san francisco unified school district (city and county …

NEW ISSUE-BOOK-ENTRY ONLY RATINGS: Moody's: "Aa2" S&P: "AA-"

Fitch: "AAA" (See "MISCELLANEOUS- Ratings" herein.)

In the opinion of Orrick, Herrington & Sutcliffe LU', Bond Counsel to the District, based upon an analysis of existing laws, regulations, rnlings and court decisi.ons, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. Bond Counsel observes that such interest on the Series 2016 Bonds is included in adjusted current earnings when calculating corporate alternative minimum taxable income, but such interest on the Refunding Bonds is not included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarchng any other tax consequences related to the ownership or disposition of or the amount, accrual or receipt of interest on, the Bonds. See "TAX MATTERS."

SFUSD

SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA)

$180,000,000 $53,890,000 General Obligation Bonds, 2017 General Obligation Refunding Bonds Election of 2016, Series A

Dated: Date of Delivery Due: June 15, as shown on the inside cover This cover page is not a summary of this issue; it is only a reference to the information contained in this Official Statement. Investors

must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

The San Francisco Unified School District General Obligation Bonds, Election of 2016, Series A (the "Series 2016 Bonds") are being issued by the San Francisco Unified School District (the "District"), located in the City and County of San Francisco (the "City") (i) to finance specific construction and modernization projects approved by the voters, including, (ii) to purchase information technology upgrades, (iii) to pay costs of issuance of the Series 2016 Bonds and (iv) to pay capitalized interest on the Series 2016 Bonds. The District's 2017 General Obligation Refunding Bonds (the "Refunding Bonds" and, together with the Series 2016 Bonds, the "Bonds") are being issued by the District (i) to refund all or a portion of the District's outstanding (Proposition A, Election of 2006) General Obligation Bonds, Series B (2009) (the "Prior Bonds") and (ii) to pay costs of issuance of the Refunding Bonds. See "PLAN OF REFUNDING" herein. The Board of Supervisors of the City is empowered and is obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Bonds, all as more fully described herein. See "SECURITY AND SOURCE OF PAYMENT FOR THE BONDS" herein.

The Bonds will be issued as current interest Bonds. Interest on the Series 2016 Bonds is payable commencing on December 15, 2017, and thereafter on each June 15 and December 15 to maturity. Interest on the Refunding Bonds is payable commencing on June 15, 2017, and thereafter on each June 15 and December 15 to maturity. Principal of the Bonds is payable on June 15 in each of the years and in the amounts set forth in the Maturity Schedule on the inside cover page of this Official Statement. Payments of principal of and interest on the Bonds will be made by the Paying Agent, initially the Treasurer of the City, as paying agent (the "Paying Agent"), to The Depository Trust Company, New Yark, New Yark ("DIC"), for subsequent disbursement to DIC Participants, who will remit such payments to the Beneficial Owners of the Bonds. See "THE BONDS - Payment of Principal and Interest" herein.

The Bonds will be issued in book-entry form only, and initially will be issued and registered in the name of Cede & Co., as nominee of DIC. Purchasers will not receive certificates representing their interests in the Bonds. See "THE BONDS - Form and Registration" herein.

The Series 2016 Bonds are subject to redemption prior to maturity. The Refunding Bonds are not subject to redemption prior to maturity. See "THE BONDS - Redemption" herein.

The Bonds were sold by competitive sale pursuant to the terms of an Amended and Restated Official Notice of Sale dated March 17, 2017. On March 21, 2017, the Refunding Bonds were awarded to J.P. Morgan Securities LLC and the Series 2016 Bonds were awarded to Citigroup Global Markets Inc. See "SALE OF THE BONDS" herein.

MATURITY SCHEDULE See Inside Cover

The Bonds will be offered when, as and if issued by the District and received by the Underwriters, subject to approval of validity by Orrick, Herrington & Sutcliffe UP, Bond Counsel and Disclosure Counsel to the District. It is anticipated that the Bonds, in book-entiy form, will be available for delivery through the facilities ofDTC, on or about April 6, 2017.

This Official Statement is dated March 21, 2017.

MATURITY SCHEDULE

$180,000,000 SAN FRANCISCO UNI Fl ED SCHOOL DISTRICT

(CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALI FORNI A) GENERAL OBLIGATION BONDS, ELECTION OF 2016, SERI ES A

Maturity Date Principal CUSIP' Uune15) Amount I nterest Rate Yield (79771T)

2018 $18,340,CXXJ 2.00036 0.88036 LU9 2019 13,51 0,CXXJ 3.CXXJ 1.110 LV7 2020 7,205,CXXJ 3.CXXJ 1.350 LWS 2021 5,650,CXXJ 3.CXXJ 1.540 LX3 2022 5,815,CXXJ 3.CXXJ 1.750 LYl 2023 5,990,CXXJ 5.CXXJ 1.880 LZ8 2024 6,290,CXXJ 5.CXXJ 2.050 MA2 2025 6,605,CXXJ 5.CXXJ 2.190 MB0 2026 6,935,CXXJ 5.CXXJ 2.340 MC8 2027 7,285,CXXJ 5.CXXJ 2.4501 MD6 2028 7,645,CXXJ 3.CXXJ 2.8301 ME4 2029 7,875,CXXJ 3.CXXJ 3.070 MFl 2030 8, 11 0,CXXJ 3.CXXJ 3.200 MG9 2031 8,355,CXXJ 3.CXXJ 3.280 MH7 2032 8,605,CXXJ 3.250 3.410 MJ3 2033 8,885,CXXJ 4.CXXJ 3.4801 MK0 2034 11 , CXXJ, CXXl 4.CXXJ 3.6401 ML8 2035 11,400,CXXJ 4.CXXJ 3.6901 MM6 2036 12,CXXl,CXXl 4.CXXJ 3_7301 MN4 2037 12,500,CXXJ 4.CXXJ 3.7501 MP9


(CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALI FORNI A) 2017GENERAL OBLIGATION REFUNDING BONDS

Maturity Date Principal CUSIP' Uune15) Amount I nterest Rate Yield (79771T)

2017 $ 945,CXXJ 2.00036 0.65036 MQ7 2020 9,665,CXXJ 5.CXXJ 1.240 MRS 2021 10, 11 0,CXXJ 5.CXXJ 1.410 MS3 2022 10,590,CXXJ 5.CXXJ 1.650 MTl 2023 10,870,CXXJ 5.CXXJ 1.830 MUS 2024 11,710,CXXJ 5.CXXJ 2.020 MV6

'CUSIP® is a registered traderrarkof theAmerican Bankers Association. CUSIP Global Services (CGS) is rranaged on behalfof the American Bankers Association by S&P Capital IQ. Copyright© 2017CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® nurrbers are provided for convenience of reference only. None of the Distric~ the City, the Underwriters or their agents or counsel assurres responsi bi I ity for the accuracy of such nurrbers. lYieldtoparcall date of June 15, 2026.

Narre

SAN FRANCISCO UNIFIED SCHOOL DISTRICT

BOARD OF EDUCATION

Title Shamman Walton

Hydra M encbza-M cDonnel I Steven Cook

President Vice President Comnissi oner Comnissi oner Comnissi oner Comnissi oner Comnissi oner

Matt Haney Dr. Enily M. Murase

R ache I Norton Mark Sanchez

DISTRICT ADMINISTRATION

Myong Leigh, Interim Superintendent Danielle Houck, Esq., General Counsel

Reeta Madhavan, Chief Financial Officer Paulene Terrell, Director of Fiscal Services

SPECIAL SERVICES

Financial Advisor

PFM Financial Advisors LLC San Francisco, California

Band Counsel and Disclosure Counsel

Orrick, Herrington & Sutcliffe LLP San Francisco, California

Paying Agent

Jose Cisneros

Term Expires January 2019 January 2019 January 2021 January 2021 January 2019 January 2021 January 2021

Treasurer of the City and County of San Francisco San Francisco, California

E screw Agent

U.S. Bank National Association San Francisco, California

Verification Agent

Causey Demgen & Moore P.C. Denver, Col or ado

This Official Staterrent does not constitute an offering of any security other than the original offering of the Bonds b,t the District. No dealer, broker, salesperson or other person has been authorized b,t the District to gve any inforrration or to rrake any representations other than as contained in this Official Staterrent, and if gven or rrade, such other inforrration or representation not so authorized should not be relied upon as having been given or authorized b,t the District.

The issuance and sale of the Bonds have not been registered under the Securities Act of 1933, as arrended, in reliance upon an exemption under Section 3(a)2 thereof. This Official Staterrent does not constitute an offer to sell or a solicitation of an offer to buy Bonds in any state in which such offer or solicitation is not authorized or in which the person rraking such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to rrake such offer or solicitation.

The i nforrrati on set forth herein other than that fumi shed b,t the District, although obtained from sources which are believed to be reliable, is not guaranteed as to accuracy or cornpl eteness, and is not to be construed as a representation b,t the District. The District rraintains a website but the inforrration contained therein is not incorporated in this Official Staterrent. The inforrration and expressions of opinion herein are sul::iject to change without notice and neither delivery of this Official Staterrent nor any sale rrade hereunder shall, under any circumstances, create any irrplication that there has been no change in the affairs of the District since the date hereof. This Official Staterrent is subnitted in connection with the sale of the Bonds referred to herein and rray not be reproduced or used, in whole or in part, for any other purpose.

Certain staterrents included or incorporated b,t reference in this Official Staterrent constitute "forwardlooki ng staterrents." Such staterrents are generally identifiable b,t the terni nology used such as" plan," "expect," "esti rrate," "budget" or other si mi I ar words. The achieverrent of certain results or other expectations contained in such forward-looking staterrents involve kncwn and unkncwn risks, uncertainties and other factors which rray cause actual results, perforrrance or achieverrents described to be rraterially different from any future results, perforrrance or achieverrents expressed or irrplied b,t such forward-looking staterrents. The District does not pl an to issue any updates or revi si ans to those forward-I ooki ng staterrents if or when its expectati ans, or events, con di ti ans or ci rcurnstances on which such staterrents are based occur.

In connection with this offering, the Underwriters may OJerallot or effect transactions which stabilize or maintain the market prices of the Bonds at levels above those that might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters may offer and sell the Bonds to certain securities dealers and dealer banks and banks acting as agent at prices lcwer than the public offering prices stated on the inside cOJer page hereof and said public offering prices may be changed from time to time by the Underwriters.

TABLE OF CONTENTS Page

INTRODUCTION ....................................................................................................................................................... 1 The District ..................................................................................................................................................... 1

THEBONDS .............................................................................................................................................................. 2 Authority for Issuance; Purpose ..................................................................................................................... 2 F orrn and Registration .................................................................................................................................... 3 Payment of Principal and Interest. .................................................................................................................. 3 Redemption ..................................................................................................................................................... 4 Defeasance ...................................................................................................................................................... 5 Unclaimed Moneys ......................................................................................................................................... 6 Application and Investment of Series 2016 Bond Proceeds ........................................................................... 6 Plan of Refunding ........................................................................................................................................... 8

ESTIMATED SOURCES AND USES OF FUNDS ................................................................................................... 9 SCHEDULED DEBT SERVICE ............................................................................................................................... 10

Semi-Annual Debt Service ........................................................................................................................... 10

Outstanding Bonds ........................................................................................................................................ 11 Aggregate Debt Service ................................................................................................................................ 12

SECURITY AND SOURCE OF PAYMENT FOR THE BONDS ........................................................................... 13 General ......................................................................................................................................................... 13 Statutory Lien on Taxes (Senate Bill 222) .................................................................................................... 13 Pledge of Tax Revenues ............................................................................................................................... 13 Property Taxation System ............................................................................................................................. 13 Assessed Valuation of Property Within the District ..................................................................................... 14 Tax Rate ........................................................................................................................................................ 20 Tax Collections and Delinquencies .............................................................................................................. 20

TAX MATTERS ....................................................................................................................................................... 24 OTHER LEGAL MATTERS .................................................................................................................................... 26

Legal Opinion ............................................................................................................................................... 26 Legality for Investment in California ........................................................................................................... 26 Continuing Disclosure .................................................................................................................................. 26 No Litigation ................................................................................................................................................. 26

MISCELLANEOUS .................................................................................................................................................. 27 Ratings ......................................................................................................................................................... 27 Professionals Involved in the Offering ......................................................................................................... 27 Sale of the Bonds .......................................................................................................................................... 27 Additional Information ................................................................................................................................. 28

APPENDIX A DISTRICT FINANCIAL AND OPERATING INFORMATION ................................................ A-1 APPENDIX B ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE DISTRICT ......................... B-1 APPENDIX C FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED

JUNE 30, 2016 ............................................................................................................................. C-1 APPENDIX D PROPOSED FORM OF FINAL OPINION OF BOND COUNSEL ............................................ D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ......................................................... E-1

APPENDIX F CITY AND COUNTY OF SAN FRANCISCO INVESTMENT POLICY STATEMENT AND INVESTMENT REPORT .................................................................................................. F-1

APPENDIX G BOOK-ENTRY ONLY SYSTEM ................................................................................................ G-1

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SAN FRANCISCO UNI Fl ED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALI FORNI A)

$180,000,000 General Obligation Bonds, Election of 2016, Series A

INTRODUCTION

$53,890,000 2017 General Obligation

Refunding Bonds

This Official Statement, which includes the cover page and appendices hereto (this "Official Statement"), is provided to furnish inforrration in connection with the San Francisco Unified School District General Obligation Bonds, Election of 2016, Series A (the "Series 2016 Bonds") and the San Francisco Unified School District 2017 General Obligation Refunding Bonds (the "Refunding Bonds'' and, together with the Series 2016 Bonds, the "Bonds"), as described rnore fully herein.

This Official Statement speaks only as of its date, and the inforrration contained herein is sul::iject to change. Except as required b,t the Continuing Disclosure Certificate to be executed b,t the San Francisco Unified School District (the "District"), the District has no obligation to update the inforrration in this Official Statement. See "OTHER LEGAL MATTERS - Continuing Disclosure'' herein.

Any statements in this Official Statement involving rratters 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 Underwriters or the cwners of any of the Bonds.

Quotations frorn and sumnaries and explanations of the Bonds, the District Resolutions, the P ayi ng A gent Agreements prOJi di ng for the issuance of the B ands, and the consti tuti anal prOJi si ans, statutes and other documents described herein, do not purport to be cornpiete, and reference is hereb,t rnade to said documents, consti tuti anal provi si ans and statutes for the cornpl ete prOJi si ans thereof.

The District

The San Francisco Unified School District has boundaries that are coterminous with the City and County of San Francisco (the "City"). The District prOJides public education frorn transitional kindergarten through grade twelve. The District was established in 1851; hcwe.1er, the District has been a political subdivision of the State of California (the "State'') since 1927. The adninistrative headquarters of the District are located at 555 Franklin Street, San Francisco, California.

The District operates 16 transitional kindergarten schools, 64 elementary schools serving kindergarten through grade five, eight schools serving kindergarten through grade eight, 13 rniddle schools serving grades six through eight, 19 high schools serving grades nine through twelve, five continuation/.3.lternative schools and nine County and Court schools. In addition, the District operates 46 preschool sites. For fiscal year 2016-17, the District has prqjected enrollment of approxirrately 53,785 students, including special education and continuing education students. For fiscal year 2016-17, the District estirrates that approxirrately 6,500 students will be enrolled at the 13 fiscally independent charter schools that operate within the District's boundaries. The Di strict has prqjected 5,012 ful I-ti me equivalent ernpl oyees incl udi ng certificated (credentialed tea chi ng staff) , classified ( non-teachi ng) and rranagement personnel at the District and the San Francisco County Office of Education in its Second I nterirn Report for fiscal year 2016-17 (the "2016-17 Second Interim Report"). The District has prqjected fiscal year 2016-17 general fund revenues of approxirrately $775.9 nillion and general fund expenditures of approxirrately $762.6 nil lion. The total assessed valuation of taxable property in the District in fiscal year 2016-17 is approxirrately $212.2 billion.

The District is governed b,t a Board of Education consisting of seven voting merrbers. The voting merrbers are elected to four-year terms in staggered years so that, as nearly as practicable, one half of the merrbers shal I begin their term in each odd--nurrbered year. The District's day-to-day operations are managed b,t a board-appointed Superintendent of Schools (the "Superintendent''). In July 2016, thens uperi ntendent Richard A. Carranza accepted a position as S uperi ntendent of the Houston I ndependent School District. The Board of Education appointed Myong Leigh to serve as Interim Superintendent in Septerrber 2016. The Board of Education expects to appoint the successor to Superintendent Carranza in 2017.

THE BONDS

Authority for Issuance; Purpose

Series 2016 Bonds. The Series 2016 Bonds are issued pursuant to the Constitution and I.M's of the State of California (the "State''), including the prc,,1isions of the GOJernment and Education Codes of the State, a paying agent agreement (the "Series 2016 Paying Agent Agreement") b,t and between the District and the Treasurer of the City, as paying agent (the "Series 2016 Paying Agent"), and a resolution adopted b,t the Board of Education of the District (the "Board of Education") on February 14, 2017 (the "Series 2016 District Resolution").

The District received authorization to issue the Series 2016 Bonds at an election held on NOJerrber 8, 2016 (the" Election of 2016'') b,t more than 55% of the votes cast b,t eligible voters within the District. The voter--apprc,,1ed measure, kncwn I ocal ly as Proposition A, authorized the District to issue bonds in an aggregate principal amount not to exceed $744,250,000 to finance specific construction and modernization prqjects apprc,,1ed b,t the voters, summarized as follcws: to repair and rehabilitate San Francisco Unified School District facilities to current accessibility, health, safety, seismic and instructional standards; replace worn-out plumbing, electrical, HVAC and major building systems; renOJate outdated classrooms and training facilities; construct school facilities and replace aging modular classrooms; and imprOJe information technology systems and food service preparation systems. The Series 2016 Bonds will be issued in two subseries: (i) Subseries A, consisting of the aggregate principal amount of $175,000,000, the proceeds of which will be used to finance specific construction and modernization prqjects apprc,,1ed b,t the voters and (ii) Subseries B, consisting of the aggregate principal amount of $5,000,000, the proceeds of which will be used to purchase information technology upgrades as apprc,,1ed b,t the voters. The Subseries B Bonds will also be sul::iject to a final maturity date no later than June 15, 2020. The Series 2016 Bonds are the first series of the authorized bonds to be issued pursuantto the Proposition A authorization. After the Series 2016 Bonds, $564,250,000will remain to be issued b,t the District pursuant to the Proposition A authorization. For a discussion of all outstanding bonds of the District, see APPENDIX A - "DISTRICT FINANCIAL AND OPERATING INFORMATION- District Debt Structure."

As required b,t the Education Code of the State (the" Education Code") and Proposition A, the District has established a Citizens' oversight Comnittee to review District expenditures of bond proceeds and progress i n cornpl eti ng the prqj ects specified in the measure, and to make periodic reports to the public in order to ensure that bond funds are spent only for authorized purposes. The District makes no representations herein as to the specific application of the proceeds of the Series 2016 Bonds, the esti mated completion date of any of the prqj ects, or whether the authorized bonds wi 11 provide sufficient funds to complete all of the prqjects, or any particular prqject.

Refunding Bonds. The Refunding Bonds are issued pursuant to the Constitution and laws of the State, including the prOJisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California GOJernment Code (the "Gc,,1ernment Code''), applicable prc,,1isions of the Education Code and

2

other applicable provisions of law. The Refunding Bonds are authorized 0y a resolution adopted 0y the Board of Education on February 14, 2017 (the "Refunding District Resolution" and, together with the Series 2016 District Resolution, the "District Resolutions"), and issued pursuant to a Paying Agent Agreement (the" Refunding Paying Agent Agreement") 0y and between the District and the Treasurer of the City as i:aying agent (the" Refunding Paying Agent" and, together with the Series 2016 Paying Agent, the "Paying Agent"). The GOJemment Code permits the issuance of bonds payable from ad valorem property taxes without a vote of the electors solely to refund other outstanding general obligation bonds which were originally apprOJed 0y such a vote, prOJided that the total debt service to rraturity on the refunding bonds not exceed the total debt service to rraturity on the bonds being refunded.

The bonds to be refunded were authorized at an election held on NOJernber 7, 2006 (the" 2006 Election"), 0y mare than 55% of the votes cast 0y eligible voters within the District. The 2006 Election authorized the issuance of bonds in an aggregate principal arnount not to exceed $450,000,000 to enable the District to irnprOJe health and safety standards, rnake building repairs, irnprOJe accessibility for students with disabilities, perform needed environmental irrprOJements, repair and replace portable trai I ers and create outdoor areas.

Proceeds of the Refunding Bonds will be applied (i) to refund all or a portion of the District's outstanding (Proposition A, Election of 2006) General Obligation Bonds, Series B (2009) (the "Prior Bonds"), orignally issued in the aggregate princii:al arnount of $150,000,000 and (ii) to pay costs of issuance of the Refunding Bonds. See" PLAN OF REFUNDING" herein.

Form and Registration

The Bonds will be issued in fully registered book-€ntry form only, as current interest Bonds without coupons, in denominations of $5,000 principll amount each or any integral multiple thereof. The Bonds will initially be registered in the name of Cede & Co., as noninee of The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository for the Bonds. Registered cwnership of the Bonds rray not be transferred except as described in APPENDIX G. Purchases of Bonds underthe DTC system must be rnade 0y or through a DTC participant, and cwnership interests i n Bands or any transfer thereof wi 11 be recorded as entries on the books of said i:arti ci i:ants. Except in the event that use of this book-€ntry system is discontinued for the Bonds, Beneficial owners will not receive physical certificates representing their cwnership interests. See APPENDIX G -"BOOK-ENTRY ONLY SYSTEM."

Payment of Principal and Interest

The Bonds will be dated the date of their delivery, and bear interest at the rates set forth on the inside cover i:age hereof, on J une 15 and December 15 of each year, commencing on J une 1 5, 2017 for the Refunding Bonds and commencing on December 15, 2017 for the Series 2016 Bonds (each, an "Interest Payment Date"), until i:ayment of the principll arnount thereof, computed using a year of 360 days consisting of twelve 30-day rnonths. Refunding Bonds authenticated and registered on any date prior to the close of business on May 15, 2017 and Seri es 2016 Bands authenticated and registered on any date priortothe close of business on NOJember 15, 2017will bear interest from the date of their delivery. Bonds authenticated during the period between the 15th day of the calendar rnonth immediately preceding an Interest Payment Date (each, a" Record Date") and the close of business on that Interest Payment Date will bear interest from that Interest Payment Date. Any other Bond will bear interest from the Interest Payment Date immediately preceding the date of its authentication. If, at the time of authentication of any Band, interest is then in default on outstanding Bands, such Bond wi 11 bear interest from the Interest Payment Date to which interest has previously been paid or rrade avai I able for i:aymentthereon.

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Payrrent of interest on any Bond on each Interest Payrrent Date ( or on the fol I cwi ng business day, if the Interest Payrrent Date does not fall on a business day) will be made to the person appearing on the registration books of the Paying Agent as the registered cwner thereof as of the applicable preceding Record Date, such interest to be i:aid b,t check or draft rrailed to such cwner at such cwner's address as it appears on such registration books or at such other address as the cwner rray have filed with the Paying Agent for that purpose on or before the applicable Record Date. The cwner of an aggregate principli amount of $1,000,000 or more of Bonds rray request in writing to the Paying Agent that such cwner be plid interest b,t wire transfer to the bank and account number on file with the Paying Agent as of the applicable Record Date.

Pri nci pli wi 11 be i:ayabl e on J une 15 of each year, comnenci ng on J une 1 5, 2018, or upon redemption prior to rraturity, upon surrender of Bonds at such office of the Paying Agent as the Paying Agent shall designate. The interest, princii:al and preniums, if any, on the Bonds will be i:ayable in lawful money of the United States of Arrerica from moneys on deposit in the interest and sinking fund of the District (the" Interest and Sinking Fund") within the City treasury, consisting of ad valorem property taxes collected and held b,t the Treasurer of the City (the ''Treasurer"), together with any net prenium and accrued interest received upon issuance of the Bands.

So long as all outstanding Bonds are held in book-entry form and registered in the name of a securities depository or its noninee, all i:ayrrents of principli of, prenium, if any, and interest on the Bonds and all notices with respect to such Bonds will be rrade and given, respectively, to such securities depository or its nominee and not to Beneficial owners. So long as the Bonds are held b,t Cede & Co., as noninee of DTC, i:ayrrent will be rrade bf wire transfer.

Redemption

Optional Redemption. The Series 2016 Bonds rraturing on or before June 15, 2026 are not sul::iject to redemption prior to their respective stated maturity dates. The Series 2016 Bonds rraturing on or after June 15, 2027, are sul::iject to redemption prior to rraturity, at the option of the District, in whole or in part among rraturities on such basis as will be designated b,t the District and b,t lot within a maturity, from any available source of funds, on June 15, 2026, and on any date thereafter, at a redemption price of 10036 of the principli amount of Series 2016 Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption.

The R efundi ng Bands are not sul::ij ect to optional redemption.

Selection of Bonds for Redemption. If less than all of the Series 2016 Bonds are called for redemption, such Series 2016 Bonds shall be redeerred in any order selected b,t the District or as otherwise directed b,t the District. Whenever less than all of the Series 2016 Bonds of any one rraturity are designated for redemption, the Paying Agent will select the Series 2016 Bonds to be redeerred b,t lot in any rranner deerred fair b,t the Paying Agent. For purposes of such selection, each Series 2016 Bond will be deerred to consist of individual Series 2016 Bonds within the respective series, of $5,000 denominations each, which rray be sei:arately redeerred.

Notice of Redemption. Notice of redemption of the Series 2016 Bonds is required to be rrailed b,t the Paying Agent postage preplid not less than 20 nor more than 60 days prior to the redemption date (i) b,t first class rrail to the respective owners of such Series 2016 Bonds at the addresses appearing on the bond registration books of the Paying Agent and (ii) as rray be further required in accordance with the Continuing Disclosure Certificate. See APPENDIX E - "FORM OF CONTINUING DISCLOSURE CERTIFICATE."

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Each notice ofrederrption will contain the follONing inforrration: (i) the date of such notice; (ii) the narre of the affected Series 2016 Bonds and the date of issue of the Series 2016 Bonds; (iii) the redemption date; (iv) the redemption price, if available; (v) the dates of rraturity of the Series 2016 Bonds to be redeemed; (vi) if less than all of the Series 2016 Bonds are to be redeerred, the distinctive numbers of the Series 2016 Bonds of each rraturity to be redeerred; (vii) in the case of Series 2016 Bonds redeerred in part only, the respective maturities or portions of the principc1.I amount of the Series 2016 Bonds of each rraturity to be redeemed; (viii) the CUSI P number, if any, of each maturity of Series 2016 Bonds to be redeerred; and (ix) a staterrent that such Series 2016 Bonds must be surrendered 0y the OWners at the office of the Paying Agent designated for such purpose. The actual receipt b,t any owner of any Series 2016 Bond of notice of such redemption will not be a condition precedent to redemption, and failure to receive such notice, or any defect in the notice given, will not affect the validity of the proceedings forthe rederrpti on of such Seri es 2016 Bands.

Rescission of Notice of Redemption. The District rray rescind any rederrption and notice thereof for any reason on any date prior to the date fixed for redemption 0y causing written notice of the rescission to be given to the ONners of the Series 2016 Bonds so called for redemption. Notice of rescission of redemption will be given in the sarre manner in which notice of rederrption was orignally gven. The actual receipt b,t the ONner of any Series 2016 Bond of notice of such rescission will not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice will not affect the val i di ty of the rescission.

Conditional Notice. Any notice of optional redemption delivered hereunder may be conditioned on any fact or circumstance stated therein, and if such condition will not have been satisfied on or prior to the rederrpti on date stated i n such notice, said notice wi 11 be of no force and effect on and as of the stated redemption date, the rederrption will be cancelled, and the District will not be required to redeem the Series 2016 Bonds that were the sul::iject of the notice. The Paying Agent will give notice of such cancellation and the reason therefor in the sarre rranner in which notice of rederrption was originally gven. The actual receipt b,t the ONner of any Series 2016 Bond of notice of such cancellation will not be a condition precedent to cancellation, and failure to receive such notice or any defect in such notice will not affect the validity of the cancellation.

Effect of Notice of Redemption. When notice of redemption has been given substantially as prc,,1ided for in the respective Paying Agent Agreerrent, and when the redemption price of the Series 2016 Bonds called for redemption is set aside for the purpose as described in the Series 2016 Paying Agent Agreerrent, the Series 2016 Bonds designated for redemption will become due and payable on the specified rederrpti on date and interest wi 11 cease to accrue thereon as of the redemption date, and upon presentation and surrender of such Series 2016 Bonds at the place specified in the notice of redemption, such Series 2016 Bonds will be redeemed and paid at the redemption price thereof out of the money prc,,1ided therefor. The ONners of such Series 2016 Bonds so called for rederrption after such redemption date will look for the payrrent of such Series 2016 Bonds and the redemption premium thereon, if any, only to moneys on deposit for the purpose in the Interest and Sinking Fund of the District or the escrON fund established for such purpose. All Series 2016 Bonds redeerred will be cancelled forthwith b,t the Paying Agent and will not be reissued.

Defeasance

The Di strict rray P3-Y and discharge any or al I of the Bands b,t depositing in trust with the Paying Agent or an escrON agent at or before rraturity, money or non-callable direct obligations of the United States of Arrerica or other non-callable obligations the pc1.yrrent of the principc1.I of and interest on which is guaranteed 0y a pledge of the full faith and credit of the United States of Arrerica, in an amount which will, together with the interest to accrue thereon and available moneys then on deposit in the Interest and Sinking Fund, be ful ly sufficient in the opi ni on of a certified public accountant Ii censed to practice i n the

5

State to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption preni urns) at or before their respective maturity dates.

If at any time the District i:ays or causes to be i:aid or there is otherwise i:aid to the cwners of any or all outstanding Bonds all of the principal, interest and premium, if any, represented b,t such Bonds when due, or as described abo.ie, or as otherwise prOJi ded b,t I aw, then such owners wi 11 cease to be entitled to the obi igation of the City to levy and collect taxes to l'.0-Y the Bands as described in each respective Paying Agent Agreement, and such obligation and all agreements and cOJenants of the District to such owners hereunder will thereupon be satisfied and discharged and will terninate, except only that the District will remain liable for payment of all principal, interest and prenium, if any, represented b,t such Bonds, but only out of moneys on deposit in the Interest and Sinking Fund or otherwise held in trust for such i:ayment, prc,,1ided, that the unclaimed moneys provisions described in such Paying Agent Agreement wi 11 apply in al I events.

U ncl ai med M on eys

Any money held in any fund created pursuant to a Paying Agent Agreement, or held b,t the Paying Agent in trust, for the i:ayment of the princii:al of, redemption prenium, if any, or interest on the Bands and remai ni ng uncl ai med for two years after the pri nci i:al of al I of the Bands has become due and i:avable (whether b,t maturity or upon prior redemption) will be transferred to the Interest and Sinking Fund for payment of any outstanding bonds of the District payable from said fund; or, if no such bonds of the District are at such time outstanding, said moneys will be transferred to the general fund of the District as provided and pernined b,t law.

Application and Investment of Series 2016 Bond Proceeds

The proceeds of sale of the Series 2016 Bonds, exclusive of any prenium and accrued interest received, will be deposited in the City treasury to the credit of the Building Fund of the District. Any prenium and accrued interest will be deposited upon receipt in the Interest and Sinking Fund of the District within the City treasury.

All funds held b,t the Treasurer with respect to the Series 2016 Bonds hereunder or underthe Law shall be invested at the Treasurer's discretion pursuant to law and the investment policy of the City. See APPENDIX F - "CITY AND COUNTY OF SAN FRANCISCO INVESTMENT POLICY STATEMENT AND INVESTMENT REPORT."

The District has cOJenanted to not take any action or inaction, or fail to take any action, or pernit any action to be taken on its behalf or cause or perni t any ci rcumstances wi thi n its control to arise or continue, if such action or inaction would acwersely affect the exclusion from gross income of the interest i:avabl e on the Seri es 2016 Bands under Section 103 of the Code.

I n the event that at any ti me the District is of the opinion that it is necessary or hel pful to restrict or limit the yield on the investment of any moneys held b,t the Treasurer with respect to the Series 2016 Bonds, or b,t the Paying Agent underthe Series 2016 Paying Agent Agreement, the District will take such action as is necessary to effect such restriction or I i ni tati on.

If the District provides to the Treasurer or the Paying Agent an opinion of Bond Counsel that any specified action required under the Series 2016 Paying Agent Agreement is no longer required or that some further or different action is requi red in order to mai ntai n the exclusion from federal i ncome tax of interest on Seri es 2016 Bands under Section 103 of the Code, the Treasurer and the Paying Agent may conclusively rely on such opinion in complying with the requirements of the Series 2016 Paying Agent Agreement, and the covenants thereunder wi 11 be deemed to be modified to that extent.

6

Earnings on the investrrent of rnoneys in either fund will be retained in that fund and used only for the purposes to which that fund rnay lawfully be applied. Moneys in the Building Fund rnay only be applied for the purposes for which the Series 2016 Bonds were approved. Moneys in the Interest and Sinking Fund rray only be applied to rrake i:ayrrents of interest, principll and preniurn, if any, on bonds of the District. See APPENDIX F - "CITY AND COUNTY OF SAN FRANCISCO INVESTMENT POLICY STATEMENT AND INVESTMENT REPORT."

The District anticipates that the proceeds of the follcwing Series 2016 Bonds rraturities will be used to purchase equipment with a useful life of less than twenty years.



Maturity Date Uune15)

2018 2019 2020

Principal Amount

$1,610,000 1,670,000 1,720,000

The District anticipates that the proceeds of the follcwing Series 2016 Bonds rraturities will be used to finance specific construction and rnoderni zati on prqj ects apprOJed b,t the voters.



Maturity Date Uune15)

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037

7

Principal Amount

$16,730,000 11,840,000 5,485,000 5,650,000 5,815,000 5,990,000 6,290,000 6,605,000 6,935,000 7,285,000 7,645,000 7,875,000 8,110,000 8,355,000 8,605,000 8,885,000

11,000,000 11,400,000 12,000,000 12,500,000

Plan of Refunding

A portion of the proceeds from the sale of the Refunding Bonds will be deposited in an escrcw fund (the "Escrcw Fund') to be created and rraintained b,t U.S. Bank National Association, acting as escrcw agent (the "Escrcw Agent''), b,t and between the District and the Escrcw Agent. Moneys in the Escrcw Fund will be invested in cash or non-callable direct obligations of the United States Treasury or other non-callable obligations the payrrent of the principal of and interest on which is guaranteed b,t a pledge of the full faith and credit of the United States of Arrerica, and applied to pay all principal of, redemption premium and interest on the Prior Bonds on the dates designated for their redemption, as tentatively set forth belcw. Causey Demgen & Moore P.C., a Certified Public Accountant licensed to practice in the State, acting as verification agent (the "Verification Agent'') with respect to the Escrcw Fund, has verified the rrathematical accuracy of the computations relating to the sufficiency of the moneys proposed to be deposited and invested in the E screw Fund, together with earnings thereon, forthe payrrent of interest on the Prior Bands to the redernpti on date and the payrrent and redemption on that date of all said Prior Bonds.

A portion of the proceeds wil I be retained b,t the Paying Agent in a Costs of Issuance Fund and used to pay costs associated with the issuance of the Refunding Bonds and the refunding of the Prior Bonds. Any proceeds of sale of the Refunding Bonds not needed to fund the Escrcw Fund or to pay costs of issuance of the Refunding Bonds will be transferred to the Treasurer for deposit in the District's Interest and Sinking Fund in the City treasury, and applied only for payrrent of principal of and interest on outstanding bonds of the District. Amounts deposited into the Interest and Sinking Fund, as well as proceeds of taxes held therein for payrrent of the Refunding Bonds, will be invested at the sole discretion of the Treasurer pursuant to law and the City's investrrent policy. See APPENDIX F - "CITY AND COUNTY OF SAN FRANCISCO INVESTMENT POLICY STATEMENT AND INVESTMENT REPORT."

