes

63


(Continued)

Description

Contemporaneous Records of Attendance, for charter schoolsMode of Instruction, for charter schoolsNonclassroom-Based Instructionllndependent Study,

for charter schoolsDetermination of Funding for Nonclassroom-Based

Instruction, for charter schoolsAnnual Instructional Minutes - Classroom-Based,

for charter schools

Audit Guide ProceduresProcedures Performed

1 No, see below1 No, see below

15 No, see below

3 No, see below

3 No, see below

The School District is not a County Office of Education; therefore, we did not performany procedures related to County Office of Education Instructional Time Incentives.

The District did not offer an Early Retirement Incentive Program; therefore, we did notperform steps a2 through d.

The 2010-2011 School Accountability Report Cards specified by Education CodeSection 33126 are not required to be completed, nor were they completed, prior to thecompletion of our audit procedures for the year ended June 30, 2011. Accordingly, we couldnot perform the portions of audit steps (a), (b) and (c) of Section 19837 of the 2010-2011 AuditGuide relating to the comparison of tested data from the 2010-2011 fiscal year to the 20102011 School Accountability Report Cards.

The District does not participate in Option Two of the Class Size Reduction Program;therefore, we did not perform any procedures related to Option Two.

The District operates more than one school serving grades K through 3; therefore, wedid not perform any procedures relating to Class Size Reduction Programs - District's with onlyone school serving grades K through 3.

The District does not have any charter schools included in the District audited financialstatements; therefore, we did not perform any procedures related to charter schools.

In our opinion Monterey Peninsula Unified School District complied with the state lawsand regUlations referred to above for the year ended June 30, 2011. Further, based on ourexamination, for items not tested, nothing came to our attention to indicate the MontereyPeninsula Unified School District had not complied with the state laws and regulations.

64


(Continued)

This report is intended solely for the information of the Board of Education,management, the State Controller's Office, the California Department of Education and theCalifornia Department of Finance, and is not intended to be and should not be used by anyoneother than these specified parties.

Crowe Horwath LLP

Sacramento, CaliforniaDecember 12,2011

65

INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIALREPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON ANAUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS


We have audited the basic financial statements of Monterey Peninsula Unified SchoolDistrict, as of and for the year ended June 30, 2011, and have issued our report thereon datedDecember 12, 2011. We conducted our audit in accordance with the auditing standardsgenerally accepted in the United States of America and the standards applicable to financialaudits contained in Government Auditing Standards, issued by the Comptroller General of theUnited States.

Internal Control Over Financial Reporting

Management of Monterey Peninsula Unified School District is responsible forestablishing and maintaining effective internal control over financial reporting. In planning andperforming our audit, we considered Monterey Peninsula Unified School District's internalcontrol over financial reporting as a basis for designing our auditing procedures for the purposeof expressing our opinion on the financial statements, but not for the purpose of expressing anopinion on the effectiveness of Monterey Peninsula Unified School District's internal controlover financial reporting. Accordingly. we do not express an opinion of the effectiveness ofMonterey Peninsula Unified School Districts internal control over financial reporting.

Our consideration of internal control over financial reporting was for the limited purposedescribed in the first paragraph of this section and was not designed to identify all deficienciesin internal control over financial reporting that might be significant deficiencies or materialweaknesses, and therefore, there can be no assurance that all significant deficiencies ormaterial weaknesses have been identified. However, as described in the accompanyingSchedule of Audit Findings and Questioned Costs, we identified a deficiency in internal controlover financial reporting that we consider to be a material weakness.

A deficiency in internal control exists when the design or operation of a control does notallow management or employees, in the normal course of performing their assigned functions,to prevent, or detect and correct misstatements on a timely basis. A material weakness is adeficiency, or a combination of deficiencies, in internal control such that there is a reasonablepossibility that a material misstatement of the entity's financial statements will not be prevented,or detected and corrected on a timely basis. We consider the deficiency described in theaccompanying Schedule of Audit Findings and Questioned Costs as Finding 2011-01 to be amaterial weakness. We also provided management with other comments as identified in theSchedule of Audit Findings and Questioned Costs as Finding 2011-02.