The Prior Bonds to be refunded are as folio.vs:

Maturity Date UunelS)

2020 2020 2021 2021 2022 2022 2023 2023 2024 2024

San Francisco Unified School District (Proposition A, Election of 2006)

General Obligation Bonds, Series B (2009) Redemption Date: J une 15, 2019

Principal Arrount $ 500,000 9,820,000 1,875,000 8,940,000

775,000 10,560,000

475,000 11,200,000

1,575,000 11,000,000

Interest Rate 4.00036 5.250 4.000 5.250 4.125 5.250 4.250 5.250 4.375 5.250

CUSIP" (79771T)

FT9 FU6 FV4 FW2 FXO FY8 FZ5 GA9 GB7 GC5

• CUSIP® is a registered traderrarkof theAmerican Bankers Association. CUSIP Global Services (CGS) is rranaged on behalf oftheArrerican Bankers Association by S&P Capital IQ. Copyright© 2017CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CU SIP® nurrbers are provided for convenience ofreference only. None of the District, the City, the Underwriters or their agents or counsel assurres responsibility for the accuracy of such nurrtiers.

8

ESTIMATEDSOURCESANDUSESOF FUNDS

The net proceeds of the Bonds are expected to be applied as fol lo.vs:

Sources of Funds Seri es 2016 Bonds Seri es 2016 Bonds (SubseriesA) (S ubseries B) Refunding Bonds

Principal Arrount of Bonds $175,CXXl,CXXl.OO $5,CXXl,CXXl.OO $53,890,CXXJ.OO Plus Net Original Issue Prem um 9,301,077.30 177,791.60 8,698,571.75

Total Sources: $184,301,077.30 $5,177,791.60 $62,588,571.75

Uses of Funds Deposit to B ui I ding Fund $174,688,888.89 $4,991,111.11 Deposit to Escrow Fund $62, 123,815.61 Deposit to I nterest and Sinking Fund 8,739,327.30 161,741.60 Retained 0y U nderwriterI1I 561,750.00 16,050.00 73,517.28 Costs of I ssuancel2I 311,111.11 8,888.89 391,238.86

Total Uses: $184,301,077.30 $5,177,791.60 $62,588,571.75

(7l AITTJunts are l:Bsed en Urderwriter representations of prices at which the Bards were reoffered to the public. The sale of Bonds to the public at prices that differ from the represented original reoffering price wi II impa::t the actual U rderwriter compensation on this transaction. (21 I rr::I Ldes Finan::::ial Advisor fees, Bord Counsel fees, Disclosure Counsel fees, rati tl'J agen:::y fees, Paying Agent fees, E scrOvV Agent fees, Verification Agent fees, pri nti tl'J fees ard other miscellaneous expenses the Underwriter (defined herein) has contra:::ted to pay.

9

SCHEDULED DEBT SERVICE

Semi-Annual Debt Service

The semi-annual debt service i:avments on the Bonds are summarized in the table belcw (without regard to opti anal redemption).

SAN FRANCISCO UNIFI ED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO. STATE OF CALI FOR NIA)

SEMI-ANNUAL DEBT SERVICE PAYMENTS

Series 2016 Bonds Refunding Bands Total Serri-Annual Debt

Period Ending Principal Interest Principal Interest Service June 15. 2017 $ 945.000.00 $ 511,012.00 $ 1,456,012.00

Decerrber 15, 2017 $4,466,826.57 1,323,625.00 5,790,451.57 June 15,2018 $18,340,000.00 3,229,031.25 1,323,625.00 22,892,656.25

Decerrber 15, 2018 3,045,631.25 1,323,625.00 4,369,256.25 June 15,2019 13,510,000.00 3,045,631.25 1,323,625.00 17,879,256.25

Decerrber 15, 2019 2,842,981.25 1,323,625.00 4, 166,606.25 J une 15, 2020 7,205,000.00 2,842,981.25 9,665,00000 1,323,625.00 21,036,606.25

Decerrber 15, 2020 2,734,906.25 l ,002,00000 3,816,906.25 June 15,2021 5,650,000.00 2,734,906.25 10, 110,000.00 l ,002,00000 19,576,906.25

Decerrber 15, 202 l 2,650, 156.25 829,250,00 3,479,406.25 J une 15, 2022 5,815,000.00 2,650, 156.25 10,590,000.00 829,250,00 19,884,406.25

Decerrber 15, 2022 2,562,931.25 564,50000 3,127,431.25 June 15, 2023 5,990,000.00 2,562,931.25 10,870,000.00 564,50000 19,987,431.25

Decerrber 15, 2023 2,413,181.25 292,750,00 2,705, 93 l.25 J une 15, 2024 6,290,000.00 2,413,181.25 l l, 710,000.00 292,750,00 20,705, 93 l.25

Decerrber 15, 2024 2,255,931.25 2,255,931.25 June 15, 2025 6,605,000.00 2,255,931.25 8,860,931.25

Decerrber 15, 2025 2,090,806.25 2,090,806.25 J une 15, 2026 6,935,000.00 2,090,806.25 9,025,806.25

Decerrber 15, 2026 1,917,431.25 1,917,431.25 June 15, 2027 7,285,000.00 1,917,431.25 9,202,431.25

Decerrber 15, 2027 1,735,306.25 1,735,306.25 J une 15, 2028 7,645,000.00 1,735,306.25 9,380,306.25

Decerrber 15, 2028 1,620,631.25 1,620,631.25 J une 15, 2029 7,875,000.00 1,620,631.25 9,495,631.25

Decerrber 15, 2029 1,502,506.25 1,502,506.25 J une 15, 2030 8, 110,000.00 1,502,506.25 9,612,506.25

Decerrber 15, 2030 1,380,856.25 1,380,856.25 June 15,2031 8,355,000.00 1,380,856.25 9,735,856.25

Decerrber 15, 203 l 1,255,531.25 1,255,531.25 J une 15, 2032 8,605,000.00 1,255,531.25 9,860,531.25

Decerrber 15, 2032 l, 115, 70000 l, 115, 70000 J une 15, 2033 8,885,000.00 l, 115, 70000 10,00070000

Decerrber 15, 2033 938,00000 938,00000 J une 15, 2034 11,000,000.00 938,00000 l l,938,00000

Decerrber 15, 2034 718,00000 718,00000 J une 15, 2035 11,400,000.00 718,00000 12, 118,00000

Decerrber 15, 2035 490,00000 490,00000 J une 15, 2036 12,000,000.00 490,00000 12,490,00000

Decerrber 15, 2036 250,00000 250,00000 June 15, 2037 12,500,000.00 250,00000 12,750,000.00

Total: $180,000,000.00 $74,736,832.82 $53,890,00000 $13,989,762.00 $322,616,594.90

10

Outstanding Bonds

General. In addition to the Bonds, the District has outstanding nine additional series of general obligation bonds, each of which is secured b,t advaloremtaxes upon all property sul::ijecttotaxation b,t the District on a pc1rity with the Bonds. See APPENDIX A - "DISTRICT FINANCIAL AND OPERATING INFORMATION - District Debt Structure- General Obligation Bonds" attached hereto.

2006 Authorization. The District received authorization at an election held on NOJember 7, 2006 to issue bonds of the District in an aggregate principc1I amount of $450,000,000 (the "2006 Authorization"). The District has issued six series of bonds under the 2006 Authorization, including the San Francisco Unified School District (Proposition A, Election of 2006) General Obligation Bonds Series A (2007) in the aggregate principc1I amount of $100,000,000, the San Francisco Unified School District (Proposition A, Election of 2006) General Obligation Bonds Series B (2009) in the aggregate principal amount of $150,000,000, the San Francisco Unified School District (Proposition A, Election of 2006) General Obligation Bonds Series C (2010) in the aggregate principal amount of $12,955,000, consisting of federally taxable Direct Subsidy Qualified School Construction Bonds ("QSCBs"), the San Francisco Unified School District (Proposition A, Election of 2006) General Obligation Bonds Series D (2010) in the aggregate principc1I annunt of $72,370,000, consisting of federally taxable Build America Bonds ("BABs"), the San Francisco Unified School District (Proposition A, Election of 2006) General Obligation Bonds Series E (2010) (Tax-Exempt) in the aggregate principc1I amount of $99,675,000, and the San Francisco Unified School District (Proposition A, Election of 2006) General Obligation Bonds Series F (2015) in the aggregate principc1I amount of $15,000,000.

2011 Authorization. The District received authorization at an election held on November 8, 2011 to issue bonds of the District in an aggregate principc1I amount of $531,000,000 (the "2011 Authorization"). The District has issued three series of bonds under the 2011 Authorization, including the San Francisco Unified School District General Obligation Bonds (Proposition A, Election of 2011), Series A (2012) in the aggregate principc1I amount of $115,000,000, the San Francisco Unified School District General Obligation Bonds (Proposition A, Election of 2011), Series B (2014) in the aggregate principc1I amount of $205,000,000 and the San Francisco Unified School District General Obligation Bonds (Proposition A, Election of 2011), Series C (2015) in the aggregate principal amount of $211,000,000.

Refunding Bonds. In addition, refunding bonds were issued (i) on March 6, 2012 (the "2012 Refunding Bonds") for the purpose of refunding a portion of the District's General Obligation Bonds, (Proposition A, Election of 2003), Series A (2004) and Series B (2005); and (ii) on October 21, 2015 (the "2015 Refunding Bonds") forthe purpose of refunding the District's outstanding (Proposition A, Election of 2003) General Obligation Bonds, Series C (2006) and pc1rtially refunding the District's General Obligation Bonds (Proposition A, Election of 2006) Series A (2007).

11

Aggregate Debt Service

The fol I cwi ng table sumrrari zes the annual aggregate debt service requirements of al I outstanding bonds of the District (incl udi ng the Bands) , assuming no opti anal rederrpti ons.

Year Ending

UunelS)

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Total:

SAN FRANCISCO UNI Fl ED SCHOOL DISTRICT AGGREGATE ANNUAL DEBT SERVICE

Outstandi ng General Obligation Bonds' Series 2016 Bonds Refunding Bands

$89,381,126.26 $ 1,456,012.00 90,074,476.26 $26,035,857.82 2,647,250.00 90,076,676.26 19,601,262.50 2,647,250.00 79,247, 176.26 12,890,962.50 12,312,250.00 79,246,626.26 11, 119,812.50 12,274,000.00 79,235,576.26 11,115,312.50 12,248,500.00 79,246,026.26 11, 115,862.50 11,999,000.00 79,247,026.26 11,116,362.50 12,295,500.00 75,703,271.02 11, 116,862.50 67,306,632.26 11, 116,612.50 64,349,918.91 11, 119,862.50 55,878,013.76 11, 115,612.50 55,225, 136.26 11, 116,262.50 54,969,657.50 11,115,012.50 41 , 01 8,007.50 11,116,712.50 41,013,237.50 11,116,062.50 32,238,512.50 11,116,400.00 16,823,950.00 12,876,000.00 16,818,750.00 12,836,000.00

12,980,000.00 13,000,000.00

$1,187,099,877.29 $254,736,832.82 $67,879,762.00

Aggregate Annual Debt Service

$90,837,138.34 118,757,584.00 112,325,188.76 1 04, 450,388. 76 102,640,438.76 102,599,388.76 102,360,888.76 102,658,888.76 86,820, 133.52 78,423,244.76 75,469,781.41 66,993,626.26 66,341,398.76 66,084,670.00 52,134,800.00 52,129,300.00 43,354,912.50 29,699,950.00 29,654,750.00 12,980,000.00 13,000,000.00

$1,509,716,472.19

'Excludes debt service on Prior Bond~ Debt service on the QSCB sand BABs does not account for subsidies expected to be received in connection with such bonds.

12

SECURITY AND SOURCE OF PAYMENT FOR THE BONDS

General

In order to prOJi de sufficient funds for repayment of pri nci pl! and interest when due on the Bonds, the Board of Supervisors of the City (the" Board of Supervisors") is empcwered and is obligated to le.;y advaloremtaxes upon all property sul::iject to taxation b,t the District, without I irritation as to rate or amount (except as to certain personal property which is taxable at lirrited rates). Such taxes are in addition to othertaxes I evi ed upon property wi thi n the District.

The Bonds are payable from ad valorem taxes to be le.1ied within the District pursuant to the California Constitution and other State law, and are not a debt or obligation of the City. No fund of the City is pledged or obligated to repayment of the Bonds.

Statutory Lien onTaxes(SenateBill 222)

Pursuant to Section 53515 of the California Government Code (which became effective on January 1, 2016), all general obligation bonds issued b,t local agencies, including refunding bonds, will be secured b,t a statutory lien on all revenues received pursuanttothe levy and collection of the tax. Section 53515 prc,,1ides that the lien will automatically arise, without the need for any action or authorization b,t the I ocal agency or its gOJerni ng board, and wi 11 be valid and binding from the ti me the Bands are executed and delivered. Section 53515 further prc,,1ides that the revenues received pursuant to the le.;y and collection of the tax will be immediately sul::iject to the lien, and the lien will immediately attach to the revenues and be effective, binding and enforceable against the local agency, its successor, transferees and creditors, and all others asserting rights therein, irrespective of whether those parties have notice of the lien and without the need for physical delivery, recordation, filing or further act.

Pledge of Tax Revenues

The District has pledged all revenues from the ad valorem taxes collected from the levy b,t the Board of Supervisors for the payment of all bonds, including the Bonds (collectively, the" Bonds"), of the District heretofore or hereafter issued pursuant to voter apprc,,1ed measures of the District and amounts on deposit in each Interest and Sinking Fund of the District to the payment of the principal or redemption price of and interest on the related series of Bonds. The District Resolutions prc,,1ide that the property taxes and amounts held in each Interest and Sinking Fund shall be immediately sul::iject to this pledge, and the pledge shall constitute a lien and security interest which shall immediately attach to the property taxes and amounts held i n each I nterest and Si nki ng Fund to secure the payment of the Bands and shal I be effective, binding, and enforceable against the District, its successors, creditors and all others irrespective of whether those parties have notice of the pledge and without the need of any physical delivery, recordation, filing, or further act. This pledge constitutes an agreement between the District and the cwners of Bonds to prc,,1ide security for the Bonds in addition to any statutory lien that may exist, and the Bonds secured b,t the pledge are or were issued to finance one or more of the prqjects specified in the applicable voter-approved measure.

Property Taxation System

Property tax revenues result from the application of the appropriate tax rate to the total assessed value of taxable property in the District. School districts receive property taxes for payment of voterapproved bonds as wel I as for general operating purposes.

13

Local property taxation is the responsibility of various county officers. For each school district I ocated i n a county, the county assessor corrputes the value of I ocal ly assessed taxable property. Based on the assessed value of property and the scheduled debt service on outstanding bonds in each year, the county auditor-control I er corrputes the rate of tax necessary to l'.0-Y such debt service, and presents the tax rol Is (incl udi ng rates of tax for al I taxing j uri sdi cti ans i n the county) to the county board of supervisors for apprc,,1al. The county treasurer-tax col I ector prepares and mai Is tax bi 11 s to taxpayers and col I ects the taxes. In addition, the county treasurer-tax collector, the superintendent of schools of which has jurisdiction OJer the school district, holds school district funds, including taxes collected for payment of school bonds, and is charged with i:ayment of pri nci pal and i nterest on the B ands when due, as ex-officio treasurer of the school district holds and invests school district funds, including taxes collected for i:avment of school bonds, and is charged with i:ayment of principal and interest on such Bands when due. The State Board of Equalization (the "Board of Equalization") also assesses certain special classes of property, as described I ater i n this section.

Assessed Valuation of Property Within the District

Under Proposition 13, an amendment to the California Constitution adopted in 1978, the county assessor's valuation of real property is estabiished as shewn on the fiscal year 1975-76 tax bill, or, thereafter, as the appraised value of real property when purchased, newly constructed or a change in cwnership has occurred. Assessed value of property may be increased annually to reflect inflation at a rate not to exceed 2% per year, or reduced to reflect a reduction in the consumer price index or comi:arable data for the area under taxingjurisdiction or in the event of declining property value caused b,t substantial darrage, destruction, rrarket forces or other factors. As a result of these rules, real property that has been cwned b,t the same taxi:ayer for rrany years can have an assessed value that is much I ewer than the rrarket value of the property and of sinilar properties more recently sold. Likewise, changes in cwnershi p of property and reassessment of such property to rrarket value may I ead to increases i n aggregate assessed value greater than the actual rate of inflation or the 2% I imit on inflation aqj ustments for properties that have not changed cwnership. Sinilar property that has recently been acquired rray have a higher assessed value reflecting the recent acquisition price. See APPENDIX A - "DISTRICT FINANCIAL AND OPERATING INFORMATION - CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS."

Proposition 13 has had the effect of stabilizing assessed valuation such that it does not fluctuate as significantly as the rrarket value of property, but instead gradually changes as longer cwned residential properties are transferred and reassessed upon such transfer. Newer residences or those acquired in recent years prior to a dONnturn in the housing rrarket rray upon transfer substantially decrease in assessed value.

State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals and charitabie institutions. State law also exempts from taxation $7,000 of the full cash value of an cwner-occupied d.velling provided that the cwner files for such exemption. This exemption does not result in any loss of revenue to local agencies, since the State rei mburses I ocal agencies for the val ue of the exempti ans.

For assessment and tax collection purposes, property is classified either as "secured" or "unsecured' and is listed accordingly on sei:arate i:arts of the assessment roll. The "secured roll" is that part of the assessment rol I containing State-assessed property and property (real or personal) for which there is a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. All other property is "unsecured' and is assessed on the "unsecured roll." State law requires that the assessment roll be finalized b,t August 20 of each year.

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The greater the assessed value of taxable property in the District, the I ewer the tax rate necessary to generate taxes sufficient to pay scheduled debt service on its outstanding general obligation bonds. The follewing table sets forth the taxable property assessed valuation in the District for fiscal years 2007-08through 2016-17.

Fiscal Year

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

SAN FRANCISCO UNI Fl ED SCHOOL DISTRICT (City and County of San Francisco, California)

Assessed Valuation of Secured and Unsecured Property Fiscal Years 2007-08 To 2016-17

Local Secured

$120,790,890,780 130,824,730,768 139,453,860,923 146,680,168,492 147,612,367,616 153,348,031,902 160,650,767,471 169,001,854,462 180,311,079,707 195,319,718,011

Utility

$145,235,265 79,163,963 50,879,439 43,565,042 41,527,475 46,515,990 35,943,747 32,843,747

250,473,678 242,464,205

Unsecured

$7,721,465,207 9,061,373,546

10,405,985,652 9,446,789,960 9,249,419,572 9,764,668,943 9,867,122,786

10,734,859,006 11,784,296,408 13,750,364,838

Total

$128,657,591,252 139,965,268,277 149,910,726,014 156,170,523,494 156,903,314,663 163,159,216,835 170,553,834,045 179,769,557,215 192,345,849,793 209,312,547,054

Source: California Municipal Statistics, Inc. for fiscal years 2007-0l through 2016-17.

Annual% Change

8.5036 8.79 7.11 4.18 0.47 3.99 4.53 5.40 7.00 8.82

Risk of Decline in Property Values. Property values could be reduced b,t factors beyond the District's control, including earthquake and a depressed real estate rrarket due to general economic conditions in the City, the region and the State. Other possible causes for a reduction in assessed values include the corrpl ete or i:arti al destruction of taxable property caused b,t other natural or rranrrade disasters, such as drought, flood, fi re, taxi c durnpi ng, acts of terrorism, etc., or reel assi fi cation of property to a class exerrpt from taxation, whether b,t ewnership or use (such as exemptions for property ewned b,t State and local agencies and property used for qualified educational, hospital, charitable or religious purposes). L ewer assessed values could necessitate a corresponding increase in the annual tax rate to be I evi ed to l'.0-Y the pri nci pal of and i nterest on the Bands. I ssuance of addi ti anal bonds i n the future night al so cause the tax rate to i ncrease.

Seismic Risks. The assessed valuation of the City could be substantially reduced as a result of a major earthquake proximate to the City. The City is located in a seismically active region. Active earthquake faults underlie both the City and the surrounding Bay Area Three major earthquake faults that comprise the San Andreas Fault System extend through the Bay Area They include the San Andreas Fault, the Hayward Fault and the Calaveras Fault. On August 24, 2014, an earthquake occurred in Napa California. The tremor's epicenter was located approxirrately 3.7 niles northwest of American Canyon near the West Nai:a Fault and registered 6.0 on the Richter scale of earthquake intensity. The Nai:a earthquake caused fires, damaged buildings and roads, and injured approximately 200 people. The Nai:a earthquake was the largest earthquake in the Bay Area since the 1989 Lorra Prieta earthquake on the San Andreas Fault, which was centered albout 60 miles south of San Francisco and registered 6.9 on the Richter scale of earthquake intensity. The Lorra Prieta earthquake caused fires and collapses of and structural darrage to buildngs, highways and bridges in the Bay Area.

In August 2016, the 2014 Working Group on California Earthquake Probabilities (a collaborative effort of the United States Geological Survey, the California Geological Society and the Southern Cal i forni a Earthquake Center) issued a revised report that states there is a 72% chance that one or more earthquakes of rragnitude 6.7 or larger will occur in the Bay Area before the year 2043. Such

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earthquakes rray be very destructive. Property within the City could sustain extensive darrage in a major earthquake, and a major earthquaike could acwersely affect the area's econonic activity.

State-Assessed Property. Under the State Constitution, the State Board of Equalization assesses property of State--regul ated transportation and comrnuni cations uti Ii ti es, incl udi ng rai I ways, telephone and telegraph corrp3.nies, and comi:anies transnitting or selling gas or electricity. The Board of Equalization also is required to assess pipelines, flumes, canals and aqueducts lying within two or more counties. The val ue of property assessed b,t the Board of Equalization is al I ocated b,t a forrnul a to I ocal j uri sdi cti ons i n the county, including school districts, and taxed b,tthe local county tax officials in the sarre rranner as for locally assessed property. Taxes on privately cwned railway cars, hcwe.1er, are le.1ied and collected directly b,t the Board of Equalization. Property used in the generation of electricity b,t a comi:any that does not also transnit or sell that electricity is taxed locally instead of b,t the Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricity-generating property to nonutility corrpanies, as often occurred under electric paver deregulation in California, affects hew those assets are assessed, and which local agencies benefit from the property taxes derived. In general, the transfer of State-assessed property located in the District to non-utility corrp3.nies will increase the assessed value of property in the District, since the property's value will no longer be divided among all taxing jurisdictions in the City. The transfer of property located and taxed in the District to a Stateassessed utility will have the opposite effect, generally reducing the assessed value in the District as the value is shared among the other jurisdictions in the City. The District is unable to predict future transfers of State-assessed property in the District and the City, the imi:act of such transfers on its utility property tax revenues, or whether future legislation or litigation rray affect cwnership of utility assets, the State's rrethods of assessing utility property, or the rrethod b,t which tax re.1enues of utility property is allocated to local taxing agencies, including the District.

Appeals of Assessed Valuation. State I aw affords an appeal procedure to taxpayers who disagree with the assessed value of their taxable property. Taxi:ayers may request a reduction in assessrrent directly from the county assessor, who rray grant or refuse the request, and may appeal an assessrrent directly to the county board of equalization, which rules on appealed assessrrents whether or not settled b,t the assessor. The assessor is also authorized to reduce the assessed value of any taxable property upon a determination that the rrarket val ue has decl i ned bel cw the then-current assessrrent, whether or not appealed b,t the taxpayer.

The District can rrake no predictions as to the changes in assessed values that night result from pending or future appeals b,t taxi:ayers. Any reduction in aggregate District assessed valuation due to appeals, as with any reduction i n assessed val uati on due to other causes, wi 11 cause the tax rate I e.,,i ed to repay the Bonds to increase accordingly, so that the fixed debt service on the Bonds (and other outstanding bonds) may be i:aid. Any refund of paid taxes triggered b,t a successful assessrrent appeal will be debited b,t the Treasurer against all taxing agencies who received tax revenues, including the District.

Bonding Cai:acity. As a unified school district, the District rray issue bonds in an amount upto 2.5% of the assessed valuation of taxable property within its boundaries. The District's fiscal year 2016-17 gross bonding cai:acity (also commonly referred to as the "bonding limit" or "debt limit") is approximately $5.30 billion and its net bonding cai:acity is approxirrately $4.39 billion (prior to the issuance of the Bonds and the defeasance of the Prior Bonds). Refunding bonds rray be issued without regard to this limitation; hcwever, once issued, the outstanding princii:al of any refunding bonds is included when calculating the District's bonding cai:acity.

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Assessed Valuation b,t Land Use. The fdlcwing table sets forth a distribution of taxable property located in the District on the fiscal year 2016-17 tax roll b,t principc1.I purpose for which the land is used, and the assessed valuation and nurrber of pc1.rcel s for each use.


2016-17 Assessed Valuation and Parcels by Land Use

Assessed Valuation Parcels

2016-17 % of No. of Type of Property Assessed Valuation"' Total Parcels

Non-Re~dential: Comrrercial $16,314,227,092 &35% 9,016 Office 32,253,863,644 16.51 1,704 Industrial 5,773,112,818 2.96 4,160 Hotel iM otel 6,749,136,847 146 744 Recreational 493,863,652 Q25 389 G<Nernmentpocial ~ nstitutional 518,961,176 Q27 1,523 Miscellaneous 783,914,253 0.40 809

Subtotal Non-Residential $62,887,079,464 32.20>6 18,345

Re~ denti al : Single Farrily Residence $59,457,063,85 l 30.44% 96,488 Condorrinium/fownhouse 34,403,648,21 l 17.61 42,180 2+Re~dential Units 36,864,245,520 18.87 25,397 Tirreshare Properties 268. 706. 539 0.14 7,420

Subtotal Re~dential $130993,664, 121 67.07!6 171,485

Vacant Parcels $1,438,974,426 Q74% 5,769

TOTAL $195,319,718,0l l 10000>6 195,599

(7l Local secured assessed valuation, exclLdi tl'J tax-exempt property. Source: California Municipal Statistics, Irr:.

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% of Total

4.61% 0.87 2.13 0.38 0.20 0.78 0.4 l 9.38%

49.33% 21.56 12.98 3.79

87.67!6

2.95%

100.00>6

Assessed Valuation of Single-family Residential Properties. The follcwing table sets forth the assessed valuation of single-family homes in the District's boundaries for fiscal year 2016-17.


2016-17 Per Parcel Assessed Valuation of Single Family Homes

Nurrber of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation

Single Farrily Residential 96,488 $59,457,063,85 l $616,212 $415,341

2016-17 No. of Currulative Currulative % Assessed Valuation ParcelsOl % of Total % of Total Total V al uati on % of Total of Total

$0-$99,999 16,324 16.918% 16.918% $1,055,227,241 l. 775% l. 775% $100,000-$199,999 10,095 lQ462 27.381 1,477,666, 778 2.485 4.260 $200,000-$299,999 10,024 lQ389 37.769 2, 519,000, 705 4.237 &497 $300,000-$399,999 10,261 lQ634 48.404 3,589,109,907 6.036 14.533 $400,000-$499,999 8,900 9.224 57.628 3,983,075,593 6.699 21.232 $500,000-$599,999 6,904 7. 155 64.783 3,788,400,152 6.372 27.604 $600,000-$699,999 5,894 6.109 70.892 3,&26,605,094 6.436 34.040 $700,000-$799,999 5,640 5.845 76.737 4,222,789,568 7.102 4 l. 142 $800,000-$899,999 4,858 5.035 81.m 4,118,876,153 6.927 4&070 $900,000-$999,999 3,623 1755 85.527 3,431,934,728 5.m 51842

$1,000,000-$1,099,999 2,413 2.501 88.028 2,524,642,712 4.246 5&088 $1, 100,000-$1, 199,999 1,695 l.757 89.784 1,944,354,738 1270 61.358 $1,200,000-$1,299,999 1,371 l.421 91.205 l, 713,266,357 2.882 64.240 $1,300,000-$1,399,999 1,095 l.135 92.340 1,474,386,034 2.480 66.719 $1,400,000-$1,499,999 1,021 l.058 93.398 1,477,709,030 2.485 69.205 $1,500,000-$1,599,999 789 Q818 94.216 1,221,260,510 2.054 71.259 $1,600,000-$1,699,999 635 Q658 94.874 1,046,650,480 l.760 71019 $1, 700,000-$1,799,999 551 Q57l 95.445 963,610,906 l.621 74.640 $1,S00,000-$1,899,999 446 Q462 95.907 &23,974,881 l.386 76.026 $1,900,000-$1,999,999 369 Q382 96.290 718,385,589 l.208 77.234 $2,000,000 and greater _l,2!Q 1710 100.000 13,536,136,675 22.766 100.000

Total 96,488 100.0006 $59,457,063,851 100.0006

(7l Improved sitl'Jle family residential parcels. Excludes cordominiums ard parcels with multiple family units. Source: California Municipal Statistics, Irr:.

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Largest Taxpc1.yers in District. The twenty taxpayers in the District with the greatest corrbined assessed valuation of taxable property on the fiscal year 2016-17 tax roll, and the assessed valuations thereof, are shewn belcw.

The more property (b,t assessed value) cwned b,t a single taxpayer, the more tax collections are exposed to weakness in the taxpc1.yer's financial situation and ability or willingness to pay property taxes. In fiscal year 2016-17, the largest single taxpayer cwned approxirrately 0.62% of the total local secured assessed valuation of property in the District. Each taxpc1.yer listed is a unique name listed on the tax rolls. The District cannot deternine from City assessment records whether individual persons, corporations cr other organizations are liable for tax pc1.yments with respect to multiple properties held in various names that in aggregate rray be I arger than is suggested b,t the table.


Top Twenty Largest Taxpayers Fi seal Year 2016-17

Primary Property Owner Land Use

1. HWA 555 Owners LLC Office Building 2. Elm Property Venture LLC Office Building 3. PPF Paramount One Market Plaza Office Building 4. Parkmerced Owner LL C Apartments 5. Kilroy Realty LP /Kilr0y Realty 303 LLC Office Building 6. Emporium Mall LLC Shopping Center 7. SHR St. Francis LLC Hotel 8. UnionlnvestmentReal EstateLLC Office Building 9. Post-Montgomery Associates Office Building 10. SPF China Basin Holdings LLC Office Building 11. SHC Errbarcadero LLC Office Building 12. Wells REIT II - 333 Market St. Office Building 13. SF Hilton Inc. Hotel 14. PPF OFF One Maritime Plaza LP Office Building 15. SFDC 50 Fremont LLC Office Building 16. Block 230 Associates Office Building 17. 401 Harrison Investor LLC Apartments 18. Stonestcwn Shopping Center LP Shopping Center 19. Three E rrbarcadero Center Venture Office Building 20. E rrbarcadero Center Associates Office Building

'" 2016-l?Loc:al Secured Assessed Valuation: $195,319,718,0l l. Source: California Municipal Statistics, Inc.

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2016-17 Assessed Valuation

$ 1,205,929,564 995,505,871 801,910,043 781,392,611 778,061,986 594,669,591 481,242,447 473,754,688 458,982,136 440,310,017 414,828,956 411,153,285 405,209,546 395,668,490 380,267,781 357,864,119 356,204,506 340,908,776 336,699,482 335,250,992

$10,745,814,887

% of Totali11

0.62% 0.51 0.41 0.40 0.40 0.30 0.25 0.24 0.23 0.23 0.21 0.21 0.21 0.20 0.19 0.18 0.18 0.17 0.17 0.17 5.5036

Tax Rate

The State Constitution pernits the levy of an ad valorem tax on taxable property not to exceed 1% of the full cash value of the property, and State la.v requires the full 1% tax to be levied. The levy of special ad valorem property taxes in excess of the 1% le.;y is permitted as necessary to prOJide for debt service payments on school bonds and other voter-approved i ndebtedness.

The rate of tax necessary to pay fixed debt service on school bonds and other voter-apprc,,1ed indebtedness in a given year depends on the assessed value of taxable property in that year. The rate of tax i mposed on unsecured property for repayment of such Bands and i ndebtedness is based on the prior year's secured property tax rate. The rate of tax imposed may be affected 0y econoni c and other factors beyond the District's control, such as a general market decline in land values, reclassification of property to a class exerrpt from taxation, whether 0y cwnership or use (such as exemptions for property cwned 0y State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused 0y natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc.

One factor in the ability of taxpayers to pay additional taxes for general obligation bonds is the cumulative rate of tax. The follcwing table shews advaloremproperty tax rates for the fiscal years 2012-13 through 2016-17 in a typical Tax Rate Area of the District.

General


Summary of Ad Valorem Tax Rates (Dollars Per $100of Assessed Valuation)

2012-13 through 2016-17

2012-13 2013-14 2014-15

$1 . 00000000 $1 . 00000000 $1 . 00000000 City and County of San Francisco 0.10830000 0.11947956 0.11945760 San Francisco Unified School District 0.03750000 0.04288739 0.03326497 San Francisco Community College District 0.01900000 0.01813305 0.01707743 Bay Area Rapid Transit District 0.00430000 0.00750000 0.00450000 TOTAL $1.16910000 $1. 18800000 $1.17430000

Source: California Municipal Statistics, Inc. for fiscal years 2012-13 through 2015-16.

2015-16 2016-17

$1 . 00000000 $1 . 00000000 0.11346583 0.11894004 0.05246647 0.03982180 0.01407283 0.01245918 0.00260000 0.00800000

$1.18260513 $1.17922102

In accordance with the la.v which permitted the Series 2016 Bonds to be approved 0y a 55% affirmative vote, bonds apprc,,1ed 0y the District's voters at the Election of 2006, Election of 2011 and EI ecti on of 2016 may not be issued uni ess the District prqj ects that repayment of al I outstanding bonds approved at the election will require a tax rate no greater than $60.00 per $100,000 of assessed value. Based on the assessed value of taxable property in the District at the time of issuance of the Series 2016 Bands, the District prqj ects that the maxi mum tax rate required to repay al I outstanding bonds apprc,,1ed at such elections will be within that legal Ii nit. The tax rate test appiies only when ne.v bonds are issued, and is not a legal linitation upon the authority of the Board of Supervisors to le.;y taxes at such rate as may be necessary to pay debt service on the Seri es 2016 Bands in each year.

Tax Collections and Delinquencies

General. A school district's share of the 1% countywide tax is based on the actual allocation of property tax revenues to each taxing jurisdiction in the county in fiscal year 1978-79, as aqjusted according to a compiicated statutory scheme enacted since that time. Revenues derived from special ad

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val orem taxes for voter--apprc,,1ed indebtedness are reserved to the taxing jurisdiction that apprc,,1ed and issued the debt, and may only be used to rei:ay that debt.

The City and County Office of the Treasurer prei:ares the property tax bills. Property taxes on the regular secured assessment roll are due in two equal installments: the first installment is due on NOJember 1, and becomes delinquent after December 10. The second installment is due on February 1 and becomes delinquent after April 10. If taxes are not i:aid 0y the delinquent date, a 1036 penalty attaches. If taxes remain unpaid 0y June 30, the tax is deemed to be in default. Penalties then begin to accrue at the rate of 1.5% per month. The property cwner has the right to redeem the property 0y i:aying the taxes, accrued penalties, and costs within five years of the date the property went into default. If the property is not redeemed within five years, it is sul::iject to sale at a public auction 0y the Treasurer.