66

INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIALREPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON ANAUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS(Continued)

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Monterey Peninsula UnifiedSchool District's financial statements and the combining and individual fund basic financialstatements are free of material misstatement, we performed tests of its compliance with certainprovisions of laws, regulations, contracts and grant agreements, noncompliance with whichcould have a direct and material effect on the determination of financial statement amounts.However, providing an opinion on compliance with those provisions was not an objective of ouraudit and, accordingly, we do not express such an opinion. The results of our tests disclosedno instances of noncompliance or other matters that are required to be reported underGovernment Auditing Standards.

The District's responses to the findings identified in our audit are included in theaccompanying Schedule of Audit Findings and Questioned Costs. However, we did not auditthe responses and, accordingly, we express no opinion on them.

This report is intended solely for the information of the Board of Education,management, the California Department of Education, the California State Controllers Officeand federal awarding agencies and pass-through entities, and is not intended to be and shouldnot be used by anyone other than these specified parties.

~~t,ifCrowe Horwath LLP

Sacramento, CaliforniaDecember 12, 2011

67

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITHREQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL

EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROLOVER COMPLIANCE IN ACCORDANCE WITH OMS CIRCULAR A-133


Compliance

We have audited Monterey Peninsula Unified School District's compliance with the typesof compliance requirements described in the U.S. Office of Management and Budget (OMB)Circular A-133 Compliance Supplement that could have a direct and material effect on each ofMonterey Peninsula Unified School District's major federal programs for the year endedJune 30, 2011. Monterey Peninsula Unified School District's major federal programs areidentified in the summary of auditors' results section of the accompanying Schedule of AuditFindings and Questioned Co~ts. Compliance with the requirements of laws, regUlations,contracts and grants applicable to each of its major federal programs is the responsibility ofMonterey Peninsula Unified School District's management. Our responsibility is to express anopinion on Monterey Peninsula Unified School District's compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generallyaccepted in the United States of America; the standards applicable to financial audits containedin Government Auditing Standards, issued by the Comptroller General of the United States; andOMB Circular A-133. Those standards and OMB Circular A-133 require that we plan andperform the audit to obtain reasonable assurance about whether noncompliance with the typesof compliance requirements referred to above that could have a direct and material effect on amajor federal program occurred. An audit includes examining, on a test basis, evidence aboutMonterey Peninsula Unified School District's compliance with those requirements andperforming such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion. Our audit does not provide alegal determination on Monterey Peninsula Unified School District's compliance with thoserequirements.

In our opinion, Monterey Peninsula Unified School District complied, in all materialrespects, with the compliance requirements referred to above that could have a direct andmaterial effect on each of its major federal programs for the year ended June 30, 2011.

Internal Control Over Compliance

Management of Monterey Peninsula Unified School District is responsible forestablishing and maintaining effective internal control over compliance with the requirements oflaws, regulations, contracts and grants applicable to federal programs. In planning andperforming our audit, we considered Monterey Peninsula Unified School District's internalcontrol over compliance with the requirements that could have a direct and material effect on amajor federal program to determine the auditing procedures for the purpose of expressing ouropinion on compliance and to test and report on internal control over compliance in accordancewith OMB Circular A-133, but not for the purpose of expressing an opinion on the effectivenessof internal control over compliance. Accordingly, we do not express an opinion on theeffectiveness of internal control over compliance.

68

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITHREQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL

EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROLOVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

(Continued)

Internal Control Over Compliance (Continued)

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

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

This report is intended solely for the information of the Board of Education,management, the California Department of Education, the California State Controller's Officeand federal awarding agencies and pass-through entities, and is not intended to be and shouldnot be used by anyone other than these specified parties.

~~UtfJCrowe Horwath LLP

Sacramento, CaliforniaDecember 12,2011

69

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH REQUIREMENTSTHAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON THE FIRST 5

MONTEREY COUNTY PROGRAM AND ON INTERNAL CONTROL OVERCOMPLIANCE IN ACCORDANCE WITH A PROGRAM-5PECIFIC AUDIT


Compliance

We have audited Monterey Peninsula Unified School District's compliance with the typesof compliance requirements described in the Program Guidelines for the First 5 MontereyCounty Program that could have a direct and material effect on its First 5 Monterey CountyProgram for the year ended June 30, 2011. Compliance with the requirements of laws,regulations, contracts and grants applicable to its First 5 Monterey County Program is theresponsibility of Monterey Peninsula Unified School Districts management. Our responsibility isto express an opinion on Monterey Peninsula Unified School District's compliance based on ouraudit.

We conducted our audit of compliance in accordance with auditing standards generallyaccepted in the United States of America and the standards applicable to financial auditscontained in Government Auditing Standards issued by the Comptroller General of the UnitedStates. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether noncompliance with the types of compliance requirements referred toabove that could have a direct and material effect on First 5 Monterey County Programoccurred. An audit includes examining, on a test basis, evidence about Monterey PeninsulaUnified School District's compliance with those requirements and performing such otherprocedures as we considered necessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion. Our audit does not provide a legal determinationof Monterey Peninsula Unified School Districts compliance with those requirements.

In our opinion, Monterey Peninsula Unified School District complied, in all materialrespects, with the compliance requirements referred to above that could have a direct andmaterial effect on its First 5 Monterey County Program for the year ended June 30, 2011.

Internal Control Over Compliance

The management of Monterey Peninsula Unified School District is responsible forestablishing and maintaining effective internal control over compliance with requirements oflaws, regulations, contracts and grants applicable to the First 5 Monterey County Program. Inplanning and performing our audit, we considered Monterey Peninsula Unified School District'sinternal control over compliance with requirements that could have a direct and material effecton its First 5 Monterey County Program in order to determine our auditing procedures for thepurpose of expressing our opinion on compliance but, not for the purpose of expressing anopinion on the effectiveness of internal control over compliance. Accordingly, we do notexpress an opinion on the effectiveness of Monterey Peninsula Unified School District's internalcontrol over compliance.

70

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH REQUIREMENTSTHAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON THE FIRST 5

MONTEREY COUNTY PROGRAM AND ON INTERNAL CONTROL OVERCOMPLIANCE IN ACCORDANCE WITH A PROGRAM-SPECIFIC AUDIT

(Continued)

Internal Control Over Compliance (Continued)

A control deficiency in the District's internal control over compliance exists when thedesign or operation of a control does not allow management or employees, in the normalcourse of performing their assigned functions, to prevent or detect noncompliance with a type ofcompliance requirement of the First 5 Monterey County Program on a timely basis. Asignificant deficiency is a control deficiency, or combination of control deficiencies, thatadversely affects the District's ability to administer the First 5 Monterey County Program suchthat there is more than a remote likelihood that noncompliance with a type of compliancerequirement of the First 5 Monterey County Program that is more than inconsequential will notbe prevented or detected by the District's internal control.

A material weakness is a significant deficiency, or combination of significantdeficiencies, that results in more than a remote likelihood that material noncompliance with atype of compliance requirement of the First 5 Monterey County Program will not be preventedor detected by the District's internal control.

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

This report is intended solely for the information and use of the Board of Education,management and First 5 Monterey County and is not intended to be and should not be used byanyone other than these specified parties.

~~ufJCrowe Horwath LLP

Sacramento, CaliforniaDecember 12, 2011

71

FINDINGS AND RECOMMENDATIONS


SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS

Year Ended June 30,2011

SECTION I - SUMMARY OF AUDITORS' RESULTS

FINANCIAL STATEMENTS

Type of auditors' report issued:

Internal control over financial reporting:Material weakness(es) identified?Significant deficiency(ies) identified not considered

to be material weakness(es)?

Noncompliance material to financial statementsnoted?

FEDERAL AWARDS

Internal control over major programs:Material weakness(es) identified?Significant deficiency(ies) identified not considered

to be material weakness(es)?

Type of auditors' report issued on compliance formajor programs:

Any audit findings disclosed that are required to bereported in accordance with Circular A-133,Section .510(a)?

Identification of major programs:

Unqualified

X Yes

__ Yes

__ Yes

__ Yes

__ Yes

Unqualified

__ Yes

__ No

X None reported

X No

X No

X None reported

X No

CFDA Number(s) Name of Federal Program or Cluster

84.010,84.38984.377, 84.388

84.027,84.39184.318, 84.38684.394

NClS: Title I Cluster (including ARRA)NClS: Title I, School Improvement Grant Cluster

(including ARRA)Special Education Cluster (including ARRA)NClS: Title II, Part D, EETT Cluster (including ARRA)ARRA: State Fiscal Stabilization Fund

Dollar threshold used to distinguish between Type Aand Type S programs:

Auditee qualified as low-risk aUditee?