Annual bills for property taxes on the unsecured roll are generally issued in July, are due in a single i:ayment within 30 days, and become delinquent after August 31. A 1036 penalty attaches to delinquenttaxes on property on the unsecured roll. Unsecured taxes remaining unpaid at 5 p.m. on the last day of the second month after the 1036 penalty attaches shall be sul::iject to an additional penalty of 1.5%, attaching on the first day of each succeeding month on the amount of the original tax. To col I ect unpaid taxes, the Treasurer may obtai n a j udgment I i en upon and cause the sale of al I property cwned 0y the taxi:ayer in the City, and may seize and sell personal property, imprOJements and possessory interests of the taxi:ayer. The Treasurer may also bring a civil suit against the taxi:ayer for i:ayment. The date on which taxes on supplemental assessments are due depends on when the supplemental tax bill is mailed.

Teeter Plan. The City has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the ''Teeter Plan"), as prc,,1ided for in Section 4701 and follcwing of the State Revenue and Taxation Code. Under the Teeter Plan, each participating local agency levying property taxes in the City, including school districts, receives the amount of uncollected taxes credited to its fund, in the same manner as if the amount due from taxpayers had been collected. In return, the City receives and retains delinquent payments, penal ti es and interest as col I ected that would have been due the local agency. The City applies the Teeter Plan to general taxes and taxes levied for rei:ayment of school district general obi i gati on bonds.

The Teeter Plan is to remain in effect unless the Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the City (which commences onJ uly 1), the Board of Supervisors receives a petition for its discontinuance from two-thirds of the i:articii:ating revenue districts in the City. The Board of Supervisors may also, after holding a public hearing on the matter, discontinue the Teeter Plan with respect to any tax levying agency or assessment levying agency in the City if the rate of secured tax delinquency in that agency in any year exceeds 3% of the total of al I taxes and assessments levied on the secured roll in that agency.

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The follewing table sets forth a recent history of tax i:ayrrent delinquencies in the District.

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


Secured Tax Delinquencies111

Fiscal Years 2011-12 through 2015-16

Secured Tax Charge

$1,810,103,262 1,878,868,414 2,018,013,991 1,996,955,408 2,146,646,004

Arrount Delinquent

June 30

$25,476,315 20,668,235 19,020,178 15,959,828 14,089,301

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

Percent Delinquent

June 30

1.41% 1.10 0.94 0.80 0.66

Direct and overlapping Debt. Set forth on the follewing i:age is a schedule of direct and OJerlapping debt prei:ared b,t California Municipll Statistics Inc. for debt issued as of February 1, 2017. The table is included for general inforrration purposes only. The District has not reviewed this table for completeness or accuracy and makes no representations in connection there.vith. The first column in the table narres each publ i c agency which has outstanding debt as of the date of the schedule, and whose territory overlaps the District in whole or in part. The second column shews the percentage of each OJerlapping agency's assessed value located within the boundaries of the District. This percentage, multiplied b,t the total outstanding debt of each OJerlapping agency (which is not shewn in the table) produces the amount shewn in the third column, which is the apportionrrent of each OJerlapping agency's outstandi ng debt to taxable property in the District.

The table generally includes I ong-term obi i gati ons sold in the public capital rrarkets b,t the public agencies listed. Such long-term obligations generally are not i:ayable from revenues of the District (except as indicated) nor are they necessarily obligations secured b,t land within the District. In rrany cases, long-term obligations issued b,t a public agency are i:ayable only from the general fund or other revenues of such public agency.

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SAN FRANCISCO UNI Fl ED SCHOOL DISTRICT DIRECT AND OVER LAPPI NG BONDED DEBT

2016-17 Assessed Valuation: $212,173,326,106 (includes unitary utility valuation)

GENERAL OBLIGATION BONDED DEBT: San Francisco City and County General and School Purposes San Francisco Unified School District Bonds San Francisco Community College District

TOTAL GENERAL OBLIGATION BONDED DEBT

LEASE OBLIGATION BONDS: San Francisco City and County

TOTAL LEASE OB LIGATION BONDED DEBT

TOTAL COMBINED DIRECT DEBT

OVERLAPPING TAX AND ASSESSMENT DEBT: Bay Area Rapid Transit District General Obligation Bonds (32.39836) San Francisco Community Facilities District No. 4 San Francisco Community Facilities District No. 6 San Francisco Community Facilities District No. 7 City of San Francisco Assessment District No. 95-1 ABAG Community Facilities District No. 2004-1 SeisrricSafety lmprCNements ABAG Community Facilities District No. 2006-1 San Francisco Rincon Hill ABAG Community Facilities District No. 2006-2 San Francisco Mint Plaza TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT

OVERLAPPING TAX INCREMENT DEBT (Successor Agency):

TOTAL DIRECT AND OVERLAPPING BONDED DEBT

111 Exel udes bonds to be sold.

Debt 2/1 /17 $2,259,305,853

916,490,()()()1 11

262,945,000 $3,438,740,853

$1,020,345,000 $1,020,345,000

$4,459,085,853

$169,684,525 19,565,000

132,826,612 36,235,000

590,000 9,970,000 5,425,000 3,060,000

$377,356,137

$841,919,677

$5,678,361,661-21

121 Excludes tax and revenue anticipation notes, enterprise revenue bonds and airport irnprCNement corporation bonds.

Ratios to 2016-17 Assessed Valuation ($212.173,326. 106): Direct General Obligation Bonded Debt ($3,438,740,853) .. 1.62% Combined Direct Debt ($4,459,085,853) ............................. 2.1036 Total Direct and Overlapping Bonded Debt .......................... 2.6836

Ratio to 2016-17 Redevelopment Incremental Valuation ($21.675.494.439): Total Overlapping Tax Increment Debt ................................. 3.8836

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TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the District ("Bond Counsel"), based upon an analysis of existing I.M's, regulations, rulings and court decisions, and assumi ng, among other mane rs, the accuracy of certai n representations and corrpl i ance with certai n cOJenants, interest on the Bands is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code") and is exerrpt from State of California personal i ncome taxes. I n the further opinion of Bond Counsel, i nterest on the Bands is not a specific preference item for purposes of the federal individual or corporate alternative ninirnum taxes. Bond Counsel observes that such interest on the Series 2016 Bonds is included in acjjusted current earnings when calculating corporate alternative ninirnum taxable income, but such interest on the Refunding Bonds is not included in acjjusted current earnings when calculating corporate alternative ninirnum taxable income. A corrplete cop,t of the proposed form of opinion of Bond Counsel is set forth in Appendix D hereto.

To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes "original issue discount," the accrual of which, to the extent properly allocable to each Beneficial owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or sinilar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded seniannually (with straightline interpolations between compounding dates). The accruing original issue discount is added to the acjjusted basis of such Bonds to deternine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial owners of the Bonds should consult their cwn tax acwisors with respect to the tax consequences of cwnership of Bonds with original issue discount, including the treatment of B enefi ci al owners who do not purchase such Bands in the original offering to the public at the fi rst price at which a substantial amount of such Bands is sold to the publ i c.

Bands purchased, whether at original issuance or otherwise, for an amount higher than thei r principal amount payable at maturity (or, in some cases, attheir earlier call date) ("Premium Bonds") will be treated as having amortizable bond premium No deduction is allcwable for the amortizable bond preni um in the case of obi i gati ons, Ii ke the Premium Bands, the interest on which is excluded from gross income for federal income tax purposes. Hcwe.1er, the amount of tax-exempt interest received, and a Beneficial owner's basis in a Prenium Bond, will be reduced b,t the amount of amortizable bond prenium properly allocable to such Beneficial owner. Beneficial owners of Prenium Bonds should consult their cwn tax acwisors with respect to the proper treatment of amortizable bond prenium in their particular circumstances.

The Code i mposes various restrictions, conditions and requi rements rel ati ng to the excl usi on from gross income for federal income tax purposes of interest on obligations such as the Bonds. The District has made certain representations and cOJenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these cOJenants may result in interest on the Bands being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and comp! i ance with these cOJenants. Bond Counsel has not undertaken to deterni ne ( or to inform any person) whether any actions taken (or not taken), or e.,,ents occurring (or not occurring), or any other

24

rrntters com ng to Bond Counsel's attention after the date of issuance of the Bands may adversely affect the value of, or the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.

Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the cwnership or disposition of, or the accrual or receipt of amounts treated as interest on, the Bonds may otherwise affect a Beneficial owner's federal, state or local tax lial:ility. The nature and extent of these other tax consequences depends upon the particular tax status of the B enefi ci al owner or the B enefi ci al OWner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.

Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be sul::iject, directly or indirectly, in whole or in part, to federal income taxation or to be sul::iject to or exempted from state income taxation, or otherwise prevent Beneficial owners from realizing the full current benefit of the tax status of such interest. For example, presidential budget proposals in previous years have proposed legislation that would limit the exclusion from gross income of interest on the Bonds to some extent for high-income individuals. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospective purchasers of the Bands should consult thei r cwn tax ad.ii sors regardi ng the pot en ti al i rrp3.ct of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion.

The opi ni on of B ond Counsel is based on current I egal authority, cOJers certain rrntters not directly addressed b,t such authorities, and represents Bond Counsel'sjudgment as to the propertreatment of the Bands for federal income tax purposes. It is not binding on the Internal Revenue Service ("IRS") or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcementthereof b,t the I RS. The District has cOJenanted, hcwever, to comply with the requirements of the Code.

Bond Counsel's engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless sepc1.rately engaged, Bond Counsel is not obligated to defend the District or the Beneficial owners regarding the tax-€Xempt status of the Bonds in the event of an audit exam nation b,t the IRS. Under current procedures, pc1.rti es other than the District and its appointed counsel, including the B enefi ci al OWners, would have Ii ttl e, if any, right to pc1.rti ci pc1.te in the audit exam nation process. Moreover, because achieving judicial review in connection with an audit exam nation of tax-€Xempt bonds is difficult, obtaining an independent review of I RS positions with which the District legitimately disagrees, may not be practicable. Any action of the I RS, including but not limted to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting simlar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the District or the Beneficial owners to incur significant expense.

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OTHER LEGAL MATTERS

Legal Opinion

The validity of the Bonds and certain other legal rraners are sul::iject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel to the District. A corrplete copy of the proposed form of Band Counsel opinion is set forth in APPENDIX D hereto. Bond Counsel undertakes no responsi bi I ity for the accuracy, completeness or fairness of this Official Statement.

Legality for Investment in California

Under provisions of the Financial Code of the State, the Bonds are legal investments for commercial banks in the State to the extent that the Bonds, in the informed opinion of the bank, are prudent for the investment of funds of its depositors, and, under prc,,1isions of the Government Code, the Bonds are eligible securities for deposits of public moneys in the State.

Continuing Disclosure

The District has cOJenanted for the benefit of the holders and beneficial cwners of the Bands to prOJide certain financial inforrration and operating data relating to the District (the "Annual Report") 0y not later than nine months follcwing the end of the District's fiscal year (currently endingJ une 30), commencing with the report for the 2016-17 fiscal year (which is due no later than April 1, 2018) and to prOJide notice of the occurrence of certain enumerated events. The Annual Report and the notices of enumerated events will be filed 0y the District with the Municipal Securities Rulemaking Board. The specific nature of the inforrration to be contained in the Annual Report or the notices of enumerated events is set forth in APPENDIX E hereto. These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Comnission Rule 15c2-12(b)(5) (the" Rule'').

A revie.v of the District's compliance with its previous continuing disclosure undertakings was conducted and it was found that, during the previous five years, the District subnined it audited financial statements in a timely manner, but, with respect to some of its annual reports, the District did not subnit certai n operating or financial data and tax base i nforrrati on in a ti mely and complete rranner as requi red 0y its continuing disclosure undertakings. The District subsequently filed all required portions of such reports and is new current in al I fi Ii ngs pursuant to its continuing di sci osure undertakings. The District has also hired third parties to assistthe District in complying with its continuing disclosure undertakings.

No Litigation

No litigation is pending or, to the best kncwledge of the District, threatened, concerning the validity of the Bonds or the District's ability to receive ad valoremtaxes and to collect other revenues, or contesting the District's ability to issue and retire the Bonds, the political existence of the District, the title to their offices of District or City officials who will sign the Bonds and other certifications relating to the B ands, or the pcwers of those offices. A certificate ( or certificates) to that effect wi 11 be furnished to the original purchasers at the ti me of the original del ivery of the Bands.

The District is routinely sul::iject to lawsuits and claims. In the opinion of the District, the aggregate amount of the uninsured liabilities of the District under these lawsuits and claims will not materially affect the financial position or operati ans of the District.

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MISCELLANEOUS

Ratings

The Bonds have been assigned the rating of "Aa2" b,t Moody's Investors Service ("Moody's"), "AA-'-' b,t S&P Global Ratings ("S&P") and "AAA" b{ Fitch Ratings Inc. ("Fitch"). Rating agencies 92nerally base their ratings on their cwn investigations, studies and assumptions. The District has prc,,1ided certain additional information and materials to the rating ag2ncies (some of which does not appear in this Official Statement). The ratings reflect only the vie.vs of the rating ag2ncies, and any explanation of the significance of such ratings may be obtained only from Moody's atwww.moodys.com, S&P at www.standardandpoors.com or Fitch at www.fitchratings.com There is no assurance that any rating will continue for any given period of time or that it will not be revised dONnward or withdrawn entirely b,t the rating ag2ncies, if, in thejudgment of the rating agencies, circumstances so warrant. Any such dONnward revision or withdrawal of a rating may have an adJerse effect on the market price of the Bonds. The District undertakes no responsibility to oppose any such dONnward revision, suspension or withdrawal.

Professionals Involved in the Offering

Orrick, Herrington & Sutcliffe LLP is acting as Bond Counsel and as Disclosure Counsel to the District with respect to the Bonds, and will receive compensation from the District conting2nt upon the sale and delivery of the Bonds. PFM Financial AdJisors LLC is acting as Financial AdJisor with respect to the Bonds, and will receive compensation from the District conting2nt upon the sale and delivery of the Bonds.

Sale of the Bands

The Bonds were sold at competitive bid on March 21, 2017, as provided in the Amended and Restated Official Notice of Sale, dated March 17, 2017 (the "Official Notice of Sale"). The Series 2016 Bonds were awarded to Citigroup Global Markets Inc. (the "Series 2016 Purchaser") at a purchase price of $188,901,068.90 (consisting of the principal amount of the Series 2016 Bonds, plus a prenium of $9,478,868.90 and I ess an underwriter's discount of $577,800.00). The Ref undi ng Bands were awarded to J.P. Morgan Securities LLC (the "Refunding Bonds Purchaser") at a purchase price of $62,515,054.47 (consisting of the principal amount of the Refunding Bonds, plus a prenium of $8,698,571.75 and less an underwriter's discount of $73,517.28). The Official Notice of Sale prc,,1ided that for each series of Bonds, all Bonds would be purchased if any were purchased, the obligation to make such purchase being sul::iject to certain terms and conditions set forth in the Official Notice of Sale, the apprc,,1al of certain legal matters b,t Bond Counsel and certain other conditions. The Series 2016 Purchaser and the Refunding Bonds Purchaser have represented to the District that the Series 2016 Bonds and the Refunding Bonds, respectively, have been reoffered to the public at the price or yields stated on the cOJer pag2 hereof.

(Remainder of Pag2 Intentionally Left Blank)

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http://www.moodys.com

http://www.standardandpoors.com

http://www.fitchratings.com

Additional Information

Quotations from and sumnaries and explanations of the Bonds, the District Resolutions, the Paying Agent Agreements, the Escrcw Agreement and the constitutional prc,,1isions, statutes and other documents described herein, do not purport to be complete, and reference is here0y made to said documents, constitutional prc,,1isions and statutes for the complete prOJisions thereof.

* * *

All data contained herein have been taken or constructed from the District's records and other sources, as indicated. This Official Statement and its distribution have been duly authorized and approved 0y the District.

SAN FRANCISCO UNIFI ED SCHOOL DISTRICT

By: ____ ~/s~/ R~e=e=ta~M~a=dh=a=v=an~-----R eeta Madhavan

Chief Financial Officer

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APPENDIX A

DISTRICT Fl NANCI AL AND OPERA Tl NG INFORMATION

The i nforrrati on in this appendix concerning the operati ans of the District, the District's finances, and State funding of education, is provided as supplementary inforrration only, and it should not be inferred fromthe inclusion of this inforrration in this Official Statementthatthe principal of or interest on the Bonds is payable from the general fund of the District or from State revenues. The Bonds are payable from the proceeds of an ad valorem tax apprc,,1ed b,t the voters of the District pursuant to all applicable laws and Constitutional requirements, and required to be levied b,t the City on property within the District in an amount sufficient for the timely payrrent of principal and interest on the Bonds. See "SECURllY AND SOURCE OF PAYMENT FOR THE BONDS" in the Official Statement.

THE DISTRICT

General

The San Francisco Unified School District has boundaries that are coterminous with the City and County of San Francisco (the "City"). The District prOJides public education from transitional kindergarten through grade twelve. The District was established in 1851; hONever, the District has been a political subdivision of the State of California (the "State'') since 1927. The adninistrative headquarters of the District are located at 555 Franklin Street, San Francisco, California.

The District operates 16 transitional kindergarten schools, 64 elementary schools serving kindergarten through grade five, eight schools serving kindergarten through grade eight, 13 middle schools serving grades six through eight, 19 high schools serving grades nine through twelve, five continuation/.3.lternative schools and nine County and Court schools. In addition, the District operates 46 preschool sites. For fiscal year 2016-17, the District has prqjected enrollment of approxirrately 53,785 students, including special education and continuing education students. For fiscal year 2016-17, the District estirrates that approxirrately 6,500 students will be enrolled at the 13 fiscally independent charter schools that operate within the District's boundaries. The District has prqjected 5,012.0 full-time equivalent emplO{ees including certificated (credentialed teaching staff), classified (non-teaching) and management personnel at the District and the San Francisco County Office of Education in its Second Interim Report for fiscal year 2016-17 (the" 2016-17 Second Interim Report"). The District has prqjected fiscal year 2016-17 general fund revenues of approximately $759.1 mil I ion and general fund expenditures of approxirrately $775.8 nillion. The total assessed valuation of taxable property in the District in fiscal year 2016-17 is approxirrately $212.2 billion.

The District is governed b,t a Board of Education consisting of seven voting members. The voting members are elected to four-year terms in staggered years so that, as nearly as practicable, one half of the members shal I begin their term in each odd-numbered year. The District's day-to-day operati ans are managed b,t a board-appointed Superintendent of Schools (the "Superintendent''). In July 2016, thens uperi ntendent Richard A. Carranza accepted a position as S uperi ntendent of the Houston I ndependent School District. The Board of Education appointed Myong Leigh to serve as Interim Superintendent in September 2016. The Board of Education expects to appoint the successor to Superintendent Carranza in 2017.

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Superintendent and Administrative Personnel

The Superintendent is appointed b,t and reports to the Board of Education. The Superintendent is responsible for management of the District's day-to-day operations and supervises the work of other key District adni ni strators.

Follcwing are brief professional biographical summaries of the Superintendent and certain key administrative personnel.

Myong Leigh, Interim Superintendent. Myong Leigh has been a District staff member since August 2000. Prior to his appointment as Interim Superintendent, Mr. Leigh OJersaw most noninstructional operations that support District schools. Areas of responsibility under Mr. Leigh's supervision include policy development and irrplementation, budget, business services, facilities, information technology, student nutrition and intergOJernmental relations. His work has focused in sul::iject areas including financial planning and resource allocation, school site-based academic decisionmaking and budgeting, student assignment and desegregation, collective bargaining and labor relations, capital facilities planning and transportation. Mr. Leigh's work involves interaction and collaboration with numerous staff members in the District, al I school sites and every department.

Immediately prior to working for the District, Mr. Leigh served as the Budget Director for the District of Columbia Public Schools. Prior to working in urban K-12 education, he was a financial acwisor to state and local gOJernments on capital facilities financing and budgeting. His clients included the District of Columbia, the City of Philadelphia, the Virginia Public School Authority, the City of Norfolk and Montgomery County, Maryland.

Mr. Leigh holds a Master in Public Policy degree from Harvard University's John F. Kennedy School of GOJernment and a Bachelor of Science degree in Econonics from the Wharton School of the University of Pennsylvania

Danielle Houck, Esq., General Counsel. Ms. Houck began work as the General Counsel of the District on May 4, 2015. Prior to assuning the position of General Counsel, Ms. Houck was Of Counsel with the education law firm Fagen Friedman and Fulfrost since September 2013 where she represented school districts throughout the State of California Ms. Hoock served as General Counsel for the Alameda Unified School District fcr approximately 4 years and as Deputy General Counsel and Interim General Counsel for the Oakland Unified School District for approximately 2 years. Ms. Houck earned a Bachelcr of Arts degree in Political Science-Public Service and Women's Studies, with honors, from the University of California at Davis. Ms. Houck also received her law degree from the University of California at Davis, and she has been a member of the State Bar of California since 1998.

Reeta Madhavan, Chief Financial Officer. Ms. Madhavan has been with the District since September 2002. Prior to being named the Chief Financial Officer she served as the Executive Director of Budget Services. Ms. Madhavan has experience in both corporate and commercial real estate banking. She served as an Assistant Vice-President of Commercial Real Estate Lending and managed a portfolio of construction and leasehold imprc,,1ement loans in excess of $300 nillion at a medium-sized bank in Cambridge, Massachusetts.

Ms. Madhavan holds a Master of Arts degree from the State University of Ne.v York at Stony Brook, and a Master of Business Adninistration degree with a major in Finance and Accounting from Babson Col I ege, Massachusetts. Ms. Madhavan is a member of the Business Services Counci I of the Association of Cal i forni a School A dni ni strators, serves as the District's appointee to the City' s Treasury

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oversight Comnittee and participc1.tes in professional development related to school finance and I egi sl ati on affecti ng the education budget and fundi ng for schools.

Paulette Terrell, Director of Fiscal Services. Ms. Terrell is the Director of Fiscal Services and graduated from the University of Arkansas AM&N College with a Bachelor of Science degree in Business Administration with a ninor in Accounting. Ms. Terrell became Director of Fiscal Services for the District in March 2000. She has earned se.,,eral certificates for additional educational course work in i ncorne tax accounting, cost accounting, real estate rranagement, government accounting and school business training and management. Before joining the District, Ms. Terrell held other positions in the private sector and federal go.1ernment. During her tenure with these organizations, she served as an auditor and fi seal rranager between 1971 and 1999.

DISTRICT FINANCIAL MATTERS

State Funding of Education; State Budget Process

General. As is true for all school districts in California, the District's q:ierating income consists pri rrari ly of two corrponents: a State portion funded from the State's general fund in accordance with the Local Control Funding Formula (see"- Allocation of State Funding to School Districts; Local Control Funding Formula'' herein) and a local portion derived from the District's share of the 1% local ad valoremtax authorized by the State Constitution (see" - Local Sources of Education Funding" herein). In addition, school districts rray be eligible for other special categorical funding from State and federal government programs. The District prqjects to receive approxirrately 28.0% of its general fund revenues from State funds (not including the local portion derived from the District's share of the local ad valorem tax), prqjected at approxirrately $217.0nillion in fiscal year 2016-17. Such amount includes both the State funding provided under the LCFF (defined herein) as well as other State revenues (see "Allocation of State Funding to School District; Local Control Funding Formula - Attendance" and "Other District Re.1enues - Other State Revenues" belew). As a result, decreases or deferrals in State re.1enues, or in State legislative appropriati ans rrade to fund education, rray affect the District's revenues and operati ans, though generally to a I esser extent than these rray affect most school districts. In addition, the District estirrates that approxirrately $38.3 nillion of LCFF revenues will be transferred to charter schools in lieu of property taxes in fiscal year 2016-17.

Under Proposition 98, a constitutional and statutory amendment adopted 0y the State's voters in 1988 and amended 0y Proposition 111 in 1990 (new found at Article XVI, Sections 8 and 8.5 of the Constitution), a ninimum level of funding is guaranteed to school districts, community college districts and other State agencies that prc,,1ide direct elementary and secondary instructional programs. Recent years have seen frequent disruptions in State personal income taxes, sales and use taxes and corporate taxes, rraking it increasingly difficult for the State to meet its Proposition 98 funding rrandate, which normally commands about 4 5% of al I State general fund revenues, whi I e prOJi ding for other fixed State costs and priority programs and services.

Because education funding constitutes such a large part of the State's general fund expenditures, it is generally at the center of annual budget negotiations and aqjustments.

The State budget for fi seal year 2013-14 contained a new formula for funding the school finance system(the "Local Control Funding Formula'' or "LCFF"). The LCFF replaced the revenue Ii nit funding system and most categorical programs. For "basic aid districts" (new "community funded districts"), local property tax revenues would be used to offset the entire allocation of State funding under the new for mu I a and such community funded districts would con ti nue to receive certai n categorical funds from the State. See" - Allocation of State Funding to School Districts; Local Control Funding Formula'' herein for

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rrore i nforrrati on.

Adoption of Annual State Budget. According to the State Constitution, the Governor rrust propose a budget to the State Legislature no laterthanJ anuary 10 of each year, and a final budget must be adopted no later than June 15. Historically, the budget required a two-thirds vote of each house of the State Legislature for P35sage. Hewever, on NOJeml:er 2, 2010, the State's voters apprOJed Proposition 25, which amended the State Constitution to I ewer the vote requirement necessary for each house of the State Legislature to P35S a budget bill and send it to the Governor. Specifically, the vote requirement was lewered from two-thirds to a simple majority (50% plus one) of each house of the State Legislature. The budget becomes law upon the signature of the GOJernor, who rray veto specific items of expenditure. School district budgets rrust generally be adopted 0y J uly 1, and revised 0y the school board within 4 5 days after the G OJernor signs the budget act to reflect any changes i n budgeted revenues and expenditures made necessary 0y the adopted State budget. The GOJernor signed the fi seal year 2016-17 State budget onJ une 27, 2016.

When the State budget is not adopted on time, basic appropriations and the categorical funding portion of each school district's State funding are affected differently. Under the rule of White v. Davis (also referred to as Jarvis v. Connell), a State Court of Appeal decision reached in 2002, there is no consti tuti anal mandate for appropri ati ans to school districts with out an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed 0y the State Controller until that time, unless the expenditure is (i) authorized 0y a continuing appropriation found in statute, (ii) rrandated 0y the Constitution (such as appropriations for salaries of elected State officers), or (iii) rrandated 0y federal law (such as i:ayments to State workers at no rrore than minimum wage). The State Controller has consistently stated that basic State funding for schools is continuously appropriated 0y statute, but that special and categorical funds rray not be appropriated without an adopted budget. Should the State Legislature fail to P35S a budget or emergency appropriation before the start of any fiscal year, the District night experience delays in receiving certain expected revenues. The District is authorized to borrew terrporary funds to cOJer its annual cash flew deficits, and as a result of the White v. Davis decision, the District might find it necessary to increase the size or frequency of its cash flew borrONings, or to borrew earlier in the fiscal year. The District does not expect the White v. Davis decision to have any long-term effect on its operati ng budgets.

Aggregate State Education Funding. The Proposition 98 guaranteed amount for education is based on prior-year funding, as aqjusted through various forrrulas and tests that talke into account State proceeds of taxes, I ocal property tax proceeds, school enrol I ment, per-capita personal i ncome, and other factors. The State's share of the guaranteed amount is based on State general fund tax proceeds and is not based on the general fund in total or on the State budget. The local share of the guaranteed amount is funded from local property taxes. The total guaranteed amount varies from year to year and throughout the stages of any given fi seal year's budget, from the G OJernor' s i ni ti al budget proposal to actual expenditures to post-year -end revi si ans, as better i nforrrati on regardi ng the various factors becomes available. over the long run, the guaranteed amount will increase as enrollment and per capita personal income grew.

If, at year-end, the guaranteed amount is calculated to be higher than the amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as "settle-up." If the amount appropriated is higher than the guaranteed amount in any year, that higher funding I evel permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount is reduced in years when general fund revenue grONth lags personal income grONth, and rray be suspended for one year at a ti me 0y enactment of an urgency statute. In either case, in subsequent years when State general fund revenues grew faster than personal income ( or sooner, as the

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Legislature rray determine), the funding level must be restored to the guaranteed amount, the obligation to do so being referred to as "rrai ntenance factor."

In recent years, the State's response to fiscal difficulties has had a significant irrpact on Proposition 98 funding and settle-up treatment. The State has sought to avoid or delay paying settle-up amounts when funding has lagged the guaranteed amount. In response, teachers' unions, the State Superintendent and others sued the State or GOJernor in 1995, 2005, 2009 and 2011 to force them to fund schools in the full amount required. The settlement of the 1995 and 2005 lawsuits far resulted in accrued State settle-up obligations. Hcwever, legslation enacted to pay dONn the obligations through additional education funding OJer time, including the Quality Education Investment Act of 2006, have also become part of annual budget negotiations, resulting in repeated aqjustments and deferrals of the settle-up amounts.

The State has also sought to preserve general fund cash while avoiding increases in the base guaranteed amount through various mechanisms: b,t treating any excess appropriations as acwances against subsequent years' Proposition 98 ninirnum funding levels rather than current year increases; b,t temporari ly deferring apportion men ts of Proposition 98 funds from one fi seal year to the next; b,t perrranently deferring apportionments of Proposition 98 funds from one fiscal year to the next; b,t suspending Proposition 98, as the State did in fiscal year 2004-05, fiscal year 2010-11, fiscal year 2011-12 and fiscal year 2012-13; and b,t proposing to amend the State Constitution's definition of the guaranteed amount and settle-up requirement under certain circumstances.

Rainy Day Fund; SB 858. The 2014-15 State Budget proposed certain constitutional amendments to the Rainy Day Fund (the "Rainy Day Fund') on the November 2014 ballot, as well as certain provisions as part of Senate Bill 858 ("SB 858'') which could Ii nit the amount of reserves that rray be maintained b,t a school district, all of which became operational when Proposition 2 was passed. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS - PROPOSITION 2" herein for more inforrration regarding the Rainy Day Fund and SB 858.

AB 1469. As part of the 2014-15 State Budget, the GOJernor signed Assembly Bill 1469 ("AB 1469") which irrplemented a new funding strategy for the California State Teachers' Retirement System ("CalSTRS"), increased the errplO{er contribution rate in fiscal year 2014-15 from 8.25% to 8.8836 of cOJered payroll and authorized additional increases to the emplO{er contribution rate in subsequent fiscal years. See" - Retirement Benefits - CalSTRS" herein for more inforrration about CalSTRS and AB 1469.

Prohibitions on Diverting Local Revenues for State Purposes. Beginning in 1992--93, the State satisfied a portion of its Proposition 98 obligations b,t shifting part of the property tax revenues otherwise belonging to cities, counties, special districts, and redevelopment agencies, to school and community college districts through a local Educational Revenue Augmentation Fund ("ERAF") in each county. Local agencies, ol::ijecting to invasions of their local revenues b,t the State, sponsored a statewide ballot initiative intended to elininate the practice. In response, the State Legislature proposed an amendment to the State Constitution, which the State's voters approved as Proposition lA at the November 2004 election. That measure was generally superseded b,t the passage of a new initiative constitutional amendment atthe N OJeniber 201 O election, kncwn as " Proposition 22."

The effect of Proposition 22 is to prohibit the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local 9'.)Vernment prqjects and services. It prevents the State from redirecting redevelopment agency property tax increment to any other local gOJernment, including school districts, or from temporarily shifting property taxes from cities, counties and special districts to schools, as in the ERAF program This is

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intended to, arrong other things, stabilize local go.1ernrrent revenue sources b,t restricting the State's control over I ocal property taxes. One effect of this arrendrrent wi 11 be to deprive the State of fuel tax revenues to pay debt service on rnost State bonds for transportation prqjects, reducing the arnount of State general fund resources avai I able for other purposes, i ncl udi ng education.

Prior to the P15sage of Proposition 22, the State invoked Proposition lA to divert $1.935 billion in local property tax revenues in 2009-1 0 frorn cities, counties, and special districts to the State to offset State general fund spending for education and other programs, and included another diversion in the adopted 2009-10 State budget of $1.7 billion in local property tax revenues frorn local redevelopment agencies, which local redevelopment agencies have now been dissolved (see "- Dissolution of Redeveloprrent Agencies" belcw). Redeveloprrent agencies had sued the State OJer this latter diversion. Hcwever, the lawsuit was decided against the California Redeveloprrent Association on May 1, 2010. Because Proposition 22 reduces the State's authority to use or shift certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget in some years-such as reducing State spending or increasing State taxes, and school and cornrnunity college districts that receive Proposition 98 or other funding frorn the State will be rnore directly dependent upon the State's general fund.

Dissolution of Redeveloprrent Agencies. The adopted State budget for fiscal year 2011-12, as signed b,t the Governor on June 30, 2011, included as trailer bills Assembly Bill No. 26 (First Extraordnary Session) ("AB lX 26'') and Assembly Bill No. 27 (First Extraordinary Session) ("AB lX 27'), which the GOJernor signed on June 29, 2011. AB lX 26 suspended rnost redeveloprrent agency activities and prohibited redevelopment agencies frorn incurring indebtedness, rraking loans or grants or entering into contracts after June 29, 2011. AB lX 26 dissolved all redeveloprrent agencies in existence and designated "successor agencies" and "oversight boards" to satisfy " enforceabi e obi i gati ons" of the forrrer redevel oprrent agencies and adni ni ster di ssol uti on and wind dONn of the forrrer redevelopment agencies. Certain prc,,1isions of AB lX 26 are described further belcw.

lnJ uly of 2011, various i:arties filed an action before the Suprerre Court of the State of California (the "Coort") challenging the validity of AB lX 26 and AB lX 27 on various grounds (California Redeveloprrent Association v. Matosantos). On December 29, 2011, the Court rendered its decision in Matosantos upholding virtually all of AB lX 26 and invalidating AB lX 27. In its decision, the Court also modified various deadlines for the irnplerrentation of AB lX 26. The deadlines for irnplerrentation of AB lX 26 described belcwtake into accountthe modifications rrade b,t the Court in Matosantos.

On February 1, 2012, and pursuant to Matosantos, AB lX 26 dissolved all redeveloprrent agencies in existence and designated "successor agencies" and "c,,1ersight boards" to satisfy "enforceable obi i gati ons'' of the forrrer redevel oprrent agencies and adni ni ster di ssol uti on and wind dcwn of the forrrer redeveloprrent agencies. With limited exceptions, all assets, properties, contracts, leases, records, buildings and equipment, including cash and cash equivalents of a forrrer redevelopment agency, will be transferred to the control of its successor agency and, unless otherwise required pursuant to the terrns of an enforceable obi i gati on, distributed to various related taxi ng agencies pursuant to AB 1 X 26.

AB lX 26 requires redevelopment agencies to continue to rnake scheduled i:ayrrents on and perform obligations required under its "enforceable obligations." For this purpose, AB lX 26 defines "enforceabi e obi i gati ons" to incl ude " bonds, i ncl udi ng the requi red debt service, reserve set-asides, and any other i:avrrents required under the indenture or si ni I ar docurrents governing the issuance of outstanding bonds of the forrrer redevelopment agency" and "any legally binding and enforceable agreerrent or contract that is not otherwise void as violating the debt Ii nit or public policy." AB lX 26 specifies that only payrrents included on an "enforceabie obligation i:ayrrent schedule" adopted b,t a redeveloprrent agency shall be rrade b,t a redevelopment agency until its dissolution. Hcwever, until a

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successor agency acbpts a "recognized obligation payment schedule'' the only i:ayments pernined to be rrnde are i:ayments on enforceable obi i gati ans i ncl uded on an enforceable obi i gati on payment schedule. A successor agency rray amend the enforceable obi i gati on i:ayment schedule at any public meeting, sul::iject to the apprOJal of its OJersight board.

Under AB lX 26, commencing February 1, 2012, property taxes that would have been allocated to each redevelopment agency if the agencies had not been dissolved will instead be deposited in a " redevelopment property tax trust fund' created for each former redevelopment agency 0y the related county auditor-controller and held and adninistered 0y the related county auditor-controller as prOJided in ABlX 26. ABlX 26 generally requires each county auditor-controller, on May 16, 2012 and June 1, 2012 and eachJ anuary 16 andJ une 1 (new eachJ anuary 2 andJ une 1 pursuant to AB 1484, as described belcw) thereafter, to apply amounts in a related redevelopment property tax trust fund, after deduction of the county auditor-control I er' s adni ni strative costs, in the fol I cwi ng order of priority:

To l'.0-Y pass-through payments to affected taxing entities in the amounts that would have been cwed had the former redevelopment agency not been dissolved; prOJided, hcwever, that if a successor agency deterni nes that i nsuffi ci ent funds wi 11 be avai I able to rrake payments on the recognized obligation i:ayment schedule and the county auditor-controller and State Controller verify such deternination, pass-through i:ayments that had previously been subordinated to debt service rray be reduced;

To the former redevelopment agency's successor agency for i:ayments Ii sted on the successor agency's recognized obi i gati on i:ayment schedule for the ensui ng six-month period;

To the former redevelopment agency's successor agency for payment of adninistrative costs; and

Any rerraining baiance to school entities and local taxing agencies.

It is possible that there will be additional legislation proposed and/or enacted to "clean up'' various inconsistencies contained in AB lX 26 and there rray be additional legislation proposed and;br enacted in the future affecting the current scheme of dissolution and winding up of redevelopment agencies currently conterrplated 0y AB lX 26. For example, AB 1484 was signed 0y the GOJernor on June 27, 2012, to clarify and amend certain aspects of AB lX 26. AB 1484, arnong other things, anernpts to clarify the role and requirements of successor agencies, prOJi des successor agencies with rnore control OJer agency bond proceeds and properties previously cwned 0y redevelopment agencies and adds other mw and rnodi fi ed requi rements and deadl i nes. AB 1484 al so prOJi des for a "tax cl iM' back'' provision, wherei n the State is authorized to withhold sales and use tax revenue al I ocati ons to I ocal successor agencies to offset i:ayment of property taxes cwed and not i:aid 0y such local successor agencies to other local taxing agencies. This "tax claw back'' prOJision has been challenged in court 0y certain cities and successor agencies. The District cannot predict the outcome of such litigation and what effect, if any, it will have on the District. Additionally, no assurances can be given as to the effect of any such future proposed and/or enacted legislation on the District

The District continues to receive i:ass-through i:avments from the former San Francisco Redevelopment Agency with respect to prqject areas that included a portion of the District's territory. The District has prgected $6,500,000 in pass-through i:avments for fiscal year 2016-17, corni:ared to an estirrated $6,641,530the District received in fiscal year 2015-16. The amount of tax increment passed through to the District will gradually increase as the redevelopment agency debt is retired.

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State Budget

2016-17 State Budget. The GOJernor signed the fiscal year 2016-17 State budget (the" 2016-17 State Budget") onJ une 27, 2016. The 2016-17 State Budget sets forth a balanced budget for Fiscal Year 2016-17 and allocates funds frorn Proposition 2 to l'.0-Y doNn outstanding budgetary borrcwing and retirerrent lial:ilities of the State and University of California The 2016-17 State Budget estimates that total resources available in fiscal year 2015-16 totaled approxirrately $120.45 billion (including a prior year balance of $3.4 billion) and total expenditures in fiscal year 2015-16 totaled approximately $115.57 billion. The 2016-17 State Budget prqjects total resources available for fiscal year 2016-17 of $125.18 billion, inclusive of revenues and transfers of $120.31 billion and a prior year balance of $4.87 billion. The 2016-17 State Budget prqjects total expenditures of $122.47 billion, inclusive of non-Proposition 98 expenditures of $71.42 billion and Proposition 98 expenditures of $51.05 billion. The 2016-17 State Budget proposes to allocate $966 million of the General Fund's prqjected fund balance to the Reserve for Liquidation of Encumbrances and $1.75 billion of such fund balance to the State's Special Fund for Econonic Uncertainties. In addition, the 2016-17 State Budget estirrates the Rainy Day Fund will have a fund balance of $6.71 billion.

Certain budgeted acjj ustrrents for K-12 education set forth in the 2016-17 State Budget include the follcwing:

School District Local Control Funding Formula. The 2016-17 State Budget includes an increase of rnore than $2.9 billion to continue the irnplerrentation of the Local Control Funding Formula. The 2016-17 State Budget proposes to cornnit rnost new funding to Supplerrental Grants and Concentration Grants. The Governor estimates that the budgeted increase will bring the total Local Control Funding Formula irnplerrentation to 96%.

Proposition 98 Minirnurn Guarantee. The 2016-17 State Budget includes Proposition 98 funding of $71.9 billion, inclusive of State and local funds, for fiscal year 2016-17. Such arnount is expected to satisfy the Proposition 98 ninirnurn guarantee for fiscal year 2016-17.

Mandate Clairns. The 2016-17 State Budget proposes to allocate approximately $1.3 bi 11 ion i n me-ti rre rnoneys to reduce outstanding rrandate cl ai rns b,t K -1 2 I ocal education agencies. The State expects such funds to be used for activities including, arnong others, deferred rraintenance, professional developrrent, induction for beginning teachers, i nstructi anal materials, technology and the i rnpl errentati on of new educati anal standards.

College Readiness Block Grant. The 2016-17 State Budget includes aone-tirre increase of $200 ni 11 ion to the Proposition 98 General Fund for grants to school districts and charter schools that serve high school students. The State will direct grant recipients to such funds be used to support access to higher education and transition to higher education.

Integrated Teacher Preparation Grant Program The 2016-17 State Budget includes a one-tirre allocation of $10 nil lion frornthe Proposition 98 portion of the General Fund to the Integrated Teacher Preparation Grant Program. which prOJides competitive grants to colleges and universities to develop or i rnprOJe teacher credential programs.

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Classified School Emplcyees Credentialing Program The 2016-17 State Budget includes a one-time allocation of $20 million from the Proposition 98 portion of the General Fund to estal:H sh a credential i ng program that recruits non-certified school empl O{ees and prepares them to become certificated cl ass room teachers.

California Center on Teacher Careers. The 2016-17 State Budget includes a one-time increase of $5 nillion of Proposition 98 General Fund to establish a multi-year competitive grant, which wi 11 be awarded to a I ocal education agency to establish and operate the California Center on Teaching Careers. The California Center on Teaching Careers, once established, will recruit individuals to the teaching profession, host a referral database for teachers seeking emplO{ment, develop and distribute recruitment publications, conduct outreach activities to high school and college students, provide statewide publ i c service announcements related to teacher recruitment, and prOJi de prospective teachers information on credential requirements, financial aid and loan assistance programs.

California Collaborative for Educational Excellence. The 2016-17 State Budget prOJides a one-time increase of $24 nillion to the Proposition 98 portion of the General Fund for the California Col I aborative for E ducati anal Excel I ence to, among other things, support statewide professi anal devel oprnent trai ni ng relating to eval uati on methods and metrics and i mpl ement a pi I ot program related to ad.ii sing and assi sti ng I ocal education agencies on improving pupi I outcomes.

Safe Drinking Water in Schools. The 2016-17 State Budget includes an increase of $9. 5 nil lion of one-time Proposition 98 General Fund to create a grant program to improve access to safe drinking water for schools located in isolated areas and economically disacwantaged areas. The program will be developed and adninistered l'.1y the State Water Resources Control B oard i n consultation with the California Department of Education.

Charter School Startup Grants. The 2016-17 State Budget allocates an increase of $20 nil lion of one-time Proposition 98 General Fund resources to support operational startup costs for new charter schools in 2016 and 2017. Such allocation is expected to partially offset the loss of federal funding previously available for such purpose.

Multi-Tiered Systems of Support. The 2016-17 State Budget allocates an increase of $20 nil lion of one-time Proposition 98 General Fund resources to build upon the $10 million investment included in the 201 5-16 State Budget for an increased number of I ocal educational agencies to provide academe and behavioral supports in a coordinated and systematic way. The State expects such funds to, among other things, assist local education agencies as they provide services that support acadeni c, behavioral , social and emoti anal needs and i mprc,,1e outcomes for students.

Proposition 47. Proposition 47 (2014) requires a portion of any State savings which have resulted from the State's reduced penalties for certain non-serious and non-violent property and drug offenses, to be al I ocated to K -12 truancy and dropout prevention, victim services, and mental health and drug treatment. The 2016-17 State Budget includes an increase of $18 nillion on a one-time basis to the Proposition 98 portion of the General Fund allocated to a grant program for truancy and dropout prevention.

The complete 2016-17 State Budget is available from the California Department of Finance website at www.dof.ca.qOJ. The District can take no responsibility for the continued accuracy of this

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http://www.dof.ca.gcv

internet address or for the accuracy, cornpl eteness or ti mel i ness of i nforrrati on posted therei n, and such inforrration is not incorporated herein 0y such reference.

2017-18 Proposed State Budget. The GOJernor released his proposed fiscal year Proposed 2017-18 State Budget (the "Proposed 2017-18 State Budget'') on January 10, 2017. The Proposed 2017-18 State Budget sets forth a balanced budget for fiscal year 2017-18. HONever, the GOJernor cautions that the State's prgected revenues are approxirrately $5.8 billion IONer than prqjected for 2015-16 through 2017-18 and, absent corrective action, could lead to annual deficits of $1 billion to $2 billion. The Proposed 2017-18 State Budget estirrates that total resources available in fiscal year 2016-17 totaled approxirrately $123.79 billion (including a prior year balance of $5.0 billion) and total expenditures in fiscal year 2016-17 totaled approxirrately $122.76 billion. The Proposed 2017-18 State Budget p-qjects total resources available for fiscal year 2017-18 of $125.05 billion, inclusive of revenues and transfers of $124.03 billion and a prior year balance of $1.03 billion. The Proposed 2017-18 State Budget prqjects total expenditures of $122.52 billion, inclusive of non-Proposition 98 expenditures of $71.17 billion and Proposition 98 expenditures of $51.35 billion. The 2016-17 State Budget proposes to allocate $980 nil lion of the General Fund's prqjected fund balance to the Reserve for Liquidation of Encumbrances and $1.55 billion of such fund balance to the State's Special Fund for Econonic Uncertainties. In addition, the Proposed 2017-18 State Budget estirrates the Rainy Day Fund will have a fund balance of $7.87 billion.

Certain budgeted aqjustments for K-12 education set forth in the Proposed 2017-18 State Budget include the fol Io.vi ng:

School District Local Control Funding Formula The Proposed 2017-18 State Budget includes an increase of more than $744 nillion to continue the transition to full implementation of the Local Control Funding Formula. The GOJernor estirrates that the Local Control F undi ng Formula' s i mpl ementati on wi 11 reach 96 percent i n fi seal year 2017-18.

Proposition 98 Minimum Guarantee. The Proposed 2017-18 State Budget proposes to fund the Proposition 98 ninimum guarantee in fiscal year 2016-17 and 2017-18. H o.vever, due to changes i n workload factors and budgetary acjj ustments, the G OJernor' s calculation of the Proposition 98 ninimum guarantee will be approxirrately $55.5 nillion and $113. 5 mi 11 ion I ess than previously prqj ected for fi seal years 201 5-16 and 2016-17, respectively. The Proposed 2017-18 State Budget prqjects a Proposition 98 minimum guarantee of $73. 5 bi 11 ion in 2017 -1 8.

One-Time Local Control Funding Formula Cost Shift. The Proposed 2017-18 State Budget proposes to shift $859.1 million in Local Control Funding Formula expenditures from June 2017 to July 2017 in order to rrai ntai n 2016-17 programrratic expenditure levels. The Proposed 2017-18 State Budget will repay this deferral in 2017-18.

One-Time Discretionary Funding. The Proposed 2017-18 State Budget includes an increase of $287 nil lion in one-time Proposition 98 General Fund for school districts, charter schools and county offices of education to use at local discretion. This funding will support investments such as content standards implementation, technology, professional development, induction programs for beginning teachers and deferred mai ntenance.

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Career Technical Education Funding. The Proposed 2017-18 State Budget includes $200 nil lion for the Career Technical Education Incentive Grant Program, the final installrrent of funding for this three-year program

County Offices of Education Local Control Fundng Formula The Proposed 2017-18 State Budget includes an increase of $2.4 million Proposition 98 General Fund to support a cost-of-I ivi ng adj ustrrent and average daily attendance changes for county offices of education.

Charter School G rcwth. The Proposed 2017 -1 8 State Budget includes an increase of $93 nil lion Proposition 98 General Fund to support prqjected charter school average daily attendance grcwth.

Special Education. The Proposed 2017-18 State Budget includes a decrease of $4.9 nil lion Proposition 98 General Fund to reflect a prqjected decrease in special education average dai ly attendance.

Local Property Tax Adjustrrents. The Proposed 2017-18 State Budget includes a decrease of $922.7 million in Proposition 98 General Fund for school districts and county offices of education in 2017-18 as a result of increased offsetting local property tax revenues.

School District Average Daily Attendance. The Proposed 2017-18 State Budget includes a decrease of $63.1 nillion in fiscal year 2017-18 for school districts as a result of a prqj ected decline in average daily attendance.

Cost-of-living Adj ustrrents. The Proposed 2017 -1 8 State Budget includes an increase of $58.1 nillion Proposition 98 General Fund to support a 1.48-percent cost-of-living aqj ustrrent for cateqori cal programs that remain outside of the Local Control Funding Formula, including Special Education, Child Nutrition, Foster Youth, Arrerican Indian Education Centers, and theArrerican Indian Early Childhood Education Program.

California Clean Energy- lobs Act. The California Clean Energy Jobs Act of 2012 increases state corporate tax revenues, and requires half of the increased revenues, up to $550 ni 11 ion per year, to be used to support energy efficiency for fi seal years 2013-14 through 2017-18. The Proposed 2017-18 State Budget includes $422.9 nil lion to support school district and charter school energy efficiency prqj ects.

Proposition 47. Proposition 47 (2014) requires a portion of any State savings which have resulted from the State's reduced penalties for certain non-serious and non-violent property and drug offenses, to be al I ocated to K -12 truancy and dropout prevention, victim services, and rrental health and drug treatrrent. The Proposed 2017-18 State B udget i ncl udes $1 0.1 ni 11 ion to support i nvestrrents ai rred truancy and dropout prevention among K-12 public school pupils.

Proposition 56. Proposition 56 (2016) requires a portion of the revenues from the increased cigarette tax and the tax on other tobacco products to be used for school programs that prevent and reduce the use of tobacco and nicotine products 0y youths. The Proposed 2017-18 State Budget includes $29.9 nillion to support tobacco and nicotine prevention and reduction programs at K -12 schools.

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Kindergarten Through Comm.mity College Public Education Facilities Bond Act. The Kindergarten Through Community College Public Education Facilities Bond Act of 2016 authorized $7 billion in State general obligation bonds for K-12 schools. The Proposed 2017-18 State Budget states that the GOJernor will support the expenditures of Proposition 51 funds after, arnong other things, legislation is apprOJed regarding bond expenditures audit requirerrents and the State Allocation Board and Office of Public School Construction revise policies and regulations for school i:articii:ants that request funding through the school facilities program

The complete Proposed 2017-18 State Budget is available from the California Dei:artrrent of Finance website at www.dof.ca.qOJ. The District can take no responsi bi I ity for the continued accuracy of this internet address or for the accuracy, corrpl eteness or ti rrel i ness of information posted therei n, and such infcrrration is not incorporated herein 0y such reference.

Changes in State Budget. The final fi seal year 2017 -1 8 State budget, which requires apprOJal 0y a majority vote of each house of the State Legislature, rray differ substantially from the GOJernor's budget proposal. Accordingly, the District cannot prOJide any assurances that there will not be any changes in the final fiscal year 2017-18 State budget from the 2017-18 Proposed State Budget. Additionally, the District cannot predict the irni:act that the final fiscal year 2017-18 State Budget, or subsequent budgets, will have on its finances and operations. The final fiscal year 2017-18 State budget rray be affected 0y national and State econonic conditions and other factors which the District cannot predict.

Future Budgets and Budgetary Actions. The District cannot predict what future actions will be taken 0y the State Legislature and the Governor to address changing State revenues and expenditures or the irni:act such actions will have on State revenues available in the current or future years for education. The State budget will be affected 0y national and State econonic conditions and other factors beyond the District's ability to predict or control. Certain actions could result in a significant shortfall of revenue and cash, and could irni:air the State's ability to fund schools during fiscal year 2016-17 and in future fiscal years. Certain factors, like an economic recession, could result in State budget shortfalls in any fiscal year and could have a material acwerse financial irni:act on the District. As the Bonds are payable from ad valorernproperty taxes, the State budget is not expected to have an irni:act on the payrrent of the Bonds.

Allocation of State Funding to School Districts; Local Cont rd Funding F orrnula

Prior to the irnplerrentation of the Local Control Funding Formula in fiscal year 2013-14, under California Education Code Section 42238 and follcwing, each school district was deternined to have a target funding level: a "base revenue lirnit" per student multiplied b,t the district's student enrollrrent measured in units of average daily attendance. The base revenue Ii nit was calculated from the district's prior-year funding level, as aqjusted for a nuniber of factors, such as inflation, special or increased instructional needs and costs, employee retirerrent costs, especially lcw enrollrrent, increased pupil transportation costs, etc. Generally, the arnount of State funding allocated to each school district was the arnount needed to reach that district's base revenue Ii nit after taking into account certain other revenues, in particular, locally generated property taxes. This is referred to as State "equalization aid." To the extent local tax revenues increased due to grONth in local property assessed valuation, the additional revenue was offset b,t a decline in the State's contribution; ultimately, a school district whose local property tax revenues exceeded its base revenue Ii nit was entitled to receive no State equalization aid, and received only its special cateqori cal aid, which is deerred to include the "basic aid' of $120 per student per year guaranteed b,t Article IX, Section 6 of the Constitution. Such districts were kncwn as "basic aid districts," which are new referred to as "community funded districts." School districts that received sorre equalization aid were commonly referred to as "revenue Ii nit districts," which are new referred to as

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"LCFF districts." The District is an LCFF district.

Beginning in fiscal year 2013-14, the LCFF replaced the revenue limit funding system and rrost categorical programs, and distributes combined resources to school districts through a base grant ("Base Grant'') per unit of average daily attendance ("A.DA.") with additional supplemental funding (the "Supplemental Grant'') al I ocated to I ocal educational agencies based on their proportion of E ngl i sh language learners, students from lcw--income families and foster youth. The LCFF has an eight year i mpl ementati on program to incrementally close the gap between actual funding and the target I evel of funding, as described belcw. The LCFF includes the follcwing components:

A Base Grant for each local education agency. The Base Grants are based on four uniform, grade-5pan base rates. For Fiscal Year 2016-17, the LCFF prOJided to school districts and charter schools: (a) a Target Base Grant for each LEA equivalent to $7,820 per A.DA. for kindergarten through grade 3; (b) a Target Base Grant for each LEA equivalent to $7,189 per A.DA. for grades 4 through 6; (c) a Target Base Grant for each LEA equivalent to $7,403 per A.DA. for grades 7 and 8; (cl) a Target Base Grant for each LEA equivalent to $8,801 per A.D.A. for grades 9 through 12. Hcwever, the amount of actual funding allocated to the Base Grant, Supplemental Grants and Concentration Grants will be sul::iject to the discretion of the State. This amount includes an acjjustment of 10.4% to the Base Grant to support lcwering class sizes in grades K-3, and an acjjustment of 2.6% to reflect the cost of operating career technical education programs i n grades 9-1 2.

A 2<J36 Supplemental Grant for the unduplicated number of English language learners, students from I cw-income fanilies and foster youth to reflect increased costs associated with educating those students.

An additional Concentration Grant of up to 5(1)6 of a local education agency's Base Grant, based on the number of English I anguage I earners, students from I cw--i ncorne fami Ii es and foster youth served b,t the local education agency that comprise more than 55% of enrollment.

An Economic R ecc,,1ery Target ( the " ER T") that is i ntended to ensure that al most every local education agency receives at least their pre-recession funding level (i.e., the fiscal year 2007-08 revenue limit per unit of A.D.A.), acjjusted for inflation, at full implementation of the LCFF. Upon full implementation, local education agencies would receive the greater of the Base Grant or the ERT.

Under the new formula, for community funded districts, local property tax revenues would be used to offset up to the entire allocation under the mw formula Hcwever, community funded districts would caitinue to receive the same level of State aid as allocated in fiscal year 2012-13.

Local Control Accountability Plans. A feature of the LCFF is a system of support and intervention for local educational agencies. School districts, county offices of education and charter schools are required to develop, implement and annual ly update a three-year I ocal control and accountability plan(" LCAP"). Each LCAP must be developed with input from teachers, parents and the community, and should describe local goals as they pertain to eight areas identified as state priorities, incl udi ng student achievement, parent engagement and school cl i mate, as wel I as detai I a course of action to attain those goals. Morewer, the LCAPs must be designed to align with the district's budget to ensure adequate funding is allocated for the planned actions.

Each school district must subnit its L CAP annually on or beforeJ uly 1 for apprc,,1al b,t its county superintendent. The county superintendent then has until August 15 to seek clarification regarding the contents of the LCAP, and the school district must respond in writing. The county superintendent can subnit recommendations for amending the LCAP, and such recommendations must be considered, but

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are not mandatory. A school district's LCAP rrust be apprc,,1ed 0y its county superintendent 0y October 8 of each year if such superintendent finds (i) the LCAP adheres to the State terrplate and (ii) the district's budgeted expenditures are sufficientto implementthe strategies outlined in the LCAP.

Performance e.,,al uati ons are to be conducted to assess progress tcward gm.Is and guide future actions. County superintendents are expected to revie.v and provide support to the school districts under their jurisdiction, while the State Superintendent of Public Instruction performs a corresponding role for county offices of education. The California Collaborative for Education Excellence (the "Collalborative''), a newly established body of educational specialists, was created to adJise and assist local education agencies in achieving the goals identified in their LCAPs. For local education agencies that continue to struggle in meeting their gm.ls, and when the Collaborative indicates that additional intervention is needed, the State Superintendent of Public Instruction would have authority to make changes to a local education agency's LCAP.

Attendance and Enrollment. The District's A.D.A., including special education, for fiscal years 2010-11 through 2015-16 is set forth in the fol lo.vi ng table.

SAN FRANCISCO UNI Fl ED SCHOOL DISTRICT Average Daily Attendance and Student Enrollment

Fiscal 2010-11 through 2015-16

Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Average Daily Attenchncel11

51,439 51,576 51,151 51,241 51,210 50,734

Enrollment 53,634 53,470 53,626 53,787 53,701 53,561

'" Includes elem,ntary, rriddle and high school students in opportunity classe~ hom, and hospital, special day class and continuation education. Excludes independent charter school~ These figures represent P-2 A. D .A. for both Di strict and County Office programs corrbined.

Source: San Francisco Unified School District

Attendance and LCF F. The follcwing table sets forth the District's actual and budgetedA.D.A., enrol I ment (incl udi ng percentage of students who are E ngl i sh I anguage I earners, from I cw-income families and/or foster youth (collectively," EL/LI Students'')), and targeted Base Grant per unit of A.D.A. for fiscal years 2013-14 through 2016-17, respectively. The A.D.A. and enrol I ment numbers reflected in the follcwingtable include special education but exclude adult education.

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Average Daily Attendance, Enrollment and Targeted Base Grant Fiscal Years 2013-14 through 2016-17

A .D .A. ,ll ase G rant Enrollment<51

U ndupl i cated Percent of

Fiscal Total Total EL/ll Year K-3 4-6 7-S 9-12 A.DA Enrollment Students

2013-14 A.D.A.1'1: 17,382 11,568 6,942 15,224 51,241 57,620 67.01%

Targeted Base G rant<31: $7,675 $7,056 $7,266 $8,638

2014-15 A.D.A.1'1: 17,296 11,779 6,830 15,201 51,210 52,961 69.37

Targeted BaseGrant31141: $7,740 $7,116 $7,328 $8,712

2015-16 A.D.A.1'1: 17,073 11,904 6,878 14,880 50,734 53,561 67.48 Targeted BaseGrant31141: $7,820 $7,189 $7,403 $8,801

2016-17111 A.D.A.1'1: 17,073 11,904 6,878 14,880 50,734 53,561 65.58

Targeted Base G rant31161: $7,820 $7,189 $7,403 $8,801

(7l Figures are projections. The 2016-17 A.DA. numbers reflect the California Department of Edu:::ation (COE) certified Second Principal App::irtionment (P-2) for fiscal year 2015-16, which will be updated after the COE certifies the P-2 for fiscal year 2016-17.

(2l A.DA. for the second periOO of atterdance, typically in mid-April of each sch:x:il year. (3l Su:::h amcunts represent the targeted amount of Base Grant per unit of A.D.A., i rr::ILding grcde span cdjustments with respect to grades K-3

ard 9-12, and do mt i rr::I Lde any supplemental ard corr::entration grants umer the L CFF. Su:::h am::iunts were mt fully furded in fi seal year 2013-14, 2014-15 or 2015-16 am are mt expected to be fully fumed in fiscal year 2016-17.

(4l Targeted fi seal year 2014-15 Base Grant am::iunts reflect a 0.85% cost of I iving adjustment from targeted fiscal year 2013-14 Base Grant am::iunts. Targeted fi seal year 2015-16 Base Grant am::iunts reflect a 1.02% cost of living adjustment from targeted fi seal year 2014-15 Base G rant A ITTJUnts.

(sl Reflects enrollment as of October rep::111 submitted to the California Department of Edu:::ation throUJh CBE DS for the 2013-14, 2014-15 ard 2015-16 sch:x:il years. For purp::ises of calculatitl'J Supplemental ard Corr::entration Grants, a sch:x:il district's fiscal year 2013-14 percentage of unduplicated E L/1-1 Students wi II be expressed solely as a percentcKJe of its fi seal year 2013-14 total enrollment. For fiscal year 2014-15, the percentage of urduplicated EL/1-1 Students enrollment will be based on the two-year average of EL/1-1 StLdents enrollment in fiscal years 2013-14 ard 2014-15. Beginnitl'J in fiscal year 2015-16, a sch:x:il district's percentage of unduplicated EL/1-1 StLdents is based on a rollitl'J average of su:::h sch:x:il district's E L/l I StLdents enrollment for the then-current fi seal year ard the two immediately precedi tl'J fi seal years.

(5l Targeted fiscal year 2016-17 Base Grant amount reflects a O.CO% cost--of--livi tl'J adjustment from targeted fiscal year 2015-16 Base Grant am::iunts.

Source: San Fran::::isco Unified Sch:x:il District.

The District's adopted budget and prqjected A.DA. are used for planning purposes only, and do not represent a prediction as to the actual financial performance, attendance or the District's actual funding I evel for fi seal year 2016-17.

Effect of Changes in Enrollment. Changes in local property tax income and A.DA. affect LCFF districts and community funded districts differently.

In an LCFF district, increasing enrollment increases the total amount distributed under the LCFF and thus generally increases a district's entitlement to State aid, while increases in property taxes do nothing to increase district revenues, but only offset the State aid funding requirement. Operating costs increase disproportionately slcwly to enrollment grcwth; and only at the point where additional teachers and classroom facilities are needed. Declining enrollment has the reverse effect on LCFF districts, generally resulting in a loss of State aid, while operating costs decrease slcwly and only when, for

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example, the d strict decides to I ay off teachers, close schools or i ni ti ate other cost -5avi ng measures. Enrollment can fluctuate due to factors such as population grcwth, competition from private, parochial and publ i c charter schools, i nter--di strict transfers in or out and other causes.

In community funded districts, the oppa;ite is generally true: increasing enrollment increases the amount to which the district would be entitled were it an LCFF district, but since all LCFF income (and more) is al ready generated b,t I ocal property taxes, there is no increase in State income. M eanwhi I e, as mw students impa;e increased operating costs, property tax income is stretched further. Declining enrollment does not reduce property tax income, and has a negligible impact on State aid, but eventually reduces operating costs, and thus can be financially beneficial to a community funded district.

The District cannot make any predictions regarding hew the current econonic environment or changes thereto wi 11 affect the State's abi I ity to meet the revenue and spending assumptions in the State's adopted budget, and the effect of these changes on school finance. The District's Second Interim Report and prqjected A.DA. are used for planning purpa;es only, and do not represent a prediction as to the actual financial performance, attendance, or the District's actual funding level for fiscal year 2016-17 or beyond. Certain adjustments wi 11 have to be made throughout the year based on actual State funding and actual attendance.

Local Sources of Education Funding

The principal component of local revenues is a school district's property tax revenues, i.e., each district's share of the local 1% property tax, received pursuant to Sections 75 and follewing and Sections 95 and follcwing of the California Revenue and Taxation Code. California Education Code Section 42238(h) itemizes the local revenues that are counted tcwards the amount allocated under the LCFF (and formerly, the base revenue Ii nit) before calculating hew much the State must provide in State aid. The more local property taxes a district receives, the less State aid it is entitled to receive. Prior to the implementation of the LCFF, a school district whose local property tax revenues exceeded its base revenue Ii nit was entitled to receive no State aid, and received only its special categorical aid which is deemed to include the" basic aid' of $120 per student per year guaranteed b,t Article IX, Section 6 of the Constitution. Such districts were kncwn as "basic aid districts." School districts that received some State aid were commonly referred to as "revenue Ii nit districts" and new "LCFF Districts." The District is an LCFF District.

Underthe LCFF, local property tax revenues are used to offset up to the entire State aid collection under the new formula; hcwever, community funded districts would continue to receive the same level of State aid as allotted in fiscal year 2012-13. See "-Allocation of State Funding to School Districts: Local Control Funding Formula'' herein for more information about the LCFF.

Local property tax revenues are approximately 70.5% of the District's aggregate revenues allocated under the LCFF in fiscal year 2016-17, and are prqjected to be $376.7 nillion, or 48.5% of total prqjected general fund revenues in fiscal year 2016-17.

For a discussion of legal limitations on the ability of the District to raise revenues through local property taxes, see "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUESANDAPPROPRIATIONS" belew.

Other District Revenues

Federal Revenues. The federal go.1ernment prc,,1ides funding for several District programs, incl udi ng special education programs. Federal revenues, most of which are restricted, cornpri se

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approximately 4.3% (or approximately $33.3 million) of the District's general fund prqjected revenues for fiscal year 2016-17.

Other State Revenues. In addition to State apportionments for Proposition 98 funding through the Local Control Funding Formula, the District receives other State revenues which comprise approximately 8.2% (or approximately $63.3 nillion) of the District's general fund prqjected revenues for fiscal year 2016-17. A significant portion of such other State revenues are amounts the District expects to receive from State lcttery funds, a portion of which may not be used for non-instructional purposes, such as the acquisition of real property, the construction of facilities, or the financing of research. School districts receive lottery funds proportional to their total A.D.A. The District's State lottery revenue is prqjected at approximately $9.7 million for fiscal year 2016-17.

Other Local Revenues. In addition to ad valorem property taxes, the District receives additional local revenues from other local sources, such as interest earnings, which comprise approximately 23.6% (or approximately $182.8 nillion) of the District's general fund prqjected revenues for fiscal year 2016-17.

Public Education Enrichment Fund (PEEF). In March 2004, San Francisco voters apprc,,1ed Proposition H, establishing the Public Education Enrichment Fund (PEEF) within the San Francisco City Charter, Section 16.123.1-10. On NOJember 4, 2014, San Francisco voters apprc,,1ed Proposition C, the "Children and Fanilies First" initiative in order to guarantee funding for PEEF through fiscal year 2040-41. PEEF prc,,1ides funding to improve the quality of education for the youth of San Francisco. PEEF funding is split into three equal portions, with one-third of funding dedicated to preschool support, one-third dedicated to sports, libraries, arts and music ("SLAM funding'') and one-third dedicated as discretionary funding for other general uses programs such as wellness centers, student support professional, translation and peer resources. The funds allocated to SLAM funding and Other General Uses are allocated to and managed 0y the District. The District's PEEF allocation for fiscal year 2015-16 was approximately $60.3 nil lion and will increase to approximately $64.6 nillion for fiscal year 2016-17. The District's allocation in fiscal years 2010-11 through 2040-41 is required to equal the amount for the prior fiscal year aqjusted 0y the percentage of increase or decrease in the City and County's discretionary General Fund revenues forthatyear.

Accounting Practices

The accounting policies of the District conform to generally accepted accounting principles in accordance with the definitions, i nstructi ans and procedures of the California School Accounting Manual, as required 0y the State Education Code. Revenues are recognized in the period in which they become both measurable and available to finance expenditures of the current fiscal period. Expenditures are generally recognized in the period in which the liability is incurred.

Vavrinek, Trine, Day & Co., LLP, served as independent auditor to the District and its report for fiscal year ended June 30, 2016 is attached to this Official Statement as APPENDIX C. The District considers its audited financial statements to be public information, and accordingly no consent has been sought or obtained from the auditor in connection with the inclusion of such statements in this Official Statement. The auditor has made no representation in connection with inclusion of the audit herein that there has been no material change in the financial condition of the District since the audit was concluded. The District is required 0y law to adopt its audited financial statements follCM!ing a public meeting to be conducted no laterthanJ anuary 31 follcwing the close of each fiscal year.

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Summary of District Revenues and Expenditures

The follcwing table summarizes the District's general fund revenue, expenditures and fund balances from fiscal years 2011-12 through 2015-16 (audited) and 2016-17 (prqjected). See "District Budget Process and City and County Revie.v'' herein for a general description of the annual budget process for State school districts. The District's audited financial statements for the year endingJ une 30, 2016 are reproduced in APPENDIX C. The final (unaudited) statement of receipts and expenditures for each fiscal year endingJ une 30 is required b,t State liM' to be approved b,t the Board of Education b,t September 15, and the audit report must be fi I ed with the county superintendent of schools and State officials b,t December 15 of each year.

The District is required b,t State liM' and regulation to maintain various reserves. The District is generally required to maintain a reserve for econoni c uncertainties in the amount of 2% of its total general fund expenditures, based on total student attendance. For fiscal year 2016-17, the District has prqjected an unrestricted general fund reserve of 2.0%, or approximately $15,500,000. Substantially all funds of the District are required b,t liM' to be deposited with and invested b,t the Treasurer on behalf of the District, pursuant to liM' and the investment policy of the City. See APPENDIX F - "CITY AND COUNTY OF SAN FRANCISCO INVESTMENT POLICY STATEMENT AND INVESTMENT REPORT."