STATE AWARDS

$ 653,668

X Yes __ No

Intemal control over state programs:Material weakness(es) identified?Significant deficiency(ies) identified not considered

to be material weaknesses?

Type of auditors' report issued on compliance forstate programs:

72

__ Yes

__ Yes

Unqualified

X No

X None reported


SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS(Continued)

Year Ended June 30, 2011

SECTION II· FINANCIAL STATEMENT FINDINGS

2011·01 MATERIAL WEAKNESS· CASH ACCOUNTS (30000)

Criteria

Internal Controls

Condition

The District incorrectly recorded cash balances to the general ledger in the Cafeteria Fund andthe Self-Insurance Fund reconciled to the bank balance instead of the book balance.

Cash account balances were originally overstated.

Cause

The District recorded the cash balance in the Cafeteria Fund and the Self-Insurance Fund tothe bank balance instead of the general ledger book balance.

Fiscal Impact

Cash was overstated by $213.739 in the Self-Insurance Fund and by $101,255 in the CafeteriaFund for the year ending June 30, 2011.

Recommendation

We recommend that the District begin to record the cash balance to the reconciled bookbalance at each fiscal year-end.

Corrective Action Plan

The District has made the appropriate adjustment for the year ending June 30, 2011, and willrecord the cash balances in the Cafeteria Fund and Self-Insurance Fund on a go forward basis.

73




SECTION II - FINANCIAL STATEMENT FINDINGS(Continued)

2011-02 DEFICIENCY -ASSOCIATED STUDENT BODY (30000)

Criteria

Safeguarding of assets

Condition

At Seaside High:There is no evidence of review of the monthly ASS Financial Reports by the siteprincipal.

At Seaside Middle:Cash received was found to not be turned in to the ASS office timely.No detailed register of items sold in revenue-producing activities could be produced tosupport the amount of deposits.Revenue-producing activities are not consistently approved by the District prior to theevent being held.There is no evidence of review of the monthly ASS Financial Reports by the siteprincipal.The site could not produce evidence that the ASS account had been reconciled at thesite-level.

Effect

There exists the risk that ASS funds could potentially be misappropriate.

Cause

Adequate internal controls have not been implemented.

Fiscal Impact

Unable to determine.

Recommendation

We recommend the following:There should be evidence of review on the monthly ASS Financial Reports by the siteprincipal.Cash received should be turned in to the ASS office in a timely manner following anyASS activity.A detailed register of items sold in revenue-producing activities should be produced tosupport the amount of deposits.Revenue-producing activities should be consistently approved by the District prior to theevent being held.The sites should reconcile the ASS accounts on a monthly basis and maintain thereconciliations for review.

74




SECTION II - FINANCIAL STATEMENT FINDINGS(Continued)

2011-02 DEFICIENCY - ASSOCIATED STUDENT BODY (30000) (Continued)

Corrective Action Plan

The District provides regular training for all personnel involved with ASS. The District willcontinue to provide assistance to school sites and increase oversight to ensurerecommendations are implemented.

75




SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

. No matters were reported.

76




SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

77

STATUS OF PRIOR YEAR

FINDINGS AND RECOMMENDATIONS


STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS


2010-1

Finding/Recommendation Current Status

Implemented.

District ExplanationIf Not Implemented

The District incorrectly included reclassifications of fixed assets from prior yearsas additions in the current year fixed assetdetail.

The District should adjust their fixed assetdetail to properly reflect the fixed assets.Additionally, the District should reconcilefixed asset activity throughout the year toensure assets are properly accounted for.

78

D-1

APPENDIX D

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Monterey Peninsula Unified School District (the “District”) in connection with the issuance of $____________ of the District’s 2012 General Obligation Bond Anticipation Notes (the “Notes”). The Notes are being executed pursuant to a Resolution of the Board of Education of the District, adopted on August 20, 2012 (the “Resolution”). The District covenants 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 the Rule.

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

“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Notes (including persons holding Notes through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Notes for federal income tax purposes.