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General Fund Revenues, Expenditures and Fund Balances Fiscal Years 2011-12 through 2015-16

2012-13 2013-14 2014-15 2015-16 Actual Actual Actual Actual

REVENUE ;RECEIPTS LCFF ;Revenue Limit Sources"' $262,489,868 $375,832,260 $419,388,497 $475,932,385 Federal Revenue 51,811,711 37,406,980 31,346,764 29,374,279 Other State Revenue 121,592,310 44,138,296 29,448,879 75,654,380 Other Local Revenue 125,416,660 149,669,365 179,667,253 189,349,630

TOTAL $561,310,549 $619,837,614 $659,851,393 $770,310,673

EX PE NDI TURES /DI SB URSE ME NTS Certificated Salaries $234,731,822 $245,973,902 $262,445,080 $277,893,868 Classified Salaries 69,980,246 70,231,423 75,836,213 80,068,179 Employee Benefits 115,328,991 117,352,041 127,187,980 152,218,679 B oaks and Supplies 21,508,789 23,388,708 28,830,713 27,789,158 Services;Other Operating 57,013,413 58,420,939 60,885,106 68,208,865 Expenditures Capital Outlay 532,168 1,534,751 84,486,891 773,014 Other Outgo 65,345,874 76,188,463 925,601 94,289,238 Debt Service -Interest 3,143,303 Transfers of I ndirect;Direct Support CostsC3l

TOTAL $567,080,123 $595,889, 105 $644,024,394 $704,384,304

Excess (Deficiency) of Revenues $(5,769,574) $11,157,796 $15,826,999 $65,926,370 Over (U nderj Expenditures

OTHER FINANCING SOURCES~USES) Transfers I n;OtherSources $218,721 Transfers Out;Other Uses $(11,718,037) (9,043,61 O) $(9,248,336) $( 16,659,311)

TOTAL $(11,718,037) $(8,824,889) $(9,248,336) $( 16,659,311)

EXCESS OF REVENUE,OTHER $(17,487,61 l) $2,332,907 $6,578,663 $49,267,059 SOURCES OVER/(U NDER) EXPENDITURES, OTHER USES

Fund Balance, beginning of year $77,892,544 $60,404,933 $62,737,840 $69,316,503

Fund Balance, end of year $60,404,933 $62,737,840 $69,316,503 $118,583,562

(7l Columns may mt sum to totals due to rourditl'J. (21 AITTJunts reflect re.;enue Ii mit for fiscal year 2012-13 ard the Local Control Funditl'J Formula commerr::itl'J fiscal year 2013-14. (3l I rr::ILded as a separate line item in the Secord Interim Report for fiscal year 2016-17.

2016-17 Projected"'

$496,386,636 33,335,552 63,330,049

182,843,634 $775,895,871

$295,829, 154 90,821,119

169,884,704 29,950,620 71,486,126

3,233,343 l 03,689,204

(2,250,000)

$762,644,271

$13,251,600

$(13,122,178) $(13,122,178)

$129,422

$118,583,563

$118,712,985

Sources: San Fran::::i sea Unified Sch:x:il District aLdited actuals for fiscal years 2012-13 throUJh 2015-16; Secord Interim Rep::irt for fiscal year 2016-17.

District Budget Process and City and County Review

State law requires school districts to adopt a balanced budget in each fiscal year. The State Departrrent of Education imposes a uniform budgeting and accounting format for school districts.

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Under current liM', a school district go.1eming board must adopt and file a tentative budget b,t July 1 in each fiscal year with the county superintendent of schools or, with respect to the District, the State Superintendent of Public Instruction (the "State Superintendent''). The District is under the jurisdiction of the State Superintendent.

The county superintendent, must review and approve, conditionally apprOJe or disapprOJe the budget no later than August 15. The county superintendent is required to exanine the adopted budget for compliance with the standards and criteria adopted b,t the State Board of Education and identify technical corrections necessary to bring the budget into cornpl i ance with the establ i shed standards. I f the budget is disapprc,,1ed, it is retumedtothe District with recommendations for revision. The District is then required to revise the budget, hold a publ i c heari ng thereon, adopt the revised budget, and fi I e it with the county superintendent no later than September 8. Pursuant to State law, the county superintendent has available various remedies b,t which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is di sapprc,,1ed. After apprc,,1al of an adopted budget, the school district's admi ni strati on rnay subni t budget revisions for govemi ng board approval .

Subsequent to approval, the county superintendent will monitor each district under its jurisdiction throughout the fi seal year pursuant to its adopted budget to deterni ne on an ongoi ng basis if the district can rneet its current or subsequent year financial obligations. If the county superintendent deternines that a district cannot rreet its current or subsequent year's obligations, the county superintendent will notify the district's go.1emi ng board of the determination and rray then do either or both of the fol I cwi ng: ( a) assign a fi seal ad.ii sor to enable the district to rneet those obi i gati ons or ( b) if a study and recomrrendations are rrade and a district fails to take appropriate action to rreet its financial obligations, the camty superintendent will so notify the State Superintendent of Public Instruction, and then rray do any or all of the follCM/ing for the rerrainder of the fiscal year: (i) request additional inforrration regarding the district's budget and operations; (ii) develop and irnpose, after also consulting with the district' s govemi ng board, revisions to the budget that wi 11 enable the district to rneet its fi nanci al obi i gati ons; and ( i ii) stay or resci nd any action inconsistent with such revisions. H cw ever, the county superintendent rnay not abrogate any prOJi si on of a col I ective bargaining agreerrent that was entered into prior to the date upon which the county superintendent assurred authority.

A State liM' adopted in 1991 (kncwn as "A.B. 1200'') imposed additional financial reporting requirerrents ai school districts, and established guidelines for errergency State aid apportionrrents. Under the prc,,1isions of A.B. 1200, each school district is required to file interim certifications with the county superintendent ( on December 15, for the period ended October 31, and b,t ni d--M arch for the period endedJ anuary 31) as to its ability to rreet its financial obligations for the rerrainder of the thencurrent fiscal year and, based on current forecasts, for the subsequent fiscal year. The county superintendent revie.vs the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will rreet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that is deerred unable to rreet its financial obligations for the rerrainder of the fiscal year or the subsequent fiscal year. A qualified certification is assigned to any school district that rray not rreet its financial obligations for the current fiscal year or two subsequent fiscal years. A school district that receives a qualified or negative certification rray not issue tax and revenue anticipation notes or certificates of participation without apprOJal b,t the county superintendent in that fiscal year or in the next succeeding year. The District has not received a qualified or negative certification in any of the last five fi seal years.

For school districts under fi seal di stress, the county superi ntendent of schools is authorized to take a nurnber of actions to ensure that the school district rreets its financial obi igations, including budget revisions. Hcwever, the county superintendent is not authorized to approve any diversion of revenue

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from ad valoremtaxes levied to l'.0-Y debt service on district general obligation bonds. A school district that becomes insolvent may, upon the approval of a fiscal plan 0y the county superintendent of schools, receive an emergency appropriation from the State, the acceptance of which constitutes an agreement to subni t to management of the school district 0y an admi ni st rat or appointed 0y the State Superintendent.

In the event the State elects to provide an emergency appropriation to a school district, such appropriation may be accomplished through the issuance of "State School Fund Apportionment Lease Revenue Bonds" to be issued 0y the California Infrastructure and Econonic Development Bank, on behalf of the school district. State law provides that so long as such bonds are outstanding, the recipient school district (via its State-appointed administrator) cannot file for bankruptcy.

District Debt Structure

As of March 14, 2017, the District had outstanding general obligation bonds in the aggregate princii:al amount of $916.44 nil lion (which amount excludes bonds issued 0y the City and County on behalf of the District) as described in the table set forth on the follcwing i:age. The District has $12.99 nil lion, including scheduled interest, of non--rrarketable capital leases for which approximately $2.64 nil lion of lease i:avments are due in fiscal year 2016-17. For additional details on the District's long-term liabilities, see Note 9 to the audited financial report in APPENDIX B hereto and "DIRECT AND OVERLAPPING DEBT."

General Obligation Bonds. The District has issued $280,000,000 of general obligation bonds authorized at an election of the registered voters held on NOJember 4, 2003 (the" 2003 Authorization"), at which more than the ninimum requisite 55% of the persons voting on the measure voted to authorize the issuance and sale of up to $295,000,000 princii:al amount of general obligation bonds of the District. The amount of authorized but uni ssued bonds pursuant to this authorization is $15,000,000.

The District has issued $450,000,000 of general obligation bonds authorized at an election of the registered voters held on November 7, 2006 (the" 2006 Authorization"), at which more than the minimum requisite 55% of the persais voting on the measure voted to authorize the issuance and sale of up to $450,000,000 principal amount of general obligation bonds of the District. The District has no remaining authorized and uni ssued bonds under the 2006 A uthori zati on.

The District has issued $531,000,000 of general obligation bonds authorized at an election of the registered voters held on November 8, 2011 (the" 2011 Authorization"), at which more than the ninirnum requisite 55% of the persons voting on the measure voted to authorize the issuance and sale of up to $531,000,000 princii:al amount of general obligation bonds of the District. The District has no remaining authorized and unissued bonds under the 2011 Authorization.

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Summary of Outstanding General Obligation Bond I ssues1 11

As of March 14, 2017

Series Name

(Proposition A, Election of 2006) General Obligation Bonds Series A (2007)

(Proposition A, Election of 2006) General Obligation Bonds Series B (2009)

(Proposition A, Election of 2006) General Obligation BondsSeriesC (2010) (Federally Taxable Direct Subsidy Qualified School Construction Bonds)

(Proposition A, Election of 2006) General Obligation Bonds Series D (2010) (Federally Taxable B ui Id A rneri ca Bonds)

(Proposition A, Election of 2006) General Obligation Bonds Series E (2010) (TaxExerrpt)

General Obligation Bonds (Proposition A, Electionof2011) SeriesA (2012)

2012 General Obligation Refunding Bonds

General Obligation Bonds (Proposition A, Electionof2011),SeriesB (2014)

General Obligation Bonds (Proposition A, Election of 2006), Series F (2015)

General Obligation Bonds (Proposition A, Election of 2011), Series C (2015)

2015 General Obligation Refunding Bonds

Total

'" Excludes legally defeased bond~ Source: San Francisco Unified School District

Original Issuance Date Principal Amount

2/28/07 $100,000,000

1 /22/00 1 50,000,000

5/19/10 12,955,000

5/19/10 72,370,000

5/19/10 99,675,000

3,6/12 115,000,000

3,6/12 116,140,000

1 /23/14 205,000,000

10/21/15 15,000,000

10/21/15 211,000,000

10/21/15 63,655,000

$1 160 795 000

Principal Amount 0 utstandi ng

$32,590,000

86,405,000

12,955,000

72,370,000

62,070,000

99,445,000

84,425,000

184,250,000

14,650,000

205,950,000

61,330,000

$916440000

Capital Plan. The District has a lG-year Capital Plan that is updated periodically to take into account an annual revie.v of changing capital needs and improved information regarding prqject requirements and prqj ected costs. B ecause of the need for reconstruction and repai r of existing faci Ii ti es, including structural changes to compiy with disability access standards, the District's current lG-year Capital Plan anticipates a total capital facilities need of almost $900 million. In addition, pertinent District needs are reflected in the City's annual Capital Plan.

As part of the District's ongoing review of the lG-year Capital Plan, the District is analyzing the needs of District properties, i n order to defi ne the scope and prqj ected costs of requi red new construction, replacement, modernization and deferred maintenance for such properties. The District anticipates funding its capital needs from a combination of proceeds from the sale of general obiigation bonds, State-

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rrntching funds, deJeloper fees, a facilities i:arcel tax, ck:Jnations;tapital funding cami:aigns, deferred maintenance al I cx:ati ons and other sources.

Tax and Revenue Anticii:ation Notes. To address predictable annual cash flew deficits resulting from the different tining of revenues and expenditures, the District has issued tax and revenue anticii:ation notes in each recent year as shewn in the follewing table. The District's notes are a general obligation of the District, i:ayable from the District's general fund and any other lawfully available moneys. All required set-asides of moneys to repay the 2016 Tax and Revenue Anticii:ation Notes issued on Septerrber 30, 2016 have been deposited in the rei:avment fund therefor.

I ssuance Date

7/1/2011 8/27/2012 8/15/2013 9/25/2014 9/17/2015 9/30/2016


Tax and Revenue Anticipation Notes Fiscal Year 2011-12 through Fiscal Year 2015-16

Principal Arrount Interest Rate

2.0036 2.00 2.00 5.00 5.00 2.00

Yield Maturity Date

$80,000,000 85,000,000 90,000,000 52,000,000 60,000,000 45,000,000

0.29036 0.190 0.179 0.130 0.190 0.750

6/29/2012 6/28/2013 8/14/2014 9/24/2015 8/31/2016 8/31/2017

Source: San Francisco Unified School District

E mplo1-ment

The largest part of each school district's general fund budget is used to pay salaries and benefits of certificated (credentialed teaching) and classified (non-instructional) emplO{ees. Changes in salary and benefit expenditures from year to year are generally based on changes in staffing levels, negotiated salary increases, and the overal I cost of empl O{ee benefits.

As of the District's 2016-17 Second Interim Report, dated March 7, 2017, the District emplO{ed approxirrntely 5,012.0 FTE emplO{ees, consisting of 3,303.5 FTE non-management certificated emplO{ees, 406.5 FTE management, supervisor and confidential emplO{ees, and 1,302.0 FTE classified non-management emplO{ees. For fiscal year 2015-16, the total certificated and classified i:ayrolls were approxirrntely $277.9 nillion and $80.1 million, respectively. For fiscal year 2016-17, the total certificated and classified i:ayrolls are prqjected to be approximately $295.8 nil lion and $90.8 million, respectively.

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(l)

Employee G roup

Certificated Paraprofessional

Classified

Classified

Classified

Classified

Classified

Classified Classified Classified Classified Classified Classified

Classified Classified Classified Classified

Supervisory ,Other Total


Labor Organizations

Employees Labor Organization R epresentedi11

U nited Educators of San Francisco 4,164 U nited Educators of San Francisco 1,330 Service Employees International Union, 1,014

Local 1021 The I nternati onal Federation Of Professional 71

and Technical Engineers, Local 21 ProTech and Non ProTech Units

I nternati onal B rotherhood Of EI ectrical 10 Workers, Local 6

International Union of Operating Engineers, 13 Stationary Engineers Local 39, AFL-CIO

Laborer's International Union Of North 16 AmericaAFL-CIO, Local 261

Glaziers, Local 718 5 Iron Workers, Local 377 2 Plasterers, Local 66 RoofersandWaterproofers, Local 40 2 Carpenters and Locksmith, Local 22 13 Auto, Marine and Specialty Painters, 6

Local 1176 Sheet Metal Workers, Local 104 5 Plumbers, Local 38 9 Teamsters, Local 853 7 Auto Mechanics, Local 1414 1 United Adm nistrators of San Francisco 328

6,996

I nc:ludes full--tirre and part--tirre errployees. Source: San Francisco Unified School District

Contract Expiration

J une 30, 201 7 J une 30, 201 7 J une 30, 201 7

J une 30, 201 7

J une 30, 201 7

J une 30, 201 7

J une 30, 201 7

J une 30, 201 7 J une 30, 201 7 J une 30, 201 7 J une 30, 201 7 J une 30, 201 7 J une 30, 201 7

J une 30, 201 7 J une 30, 201 7 J une 30, 201 7 J une 30, 201 7 J une 30, 2018

Compensated Absences (Vacation). The long-term portion of accumulated and unpaid errployee vacation for the District as of June 30, 2016, was $9,921,506.

Retirement Programs. The District plrticipcltes in retirement plans with the State Teachers Retirement Plan adninistered b,t the California State Teachers Retirement System ("CalSTRS") which cOJers certificated employees hired as of or after July 1, 1972. Classified employees and certain certificated employees hired prior to July 1, 1972 are eligible to participate in the single-€mployer San Francisco Errployees' Retirement System ("SFERS"). The District also prOJides pension benefits to employees not eligible for CalSTRS or SFERS systems.

CalSTRS. Contributions to CalSTRS are fixed in statute. For fiscal year 2013-14, teachers contributed 836 of salary to CalSTRS, while school districts contributed 8.25%. In addition to the teacher and school contributions, the State contributed 4.517% of teacher payroll to CalSTRS (calculated on payroll data from two fiscal years ago). Prior to fiscal year 2014-15 and unlike typical defined benefit programs, neither the CalSTRS errployer nor the State contribution rate varied annually to make up funding shortfalls or assess credits for actuarial surpluses. The State does pay a surcharge when the teacher and school district contributions are not sufficient to fully fund the basic defined benefit pension

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(generally consisting of 2% of salary for each year of service at age 60 referred to herein as "pre-enhancerrent benefits") within a 3G-year period. Hcwever, this surcharge does not apply to systenwide unfunded liability resulting from recent benefit enhancerrents.

As of June 30, 2015, an actuarial valuation (the" 2015 CalSTRS Actuarial Valuation") for the entire CalSTRS defined benefit program shewed an estimated unfunded actuarial liability of $76.20 billion, an increase of approximately $3.48 nil lion from theJ une 30, 2014 valuation. The funded ratios of the actuarial value of valuation assets OJer the actuarial accrued liabilities as of June 30, 2015, June 30, 2014 and June 30, 2013, based on the actuarial assumptions, were approximately 68.5%, 68.5% and 66.9%, respectively. Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions and other experience that may differ from the actuarial assumptions. The follcwing are certain of the actuarial assumptions set forth in the 2015 CalSTRS Actuarial Valuation: measurerrent of accruing costs b,t the" Entry Age Normal Actuarial Cost Method," 7.50% investrrent rate of return, 4.50% interest on rrember accounts, 3.75% prqjected wage grcwth, and 3.00% prqjected inflation. The 2015 CalSTRS Actuarial Valuation also assurres that all rrembers hired on or after January 1, 2013 are subject to the provisions of PEPRA (as defined herein). See "-Governor's Pension Reform" belcw for a discussion of the pension reform rreasure signed b,t the Governor in August 2012 expected to help reduce future pension obligations of public emplO{ers with respect to emplO{ees hired on or after January 1, 2013. Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions, changes in actuarial assumptions and other experiences that may differ from the actuarial assumpti ans.

As indicated abo.ie, there was no required contribution from teachers, schools districts or the State to fund the unfunded actuarial liability for the CalSTRS defined benefit program and only the State legislature can change contribution rates. The 2015 CalSTRS Actuarial Valuation noted that, as of June 30, 2015, the contribution rate, inclusive of contributions from the teachers, the school districts and the State, was equivalent to 33.439% OJer the next 30 years.

As part of the 2014-15 State Budget, the GOJernor signed Assembly Bill 1469 which implerrents a new funding strategy for CalSTRS, increasing the emplO{er contribution rate in fiscal year 2014-15 from 8.25% to 8.8836 of cOJered payroll. Such rate would increase b,t 1.85% beginning in fiscal year 2015-16 unti I the empl O{er contribution rate is 19.1036 of cOJered payrol I as further described bel cw. Teacher contributions will also increase from 8.00% to a total of 10.25% of pay, phased in OJer the next three years. The State's total contribution will also increase from approximately 3% in fiscal year 2013-14 to 6.30% of payroll in fiscal year 2016-17, plus the continued payrrent of 2.5% of payroll annual for a supplerrental inflation protection program for a total of 8.80%. In addition, AB 1469 prc,,1ides the State Teachers Retirerrent Board with authority to modify the percentages paid b,t emplO{ers and emplO{ees for fiscal year 2021-22 and each fiscal year thereafter to eliminate the CalSTRS unfunded liability b,t June 30, 2046. The State Teachers Retirerrent Board would also have authority to reduce emplO(er and State contributions if they are no longer necessary.

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Pursuant to Asserrbly Bill 1469, school district's contribution rates will increase in accordance with the follcwing schedule:

Effective Date U uly 1)

2017 2018 2019 2020

Source: Asserruly Bill 1469.

School District Contribution Rate

14.43% 16.28 18.13 19.10

The follcwing table sets forth the District's and the San Francisco County Office of Education's (the "County Office of Education") combined annual contributions to CalSTRS for fiscal years 2012-13 through 2015-16 and the prqj ected contribution for fi seal year 2016-17.

SAN FRANCISCO UNI Fl ED SCHOOL DISTRICT AND COUNTY OFFICE OF EDUCATION

(City and County of San Francisco, California)

Annual CalSTRS Contributions Fiscal Years 2012-13 through 2016-17

Fiscal Year

2012-13 2013-14 2014-15 2015-16111 2016-1 7111121

Amount

$23,740,327 24,777,345 27,914,797 57,098,276 64,127,886

'"Includes the State' son behalf paym,nts to CalSTRS. <0 Projected. Source: San Francisco Unified School District

The total errplO(er contributions to CalSTRS from the District and the County Office of Education fcr fiscal years 2012-13 through 2015-16 were equal to 10036 of the required contributions for each year. With the implerrentation of AB 1469, the District anticipcltes that its contributions to CalSTRS will increase in future fiscal years as corrpared to prior fiscal years. The District, nonetheless, is unabie to predict all factors or any changes in law that could affect its required contributions to CalSTRS in future fi seal years.

The unfunded actuarial accrued liability and funded status of the CalSTRS pension fund as of June 30 of fiscal years ended June 30, 2011 through June 30, 2015 are set forth in the follcwing table. The fair market value of the CalSTRS pension fund as of June 30, 2014 and June 30, 2015 was $179.7 billion and $180.6 billion, respectively, based on total system assets less amounts allocable to the Cal STRS Supplerrental Benefits Maintenance Account Reserve. The individual funding progress for the District and the District's proportionate share of CalSTRS' net pension liability is set forth in the District's audited financial staterrents. See APPENDIX C - "FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2016."

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Valuation Date

U une 30)

2011 2012 2013 2014 2015

ACTUARIAL VALUE OF STATE TEACHERS' RETIREMENT FUND DEFINED BENEFIT PROGRAM

Actuarial Obligation

$208.405 215.189 222.281 231.213 241.753

Valuation DatesJ une 30, 2011 throughJ une 30, 2015

Actuarial Value of Assetsl11

$143.930 144.232 148.614 158.495 165.553

($ in billions)

Market Value of Assets

$147.140 143.118 157.176 179.749 180.633

Unfunded Actuarial Obligation

64.475% 70.957 73.667 72.718 76.200

Funded Ratio (Actuarial

Value)

69.1% 67.0 66.9 68.5 68.5

Funded Ratio (Fair Market

Value)

67.2% 62.7 66.5 73.3 70.0

'" Actuarial Value of Assets and Fair Market Value of Assets does not include arrounts allocable to the CalSTRS Supplem,ntal Benefits Maintenance Account Reserve which was approxirmtely $1Q34 billion as of June 30, 2014 and $1 l.51 billion as of June 30, 2015. Sources: California State Teachers' Retirem,nt System Defined Benefit Program Actuarial Valuations as of June 30, 2010 throughJ une 30, 2015.

CalSTRS produces a comprehensive annual financial report and actuarial valuations which include financial staterrents and required supplerrentary information. Copies of the CalSTRS, comprehensive annual financial report and actuarial valuations rray be obtained from CalSTRS P.O. Box 15275, Sacrarrento, California 95851-0275. The inforrration presented in these reports is not incorporated b,t reference in this Official Staterrent.

SFERS. SFERS is charged with administering a defined benefit pension plan that cOJers substantially all City emplO{ees and certain other emplO{ees. At itsJ anuary 2015 rreeting, after revie.v of the analysis and recomrrendation prepared b,t the consulting actuarial firm, the Retirerrent Board of SFERS (the "SFERS Retirerrent Board') voted to change SFER's long-term investrrent earnings assumption from 7.50% to 7.58%, long-termwagefinflation assumption from 3.83% to 3.75% and longterm consurrer prices index assumption from 3.33% to 3.25%. These economic assumptions together with demographic assumptions based on periodic demographic studies are uti Ii zed to prepare the actuarial valuation of SFERS each year. Upon receipt of the consulting actuarial firm's valuation report, SFERS staff prOJides a recomrrendation to the SFERS Retirerrent Board for their acceptance of the consulting actuary's valuation report. In connection with such acceptance, the SFERS Retirerrent Board acts to set the annual emplO{er contribution rates required b,t SFERS as deternined b,t the consulting actuarial firm and apprOJed b,t the SFE RS Reti rerrent Board.

In accordance with the Charter of the City, District participants contribute 7.5 percent to 13.5 percent of their salaries to SFERS. The funding policy of SFERS provides for actuarially deternined periodic contributions b,t the District at rates such that sufficient assets will be availalble to SFERS to pay District participants' benefits when due. The emplO{er contribution rate for fiscal year 2015-16 was 20.4% of cOJered payroll and is estimated to be 18.9% and 20.0% for fiscal years 2016-17 and 2017-18, respectively.

A history of the systemwide annual required contributions as well as the District's and the County Office of Education's combined annual contributions to SFERS are set forth belcw. The District's portion of historical contributions have equaled 10036 of the required contribution for each of the relevant fi seal years.

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SAN FRANCISCO CITY AND COUNTY EMPLOYEES' RETIREMENT SYSTEM Schedule of E mplO(er Contributions

($ in Thousands)

District and System-Wide County Office of

Annual Education Year Ended Required Percentage Annual Required

June 30 Contribution Contributed Contribution111

2012 $410,797 100.036 $11,692 2013 442,870 100.0 12,388 2014 532,882 100.0 15,858 2015 592,643 100.0 18,475 2016 526,805 100.0 15,732

'" San Francisco Unified School District audited financial staterrents for fiscal year endedJ une 30, 2016. Source: San Francisco Unified School District

Percentage Contributed

100.0% 100.0 100.0 100.0 100.0

The follCM1ing table sets forth the rrnximum empl0yer contribution rates for fiscal years 2010-11 through 2016-17.

CITY AND COUNTY OF SAN FRANCISCO San FranciscoEmplO(ment Retirement System

Fiscal Years 2010-11 through 2016-17

Fiscal Year ended June 30

2011 2012 2013 2014 2015 2016 2017

Maximum EmplO(er Contribution Rates

13.5636 18.09 20.71 24.82 22.80 21.40 23.46

Source: SFERS' Actuarial Valuation reports as of July l, 2015, July l, 2014, July l, 2013, July l, 2012 and July l, 2011; San Francisco Unified School District

(Remainder of Page Left Intentionally Blank)

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The follcwing table sets forth SFERS' schedule of funding progress for fiscal years 2010-11 through 2014-1 5.

Actuarial Actuarial Valuation Date Value of

U uly 1) Assets

2011 $16,313,120 2012 16,027,683 2013 16,303,397 2014 18,012,088 2015 19,653,338

------------------

CITY AND COUNTY OF SAN FRANCISCO San Francisco E mplO(ee Retirement System

Fiscal Years 2010-11 through 2014-15 ($ in millions)

Actuarial Unfunded Accrued Actuarial Accrued Funded Liability Liability (UAAL) Ratio

$18, 598, 728 $2,285,608 8&6 19,393,854 3,366,171 83 20,224,776 3,921,379 81 21,122,567 3,110,479 85 22,970,893 3,317,555 86

UAAL asa % of

Covered Covered Payroll Payroll

$2,360,413 97% 2,393,842 141 2,535,963 155 2,640,153 118 2,820,968 118

Sources: SFERS' audited financial staterrents and supplerrental schedules for fiscal years endedJ une 30, 2015, June 30, 2014, June 30, 2013, June 30, 2012, andJ une 30, 2011; SFERS' Actuarial Valuation reports as of July l, 2015, July l, 2014, July l, 2013,July l, 2012, andJuly l, 2011.

The term "Actuarial Value of Assets" refers to the value of assets held in trust adjusted according to SFERS's actuarial methods as summarized abo.ie. "Actuarial Accrued Liability" means the accrued actuarial liability of SFERS. The abo.ie table reflects that the Funded Ratio (that is, the Actuarial Value of Assets divided 0y the Actuarial Accrued Liability) increased to 86%, corresponding to an unfunded actuarial liability ("UAAL") of approximately $3.3 billion. The UAAL is the difference between the Actuarial Value of Assets and the total Actuarial Liability.

Other District Retirement Plans. The District previously participated in three retirement plans administered 0y the Public Agency Retirement System ("PARS"): (i) the Alternative Retirement System ("ARS"); (ii) the Target Benefit Plan ("TBP"); and (iii) the Supplementary Retirement Plan ("SRP"). PARS plans were defined contribution plans that covered ernplO(ees who were not eligible to participate under STRS or SFERS. The District's contributions to these three retirement plans totaled $2.2 million in fiscal year 2010-11. The District terminated the ARS and TBP retirement plans on October 12, 2011 and replaced them with either Social Security or a 403(b) plan.

SRP was a defined benefit retirement plan that is available to eligible certificated bargaining unit members that elected to parti ci pate duri ng the enrol I ment period ending in fi seal 1994 and 1998 as part of an early retirement program. Benefits available to participants under SRP include a life annuity equal to 7 percent of final annual salary or other actuarially equivalent benefits. The District funds these benefits on a pay-as-you-go basis. See Note 14 to the District's financial statements attached hereto as APPENDIX C - "FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2016."

GOJernor's Pension Reform On August 28, 2012, GOJernor Brcwn and the State Legislature reached agreement on a new law that reforms pensions for State and local gOJernment emplO{ees. AB 340, which was signed into law on September 12, 2012, established the California Public ErnplO(ees' Pension Reform Act of 2012 ("PEPRA") which gOJerns pensions for public ernplO(ers and public pension plans on and after January 1, 2013. For new ernplO(ees, PEPRA, among other things, caps pensionable salaries at the Social Security contribution and wage base, which is $110,100 for 2012, or 12036 of that amount for ernplO(ees not covered 0y Social Security, increases the retirement age 0y two

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years or rrore for all mw public errplO{ees while acjjusting the retirement fornulas, requires state emplO{ees to pay at least half of their pension costs, and also requires the calculation of benefits on regular, recurring pay to stop income spiking. For all errplO{ees, changes required 0y PEPRA include the prohibition of retroactive pension increases, pension holidays and purchases of service credit. PEPRA applies to all State and local public retirement systems, including county and district retirement systems. PEPRA only exempts the University of California system and charter cities and counties whose pension plans are not go.1erned 0y State law. Although the District antici pcltes that PE PRA would not increase the District's future pension obligations, the District is unable to deternine the extent of any impact PEPRA would have on the District's pension obligations at this time. Additionally, the District cannot predict if PEPRA will be challenged in court and, if so, whether any challenge would be successful.

The District is unable to predict what the amount of State pension liabilities will be in the future, or the amount of the contributions which the District may be required to make. CalSTRS and SFERS are rrore fully described in Note 14 to the District's financial statements attached hereto as APPENDIX C -"FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2016."

GASB 67 and 68. In J une 2012, the GOJernmental Accounting Standards Board apprOJed a pair of related statements, Statement Number 67, Financial Reporting for Pension Plans ("Statement Number 67"), which addresses financial reporting for pension plans, and Statement Number 68, Accounting and Financial Reporting for Pensions ("Statement Number 68''), which establishes new accounting and fi nanci al reporti ng requirements for governments that prOJi de thei r empl O{ees with pensions. The guidance contained in these statements will change hew go.1ernments calculate and report the costs and obligations associated with pensions. Statement Number 67 replaces the current requirements of Statement Number 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, for most public errplO{ee pension plans, and Statement Number 27 replaces the current requirements of Statement Number 27, Accounting for Pensions 0y State and Local Governmental ErrplO{ers, for most go.1ernment emplO{ers. The new statements also replace the requirements of Statement Number 50, Pension Disclosures, for those governments and pension plans. Certain of the major changes include: (i) the inclusion of unfunded pension liabilities on the go.1ernment's balance sheet (such unfunded liabilities are currently typically included as notes to the go.1ernment's financial statements); (ii) full pension costs would be shewn as expenses regardless of actual contribution levels; (iii) I ewer actuarial discount rates would be required to be used for most plans for certain purposes of the financial statements, resulting i n increased I i abi Ii ti es and pension expenses; and ( iv) shorter amortization periods for unfunded liabilities would be required to be used for certain purposes of the financial statements, which generally would increase pension expenses. Statement Number 67 became effective beginning in fiscal year 2013-14, and Statement Number 68 became effective beginning in fiscal year 2014-15. See Note 11 to APPENDIX C- "FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDE DJ UNE 30, 2016."

Other Post-EmplO{ment Benefits. The District prOJides retiree health benefits to (i) all certificated errpl O{ees hi red before J uly 1, 2004 who were empl O{ed ful I-ti me for 9 to 12 (depending on retirement date) final years of consecutive service with the District prior to retirement, (ii) all certificated emplO{ees hired after July 1, 2004whowere emplO{ed full-time with the District for 20 final consecutive years of service, (iii) paraprofessionals hired beforeJ uly 1, 2006 errplO{ed full-time with the District for 7to 10 (depending on retirement date) final years of consecutive service, (iv) paraprofessionals hired after July 1, 2006 emplO(ed full-time with the District for 10 final consecutive years of service, (v) all classified errplO{ees hired on or beforeJ anuary 9, 2009 with at least 5 years of service and (vi) pursuant to Proposition B ("Proposition B"), which was apprOJed 0y voters in June, 2008, to all classified emplO{ees hired on or after January 10, 2009 with at least 20 years of service with the District; retirees with at least 10 but less than 15 years of service with the District will qualify for a 5036 retiree health

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subsidy and retirees with at least 15 but less than 20 years of service with the District will qualify for a 7'JYo retiree health subsidy.

On June 21, 2004, the GOJernmental Accounting Standards Board ("GASB") released its GOJernmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting b,t ErnplO{ers for Post-€rrplO(ment Benefits Other Than Pensions. Statement No. 45 establishes standards for the measurement, recognition and display of post-€rnplO{ment healthcare as well as other forrns of post-€rnpl O{ment benefits, such as Ii fe insurance, when prOJi ded separately frorn a pension pl an expense or expenditures and related I i abi Ii ti es i n the financial reports of state and I ocal governments. U nder Statement No. 45, governments will be required to: (i) measure the cost of benefits, and recognize other post-€rnpl O{ment benefits expense, on the accrual basis of accounting in periods that approxi rrate ernplO{ees' years of service; (ii) provide inforrration about the actuarial liabilities for promised benefits associated with past services and whether, or to what extent, those benefits have been funded; and provide inforrration useful in assessing potential derrands on the ernplO{er's future cash flews. The District's post-€rnplO{ment health benefits fall under Statement No. 45. The effective date of the Statement No. 45 reporting requirements for the District was fiscal year 2007-08 (the first fiscal year period beginning after December 15, 2CX:X,).

The District received an actuarial study of retiree health liabilities, dated August 18, 2016 (the "Study") that includes estirrated posHetirement liabilities as of December 1, 2015. The Study assumed an inflation rate of 2.7'JYo per year, an investment return/discount rate of 4.'JYo per year, a long-terrn trend assumption of 4.0% per year, and a payroll increase of 2.7'JYo per year. The Study estirrates that the" payas-you-go'' cost of prOJiding retiree health benefits for current retirees in the year beginning December 1, 2015 to be $28,157,410. For current errplO(ees, the Study estirrates that the value of benefits" accrued' in the year beginning December 1, 2015 (the "norrral cost") is$ 36,233,644 and that the actuarial accrued liability ("AAL") of post-€rnplO{ment health benefits is $624,000,552. The Study esti rrates thatthe value of the rerraining unamortized initial unfundedAAL is$ 08,798,542 andthatthe residual AAL, therefore, is negative $84,788,990. The Study estirrates that the current year cost to amortize the residual unfunded AAL over 30 years is negative $3,633,059. The Study also estirrates that the annual required contribution, to be used as a basis for deternining retiree health plan expenses in accordance with Statement No. 45, is $69,823,518 (derived b,t combining the norrral cost and the initial and residual unamortized AAL amortization costs). The District has been and is expected to continue to review the Study in conjunction with the District's obligations under its post-€rnplO{ment benefit plan to determine its course of action with respect to its contributions for post-€rrplO(ment benefits.

(Rerrainder of Page Left Intentionally Blank)

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The follcwing table sets forth the District's and the County Office of Education's corrbined annual i:ayments on post--empl O{ment benefits for fi seal years 2012-13 through 2016-17.

Charter Schools

SAN FRANCISCO UNI Fl ED SCHOOL DISTRICT AND COUNTY OFFICE OF EDUCATION

Annual OPE B Payments Fiscal Years 2011-12 through 2016-17

($ in M ii lions)

Fiscal Year

2012-13 2013-14 2014-15 2015-16 2016-1 ?(21

Payment Amount111

$33.9 34.5 35.2 31.3 41.4

'" Includes $2.0 trillion of funds that were deposited in each respective year through 2015-16 and estimated to be deposited in 2016-17 in a separate fund to offset a portion of the District's OPEB liability. 121 Projected. Source: San Francisco Unified School District

I ndependent charter schools operate as autonomous publ i c schools, under charter from a school district, county office of education, or the State Board of Education, with ninimal supervision b,t the local school district. Independent charter schools receive revenues from the State and from the District for each student enrolled, and thus effectively reduce revenues available for students enrolled in District schools. The District is also required to accommodate charter school students originating in the District in facilities comparable to those prc,,1ided to regular District students.

Thirteen independent charter high schools currently operate in the District's boundaries. The District estimates that the corrbi ned attendance of the charter schools is approxi mately 6,500 students.

The District i:avs revenue in lieu of property taxes based on each charter school's individual LCFF calculation. For fiscal year 2016-17, the District has budgeted a total transfer of in lieu i:ayments to charter schools in the District of approximately $38.29 nillion, an amount equal to the fiscal year 2015-16 estimated transfer.

Insurance, Risk Pooling andJ oint PcwersArrangements

The District has a risk management dei:artment that is responsible for all insurance and risk management activities. The current structure combines self-insurance with excess, or reinsurance, protection beyond retained levels. The risk management staff works with other dei:artments within the District on prevention strategies to nininize the risk of loss to people and property. The current financial strategy for the risk management program includes an actuarial study each year for the workers' compensation program. The property, liability and benefits programs are studied one time per year during marketi ng or prior to renewals.

The District i:articii:ates in Schools Excess Liability Fund ("SELF") joint pcwers authority. The District i:ays annual contributions to SELF for additional excess liability cOJerage. Additional commercial insurance is also purchased for excess workers' compensation, property, general liability,

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crime, student foreign travel, and student accidents. For workers' compensation cOJerage, the District maintains a $500,000 self-insured retention, with $150,000,000 in cOJerage through Safety National for excess coverage. The District rrai ntai ns property coverage through Axis Insurance and RSU I I ndernnity Corrpany in the amount of $300 nil lion per occurrence, with a $100,000 deductible.

The District does not rrai ntai n insurance fcr earthquake risks, relying on its general reserves and the expectation that funds will be available from the Federal Emergency Management Agency ("FEMA"). There is no guarantee that sufficient reserves or FEMA assistance would be available in the event of a major seismic event in the San Francisco Bay Area. The District will carry earthquake insurance when it deems it cost-€ffective.

The District offers its errployees dental insurance through a self-insured program, life and longterm disability insurance that is purchased through commercial carriers, and health insurance that is purchased through the City Health Service System. While the District considers its insurance cOJerage to be adequate, the District is unable to predict the availability or cost of such insurance in the future.

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS

Limitations on Revenues

Article XI I IA of the California Constitution. ArticleXIIIA of the State Constitution, adopted and kncwn as Proposition 13, was apprc,,1ed b,t the voters inJune 1978. Section l(a) of ArticleXIIIA Ii nits the maximum advaloremtax on real property to 1% of "full cash value," and provides that such tax shall be collected b,t the counties and apportioned according to State law. Section l(b) of Article XI I IA prc,,1ides that the 1% linitation does not apply to ad valoremtaxes levied to pay interest and redemption charges on ( i) indebtedness apprc,,1ed b,t the voters prior to J uly 1, 1978, or (ii) bonded indebtedness for the acquisition or improvement of real property apprc,,1ed on or after July 1, 1978, b,t two-thirds of the votes cast on the proposition, or (iii) bonded indebtedness incurred b,t a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school faci Ii ties or the acquisition or lease ofreal property for school facilities, apprc,,1ed b,t 55% of the voters of the district, but only if certain accountability measures are included in the proposition. The tax for payment of the District's bonds apprc,,1ed at the 2003, 2006 and 2011 elections falls within the exception for bonds approved b,t a 55% vote of the voters voting on the proposition.

Section 2 of Article XIIIA defines "full cash value" to mean the county assessor's valuation of real property as shewn on the fiscal year 1975--16 tax bill, or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in cwnershi p has occurred. The ful I cash value rray be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the caisumer price index or comparable data for the area under taxing j uri sdi cti on, or may be reduced in the event of declining property value caused b,t substantial darrage, destruction or other factors. The Revenue and Taxation Code pernits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic dcwnturns or other factors, to subsequently" recapture'' such value ( up to the pre--clecl i ne value of the property) at an annual rate higher than 2% , depending on the assessor's measure of the restored value of the darraged property. The State courts have upheld the constitutionality of this procedure. Legislation enacted b,t the State Legislature to implement Article XI I IA prc,,1ides that, notwithstanding any other law, local agencies rray not levy any ad valorem property tax except the 1% base tax levied b,t each county and taxes to pay debt service on indebtedness approved b,t the voters as described abOJe.

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Since its adoption, Article XI I IA has been arrended a nurrber of tirres. These arrendrrents have created a nurrber of exceptions to the requirerrent that property be reassessed when purchased, ne.vly constructed or a change in cwnershi p has occurred. These excepti ans include certain transfers of real property between fani ly rrerrbers, certain purchases of repl acerrent dwel Ii ngs for persons over age 55 and b,t property cwners whose ori gi nal property has been destroyed i n a declared disaster, and certai n irnprOJerrents to accomnodate disabled persons and for seismic upgrades to property. These arrendrrents have resulted in marginal reductions in the property tax revenues of the District.

Both the State Suprerre Court and the United States Suprerre Court have upheld the validity of ArticleXIIIA.

Article X 111 B of the California Constitution

I n addition to the I i nits Article X 111 A i mposes on property taxes that may be col I ected b,t I ocal governrrents, certain other revenues of the State and I ocal gOJernrrents are sul::ij ect to an annual "appropriations linit'' or "Gann Limit" imposed b,t Article XIIIB of the State Constitution, which effectively limits the amount of such revenues that gOJernrrent entities are pernined to spend. Article X 111 B, approved b,t the voters inJ une 1979, was modified substantially b,t Proposition 111 in 1990. The appropriations Ii nit of each gOJernrrent entity applies to "proceeds of taxes," which consist of tax revenues, state sul:wentions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne b,t such entity in prOJi ding the regulation, product or service." "Proceeds of taxes" excludes tax refunds and some benefit i:avrrents such as unemployrrent insurance. No Ii nit is imposed on the appropriation of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non-tax funds.

Article XIIIB also does not limit appropriation of local revenues to pay debt service on bonds existing or authorized b,t January 1, 1979, or subsequently authorized b,t the voters, appropriations required to comply with mandates of courts or the federal gOJernrrent, appropriations for qual i fi ed capital outlay prqjects, and appropriation b,t the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990, levels. The appropriations linit may also be exceeded in cases of errergency; hcwever, the appropriations Ii nit for the three years follcwing such errergency appropriation must be reduced to the extent b,t which it was exceeded, unless the errergency arises from civil disturbance or natural disaster declared b,t the Governor, and the expenditure is apprOJed b,t two-thirds of the legislative body of the local governrrent.

The State and each local gOJernrrent entity each has its cwn appropriations Ii nit. Each year, the Ii nit is aqjusted to all cw for changes, if any, in the cost of living, the population of thejurisdiction, and any transfer to or from another governrrent entity of financial responsi bi I ity for prOJi ding services. Each school district is required to establish an appropriations limit each year. In the event that a school district's revenues exceed its spending Ii nit, the district may increase its appropriations Ii nit to equal its spending b,t taking appropriations limit from the State.

Proposition 111 requires that each agency's actual appropriations be tested against its Ii nit every two years. If the aggregate "proceeds of taxes" for the preceding two-year period exceeds the aggregate Ii nit, the excess must be returned to the agency's taxpayers through tax rate or fee reducti ans OJ er the fol I cwi ng two years. If the State's aggregate "proceeds of taxes" for the preceding two-year period exceeds the aggregate limit, 5036 of the excess is transferred to fund the State's contribution to school and college districts. In fiscal year 2015-16, the District had an appropriations Ii nit of $352,007,464.99.

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Article X 111 C and ArticleX 111 D of the California Constitution

On NOJember 5, 1996, the voters of the State of California apprc,,1ed Proposition 218, popularly kncwn as the "Rightto Vote on Taxes Act." Proposition 218 added to the California Constitution Articles XIIIC and XIIID ("Article XIIIC" and "Article XIIID," respectively), which contain a number of prc,,1isions 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 preplred b,t the California Attorney General, Proposition 218 limits "the authority of local governments to irrpose taxes and property,elated assessments, fees and charges." Among other thi ngs, Article X 111 C establishes that every tax is either a "general tax'' (irrposed for general governmental purposes) or a "special tax'' (irrposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohi bi ts any I ocal agency from i rrposi ng, ext en di ng or i ncreasi ng any special tax beyond its rrnxirnum authorized rate without a two-thirds vote; and also prOJides thatthe initiative pcwerwill not be linited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further prOJi des that no tax may be assessed on property other than ad val orem property taxes imposed in accordance with Articles X 111 and XI I IA of the California Constitution and special taxes apprc,,1ed b,t a two-thirds vote under Article XI I IA, Section 4. ArticleX 111 D deals with assessments and property,elated fees and charges, and expl i ci tly prOJi des that not hi ng in Article X 111 C or X 111 D wi 11 be construed to affect existing laws relating to the irrposition of fees or charges as a condition of property development.

The District does not irrpose any taxes, assessments, or property,elated fees or charges which are sul::iject to the prc,,1isions of Proposition 218. It does, hcwever, receive a portion of the basic 1% ad valorem property tax levied and collected b,t the County pursuant to Article XI I IA of the California Constitution. The provisions of Proposition 218 may have an indirect effect on the District, such as b,t liniting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District thereb,t causing such local governments to reduce service levels and possibly acwersely affecting the value of property within the District.

Statutory Limitations

On NOJember 4, 1986, State voters apprc,,1ed Proposition 62, an initiative statute limiting the irrposition of new or higher taxes b,t local agencies. The statute (a) requires new or higher general taxes to be approved b,t two-thirds of the local agency's governing body and a majority of its voters; (b) requires the inclusion of specific information in all local ordinances or resolutions proposing new or higher general or special taxes; (c) penalizes local agencies that fail to comply with the foregoing; and (cl) required local agencies to stop collecting any new or higher general tax adopted after July 31, 1985, unless a majority of the voters apprc,,1ed the tax b,t NOJember 1, 1988.

Appellate court decisions follONing the apprc,,1al of Proposition 62 determined that certain prc,,1isions of Proposition 62 were unconstitutional. Hcwever, the California Supreme Court upheld Proposition 62 in its decision on September 28, 1995 in Santa Clara CountyTransportationAuthorityv. Guardinu This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Supreme Court's decision, such as whether the decision applies retroactively, what remedies exist for taxpayers sul::iject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities.

Proposition 98 and Proposition 111

On NOJember 8, 1988, voters apprc,,1ed Proposition 98, a combined initiative constitutional

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amendment and statute called the "Classroom Instructional lrrprOJement and Accountability Act'' (the "Accountability Act"). The Accountability Act changed State funding of public education belcw the university I eve I, and the operation of the State' s A ppropri ati ons Li nit. The A ccountabi I ity A ct guarantees State funding for K-12 school districts and community college districts (collectively, "K-14 districts") at a I eve I equal to the greater of ( a) the same percentage of general fund revenues as the percentage appropriated to such districts in 1986--87, which percentage is equal to 40.9% or (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, acjjusted for grONth in enrol I ment and i nfl ati on.

Since the Accountability Act is unclear in some details, there can be no assurance that the Legislature or a court night not interpret the Accountability Act to require a different percentage of general fund revenues to be allocated to K-14 districts than the 40.9%, orto apply the relevant percentage to the State's budgets in a different way than is proposed in the Governor's Budget. In any event, the GOJernor and other fiscal observers expect the Accountability Act to place increasing pressure on the State's budget OJer future years, potentially reducing resources avai I able for other State programs, especially to the extent the Article XIIIB spending limit would restrain the State's ability to fund such other programs b,t raising taxes.

The Accountability Act also changes hew tax revenues in excess of the State Appropriations Li nit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 districts. Such transfer would be excluded from the Appropriations Limit for K-14 districts and the K-14 school Appropriations Limits for the next year would automatically be increased b,t the amount of such transfer. These additional moneys would enter the base funding calculation for K-14 districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decl i ne i n a year fol I cwi ng an Article X 111 B surplus. The maximum amount of excess tax revenues which could be transferred to schools is 4% of the nini mum State spending for education mandated b,t the Accountability Act, as described abOJe.

OnJ une 5, 1990, California voters approved Proposition 111 (Senate Constitutional Amendment 1), which further modified the Constitution to alterthe spending Ii nit and education funding prOJisions of Proposition 98. Most significantly, Proposition 111 ( 1) Ii beral i zed the annual acjj ustments to the spending Ii nit b,t measuring the "change in the cost of living'' b,t the change in State per capita personal income rather than the Consumer Price Index, and specified that a portion of the State's spending Ii nit would be acjj usted to reflect changes in school attendance; ( 2) prOJi ded that 5036 of the "excess" tax revenues, deternined based on a two-year cycle, would be transferred to K-14 school districts with the balance returned to taxpayers (rather than the previous 10036 but only up to a cap of 4% of the districts' ninimum funding level), and that any such transfer to K-14 school districts would not be built into the school districts' base expenditures for calculating their entitlement for State aid in the follcwing year and would not increase the State's appropriations Ii nit; (3) excluded from the calculation of appropriations that are sul::iject to the Ii nit appropriations for certain "qualified capital outlay prqjects" and certain increases in gasoline taxes, sales and use taxes, and receipts from vehicle weight fees; ( 4) prOJi ded that the Appropriations Li nit for each unit of gOJernment, including the State, would be recalculated beginning in the 1990-91 fiscal year, based on the actual Ii nit for fiscal year 1986--87, acjj usted forward to 1990-91 as if Senate Constitutional Amendment 1 had been in effect; and (5) acjjusted the Proposition 98 formula that guarantees K-14 school districts a certain amount of general fund revenues, as described belcw.

Under prior law, K-14 school districts were guaranteed the greater of (a) 40.9% of general fund revenues ( the "fi rst test'') or ( b) the amount appropriated i n the prior year acjj usted for changes in the cost of living (measured as in Article X 111 B b,t reference to per capita personal income) and enrollment (the "second test"). Under Proposition 111, school districts would receive the greater of (a) the first test, (b) the second test or (c) a third test, which would replace the second test in any year when grONth in per

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capita 92neral fund revenues from the prior year was less than the annual grONth in State per capita personal income. Under the third test, school districts would receive the amount appropriated in the prior year acjjusted for chang2 in enrollment and per capita 92neral fund revenues, plus an additional srrall acjjustment factor. If the third test were used in any year, the difference between the third test and the second test would become a " credit'' to be i:ai d i n future years when 92neral fund revenue grONth exceeds personal income grONth.

Proposition 30

On November 6, 2012, voters apprc,,1ed Proposition 30, also referred to as the Terrporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment. Proposition 30 terrporarily (a) increased the personal income tax on certain of the State's income taxi:ayers b,t one to three percent for a period of seven years beginning with the 2012 tax year and ending with the 2019 tax year, and (b) increased the sales and use tax b,t one-quarter percent for a period of four years beginning onJ anuary 1, 2013 and ending with the 2016 tax year. The revenues 92nerated from such tax increases are included in the calculation of the Proposition 98 minimum funding guarantee (see"Proposition 98 and Proposition 111" abOJe). The revenues 92nerated from such temporary tax increases are deposited into a State account created pursuant to Proposition 30 (the Education Protection Account), and 8936 of the amounts therein are allocated to school districts and 11% of the amounts therein are allocated to community colley districts.

The Proposition 30 tax increases were scheduled to expire at the end of the 2016 and 2019 tax years. The California Tax Extension to Fund Education and Healthcare Initiative(" Proposition 55") was approved b,t voters in the NOJember 2016 statewide election. Proposition 55 extends b,t twelve years the terrporary personal income tax increases enacted b,t Proposition 30 and al locates tax revenues to school districts and community colleg2 districts in the State. The District cannot predict the effect the loss of the revenues 92nerated from such terrporary tax increases wi 11 have on total State revenues and the effect on the Proposition 98 formula for funding schools.

Applications of Constitutional and Statutory Provisions

The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. For a discussion of hew the prc,,1isions of Proposition 98 have been applied to school funding see "DISTRICT FINANCIAL MATTERS - State Funding of Education; State B udg2t Process."

Proposition 2

Proposition 2, which included certain constitutional amendments to the Rainy Day Fund and, upon its apprc,,1al, trigg2red the implementation of certain provisions which could Ii nit the amount of reserves that rray be rraintained b,t a school district, was apprc,,1ed b,t the voters in the November 2014 election.

Rainy Day Fund. The Proposition 2 constitutional amendments related to the Rainy Day Fund (i) require deposits into the Rainy Day Fund whenever capital gains revenues rise to more than 836 of 92neral fund tax revenues (and the 2014-15 State B udg2t notes that capital gains revenues are expected to account for approximately 9.836 of 92neral fund revenues in fiscal year 2014-15); (ii) set the maximum size of the Rainy Day Fund at 1036 of 92neral fund revenues; (iii) for the next 15 years, require half of each year's deposit to be used for supplemental i:ayments to l'.0-Y dONn the budg2tary debts or other I ongterm liabilities and, thereafter, require at least half of each year's deposit to be saved and the rerrainder used for supplemental debt i:ayments or savings; (iv) all cw the withdrawal of funds only for a disaster or

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if spending rerrains at or belcw the highest level of spending from the plSt three years; (v) require the State to prOJide a multiyear budget forecast; and (vi) create a Proposition 98 reserve (the Public School System Stabilization Account) to set aside funds in good years to minimize future cuts and smooth school spending. The State may deposit amounts into such account only after it has plid all amounts cwing to school districts relating to the Proposition 98 rraintenance factor for fiscal years prior to fiscal year 2014-15. The State, in addition, rray not transfer funds to the Public School System Stabilization Account unless the State is in a Test 1 year under Proposition 98 or in any year in which a rraintenance factor is created.

SB 858. SenateBill 858("SB 858'') becameeffectiveupontheP15sageofProposition2. SB 858 includes provisions which could Ii nit the amount of reserves that rray be maintained 0y a school district in certain circumstances. Under SB 858, in any fiscal year immediately follcwing a fiscal year in which the State has made a transfer into the Public School System Stabi I ization Account, any adopted or revised budget 0y a school district would need to contain a combined unassigned and assigned ending fund balance that (a) for school districts with an A.D.A. of less than 400,000 students, is not more than two times the amount of the reserve for econonic uncertainties rrandated 0y the Education Code, or (b) for school districts with an A.DA. that is more than 400,000 students, is not more than three times the amount of the reserve for econoni c uncertai nti es mandated 0y the Education Code. I n certai n cases, the county superintendent of schools may grant a school district a waiver from this limitation on reserves for up to two consecutive years wi thi n a three-year period if there are certai n extraordi nary fi seal circumstances.

The District, which has an A .D .A. of I ess than 400,000 students, is requi red to rrai ntai n a reserve for economic uncertainty in an amount equal to 3% of its general fund expenditures and other financing uses. The District does not expect SB 858 to acwersely affect its ability to pay the principal of and interest on the Bands as and when due.

Future Initiatives

ArticleXIIIA, ArticleXIIIB, ArticleXIIIC, ArticleXIIID, as well as Propositions 62, 98,111 and 218, 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.

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APPENDIX B

ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE DISTRICT

The San Francisco Unified School District has boundaries that are coterninous with City and County of San Francisco (the "City'') and serves the comnmities within the City. The follCMing econonic and derrographic data for the City are presented for inforrrational purposes only. The Bonds are not a del:t or obligation of the City, and taxes to pay the Bonds are le.1ied only on taxable property located within the District.

Population

The populations of the City and County of San Francisco from 2000 to 2016 are shewn in the fol I cwi ng table.

POPULATION GROWTH City and County of San Francisco

2000 Through 2016

Year Population Annual

% Change

2CXXJ 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

776,733 780,614 782,765 782,599 781,308 780,187 781,295 787,127 795,002 800,239 804,989 815,854 826,103 839,564 848,186 857,508 866,583

0.5% 0.28

(0.02) (0.16) (0.14) 0.14 0.75 1.00 0.66 0.59 1.35 1.26 1.63 1.03 1.10 1.06

Source: California Departrrent of Finance, E-4 Population Estimates for Citie~ Counties, and the State, 200l-2010with 2000 & 2010 Census Counts for City and County of San Francisco for years 2000-2009; California Departrrent of Finance, E-4 Population Estimates for Cities, Countie~ and the State, 201 l-2016, with 2010 Census Benchrrark for City and County of San Francisco for years 20l0-2016.

B-1

E mplO(ment

The follCM!ing table sumnarizes industry emplO{ment in the City and County of San Francisco from 2010 through 2015. Trade, transportation and utilities, professional and business services, and goods producing are the largest emplO{ment sectors in the City.

ANNUAL AVERAGE WAGE AND SALARY EMPLOYMENT City and County of San Francisco

201 0 through 20151~

Industry E rrployrrent '" 2010 2011 2012 2013 2014

Agriculture 300 200 100 100 200

Mining, Logging & Construction 14,300 13,900 15,000 15,900 16,900 Manufacturing 8,700 8,900 9,600 9,300 10,100

Trade, Transportation & Utilities 61,700 62,400 65,300 68,500 70,700 Information 19,500 22,700 25,500 25,700 28,300 Financial Activities 48,400 47,000 47,800 49,300 50,200 Professional and Business Services 122,100 l3l,700 144,500 156,800 168,800 Education and Health Services 80,400 79,600 81,900 82,800 83,000 Leisure and Hospitality 76,800 79,500 84,700 86,200 90,200 Other Services 21,600 21,900 22,900 24,300 25,800 Government 90,000 89,800 89,200 88,400 89,500

Total 543,500 557,600 586,400 607,500 633,400 ------------

(7l Employment is rep::11ted lJ,,I pla:::e of work: it does net inclLde persons it1v'olved in lalxir--management disputes. Figures are rounded to the nearest hurdred. Columns may mt sum to totals due to rourdi tl'J. (2l Most current i nfcnnation avai I able.

Source: Cal iforniaState Department of Employment Development, Lalxir Market Information Division.

B-2

201srn

200

18,500 10,300

74,900 31,700 52,000

184,600 85,700 93,300 26,200 91,600

668,900

The fol Io.vi ng tal:J es sumnari ze the civi Ii an I abor force, en-pl O{rrent and unempl O{rrent in the City and County of San Francisco from 2010to 2016. The annual average unemplO{rrent rate in the City in Decerrber 2016 was approximately 3.0% .

CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT City and County of San Francisco

Annual Averages, 2010Through 2016

Civilian Errployed U nerrployed Labor U nerrployrrent Year Labor Force Labor Force'" Force<0

2010 486,000 442,700 43,300

2011 494,800 454,900 39,300

2012 510,200 475,600 34,600

2013 517,600 489,300 28,200

2014 531,700 508,500 23,200

2015 548,000 528,100 19,900 2016(4) 559,900 543,300 16,500

------------

(7l I rr::I Ldes per sens i 111/olved in lalxir --management trade disputes.

(2l lrr::ILdesall personswith:Jutjobswh:Jareactively seekitl'Jwork.

(3l This rate is computed from unrourded data it may differ frcm rates computed from rourded figures in this table.

(4l Data as of December 2016, the ITTJst recent data available as of the date of this Official Statement.

Source: California State Department of Employment Development, Lalxir Market Information Division.

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RateC3>

&9

&l

6.8

5.5

4.4

16

10

Major EmplO(ers

The follcwing tables shew the largest emplO{ers located in the City and County of San Francisco in 2016.

LARGEST EMPLOYERS City and County of San Francisco

Company

Wells Fargo& Co. California Pacific Medical Center Salesforce Kaiser Perrranente PG&E Corp. Gap Inc. Dignity Health Acadelll{ of Art University W i II iams-S onorra I nc. Twitter Inc.

Type of Business

Financial Services Healthcare Technology Healthcare Utility PrCNider Retail Healthcare Education Retail Technology

San Francisco Empl0yees

(FTE s)

8,245 6,CXXJ 5,870 5,249 4,381

4,268111 2,550 2,430 2,320 2,300

'" Figure is based on 2014 headcount rrinus the State of California's Worker Adjustrrentand Retraining Source: San Francisco B usinessjournal, The Book of Lists, Sacrannento County 2017.

Construction Activity

The level of construction activity in the City and County of San Francisco as measured 0y total building pernits for residential units is shewn in the follcwingtables.

BUILDING PERMITS City and County of San Francisco

2011 Through 2016

2011 2012 2013 2014 2015 2016111

Valuation ($CXXJ) Residential $872,977 $1,295,164 $1,477,729 $1,188,882 $1,979,777 $1,828,894

Non-Residential 789,206 759,521 1,892,794 1,583,897 2,257,106 1,386,008

TOTAL 1,662,132 2,054,685 3,370,524 2,772,780 4,236,882 3,214,902

Dwelling Units Single Farrily 30 30 69 35 66 123

Multi pie family 1,972 3,145 5,208 3,035 3,604 3,429

TOTAL 2,002 3,175 5,277 3,070 3,670 3,552

----------------Ill Through N<Nerrber 2016. Source: Construction Industry Research Board.

B-4

Taxable Sales

Taxable sales in the City and County of San Francisco from 2010through 2014are shewn in the fol I cwi ng table.

TAXABLE SALES 2010through 2014 ($ in Thousands)

2010 2011 2012 2013 2014

Apparel Stores $1.499.912 $1.701.395 $1.886.746 $2.040.734 $2. 168.822 General Merchandise 700.755 768.818 804.628 897.600 864.009 Food Stores 617.920 651.528 698.890 740.746 782.750 Eating& Drinking Places 2.812.995 3.120.655 3.442.081 3.750.056 4.104.185 Home Furnishings & Appliances 679.446 732.495 825.268 880.330 938.256 Building Material & Farm Implements 348.729 414.096 466.949 508.070 537.424 Automotive Group 413.479 452.375 505.612 548.713 588.769 Service Stations 507.626 626.528 664.318 650.678 611.354 Other R etai I Stores 1.390.897 1.472.005 1 .588.779 1 .852.620 2.037.646

Total Retail Stores $8.971.759 $9.939.895 $10.883.271 $11.869.555 $12.633.215

A II Other Outlets 4.471.363 4.950.632 5.070.334 5.070.334 5.836.514

Total All Outletsl21 $13.443.121 $14.890.527 $15.953.605 $15.953.605 18.469.729

'" Beginning in 2009. the California Board of Equalization sumrrari;red taxable sales and perrrits using the North American Industry Classification System (NAICS) code~ As a result of the coding change. industry~evel data after 2008 are not con-parable to that of prior year~ (2) Colurrns rm.y not sum to totals due to rounding. Source: California State Board of Equalization.

B-5

Income

The follcwing tables prc,,1ide a sumrrary of per capita personal income for the City and County of San Francisco, the State of California and the United States, and personal income and annual percent change for the City and County of San Francisco, for recent calendar years.

PER CAPITA PERSONAL INCOME 2010through 2015

Year San Francisco California United States

2010 $45,478 $41,588 $39,376 2011 46,777 42,411 40,277 2012 47,278 44,852 42,453 2013 48,486 47,614 44,266 2014 49,986 48,125 44,438 2015 52,220 49,985 46,049

---------------Source: U .5. Departrrent of Comrrerce, Bureau of Econorric Analysis.

Year

2010 2011 2012 2013 2014 2015

PERSONAL INCOME 2010through 2015 ($ in Thousands)

San Francisco

$61,333,420 66,093,535 73,114,806 74,676,689 83,120,429 89,553,450

---------------

Annual Percent Change

7.7fJJ6 10.62 2.14

11.31 7.74

Source: U .5. Departrrent of Comrrerce, Bureau of Econorric Analysis.

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APPENDIX C

FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDE DJ UNE 30, 2016

C-1


ANNUAL FINANCIAL REPORT JUNE 30, 2016


TABLE OF CONTENTS JUNE 30, 2016

FI NANCI AL SE CTI ON Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements

Goverrnnent-Wide Financial Statements Statement of Net Position 13 Statement of Activities 14

Fund Financial Statements Goverrnnental Funds - Balance Sheet 15 Reconciliation of the Goverrnnental Funds Balance Sheet to the Statement of Net Position 17 Goverrnnental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 18 Reconciliation of the Goverrnnental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 20

Proprietary Fund - Statement of Net Position 22 Proprietary Fund - Statement of Revenues, Expenses, and Changes in Fund Net Position 23 Proprietary Fund - Statement of Cash F1ows 24 Fiduciary Funds - Statement of Fiduciary Net Position 25 Notes to Financial Statements 26

REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule County School Service Fund - Budgetary Comparison Schedule Schedule of Other Postemployment Benefits (OPEB) Funding Progress Schedule of the District's Proportionate Share of the Net Position Liability Schedule of District Pension Contributions Note to Required Supplementary Information

SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards Local Education Agency Organization Structure Schedule of Average Daily Attendance Schedule oflnstructional Time Reconciliation of Annual Financial and Budget Report With Audited Financial Statements Schedule of Financial Trends and Analysis Schedule of Charter Schools Combining Statements - Nornnajor Goverrnnental Funds

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

Combining Schedules - General Unrestricted and Restricted Funds Balance Sheet Schedules Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances

Note to Supplementary Information

66 67 68 69 70 71

73 76 77 78 79 80 81

82 84

86 87 88


TABLE OF CONTENTS JUNE 30, 2016

INDEPENDENT AUDITOR'S REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With GOJernrrent Auditing Standards 91

Report on Compliance for Each Major Program on Internal Control Over Compliance Required by the Uniform Guidance 93

Report on State Compliance 95

SCHEDULE OF FINDINGSANDQUESTIONEDCOSTS Summary of Auditor's Results Financial Statement Findings Federal Awards Findings and Questioned Costs State Awards Findings and Questioned Costs Summary Schedule of Prior Audit Findings

99 100 101 102 103

FINANCIAL SECTION

1

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& Certified Public Accountants

INDEPENDENT AUDITOR'S REPORT

Board of Education San Francisco Unified School District San Francisco, California

Report on the Financial Statements

We have audited the accompanying financial statements of the govermnental activities, each major fund, and the aggregate remaining fund information of the San Francisco Unified School District (the District) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents.

M anagerrent' s R esponsi bi Ii ty fort he F i nanci al S taterrents

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

Auditor's Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Govermnent Auditing Standards, issued by the Comptroller General of the United States; and the 2015-16 Guide for Annual Audits of K-12 Local Education Agencies and State Corrpl i ance Reporting, issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit op1mons.

2

2.60 stterklm1 AVBmH, Suit,; 44JJ PalnAltll, CAf!:4306 Tet:£SOA62,0400 www.vldq::a rnm ra1;: 550 45:2.GS:OO

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the goverrnnental activities, each major fund, and the aggregate remaining fund information of the District, as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplerrentary I nforrration

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

Other I nforrrati on

Our audit was conducted for the purpose of forming op1mons on the financial statements that collectively comprise the District's basic financial statements. The Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Adninistrative Requirerrents, Cost P ri nci pl es, and Audit Requi rerrents for Federal Awards, and other accompanying supplementary information as listed on the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements.

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

3

Other Reporting Required l:1y GOJernmentAuditing Standards

In accordance with GOJernment Auditing Standards, we have also issued our report dated December 14, 2016, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Gcwernment Auditing Standards in considering the District's internal control over financial reporting and compliance.

»~),~-~J-~uJ/) Palo Alto, California December 14, 2016

4


MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2016

MANAGEMENT'S DISCUSSION AND ANALYSIS

PROFILE OF THE DISTRICT

The San Francisco Unified School District ("SFUSD" or the "District") is the sixth largest school district in California, and currently educates approximately 57,000 students, including charter school pupils, who live in the 49 square mile area of the City and County of San Francisco. The San Francisco Unified School District was established in 1851. The District is governed by an elected Board of seven members. The District also administers the County Office ofEducation.

The District and County Office of Education provide pre-kindergarten, transitional kindergarten, kindergarten, elementary, middle and secondary education in the City and County of San Francisco through a network of 143 schools as follows:

• 12 early education schools • 64 elementary schools (K-5) • 8 alternatively configured schools (K-8) • 13 middle schools (6-8) • 19 high schools (9-12) • 5 continuation/alternative schools, including an independent study school • 9 court and county community schools and programs • 13 charter schools

The District's diverse student demographics includes 36% Chinese, 27% Latino, 13% White, 8% African American, 4% Filipino and 12% "Other". Approximately 62% of the student population is free and reduced-price lunch eligible.

The majority of the District's elementary schools have designated attendance areas giving priority to students living within those attendance boundaries. The remaining elementary schools are "City-wide schools" with no designated attendance area. Each middle school is linked to several elementary schools through feeder patterns; however, all SFUSD schools enroll students based on parent/guardian request and provide significant opportunities for parental choice in enrollment.

The District is also the chartering entity and has oversight responsibility for thirteen charter schools: City Arts and Technology High School, Creative Arts Charter School, Five Keys Charter School, Five Keys Adult School, Five Keys Independence High School, Gateway High School, Gateway Middle School, KIPP Bayview Academy, KIPP San Francisco Bay Academy, KIPP San Francisco College Preparatory, Leadership High School, Life Learning Academy, and Thomas Edison Charter Academy.

SFUSD's commitment to high-quality teaching and learning for all students and our commitment to delivering on the promises that we make to our students and families has led us to be the highest performing large urban school district in the state of California. Despite recent years of significant deficits at the State level and related shortfalls in funding of school districts resources, the District's students have achieved more than a decade of continuous growth in academic performance, including significant gains by all groups of students. In the first year of implementation of the new statewide standardized test, the Smarter Balanced Assessment Consortium (SBAC), SFUSD outperformed all other districts in California. Students from our district graduate high school in four years at a rate of 82%. At the same time, however, wide gaps in achievement between groups of students persist.

5



SFUSD began a deliberate course of action in 2008 with its strategic plan, Beyond the Talk: Taking Action to Educate Every Child New. Beyond the Talk represented our conununity's bold aspirational goals that have remained unchanged, while we continue our deep and unrelenting commitment to our three District goals:

• Access and Equity - Make social justice a reality by ensuring every student has access to high quality teaching and learning.

• Student Achievement - Create learning environments in all SFUSD schools that foster highly engaged and joyful learners and that support every student reaching their potential.

• Accountability - Keep district promises to students and families and enlist everyone in the conununity to join in doing so.

These goals are reflected in both the current strategic plan, Transform Learning, Transform Lives. A Guidebook T o.vards Vision 2025, as well as SFUSD's Local Control and Accountability Plan (LCAP). Both the strategic plan and the LCAP can be found at www.sfusd.edu.

In the fall of 2013, the superintendent of San Francisco Unified School District (SFUSD), under the leadership of the Board of Education, launched an ambitious undertaking: to develop a new vision for the future of public education in San Francisco, and then use that vision as a guide to transform the city's school system, over the next decade, into one of the premier systems in the world. SFUSD maintains its commitment to helping all students develop strong academic knowledge and skills, as well as a host of dispositions and behaviors, that increase their curiosity and engagement, activate their full potential for learning, and prepare them for life, work, and study beyond their secondary school years. While the pace and the path toward achieving these outcomes will vary among students and unfold along a set of learning progressions, the goal is for every SFUSD student to possess these capacities by the time they graduate. These capacities are outlined in the Graduate Profile.

SFUSD's aim is to make sure all students graduate from high school with the skills, capacities and dispositions for 21" Century success. Our focal areas of support for student success include:

• Content Knowledge - we help our students master the fundamentals in math, English, computer science and art, and develop problem-solving and critical analytical skills.

• Creativity - we provide opportunities for our students to be creative, tackle environmental problems and make communities more inclusive.

• Career and Life Skills - we help students to acquire knowledge, skills, and experience they need to navigate in the world, think critically and conununicate effectively.