“Dissemination Agent” shall mean initially, Keygent LLC, or any successor Dissemination Agent designated in writing by the District (which may be the District) and which has filed with the District a written acceptance of such designation.

“Holders” shall mean registered owners of the Notes.

“Listed Events” shall mean any of the events listed in Section 5(a) or 5(b) of this Disclosure Certificate.

“Participating Underwriters” shall mean Stifel, Nicolaus & Company, Incorporated dba Stone & Youngberg, a Division of Stifel Nicolaus and Piper Jaffray & Co, or any of the original underwriters of the Notes required to comply with the Rule in connection with offering of the Notes.

“Repository” shall mean the Municipal Securities Rulemaking Board, which can be found at http://emma.msrb.org/, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.

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

“State” shall mean the State of California.

D-2

SECTION 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District’s fiscal year (presently ending June 30), commencing with the report for the 2011-12 Fiscal Year, provide to the Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c).

(b) Not later than 30 days (nor more than 60 days) prior to said date the Dissemination Agent shall give notice to the District that the Annual Report shall be required to be filed in accordance with the terms of this Disclosure Certificate. Not later than 15 Business Days prior to said date, the District shall provide the Annual Report in a format suitable for reporting to the Repository to the Dissemination Agent (if other than the District). If the District is unable to provide to the Repository an Annual Report by the date required in subsection (a), the District shall send a notice to the Repository in substantially the form attached as Exhibit A with a copy to the Dissemination Agent. The Dissemination Agent shall not be required to file a Notice to Repository of Failure to File an Annual Report.

(c) The Dissemination Agent shall file a report with the District stating it has filed the Annual Report in accordance with its obligations hereunder, stating the date it was provided and listing all the Repository to which it was provided.

SECTION 4. Content and Form of Annual Reports. (a) The District’s Annual Report shall contain or include by reference the following:

1. The audited financial statements of the District for the last completed fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

2. Material financial information and operating data with respect to the District of the type included in the Official Statement in the following categories (to the extent not included in the District’s audited financial statements):

(a) State funding received by the District for the last completed fiscal year;

(b) average daily attendance of the District for the last completed fiscal year;

(c) outstanding District indebtedness; and

(d) summary financial information on revenues, expenditures and fund balances for the District’s general fund reflecting adopted budget for the current fiscal year.

D-3

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

(f) the property tax levies, collections and delinquencies for the District, for the most recently completed fiscal year.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to each of the Repository or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference..

(b) The Annual Report shall be filed in an electronic format accompanied by identifying information prescribed by the Municipal Securities Rulemaking Board.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5(a), the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Notes in a timely manner not in excess of 10 business days after the occurrence of the event:

1. principal and interest payment delinquencies.

2. tender offers.

3. defeasances.

4. rating changes.

5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, or Notices of Proposed Issue (IRS Form 5701-TEB).

6. unscheduled draws on the debt service reserves reflecting financial difficulties.

7. unscheduled draws on credit enhancement reflecting financial difficulties.

8. substitution of the credit or liquidity providers or their failure to perform.

9. bankruptcy, insolvency, receivership or similar event of the District. For the purposes of the event identified in this Section 5(a)(9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the District in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District.

D-4

(b) Pursuant to the provisions of this Section 5(b), the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Notes, if material:

1. non-payment related defaults.

2. modifications to rights of Noteholders.

3. optional, contingent or unscheduled note calls.

4. unless described under Section 5(a)(5) above, material notices or determinations with respect to the tax status of the Notes, or other material events affecting the tax status of the Notes.

5. release, substitution or sale of property securing repayment of the Notes.

6. the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms.

7. Appointment of a successor or additional trustee or paying agent with respect to the Notes or the change of name of such a trustee or paying agent.

(c) Whenever the District obtains knowledge of the occurrence of a Listed Event under Section 5(b) hereof, the District shall as soon as possible determine if such event would be material under applicable federal securities laws.

(d) If the District determines that knowledge of the occurrence of a Listed Event under Section 5(c) hereof would be material under applicable federal securities laws, the District shall (i) file a notice of such occurrence with the Repository in a timely manner not in excess of 10 business days after the occurrence of the event or (ii) provide notice of such reportable event to the Dissemination Agent in format suitable for filing with the Repository in a timely manner not in excess of 10 business days after the occurrence of the event. The Dissemination Agent shall have no duty to independently prepare or file any report of Listed Events. The Dissemination Agent may conclusively rely on the District’s determination of materiality pursuant to Section 5(c).