• Global, Local and Digital Identity- we help to equip students with the skills of the future, including learning new languages, understanding new technologies, and participating in local apprenticeships.

• Leadership, Empathy, and Collaboration - we organize and encourage teamwork and collaboration, both with peers and partners outside the classroom, such as family members and mentors.

• Sense of Purpose and Sense of Self - we nurture our students growth and teach them life lessons so they can recognize their purpose and value, and encourage each student to reach their full potential, whether they require extra support or a new challenge.

Myong Leigh assumed the role of Interim Superintendent for SFUSD in September, 2016, following the departure of Richard A. Carranza. Mr. Leigh, who previously served as the Deputy Superintendent for Policy and Operations, will continue the work started by Mr. Carranza in building a rigorous Conunon Core-based curriculum, investing in the professional learning of teachers, leaders and school staff, enlisting partners and engaging families, and building an accountability system that includes a comprehensive assessment of student learning.

6

http://www.sfusd.edu



The District's staff members share a commitment to deliver programs that will create the foundation for all students to achieve success. Each year, the SFUSD's educators and administrators assess each school's progress against established priorities, goals and objectives. Through the ongoing and expanding use of evaluation data, SFUSD continually reassesses its strategies, practices and allocation of resources. The District has been successful in introducing strategies that have helped in closing gaps in academic achievement outcomes among groups of students. Parents are also becoming more aware of high instructional quality and appealing programs at public schools across San Francisco, and more of the District's schools are continuing to gain state and federal recognition.

District staff also continue to improve practices in financial planning and monitoring spending levels. SFUSD's ability to analyze and estimate revenues and expenses is essential due to the historical unpredictability of financial resources and the State-wide economic trends that may continue to affect the District's financial condition over the next several years, even as the State implements the new Local Control Funding F orrnula. The State of California's fiscal challenges, particularly over the past decade, have had a significant impact on the funds available for school budgets. However, throughout this significant, protracted downturn in state funding, the District has stretched its resources to deliver high-quality educational services. As financial resources gradually stabilize and improve, the District's teachers, principals, and other staff members are continuing their efforts to raise academic achievement of already high performing students and dramatically accelerate the achievement of those who need the most support to achieve SFUSD's vision for student success.

FINANCIAL HIGHLIGHTS

RESULTS OF OPERATION

Unrestricted General Fund Results of Operations

During fiscal year 2015-16, the District's unrestricted General Fund ending balance, which includes nonspendable, assigned, and unassigned balances, increased from $36.4 million to $72.0 million, a $35.6 million or 98% increase. Total unrestricted General Fund revenues in the current year were $566.4 million, an increase of $77.4 million, or 15.8% compared to 2014-15.

Total expenditures of $503.1 million represent an increase of $38.6 million or 8% over 2014-15. Transfers to the County School Service Fund of $98. 7 million, is an increase of $11.4 million or 13% from 2014-15.

The unrestricted General Fund balance was required to contribute to other funds, primarily for special education, transportation, child development, and student nutrition. Transfers to other funds in the amount of $11.2 million are $3. 5 million or 46% greater than 2014-15.

General Fund Ending Balance and Reserves

The District's combined General Fund ending balance at June 30, 2016 (restricted plus unrestricted) is $118.6 million. The restricted fund balance portion of $46.6 million will largely be used for instructional activities, but its use is restricted for specific program activities and cannot be counted as available (i.e., unrestricted reserves). The District's available reserves, consisting of reserves for economic uncertainty, and other unassigned fund balances of the General Fund, are $61.4 million.

7



The following comparison of revenue and expenditures focuses solely on General Fund operations. Table I shows the year to year revenue and Table II shows the same comparison of expenditures.

Table I

(Armunts i n thousands) 2015 Local control funding formula $ 419,388 Federal sources 31,347 Other state sources 42,682 Other local sources 179,667

$ 673,084

Table II

(AITTJUnts in thousands) 2015 Instruction $ 289,157

Instruction related activities 141,055

Pupil services 43,736

General administration 29,861

Plant services 55,050

Facility acquisition and construction 3,422

Ancilliary and enterprise services 2,376

Other outgo 89,172

Debt service 3,427

Transfers out 9,248

$ 666,504

Budgeting

2016 $ 475,932 $

29,374 75,654

189,350 $ 770,310 $

2016 $ 290,600 $

162,793

49,104

32,204

58,120

3,723

4,868

99,830

3,143

16,659

Variance

$

56,544 (1,973) 32,972

9,683 97,226

Variance $

1,443

21,738

5,368

2,343

3,070

301

2,492

10,658

(284)

7,411

54,540 $ 721,044 $ =======

%

13.5% -6.3%

77.3% 5.4%

14.4%

%

0.5%

15.4%

12.3%

7.8%

5.6%

8.8%

104.9%

12.0%

-8.3%

80.1%

8.2%

The SFUSD adopted budget is developed based on the latest information on revenue projections received from the Governor's May revision to the State budget, which is typically released a few months before the final State budget is passed. The District held budget hearings and adopted the 2015-16 budget in accordance with provisions of the California Education Code. The budget reflects the District's goals to emphasize the achievement of all students and to narrow the achievement gap for the neediest students. Throughout the budget development process, staff is encouraged to work with the community to develop sound decisions that support the needs of all students.

Only grants that the District is certain of receiving are included in the adopted budget. Additional programs are budgeted as grant awards, and are received during the course of the year. Grants are budgeted to be fully expended. Carryover funds are budgeted when carryover balances are determined and per instructions from program managers.

8



As program needs change during the year, changes and revisions to the adopted budget are made throughout the year to reflect these changes. Budget transfers and budget revisions are made on an ongoing basis, and new programs are budgeted throughout the fiscal year. We have included a budgetary comparison schedule on page 63 providing the adopted and final budgets compared with actual revenues and expenditures.

OVERVIEW OF THE FINANCIAL STATEMENTS

This annual report consists of three parts - management's discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the District:

o The first two statements are gOJernrrent-wide financial staterrents that provide both short-term and long-term information about the District's OJerall financial status.

o The remaining statements are fund financial staterrents that focus on individual parts of the District, reporting the District's operations in rrore detail than the gOJernrrent-wide staterrents.

o The gcwernrrental funds staterrents tell how basic services like regular and special education were financed in the short term as well as what remains for future spending.

o Proprietary fund staterrents offer financial information about the activities the District operates on a cost reimbursement basis, such as the Self-insurance Fund.

o Fiduciary funds staterrents provide information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others to whom the resources belong. Fiduciary fund activity is excluded from the gcwernrrent-wide financial staterrents.

The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplerrentary i nforrration that further explains and supports the financial statements with comparisons of the District's General and County School Service Fund budgets, both the adopted and final version, with year-end actuals.

Government-Wide Statements

The government-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the District's assets and liabilities. All of the current year's revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid.

The two government-wide statements report the District's net position and how they have changed. Net position -the difference between assets and liabilities - is one way to measure the District's financial health.

o Over time, increases or decreases in the District's net position may be an indicator of whether its financial position is improving or deteriorating, respectively.

o To assess the overall health of the District one needs to consider additional non-financial factors such as changes in the District's property tax base, its student enrollment data, the State's fiscal health and the condition of school buildings and other facilities.

9



Fund Financial Statements

The fund financial statements provide more detailed information about the District's most significant funds - not the District as a whole. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs:

o Some funds are required by State law and by bond covenants. o The District establishes other funds to control and manage money for particular purposes (such as payment of

long-term debt) or to show that it is properly using certain revenues (such as Federal grants).

The District has three kinds of funds:

o GOJernrrental funds - Most of the District's basic services are included in govermnental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the govermnental funds statements provide a detailed short-term view that helps one determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. Because this information does not encompass the additional long-term focus of the district-wide statements, reconciliations between the district-wide statements and the fund financial statements are provided.

o Proprietary funds- Services for which the District charges a fee are generally reported in proprietary funds. Proprietary funds are reported in the same way as the district-wide statements. Internal service funds ( one kind of proprietary fund) are used to report activities that provide supplies and services for the District's other programs and activities. The District currently has one internal service fund - the self-insurance fund.

o Fiduciary funds - The District is the trustee, or fiduciary, for assets that belong to others, such as the scholarship fund and the student activities funds. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. All of the District's fiduciary activities are reported in a separate statement of fiduciary net position. These activities are excluded from the district-wide financial statements because the District cannot use these assets to finance its operations.

FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE

Net Position

The District's govermnent-wide net position at June 30, 2016 totaled $90.3 million. Of this amount, $635.2 million represents net investment in capital assets, while $141.7 million is restricted for various purposes. The deficit unrestricted net position of $686.5 million is primarily due to the aggregate net pension liability and the postemployment benefits obligation, which totals $588. 7 million and $255.0 million, respectively at June 30, 2016. The aggregate net pension liability increased $153.2 million or 35.2% from June 30, 2015. The postemployment benefits liability increased $35.2 million or 16.0% from June 30, 2015.

10



CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

At the close of the year ended June 30, 2016, the District's capital assets totaled $1,950 million. Accumulated depreciation was $468.6 million at year end. Depreciation expense for the year totaled $48.8 million. Net book value (the amount of total assets after applying depreciation) increased by $155.9 million to $1,482 million.

The District excludes from its capital assets any individual capital acquisitions less than $25,000. The majority of the recorded historical cost of assets relates to the buildings and improvements of physical school sites.

The historical cost of land owned by the District is not considered significant and is excluded from total capital assets. Likewise, the original historical construction cost of most school sites dating back to the date the school was first opened have not been included as such costs would have been fully depreciated by the beginning year date of July 1, 2001. See note 5 to the accompanying financial statements for a complete summary of the District's capital assets.

Long-Term Obligations

Long-term obligations consist primarily of the unfunded portions of employee pensions, unfunded portions of post-employment medical benefits and general obligation bonded debt. The following tables presents a summary of the District's most significant long-long obligations on June 30, 2016, and presents the increase from the previous fiscal year.

Variance (Armunts i n thousands) 2015 2016 $ %

Unfunded portion of employee pensions (Note 14) $ 435,448 $ 588,678 $ 153,230 35.2% Unfunded portion of post-employment medical benefits (Note 12) 219,784 255,023 35,239 16.0%

Bonded debt (Note 09) 782,645 916,490 133,845 17.1% $ 1,437,877 $ 1,760,191 $ 322,314 22.4%

Additional long-term obligations include an estimate of the workers' compensation self-insurance claims liability, which is fully funded and described in detail at note 13 to the financial statements. Furthermore, the District has earmarked $19.5 million towards the unfunded portion of the post-employment medical liability.

11



FACTORS BEARING ON THE DISTRICT'S FUTURE

The District's staff continues to use assessments to measure and re-evaluate ways to invest in sound, educational, and programmatic activities while ensuring financial solvency. The District achieved its required reserve target of 2% for fiscal year 2015-16, and currently projects that it will maintain its minimum reserve in both fiscal year 2016-17 and fiscal year 2017-18.

In addition to the Local Control Funding Formula income source, the District also received approximately $243.8 million of other program funding from Federal, State, and local sources. In June 2008, Proposition A, the Quality Teacher & Education Act was passed by the voters of San Francisco, bringing $30+ million per year for the next twenty years to the District beginning in fiscal year 2008-09. These resources assist in recruiting and retaining effective teachers, increasing accountability, and improving the District's technology infrastructure.

Another local revenue source that has been greatly beneficial to SFUSD is the Public Education Enrichment Fund (PEEF), a ballot initiative that was approved by the voters of San Francisco in March, 2004, and established as law in the City Charter, Section 16.123.1-10. Originally set to expire on June 30, 2015, Proposition C, the "Children and Families First" initiative passed in November, 2014, extended the PEEF funding through 2041, and ensured a sustained and guaranteed investment in our children's future. PEEF funds have been critical in allowing the district to maintain, and in most cases, expand, programs during the economic downturn. The district receives approximately $64 million or two-thirds of the annual PEEF allocation from the City (the remaining one-third going to the City's Department of Early Care and Education for support to preschool). The district's portion of PEEF is used to support sports, libraries, the arts and music (SLAM) as well as programs such as Wellness Centers, Student Support Professionals, Translation Services, STEAM curriculum, and Peer Resources, to name a few.

As it relates to future State Budgets, the District's ability to predict what actions will be taken in the future by the State Legislature and Governor to address the State's current or future budget and cash management practices is limited. Future State budgets will be affected by national and State economic conditions and other factors over which the District has no control. However, in a welcome departure from the past several years, prospects for State funding are brighter due to a sustained improvement in California's economy and the implementation of the Local Control Funding Formula which has provided increased funds to K-14 education under the Governor's budget.

The District's Superintendent and senior staff members will continue to work very closely with the Board of Education to monitor revenues and manage expenditures. SFUSD is totally committed to take whatever measures are necessary to maintain a strong and stable financial position. At the same time, the District will also continue its dedicated mission to ensure improvement in academic achievement, closing achievement gaps, improving its facilities, and meeting the priorities of the Board of Education and the San Francisco community. It is the District's goal to ensure that all children receive a quality education and a positive foundation necessary for them to achieve academic success.

CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, and creditors with a general overview of the District's finances and to assist interested parties in understanding the District's sources and uses ofresources. If you have questions about this report or need additional financial information, please contact Reeta Madhavan, Chief Financial Officer of the San Francisco Unified School District, 135 Van Ness Avenue, San Francisco, California, 94102 or ( 415) 241-6542.

12


STATEMENT OF NET POSITION JUNE 30, 2016

Assets Current assets

Cash and cash equivalents

Investments

Receivables

Other assets

Total current assets

Non current assets

Capital assets, net of accumulated depreciation

Total noncurrent assets

Total assets

Deferred outflows of resources

Deferred amounts on refunding

Deferred amounts related to pensions

Total deferred outflows of resources

Liabilities Current liabilities

Overdrafts

Accounts payable

Interest payable

UneaITied revenue

Claim liability

Current loans

Current portion of bonds and capital leases

Total current liabilities

Noncurrent liabilities

Claims liability

General obligation bonds, premiums, and capital leases

Compensated absences

Other post-employment benefits

Aggregate net pension liability

Total noncurrent liabilities

Total liabilities

Deferred inflows of resources Deferred inflows of resources related to pensions

Total deferred inflows of resources

Net position

Net investment in capital assets

Restricted

Educational programs

Debt service Capital projects

Self insurance

Umestricted

Total net position

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

13

Governmental

Activities

$ 2,569,223

543,891,848

63,839,497

694,756

610,995,324

1,481,897,064

1,481,897,064

2,092,892,388

3,115,270

135,373,797

138,489,067

5,392,893

93,380,675

4,502,602

8,006,066

7,108,423

60,000,000

59,000,958

237,391,617

28,433,691

947,546,956

9,921,506

255,022,529

588,678,435

1,829,603,117

2,066,994,734

74,051,620

74,051,620

635,194,849

55,481,996

25,241,001

52,713,404

8,218,431

(686,514,580)

$ 90,335, IOI


STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016

Fnnctions/Programs

Governmental Activities Instruction

Instruction related activities

Supervision of instruction

Instructional libraty and technology

School site administration

Pupil services Home-to-school transportation

Food services

All other pupil services

General administration

Data processing

All other general administration

Plant services

Ancillary services Interest on long-term obligations

Other outgo Total Governmental Activities

Program Revennes Charges for Operating

Net Revennes (Expenses)

and Changes in Net Position

Services and Grants and Governmental Expenses Sales Contribntions Activities

$459,670,377 $ 236,763 $ 87,610,113 $ (371,823,501)

148,240,498

12,445,326

51,552,063

32,373,126

28,330,158

70,896,562

8,196,311

32,194,279

60,753,026

5,387,199 39,435,591

1,182,633

238,492

60,115

7,697

1,601

1,258,493

106,368

1,355

62,159

8,223

27,788

599,269

60,340,027

2,827,286

4,544,707

66,187

20,225,213

17,110,786

57,592

4,173,533

1,385,678

1,161,082

26,836,447

$950,657,149 $ 2,608,323 $226,338,651

General revenues and subventions Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and state aid not restricted to specific purposes

Interest and investment earnings Proceeds from exchange of property Miscellaneous

Subtotal, general revenues Change in net position Net Position - Beginning of year Net Position - Ending

(87,661,979)

(9,557,925)

(46,999,659)

(32,305,338)

(6,846,452)

(53,679,408)

(8,137,364)

(27,958,587)

(59,359,125)

(4,198,329) (39,435,591)

26,253,083

(721,710,175)

381,396,320 107,352,538

82,408,542

143,230,679 4,317,584 1,348,794

87,267,661 807,322,118

85,611,943 4,723,158

$ 90,335,101


14


GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2016

County School General Service Building

Fund Fund Fund ASSETS

Cash $ 500 $ $ Investments 203,213,074 7,565,366 176,831,379 Receivables 36,737,228 16,968,631 227,854 Prepaid expenditures 83,689 Stores inventories 530,540

Total Assets $ 240,565,031 $ 24,533,997 $ 177,059,233

LIABILITIES AND FUND BALANCES Liabilities

Overdrafts $ $ $ Accounts payable 56,225,545 8,136,759 20,328,804 Interest payable 2,357,402 Current I oans 60,000,000 Unearned revenue 3,398,522 190,841

Total Liabilities 121,981,469 8,327,600 20,328,804 Fund Balances

Nonspendable 610,409 Restricted 46,563,253 6,522,637 156,730,429 Assigned 10,000,000 9,683,760 Unassigned 61,409,900

Total Fund Balances 118,583,562 16,206,397 156,730,429 Total Liabilities and Fund Balances $ 240,565,031 $ 24,533,997 $ 177,059,233


15

Bond Interest Nonmajor Total And Redemption Governmental Governmental

Fund Funds Funds

$ $ 14,742 $ 15,242 27,272,750 67,345,411 482,227,980

80,182 9,761,137 63,775,032 83,689

80,527 611,067 27,352,932 $ 77,201,817 $ 546,713,010

$ $ 5,392,893 $ 5,392,893 7,696,372 92,387,480

2,357,402 60,000,000

4,416,703 8,006,066 17,505,968 168,143,841

87,677 698,086 27,352,932 55,055,102 292,224,353

4,553,070 24,236,830 61,409,900

27,352,932 59,695,849 378,569,169 27,352,932 $ 77,201,817 $ 546,713,010

16


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

JUNE 30, 2016

Amounts reported for goverrnnental funds in the statement of net position are different from the amounts reported in the fund level statements because of these items:

Total fund balance - goverrnnental funds

Capital assets used in goverrnnental activities are not financial resources and therefore are not reported as assets in goverrnnental funds.

The cost of capital assets is Accumulated depreciation is

Net capital assets

In goverrnnental funds, unnatured interest on long-term obligations is recognized in the period when it is due. In the goverrnnent-wide statements, urnnatured interest on long-term obligations is recognized when it is incurred.

An internal service fund is used by the District's management to charge the costs of the workers' compensation insurance program to the individual funds. The assets and liabilities of the internal service fund are included with goverrnnental activities.

The advance refunding of the Series 2006 C and Series 2007 A general obligation bonds resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $29.2 million. This difference, reported in the accompanying financial statements as a deduction from bonds payable, is being charged to operations through the year 2026 as a component of interest expense. This is the amount remaining as of June 30, 2016.

Long-term liabilities are not due and payable in the current period and

therefore, are not reported as liabilities in the goverrnnental funds. Long-term liabilities at year end consist of the following items:

General obligation bonds and premium Capital leases payable Compensated absences (vacations) Post employment liability

Net pension liability and related deferrals Long-term liabilities

Total net position - goverrnnental activities


17

$ 1,950,459,548 (468,562,484)

(993,553,416) (12,994,498)

(9,921,506) (255,022,529)

(527,356,258)

$ 378,569,169

1,481,897,064

(2,145,200)

27,747,005

3,115,270

(1,798,848,207) $ 90,335,101

This page left blank intentionally.


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

FOR THE YEAR ENDED JUNE 30, 2016

County General School Service Building

Fund Fund Fund REVENUES

Local control funding formula $ 475,932,385 $ 10,475,770 $ Federal sources 29,374,279 13,494,741 Other state sources 75,654,380 45,209,080 Other local sources 189,349,630 99,114,562 9,529,081

Total Revenues 770,310,674 168,294,153 9,529,081

EXPENDITURES Current

Instruction 290,599,624 98,533,196 Instruction related activities:

Supervision of instruction 110,500,541 15,256,565 Instructioml library and technology 11,235,012 1,045 School site administration 41,057,388 1,626,118

Pupil Services: Home-to-school transportation 3,615,727 25,611,812 Food services 640,128 All other pupil services 44,847,937 18,929,561

General administration: Data processing 7,105,747 294,157 All other general administration 25,098,401 1,570,202

Plant services 58,119,648 115,437 Facility acquisition and construction 3,722,516 183,991,311 Ancillary services 4,863,744 Other outgo 99,830,006

Enterprise services 4,582 Debt service

Principal Interest and other 3,143,303

Total Expenditures 704,384,304 161,938,093 183,991,311 Excess (deficiency) of revenues over expenditures 65,926,370 6,356,060 (I 74,462,230)

OTHER SOURCES (USES) Transfers in Proceeds from the sale of bonds 226,000,000 Transfers out (I 6,659,311) Payments to escrow agent

Net Financing Sources (Uses) (I 6,659,311) 226,000,000 NET CHANGE IN FUND BALANCES 49,267,059 6,356,060 51,537,770

Fund Balance - Beginning 69,316,503 9,850,337 105,192,659 Fund Balance - Ending $ 118,583,562 $ 16,206,397 $ 156,730,429


18

Bond Interest Nonmajor Total Redemption Governmental Governmental

Fund Funds Funds

$ $ $ 486,408,155 1,681,074 24,132,761 68,682,855

349,066 19,149,652 140,362,178 107,309,075 27,349,523 432,651,871 109,339,215 70,631,936 1,128,105,059

25,872,942 415,005,762

8,079,364 133,836,470 11,236,057

3,859,417 46,542,923

29,227,539 24,937,284 25,577,412

230,284 64,007,782

7,399,904 2,397,466 29,066,069

631,360 58,866,445 16,885,938 204,599,765

4,863,744 99,830,006

4,582

65,610,000 1,679,411 67,289,411 40,302,770 888,377 44,334,450

105,912,770 85,461,843 1,241,688,321

3,426,445 (14,829,907) (I 13,583,262)

16,659,311 16,659,311 95,606,465 1,348,794 322,955,259

(16,659,311) (95,606,465) (95,606,465)

18,008,105 227,348,794

3,426,445 3,178,198 113,765,532

23,926,487 56,517,651 264,803,637

$ 27,352,932 $ 59,695,849 $ 378,569,169

19


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

Amounts reported for governmental activities in the statement of activities are different because of the following items:

Total net change in fund balances - governmental funds $ 113,765,532

Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures, however, for governmental activities those costs are capitalized in the statement of net position as property and equipment. The cost is allocated over the estimated useful life of the asset as depreciation expense in the statement of activities.

This is the amount by which capitalized capital outlays exceed depreciation in the current period.

Capitalized capital outlays

Depreciation expense

Repayment of capital leases is an expenditure in the governmental funds, but it reduces long-term liabilities in the statement of net position and does not affect the statement of activities.

Repayment of general obligation bond principal is an expenditure in the governmental funds, but it reduces long-term liabilities in the statement of net position and does not affect the statement of activities.

Amortization of bond premium is a revenue source in the statement of activities, but is not recognized in the governmental funds.

In the statement of activities, compensated absences are measured by the amounts earned during the year. In the governmental funds, compensated absences are measured by the amount of financial resources used ( essentially, the amounts actually paid).

The advance refunding of the Series 2006 C and Series 2007 A general obligation bonds resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $3.5 million. This difference, reported in the accompanying financial statements as a deduction from bonds payable, is being charged to operations through the year 2026 as a component of interest expense.

Defeasance costs

Amount charged to operations in the current year


20

$ 204,599,765

(48,751,234)

3,461,411

(346,141)

155,848,531

1,679,411

155,810,000

7,612,186

240,438

3,115,270


RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES (Continued) FOR THE YEAR ENDED JUNE 30, 2016

Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is paid, and thus requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accrues, regardless of when it is paid. The interest expense reported in the statement of activities is the result of this difference.

In the governmental funds, pension costs are based on employer contributions made to pension plans during the year. However, in the statement of activities, pension expense is the net effect of all changes in the deferred outflows, deferred inflows and net pension liability during the year.

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

Proceeds and premium received from issuance of bonds and refunding bonds are revenues in the governmental funds, but increase long-term obligations in the statement of net position and does not affect the statement of activities.

An internal service fund is used by the District's management to charge

the costs of the employment insurance program to the individual funds. The increase in net position of the internal service fund is not reported in the governmental funds, but is reported in the statement of activities.

Change in net position of governmental activities


21

(169,058)

(2,558,204)

(35,238,869)

(321,859,539)

7,366,245

$ 85,611,943


PROPRIETARY FUND STATEMENT OF NET POSITION JUNE 30, 2016

ASSETS

Cash and cash equivalents

Investments

Total cash and investments

Receivables

Total Assets

LIABILITIES

Accounts payable

Claim liability - workers' compensation

Claim liability - dental

Total Liabilities

NET POSITION

Restricted - insurance programs Unrestricted - earmarked for OPEB

Total Net Position


22

$ 2,553,981

61,663,868

Governmental

Activities Internal

Service Fund

$ 64,217,849

64,465

64,282,314

993,195

35,057,000

485,114

36,535,309

8,218,431

19,528,574

$ 27,747,005


PROPRIETARY FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED JUNE 30, 2016

OPERATINGREVEMJES In-district premiums

Other local revenue

Total operating revenues

OPERATING EXPENSES

Payroll costs Claims expense

Total operating expenses Net operating income

NONOPERATING REVENUES Interest income

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


23

Governmental Activities Internal

Service Fund

$ 28,077,264 265,611

28,342,875

702,758 20,625,166 21,327,924 7,014,951

351,294

7,366,245 20,380,760

$ 27,747,005


PROPRIETARY FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2016

CASH FLOWS FROM OPERATING ACTIVITIES Cash received from user charges Cash payments for insurance claims Cash payments for payroll expense

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments

Net increase in cash and cash equivalents Cash and cash equivalents - Beginning of year Cash and cash equivalents - End of year

RECONCILIATION OF OPERATING PROFIT TO NET CASH USED FOR OPERATING ACTIVITIES Operating income

Increase in accrued liabilities Net cash provided by operating activities


24

Governmental Activities Internal

Service Fund

$ 28,342,875 (19,437,285)

(25,783) 8,879,807

329,130

9,208,937 55,008,912

$ 64,217,849

$ 7,014,951

1,864,856 $ 8,879,807


FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2016

Payroll Revolving Student Body Agency Fund Agency Fund Total

ASSETS Cash and cash equivalents $ $ 2,805,702 $ 2,805,702 Investments 1,843,956 1,843,956

Total Assets $ 1,843,956 $ 2,805,702 $ 4,649,658

LIABILITIES Salaries and benefits payable $ 1,843,956 $ $ 1,843,956 Due to student groups 2,805,702 2,805,702

Total Liabilities $ 1,843,956 $ 2,805,702 $ 4,649,658


25


NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Reporting Entity

The San Francisco Unified School District (the District) was established as the San Francisco School System in 1851 under the laws of the State of California. The District and County Office of Education (COE) operate under a locally-elected seven-member Board form of government and provides educational services to grades K - 12 as mandated by State and Federal agencies. The District and COE provide child care and elementary and secondary education in the City and County of San Francisco, California. The District also administers the COE fund (County School Service Fund). For financial reporting purposes, the District includes all funds, account groups, agencies, and authorities that are controlled by or are dependent on the District's executive or legislative branches. Control by or dependence on the District was determined on the basis of budget adoption, taxing authority, outstanding debt secured by revenues or general obligations of the District, obligations of the District to finance any deficits that may occur, or receipt of significant subsidies from the District. The District operates 64 elementary schools, 13 middle schools, and 19 high schools including 4 continuation schools, 12 early childhood education centers and an independent study alternative school. The District sponsors 13 Charter Schools.

A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. This includes general operations, food service and student related activities of the District and the COE.

Component Units

Component units are legally separate organizations for which the District is financially accountable. Component units may include organizations that are fiscally dependent on the District in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization's relationship with the District is such that exclusion would cause the District's financial statements to be misleading or incomplete. For financial reporting purposes, the component unit has a financial and operational relationship which meets the reporting entity definition criteria of the Governmental Accounting Standards Board (GASE) Statement No. 14, The Financial Reporting Entity, and thus is included in the financial statements using the blended presentation method as if it were part of the District's operations because the governing board of the component unit is the same as the governing board of the District and because its purpose is to finance the acquisition and improvement of a new administration building to be used for the direct benefit of the District.

The San Francisco Unified School District Financing Corporation's (the Corporation) financial acliv1ty is presented in the financial statements as a fund of the Special Reserve Fund - Capital Outlay. Certificates of participation issued by the Corporation are included as long-term liabilities in the government-wide financial statements. Individual financial statements are not prepared for the Corporation.

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Other Related Entities

Charter The District has approved Charters for City Arts and Technology High School, Creative Arts Charter School, Five Keys Charter School, Five Keys Adult School, Five Keys Independence High School, Gateway High School, Gateway Middle School, KIPP Bayview Academy, KIPP San Francisco Bay Academy, KIPP San Francisco College Preparatory, Leadership High School, Life Learning Academy, and Thomas Edison Charter Academy pursuant to Education Code Section 47605. The Charter Schools are sponsored by the District but operate independently. Their financial activity is not presented in the District's financial statements except for the pass-through of State aid and property tax revenues.

Basis of Presentation - Fund Accounting

The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. The District's funds are grouped into three broad fund categories: goverrnnental, proprietary and fiduciary.

Major Governmental Funds Goverrnnental funds are those through which most goverrnnental functions typically are financed. Goverrnnental fund reporting focuses on the sources, uses and balances of current financial resources. Expendable assets are assigned to the various goverrnnental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between goverrnnental fund assets and liabilities is reported as fund balance. The following are the District's major goverrnnental funds:

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

County School Service Special Revenue Fund The County School Service Special Revenue Fund is used to account for resources committed to Special Education, other County schools, and the Regional Occupation Program maintained by the District.

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

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

Nonmajor Governmental Funds

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

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Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections 38090-38093) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code Sections 38091 and 38100).

Child Development Fund The Child Development Fund is used to account separately for Federal, State, and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs.

Deferred Maintenance Fund The Deferred Maintenance Fund is used to account separately for State apportionments and the District's contributions for deferred maintenance purposes (Education Code Sections 17582-17587) and for items of maintenance approved by the State Allocation Board.

Debt Service Funds The Debt Service Funds are used to account for the accumulation of restricted, committed, or assigned resources for and the payment of principal and interest on general long-term obligations.

Tax Override Fund The Tax Override Fund is used for the repayment of voted indebtedness ( other than Bond Interest and Redemption Fund repayments) to be financed from ad valorem tax levies.

Capital Projects Funds The Capital Project Funds are used to account for financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets ( other than those financed by proprietary funds and trust funds).

Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections 17620-17626). Expenditures are restricted to the purposes specified in GOJernrrent Code Sections 65970-65981 or to the items specified in agreements with the developer (GOJernrrent Code Section 66006).

State School Building Lease-Purchase Fund The State School Building Lease Purchase Fund is used primarily to account separately for State apportionments for the reconstruction, remodeling, or replacing of existing school buildings or the acquisition of new school sites and buildings, as provided in the Leroy F. Greene State School Building Lease-Purchase Law of 1976 (Education Code Section 17000 et seq.).

County School Facilities Fund The County School Facilities Fund is established pursuant to Education Code Section 17070.43 to receive apportionments from the 1998 State School Facilities Fund (Proposition IA), the 2002 State School Facilities Fund (Proposition 47), the 2004 State School Facilities Fund (Proposition 55) or the 2006 State Schools Facilities Fund (Proposition ID) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section 17070 et seq.).

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

28



Proprietary Funds Proprietary Funds are used to account for activities that are more business-like than goverrnnent-like in nature. Business-type activities include those for which a fee is charged to external users or to other organizational units of the local education agency, normally on a full cost-recovery basis. Proprietary funds are generally intended to be self-supporting and are classified as enterprise or internal service. The District has the following proprietary fund:

Internal Service Fund Internal Service funds may be used to account for goods or services provided to other funds of the District on a cost-reimbursement basis. The District operates a self insurance fund for its workers' compensation, dental, and other post employment retiree benefits self insurance program that is accounted for as an internal service fund.

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

Trust funds are used to account for the assets held by the District under a trust agreement for individuals, private organizations, or other goverrnnents and are therefore not available to support the District's own programs. Private-purpose trust funds are accounted for as a restricted component of the General Fund. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District maintains the following two Agency funds:

Payroll Revolving Agency Fund The Payroll Revolving Fund 1s used to account for assets held for employees for payroll withholding.

Student Body Agency Fund The Student Body Agency Fund is used to account for assets held for student organizations of schools in the District.

Basis of Accounting - Measurement Focus

Government-Wide Financial Statements The government-wide statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which goverrnnental fund financial statements are prepared.

The goverrnnent-wide statement of activities presents a comparison between expenses, both direct and indirect, and program revenues for each goverrnnental function, and excludes fiduciary activity. Direct expenses are those that are specifically associated with a service, program or department and are therefore clearly identifiable to a particular function. Indirect expenses for centralized services and administrative overhead are allocated among the programs, functions and segments using a full cost allocation approach and are presented separately to enhance comparability of direct expenses between goverrnnents that allocate direct expenses and those that do not. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each goverrnnental function is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities.

29



Net position is reported as restricted when constraints are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation.

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

Governmental Funds All governmental funds are accounted for using a flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances reports on the sources (revenues and other financing sources) and uses ( expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide statements are prepared. Governmental fund financial statements therefore include reconciliations with brief explanations to better identify the relationship between the government-wide statements, prepared on the accrual basis of accounting using the economic resources measurement focus, and the governmental fund statements, prepared on the modified accrual basis of accounting and using the flow of current financial resources measurement focus.

Proprietary Funds Proprietary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. All assets and all liabilities associated with the operation of this fund are included in the Statement of Net Position. The Statement of Revenues, Expenses and Changes in Fund Net Position presents increases (revenues) and decreases (expenses) in net total position. The statement of cash flows provides information about how the District finances and meets the cash flow needs of its proprietary fund.

Fiduciary Funds Fiduciary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting.

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

Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose requirements. On the modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized.

30



Unearned Revenue Unearned revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the balance sheet and revenue is recognized.

Certain grants received before the eligibility requirements are met are recorded as unearned revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as unearned revenue.

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

Cash and Cash Equivalents

The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash equivalents also include cash with county treasury balances for purposes of the statement of cash flows.

Investments

Investments held at June 30, 2016 consist of deposits with the County Treasurer and are stated at amortized cost which approximates fair value. Fair value is provided by the County Treasurer.

Prepaid Expenditures

Prepaid expenditures (expenses) represent amounts paid in advance of receiving goods or services. The District has the option of reporting expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditures during the period benefited.

Stores Inventories

Inventories consist of expendable food and supplies held for consumption and unused donated commodities. Inventories are stated at cost, on the weighted average basis. The costs of inventory items are recorded as expenditures in the governmental type funds and expenses in the proprietary type funds when used.

Capital Assets and Depreciation

The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. Capital assets are long-lived assets of the District as a whole. The District maintains a capitalization threshold of $25,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not.

31



When purchased, such assets are recorded as expenditures in the governmental funds but are capitalized and depreciated over their estimated service lives in the government-wide financial statements. The valuation bases for general capital assets are historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date donated.

Depreciation is computed using the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings and improvements, 20 to 50 years; equipment, 2 to 15 years.