SECTION 6. Termination of Reporting Obligation. The District’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 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 5(a).

SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent (or substitute Dissemination Agent) to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign upon 15 days written notice to the District. Upon such resignation, the District shall act as its own Dissemination Agent until it appoints a successor. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate and shall not be responsible to verify the accuracy, completeness or materiality of any continuing disclosure information provided by the District. The District shall compensate the Dissemination Agent for its fees and expenses hereunder as agreed by the parties. Any entity succeeding to all or substantially all of the Dissemination Agent’s corporate trust

D-5

business shall be the successor Dissemination Agent without the execution or filing of any paper or further act.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, 5(a) or 5(b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Notes, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Notes, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances;

(c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Notes; and

(d) No duties of the Dissemination Agent hereunder shall be amended without its written consent thereto.

In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(a), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate any Holder or Beneficial Owner of the 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.

D-6

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate. The Dissemination Agent acts hereunder solely for the benefit of the District; this Disclosure Certificate shall confer no duties on the Dissemination Agent to the Participating Underwriters, the Holders and the Beneficial Owners. The District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Notes. The Dissemination Agent shall have no liability for the failure to report any event or any financial information as to which the District has not provided an information report in format suitable for filing with the Repository. The Dissemination Agent shall not be required to monitor or enforce the District’s duty to comply with its continuing disclosure requirements hereunder.

SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriters and Holders and Beneficial Owners from time to time of the Notes, and shall create no rights in any other person or entity.

Dated: __________________, 2012


By: Superintendent

-1 DOCSSF/88101v5/024422-0003

APPENDIX E

BOOK-ENTRY ONLY SYSTEM

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurances that DTC, DTC Direct Participants or Indirect Participants (as defined herein) will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Notes, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Notes, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Notes, or that they will so do on a timely basis or that DTC, Direct Participants or Indirect Participants will act in the manner described in this Official Statement. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with Participants are on file with DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Notes. The Notes will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Notes 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 largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants,” and together with the Direct Participants, the “Participants”). DTC has a Standard & Poor’s rating of “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Notes under the DTC system must be made by or through Direct Participants, which will receive a credit for the Notes on DTC’s records. The ownership interest of each actual purchaser of each Notes (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Notes are to be accomplished

E-1

E-2

by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Notes, except in the event that use of the book-entry system for the Notes is discontinued.

To facilitate subsequent transfers, all Notes deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Notes with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 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 their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Notes may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Notes, such as redemptions, defaults, and proposed amendments to the Resolutions. For example, Beneficial Owners of Notes may wish to ascertain that the 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 provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

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

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

Redemption proceeds and distributions on the Notes will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds or distributions to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Notes at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Notes certificates are required to be printed and delivered.

E-3

The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Notes certificates will be printed and delivered to DTC.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof.

So long as Cede & Co. is the registered Owner of the Notes, as nominee of DTC, references herein to the “Owners” “Notes Owners” or “Holders” of the Notes (other than under the captions “TAX MATTERS”and “APPENDIX B”) will mean Cede & Co. and will not mean the Beneficial Owners of the Notes.

The foregoing description concerning DTC and DTC’s book entry system is based solely on information provided by DTC, which the District believes to be reliable, but the District takes no responsibility for the accuracy thereof and no representation is made herein as to the accuracy or completeness of such information.

BENEFICIAL OWNERS WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES AND WILL NOT BE RECOGNIZED BY THE PAYING AGENT AS OWNERS THEREOF UNDER THE TERMS OF THE BOARD RESOLUTION, AND BENEFICIAL OWNERS WILL BE PERMITTED TO EXERCISE THE RIGHTS OF OWNERS ONLY INDIRECTLY THROUGH DTC AND THE PARTICIPANTS.

THE DISTRICT WILL HAVE NO RESPONSIBILITY OR OBLIGATION TO SUCH DTC PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO DTC PARTICIPANTS OR THE INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS.

F-1

APPENDIX F

ACCRETED VALUES TABLE

preliminary official statement dated november 9, 2012 · the capital appreciation notes are dated...

Documents