Compensated Absences

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

Certificated Sick leave is accumulated without limit for each eligible employee at the rate of one unit for each month worked. Leave with pay is provided when employees are absent from reasons as stated in the various contracts. Employees who are retiring receive service credit for unused sick leave and employees transferring to other public school Districts can have their sick leave accrual forwarded to the new District. Employees who resign or are terminated do not get paid for unused sick leave accruals.

Instructional Aids Sick leave is accumulated at a rate of 0.05 times the number of regularly scheduled worked hours. Leave with pay is provided when employees are absent for reasons stated in the contract. Employees who are retiring receive payment for unused sick hours with a value of over $200 and those hours are transferred to the school District's third party vendor for payment into a 403(b) account in compliance with all applicable rules and regulations. Employees may accumulate unused sick leave up to a maximum of 1,040 hours.

Classified Sick leave is accumulated at a rate of 0.05 times the number of regularly scheduled worked hours. Leave with pay is provided when employees are absent for reasons as stated in the various contracts. Employees may accumulate unused sick leave up to the maximum of 1,040 hours.

Accrued Liabilities and Long-term Obligations

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

However, claims and judgments compensated absences, special termination benefits and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. Long-term obligations are not recognized as liabilities in governmental funds but are disclosed in the notes to financial statements. Debt service expenditures, including principal and interest on bonds and capital leases, are recognized as expenditures in governmental funds when paid.

32



Debt Issuance Costs, Premiums and Discounts

Long-term obligations are reported as liabilities in the govermnental activities column on the statement of net position. Debt premiums and discounts are amortized over the life of the bonds using the straight-line method.

In govermnental fund financial statements, bond premiums and discounts, as well as debt issuance costs are recognized in the current period. The face amount of the debt is reported as other financing sources. Premiums received on debt issuance are also reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds, are reported as debt service expenditures.

Deferred Outflows/Inflows of Resources

In addition to assets, the statement of net position also reports deferred outflows of resources. 1bis separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an expense or expenditure until then. The District reports deferred outflows of resources for deferred charges on refunding of debt and for pension related items.

In addition to liabilities, the statement of net position reports a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The District reports deferred inflows of resources for pension related items.

Pensions

For purposes of measuring the net pension liability and deferred outflows and inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the California State Teachers Retirement System (Ca!STRS) and the San Francisco Public Employees' Retirement System (SFERS) and additions to/deductions from the plans' fiduciary net position have been determined on the same basis as they are reported by Ca!STRS and SFERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Member contributions are recognized in the period in which they are earned. Investments are reported at fair value.

Fund Balances - Governmental Funds

As of June 30, 2016, fund balances of the govermnental funds are classified as follows:

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

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

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

33



Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes.

Unassigned - all other spendable amounts.

Spending Order Policy

When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board has provided otherwise in its commitment or assigrnnent actions.

Minimum Fund Balance Policy

In fiscal year 2010-11, the governing board adopted a minimum fund balance policy for the General Fund in order to protect the district against revenue shortfalls or unpredicted on-time expenditures. The policy requires a Reserve for Economic Uncertainties consisting of unassigned amounts equal to no less than two percent of General Fund expenditures and other financing uses.

Net Position

Net position represents the difference between assets/deferred inflows and liabilities/deferred outflows. The net investment in capital assets portion of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, constmction, or improvement of those assets. The District has $94.1 million in net position as of June 30, 2016, including $638.5 million representing capital assets net of related debt. The District applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available.

Operating Revenues and Expenses

Operating revenues are those revenues that are generated directly from the primary activity of the proprietary funds. For the District, these revenues are interfund insurance premiums. Operating expenses are necessary costs incurred to provide the good or service that are the primary activity of the fund. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

lnterfund Activity

Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. F1ows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in goverrnnental funds and after non-operating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the financial statements.

34



Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

Budgetary Data

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

The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for.

Property Taxes

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

New Accounting Principles

In February 2015, the GASB issued Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements.

The District has implemented the provisions of this Statement as of June 30, 2016.

In June 2015, the GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain PrOJisions of GASB Statements No. 67 and No. 68. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency.

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This Statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement No. 68. It also amends certain provisions of Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68 for pension plans and pensions that are within their respective scopes.

The provisions in this Statement effective as of June 30, 2016, include the provisions for assets accumulated for purposes of providing pensions through defined benefit plans and the amended provisions of Statements No. 67 and No. 68. The District has implemented these provisions as of June 30, 2016. The provisions in this Statement related to defined benefit pensions that are not within the scope of Statement No. 68 are effective for periods beginuing after June 15, 2016.

In June 2015, the GASE issued Statement No. 76, The Hierarchy of Generally Accei:ted Accounting Principles for State and Local GOJernrrents. The objective of this Statement is to identify-in the context of the current goverrnnental financial reporting environment-the hierarchy of generally accepted accounting principles (GAAP). The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local goverrnnental entities in conforruity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP.

This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local G OJernrrents.


In December 2015, the GASE issued Statement No. 79, Certain External I nvestrrent Pools and Pool Participants. This Statement addresses accounting and financial reporting for certain external investment pools and pool participants. Specifically, it establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in this Statement. The specific criteria! address (1) how the external investment pool transacts with participants, (2) requirements for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a shadow price. Significant noncompliance prevents the external investment pool from measuring all of its investments at amortized cost for financial reporting purposes. Professional judgment is required to deterruine if instances of noncompliance with the criteria established by this Statement during the reporting period, individually or in the aggregate, were significant.

If an external investment pool does not meet the criteria established by this Statement, that pool should apply the provisions in paragraph 16 of Statement No. 31, Accounting and Financial Reporting for Certain I nvestrrents and for External I nvestrrent Pools, as amended. If an external investment pool meets the criteria in this Statement and measures all of its investments at amortized cost, the pool's participants also should measure their investments in that external investment pool at amortized cost for financial reporting purposes. If an external investment pool does not meet the criteria in this Statement, the pool's participants should measure their investments in that pool at fair value, as provided in paragraph 11 of Statement No. 31, as amended.

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This Statement establishes additional note disclosure requirements for qualifying external investment pools that measure all of their investments at amortized cost for financial reporting purposes and for governments that participate in those pools. Those disclosures for both the qualifying external investment pools and their participants include information about any limitations or restrictions on participant withdrawals.


In June 2015, the GASE issued Statement No. 75, Accounting and Financial Reporting for Posterrpl0yrrent Benefits Other Than Pension. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions ( other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency.

This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting Oy Errpl0yers for Posterrpl0yrrent Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurerrents l:1y Agent Errpl0yers and Agent Multiple-Errpl0yer Plans, for OPEB. Statement No. 74, Financial Reporting for Pa;terrpl0yrrent Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans.

The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2017. Early implementation is encouraged.

In August 2015, the GASE issued Statement No. 77, Tax Abaterrent Discla;ures. This Statement requires governments that enter into tax abatement agreements to disclose the following information about the agreements:

• Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients.

• The gross dollar amount of taxes abated during the period. • Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement.

The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2015. Early implementation is encouraged.

In December 2015, the GASE issued Statement No. 78, Pensions Prcwided Through Certain Multiple-Errpl0yer Defined Benefit Pension Plans. The objective of this Statement is to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue is associated with pensions provided through certain multiple-employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such pensions.

Prior to the issuance of this Statement, the requirements of Statement No. 68 applied to the financial statements of all state and local governmental employers whose employees are provided with pensions through pension plans that are administered through trusts that meet the criteria in paragraph 4 of that Statement.

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This Statement amends the scope and applicability of Statement No. 68 to exclude pensions provided to employees of state or local goverrnnental employers through a cost-sharing multiple-employer defined benefit pension plan that (I) is not a state or local goverrnnent pension plan, (2) is used to provide defined benefit pensions both to employees of state or local goverrnnental employers and to employees of employers that are not state or local goverrnnental employers, and (3) has no predominant state or local goverrnnental employer ( either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above.

The requirements of this Statement are effective for reporting periods beginning after December 15, 2015. Early implementation is encouraged.

In January 2016, the GASE issued Statement No. 80, Blending Requirements for Certain Corrponent Units -amendment of GASB Statement No. 14. The objective of this Statement is to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This Statement amends the blending requirements established in paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary goverrnnent is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, DeterniningWhether Certain OrganililtionsAre Corrponent Units.

The requirements of this Statement are effective for reporting periods beginning after June 15, 2016. Early implementation is encouraged.

In March 2016, the GASE issued Statement No. 81, lrre,,ocable Split-Interest Agreements. The objective of this Statement is to improve accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a goverrnnent is a beneficiary of the agreement.

This Statement requires that a goverrnnent that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Furthermore, this Statement requires that a goverrnnent recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the goverrnnent controls the present service capacity of the beneficial interests. This Statement requires that a goverrnnent recognize revenue when the resources become applicable to the reporting period.

The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2016, and should be applied retroactively. Early implementation is encouraged.

In March 2016, the GASE issued Statement No. 82, Pension Issues -An Amendment of GASB Statements No. 67, No. 68, and No. 73. The objective of this Statement is to address certain issues that have been raised with respect to Statements No 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68 and Amendments to Certain PrOJisions of GASB Statements No. 67 and No. 68 Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements.

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The requirements of this Statement are effective for reporting periods beginning after June 15, 2016, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer's pension liability is measured as of a date other than the employer's most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017. Early implementation is encouraged.

NOTE 2 - DEPOSITS AND INVESTMENTS

Summary of Deposits and Investments

Deposits and investments as of June 30, 2016, are classified in the accompanying financial statements as follows:

Goverrnnental funds Less: deficit cash (overdraft) Total goverrnnental funds

Self insurance fund Fiduciary funds Total Deposits and Investments

Deposits and investments as of June 30, 2016, consist of the following:

Cash on hand and in banks Deposits with county treasurer Less: deficit cash (overdraft)

Total deposits with county treasurer Total Deposits and Investments

Policies and Practices

$ 482,243,222 (5,392,893)

545,735,804 (5,392,893)

$ 476,850,329 64,217,849

4,649,658 $ 545,717,836

$ 5,374,925

540,342,911 $ 545,717,836

The District is authorized under California Goverrnnent Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations.

Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of amortized cost which approximately fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis.

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General Authorizations

Limitations as they relate to interest rate risk and concentration of credit risk are indicated in the schedules below:

Maximum Maximum Maximum Authorized Remaining Percentage Investment

Investment Type Maturity of Portfolio In One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes 5 years 30% None Mutual Funds NIA 20% 10% Money Market Mutual Funds NIA 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds NIA None None Local Agency Investment Fund (LAIF) NIA None None Joint Powers Authority Pools NIA None None

Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the San Francisco County Investment Pool. The book value of these investments at June 30, 2016 is $540.3 million and the fair value is $540.4 million. The sensitivity of the fair values of the District's investments to market interest rate fluctuation is measured as the weighted average maturity of the investment portfolio, which was 372 days on June 30, 2016.

Credit Risk

Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The District's investment in the County Pool is not required to be rated, nor has been rated as of June 30, 2016.

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Custodial Credit Risk- Deposits

This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agency. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Horne Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2016, the District's bank balance of $5,198,077 was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District.

Custodial Credit Risk - Investments

This is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments that are in possession of an outside party. As of June 30, 2016 the District investment portfolio is not exposed to custodial credit risk because the portfolio consists exclusively of investments in the San Francisco County Investment Pool. Investments in external investment pools are not considered to have exposure to custodial credit risk because their existence is not evidenced by securities that exist in physical or book entry form.

Fair Value Measurements

The District categorizes the fair value measurements of its investments based on the hierarchy established by generally accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure an asset's fair value. The following provides a summary of the hierarchy used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets that the District has the ability to access at the measurement date. Level 1 assets may include debt and equity securities that are traded in an active exchange market and that are highly liquid and are actively traded in over-the-counter markets.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, or other inputs that are observable, such as interest rates and curves observable at commonly quoted intervals, implied volatilities, and credit spreads. For financial reporting purposes, if an asset has a specified term, a Level 2 input is required to be observable for substantially the full term of the asset.

Level 3 - Unobservable inputs should be developed using the best information available under the circumstances, which might include the District's own data. The District should adjust that data if reasonably available information indicates that other market participants would use different data or certain circumstances specific to the District are not available to other market participants.

Uncategorized - Investments in the San Francisco County Treasury Investment Pool and/or Local Agency Investment Funds/State Investment Pools are not measured using the input levels above because the District's transactions are based on a stable net asset value per share. All contributions and redemptions are transacted at $1.00 net asset value per share.

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NOTE 3 - RECEIVABLES

Receivables at June 30, 2016, consisted of intergovernmental grants, entitlements, interest and other local sources. All receivables are considered collectible in full.

Bond Interest

County and Nonmajor Total General School Service Building Redemption Governmental Governmental Proprietary

Fund Fund Fund Fund Funds Funds Fund Federal Government

Categorical aid $10,012,391 $11,629,059 $ $ $ 4,382,382 $ 26,023,832 $ State Government

Categorical aid 1,683,366 5,339,572 799,063 7,822,001

Lottery 6,181,959 6,181,959 Local Government

Interest 240,520 227,854 80,182 58,310 606,866 Local Sources 18,618,992 4,521,382 23,140,374 64,465 Total Accounts Receivable $36,737,228 $16,968,631 $ 227,854 $ 80,182 $ 9,761,137 $63,775,032 $ 64,465

NOTE 4 - CAPITAL ASSETS

Capital asset activity for the fiscal year ended June 30, 2016, was as follows:

Balance Balance June 30, 2015 Additions June 30, 2016

Governmental Activities Capital assets not depreciated

Land $ 7,100,000 $ $ 7,100,000 Capital assets being depreciated

Buildings and improvements 1,688,442,526 204,526,871 1,892,969,397 Furuiture and equipment 50,317,257 72,894 50,390,151

Total capital assets 1,745,859,783 204,599,765 1,950,459,548

Less accumulated depreciation Buildings and improvements 383,588,367 46,997,304 430,585,671 Furuiture and equipment 36,222,883 1,753,930 37,976,813

Total accumulated depreciation 419,811,250 48,751,234 468,562,484 Governmental activities - capital assets, net $ 1,326,048,533 $ 155,848,531 $ 1,481,897,064

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

Governmental Activities Instruction Supervision of instruction Instructional library and technology School site administration Home to school transporation Food services All other pupil services Anciliary services Enterprise activities All general administration Data processing services Plant services

Total depreciation expense, governmental activities

NOTE 5 - INTERFUND TRANSACTIONS

Operating Transfers

$ 24,504,837 7,902,639

663,455 2,748,219 1,725,798 1,510,269 3,779,466

287,189 270

1,716,264 436,942

3,475,886 $ 48,751,234

Interfund transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt fund as debt service payments become due, and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations.

For the year ended June 30, 2016, the General Fund transferred $16,659,311 to various nomnajor governmental funds as follows:

• The restricted General Fund transferred $1,564,000 to the Child Development Fund to cover the operating deficit.

• The unrestricted General Fund transferred $5,560,860 to the Child Development Fund to cover the operating deficit.

• The unrestricted General Fund transferred $3,096,672 to the Cafeteria Fund to cover the operating deficit. • The restricted General Fund transferred $3,869,991 to the Deferred Maintenance Fund for on-going

maintenance costs. • The unrestricted General Fund transferred $2,567,788 to the Special Reserve Capital Fund for the energy

retrofit capital lease payments.

Included as other local sources in the statement of revenues, expenditures, and changes in fund balances of the County School Service Special Revenue Fund is $98.7 million, of which the source is the District General Fund.

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NOTE6-ACCOUNTSPAYABLE

Accounts payable at June 30, 2016, consisted of the following:

County General School Service Building

Fund Fund Fund Vendor payables $ 22,127,678 $ 7,680,101 $ 20,328,804 State apportionment 34,096,474 State categorical 1,393 456,658

Total Accounts Payable $ 56,225,545 $ 8,136,759 $ 20,328,804

Nonmajor Total Governmental Governmental Proprietary

Funds Funds Fund $ 7,658,481 $ 57,795,064 $ 993,195

34,096,474 37,891 495,942

$ 7,696,372 $ 92,387,480 $ 993,195

Additional interest payable in the statement of net position includes $2,145,200 for accrued interest on long term obligations, and $2,357,402 for interest payable related to the tax and revenue anticipation notes.

NOTE 7 - UNEARNED REVENUE

Unearned revenue at June 30, 2016, consists of the following:

County Nornnajor Total General School Service Governmental Governmental

Fund Fund Funds Funds Federal financial assistance $ 203,677 $ 81,388 $ $ 285,065 State categorical aid 3,194,845 109,453 4,416,703 7,721,001

Total unearned revenue $ 3,398,522 $ 190,841 $ 4,416,703 $ 8,006,066

NOTE 8 -TAX AND REVENUE ANTICIPATION NOTES (TRANS)

During September, 2015, the District issued $60 million of tax and revenue anticipation notes bearing interest at five percent. The notes were issued to supplement cash flows. Repayment requirements are that 50 percent of principal and interest be deposited with the Fiscal Agent by January 31, 2016, until 100 percent of principal and interest is due on account by April, 2016. Interest and principal are due and payable during August, 2016. Accrued interest on the TRANS obligation was $2,357,402 at June 30, 2016. Outstanding TRANS on June 30, 2016 consists of the following:

Outstanding Outstanding Issue Date Rate Maturity Date July 1, 2015 Additions Payments June 30, 2016 9/25/2014 5.00% 9/24/2015 $ 52,000,000 $ $ 52,000,000 $ 9/2/2015 5.00% 8/31/2016 60,000,000 60,000,000

Total $ 52,000,000 $ 60,000,000 $ 52,000,000 $ 60,000,000

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NOTE 9 -LONG-TERM OBLIGATIONS

Summary

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

Balance Balance July 1, 2015 Additions Deductions June 30, 2016

General obligation bonds $ 782,645,000 $ 289,655,000 $ 155,810,000 $ 916,490,000 Bond premium 52,471,063 32,204,539 7,612,186 77,063,416 Accumulated vacation 10,161,944 240,438 9,921,506 Capital leases 14,673,909 1,679,411 12,994,498

$ 859,951,916 $ 321,859,539 $ 165,342,035 $ 1,016,469,420

Due in one year

$ 51,470,000 5,667,131

1,863,827 $ 59,000,958

Payment of the general obligation bonds will be made by the Bond Interest and Redemption Fund, using property tax revenues which are restricted solely for repayment of principal and interest due on these obligations. The accumulated vacation will be paid by the fund for which the employee works at time of payment. Payments on capital leases will be made by the Special Reserve - Capital Fund, which receives contributions from the General Fund.

Outstanding general obligation bonded debt

Bond Issue Maturity Interest Original Outstanding Issued Outstanding Issuance Date Date Rate Issue July 1, 2015 (Redeemed) June 30, 2016

2003, Series 2006C 10/12/06 6/15/26 4.00-5.00% $ 92,000,000 $ 60,545,000 $ (60,545,000) $ 2006, Series 2007 A 02/28/07 6/15/27 3.00-5.00% 100,000,000 71,120,000 (38,530,000) 32,590,000 2006, Series 2009B 01/22/09 6/15/27 1.50-5.25% 150,000,000 95,440,000 (9,035,000) 86,405,000 2006, Series 2010C 05/19/10 5/15/27 5.74% 12,955,000 12,955,000 12,955,000 2006, Series 2010D 05/19/10 6/15/30 5.74% 72,370,000 72,370,000 72,370,000 2006, Series 2010E 05/19/10 6/15/23 0.50-5.00% 99,675,000 69,395,000 (7,325,000) 62,070,000 2011, Series 2012A 03/06/12 6/15/32 4.00-5.00% 115,000,000 103,620,000 (4,175,000) 99,445,000 2012 Refunding 03/06/12 6/15/25 0.30-5.00% 116,140,000 92,200,000 (7,775,000) 84,425,000 2011, Series 2014B 01/23/14 6/15/33 3.0%-5.0% 205,000,000 205,000,000 (20,750,000) 184,250,000 2006, Series 2015F 10/08/15 6/15/35 3.0%-5.0% 15,000,000 14,650,000 14,650,000 2011, Series 2015C 10/08/15 6/15/35 3.0%-5.0% 211,000,000 205,950,000 205,950,000 2015 Refunding 10/08/15 6/15/26 2.0%-5.0% 63,655,000 61,380,000 61,380,000

$782,645,000 $133,845,000 916,490,000

Unamortized bond premium 77,063,416 Total $ 993,553,416

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Debt Service Requirement to Maturity

Fiscal Year 2017 2018 2019 2020 2021

2022-2026 2027-2031 2032-2035

Total

Debt Refunding

Principal $ 51,470,000

53,990,000 56,620,000 58,915,000 61,650,000

310,830,000 224,190,000 98,825,000

$ 916,490,000

Interest to Maturity Total

$ 43,162,787 $ 94,632,787 38,170,737 92,160,737 35,542,937 92,162,937 32,738,437 91,653,437 29,962,337 91,612,337

107,556,286 418,386,286 47,312,715 271,502,715

8,069,448 106,894,448 $ 342,515,684 $ 1,259,005,684

During October 2015, the District issued $63.7 million in general obligation bonds with an interest rate range of 2.0 percent to 5.0 percent to advance refund $56.2 million of outstanding 2006 C series and 2007 A bonds with interest rates 4.0 percent to 5.0 percent, and $34.0 million of outstanding 2007 A series bonds with interest rates between 3.0 percent and 5.0 percent. The net proceeds of $95.6 million (including premiums and other sources of $32.2 million and costs of issuance and other fess of $0.3 million) were used to purchase U.S. govermnent securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the 2006 C and 2007 A series bonds. As a result, the 2006 C and portions of 2007 A series bonds are considered to be defeased and the liability for defeased bonds has been removed from the govermnent-wide statement of net position.

The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $3.5 million. The District completed the advance refunding to reduce its total debt service payments over the next 11 years by $36.5 million and to obtain an economic gain ( difference between the present values of the old and new debt service payments) of $27.7 million.

Accumulated Unpaid Employee Vacation and Vested Sick Leave

Full-time District employees are entitled to 10-20 vacation days a year, depending upon length of service, for which up to 30 working days in excess of the employee's annual vacation award may be carried over to the next year.

Increases to vested compensated absences reflect net changes during the year ended June 30, 2016. Also, the City and County of San Francisco Charter provisions allow classified employees to accumulate up to 130 working days of sick leave. Certificated employees, under State law, are allowed to accumulate unlimited days of sick leave. Upon normal retirement, the District will redeem 100 percent of the sick leave accrued by classified personnel prior to December 5, 1978, and no sick leave accrued after December 5, 1978. No sick leave amounts are payable to certificated personnel upon normal retirement, or to employees who terruinate for any reason prior to retirement.

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Capital Leases

Reported with capital assets is the energy retrofit capital lease of $32,947,132 and corresponding accumulated depreciation of $22,404,050 at June 30, 2016. The District's liabilities on lease agreements with options to purchase are summarized below:

Balance, Beginning of Year Payments

Balance, End of Year

The capital lease has minimum lease payments as follows:

Year Ending June 30,

2017 2018 2019 2020 2021 2022 Total

Less: Amount Representing Interest Present Value of Minimum Lease Payments

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Energy Retrofit

$ 18,192,884 (2,567,788)

$ 15,625,096

Lease Payment

$ 2,644,822 2,724,166 2,805,890 2,890,068 2,976,680 1,583,470

15,625,096 2,630,598

$ 12,994,498



NOTE 10 - FUND BALANCES

Fund balances are composed of the following elements:

County Bond Interest Nonmajor Total General School Service Building and Redemption Governmental Governmental

Fund Fund Fund Fund Funds Funds Nonspendable

Revolving cash $ 500 $ $ $ $ 7,150 $ 7,650 Stores inventories 530,540 80,527 611,067 Prepaid expenditures 79,369 79,369

Total nonspendable 610,409 87,677 698,086

Restricted Educational programs 46,563,253 6,522,637 2,308,429 55,394,319 Capital projects 156,730,429 52,713,404 209,443,833 Debt services 27,352,932 33,269 27,386,201

Total restricted 46,563,253 6,522,637 156,730,429 27,352,932 55,055,102 292,224,353

Assigned Special education 9,683,760 9,683,760 Capital projects 4,553,070 4,553,070 Technology upgrades 10,000,000 10,000,000

Total assigned 10,000,000 9,683,760 4,553,070 24,236,830

Unassigned Reserve for econormc uncertainties 14,345,347 14,345,347

Remaining unassigned 47,064,553 47,064,553 Total unassigned 61,409,900 61,409,900 Total fund balances $ 118,583,562 $ 16,206,397 $ 156,730,429 $ 27,352,932 $ 59,695,849 $ 378,569,169

48



Reconciliation to Statement of Net Position The following is a reconciliation of the difference between the unassigned general fund balance and the unrestricted net deficit reported in the statement of net position:

Balance per governrnental funds balance sheet Add Back

County School Fund assigned fund balance

General Fund revolving cash General Fund prepaid operating expenditures

General Fund inventory General Fund assigned fund balance

Deferred Maintenance Fund assigned fund balance

Special Reserve Fund for Capital Outlay assigned fund balance Resources earmarked for OPEB in the self-insurance fund

Deduct

Compensated absences liability Aggregate net pension liability

Net deferred inflows and outflows related to pensions

Other post employment benefits liability Balance per statement of net position

NOTE 11 - LEASE REVEMJES

$ 61,409,900

9,683,760

500 79,369

530,540 10,000,000

4,198,376

354,694 19,528,574

(9,921,506) (588,678,435)

61,322,177

(255,022,529) $ (686,514,580)

Lease agreements have been entered into with various lessees for terms that exceed one year. None of the agreements contain purchase options. All of the agreements contain a tennination clause providing for cancellation after a specified number of days written notice to lease, but is unlikely that the District will cancel any of the agreements prior to their expiration date. The future minimum lease payments expected to be received under these agreements are as follows:

Year Ending Lease

June 30, Revenue 2017 $ 7,100,753

2018 7,062,286 2019 7,226,033

2020 7,196,032 2021 6,654,021

Thereafter 88,563,314 Total $ 123,802,439

49



NOTE 12 - POSTEMPLOYMENT HEAL1H CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION

Plan Description

The Postemployment Benefit Plan (the Plan) is an agent multiple-employer (agent) defined benefit healthcare plan administered by the City and County of San Francisco Health Service System (HSS). The Plan provides medical insurance benefits to eligible retirees and their spouses. Membership of the Plan consists of 5 thousand retirees and their beneficiaries currently receiving benefits and 7.3 thousand active plan members. The unfunded portion of the annual requirement contributions (net OPEB obligation) is presented in the statement of net position as a portion oflong-terrn obligations.

Funding Policy

The contribution requirements of plan members and the District are established and may be amended by the District and the Teachers Association (CEA), the local California Service Employees Association (CSEA), and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements, with an additional amount to prefund benefits as determined annually through the agreements between the District, CEA, CSEA and the unrepresented groups. For fiscal year 2015-16, the District contributed $34.7 million to the plan, all of which was used for current premiums (approximately 50 percent of total premiums). The non-Medicare retirees pay 50% of active employee contributions up to cap and the Medicare retirees pay 50% of the difference between medicare and active employee contributions up to cap.

Annual OPEB Cost and Net OPEB Obligation

The District's annual other postemployrnent benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters ofGASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (U AAL) ( or funding excess) over a period not to exceed thirty years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation:

Annual required contribution Interest on net accrued 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

50

$ 69,823,518 9,890,265

(9,734,895) 69,978,888

(34,740,019) 35,238,869

219,783,660 $ 255,022,529



Trend Information

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

Year Ended Annua!OPEB Contributions Percentage NetOPEB June 30, Cost Made Contributed Obligation

2016 $ 69,978,888 $ 34,740,019 49.6% $ 255,022,529 2015 65,212,435 33,053,583 50.7% 219,783,660 2014 65,037,374 34,361,976 52.8% 187,624,808

Funded Status and Funding Progress

A schedule of funding progress as of the most recent actuarial valuation is as follows:

Actuarial Unfunded UAAL as a

Actuarial Actuarial Accrued AAL Funded Percentage of

Valuation Value Liability (UAAL) Ratio Covered Covered Payroll

Date of Assets (a) (AAL) - (b) (b - a) (a/ b) Payroll ( c) ([b-a]/c)

December 1, 2015 $ $ 624,009,553 $ 624,009,553 0.00% $ 471,791,841 132%

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

Actuarial Methods and Assumptions

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

In the December 1, 2015, actuarial valuation, the entry age normal method was used. The actuarial assumptions included a five percent investment rate of return (net of administrative expenses), based on assumed long term return on plan assets or employer assets, as appropriate. Healthcare cost trend rate is four percent with the assumption that trend increases in excess of general inflation result in fundamental changes in health care finance and/or delivery which will bring increases in health care costs more closely in line with general inflation. The UAAL is being amortized at a level percentage of payroll method. The UAAL is amortized using an opened amortization period of thirty years. The remaining amortization period at July 1, 2016, was thirty years, on an open basis. The actuarial value of assets was not determined in the valuation.

51



NOTE 13 - RISK MANAGEMENT

The District's risk management activities are recorded in the General Fund and Self Insurance Funds. Employee life, health, and disability programs are administered through the purchase of commercial insurance. Employee dental and workers' compensation insurance is provided on a self-funded basis.

Commercial insurance is purchased for excess workers' compensation, property, general liability, crime, student foreign travel, and student accidents. For workers' compensation coverage, the District maintains a $500,000 selfinsured retention, with specific excess statutory coverage through ARCH Insurance Company. The District maintains property coverage through Axis Insurance and RSUI Indemnity Company in the amount of $300 million per occurrence, with a $100,000 deductible. The District does not maintain insurance for earthquake risks. Excess Liability is a layered indemnity program with three insurers; BRIT, Berkley and the Schools Excess Liability Fund joint powers authority (JP A). The district maintains $SOM in excess liability limits with a $250,000 self-insured retention.

For insured programs, there have been no significant reductions in insurance coverage. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years.

Claim Liabilities - Self Insurance Fund

The District records an estimated liability for indemnity torts and other claims against the District. Claims liabilities for workers' compensation are based on a current actuarial study using the "expected value" as the basis for the total liability. The worker's compensation liabilities are reported at their present value using an expected future investment yield assumption of two percent. The following represents the changes in approximate aggregate liabilities for the District from July 1, 2014 to June 30, 2016:

Liability Balance, July 1, 2014 Claims and changes in estimates Claims payments

Liability Balance, June 30, 2015 Claims and changes in estimates Claims payments

Liability Balance, June 30, 2016

Assets available to pay claims at June 30, 2015

NOTE 14 - EMPLOYEE RETIREMENT SYSTEMS

Total $ 33,078,167

18,083,207 (16,807,141) 34,354,233 21,813,047

(20,625,166) $ 35,542,114

$ 43,760,545

Qualified employees are eligible to participate in the District's cost-sharing multiple-employer defined benefit pension plans, administered the California State Teachers' Retirement System (CalSTRS) or the San Francisco Employees' Retirement System (SFERS). Academic employees are members of CalSTRS while classified employees are members of the SFERS.

52



For the fiscal year ended June 30, 2016 the District reported net pension liabilities, deferred outflows ofresources, deferred inflows ofresources, and pension expense for each of the above plans as follows:

Deferred Outflows Deferred 1nfl ows Pension Plan Pension liability of Resources of Resources Pension Expense

CalS1RS $ 517,072,054 $ 106,364,644 $ 50,790,172 $ 53,022,237 SFERS 71,606,381 29,009,153 23,261,448 5,891,914 Total $ 588,678,435 $ 135,373,797 $ 74,051,620 $ 58,914,151

The details of each plan are as follows:

California State Teachers' Retirement System (CalSTRS)

Plan Description

The District contributes to the State Teachers Retirement Plan (S1RP) administered by the California State Teachers' Retirement System (CalS1RS). STRP is a cost-sharing multiple-employer public employee retirement system defined benefit pension plan. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law.

A full description of the pension plan regarding benefit provisions, assumptions (for funding, but not accounting purposes), and membership information is listed in the June 30, 2014, annual actuarial valuation report, Defined Benefit Program Actuarial Valuation. This report and CalSTRS audited financial information are publically available reports that can be found on the CalSTRS website under Publications. The CalS1RS website can be accessed at this address: http:/ /www.calstrs.com/member-publications.

Benefits Provided

The STRP provides retirement, disability and survivor benefits to beneficiaries. Benefits are based on members' final compensation, age and years of service credit. Members hired on or before December 31, 2012, with five years of credited service are eligible for the normal retirement benefit at age 60. Members hired on or after January 1, 2013, with five years of credited service are eligible for the normal retirement benefit at age 62. The normal retirement benefit is equal to 2.0 percent of final compensation for each year of credited service.

The STRP is comprised of four programs: Defined Benefit Program, Defined Benefit Supplement Program, Cash Balance Benefit Program and Replacement Benefits Program. The S1RP holds assets for the exclusive purpose of providing benefits to members and beneficiaries of these programs. CalS1RS also uses plan assets to defray reasonable expenses of administering the STRP. Although CalS1RS is the administrator of the STRP, the state is the sponsor of the STRP and obligor of the trust. In addition, the state is both an employer and nonemployer contributing entity to the STRP.

The District contributes exclusively to the STRP Defined Benefit Program, thus disclosures are not included for the other plans.

53

http://www.calstrs.com/member-publications



The STRP provisions and benefits in effect at June 30, 2016, are sununarized as follows:

STRP Defined Benefit Program

Hire date Benefit formula Benefit vesting schedule Benefit payments Retirement age Monthly benefits as a percentage of eligible compensation Required employee contribution rate Required employer contribution rate Required state contribution rate

Contributions

On or before December 31, 2012

2% at 60 5 years of service Monthly for life

60 2.0%-2.4%

9.20% 10.73%

7.12589%

On or after January 1, 2013

2% at 62 5 years of service Monthly for life

62 2.0%-2.4%

8.56% 10.73%

7.12589%

Required member, District and State of California contributions rates are set by the California Legislature and Governor and detailed in Teachers' Retirement Law. The contributions rates are expressed as a level percentage of payroll using the entry age normal actuarial method. In accordance with AB 1469, employer contributions into the CalSTRS will be increasing to a total of 19.1 percent of applicable member earnings phased over a seven year period. The contribution rates for each plan for the year ended June 30, 2016, are presented above. The District's contributions to CalSTRS, for the year ended June 30, 2016 were $35.8 million or 10.7% of covered payroll.

Pension Liabilities, Pension Expense, and Deferred Outflows/Inflows of Resources Related to Pensions

At June 30, 2016, the District reported a liability for its proportionate share of the net pension liability that reflected a reduction for State pension support provided to the District. The amount recognized by the District as its proportionate share of the net pension liability, the related state support and the total portion of the net pension liability that was associated with the District were as follows:

Total net pension liability, including State share District's proportionate share of net pension liability State's proportionate share of the net pension liability associated with the District

Total

$

$

517,072,054 273,474,116 790,546,170

The net pension liability was measured as of June 30, 2015. The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plan relative to the projected contributions of all participating school districts and the State, actuarially determined. The District's proportionate share for the measurement period June 30, 2015 and June 30, 2014, respectively, was 0.768 percent and 0.655 percent, resulting in a net increase in the proportionate share of 0.113 percent.

54



For the year ended June 30, 2016, the District recognized pension expense of $53.0 million. In addition, the District recognized pension expense and revenue of $21.3 million for support provided by the State. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows Deferred In.flows of Resources of Resources

Pension contributions subsequent to measurement date $ 35,778,381 $ Net change in proportionate share of net pension liability 70,586,263 Difference between projected and actual earnings on pension plan investments 42,149,775

Differences between expected and actual experience in the measurement of the total pension liability 8,640,397

Total $ 106,364,644 $ 50,790,172

The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. The deferred outflows/(inflows) of resources related to the difference between projected and actual earnings on pension plan investments will be amortized over a closed five-year period and will be recognized in pension expense as follows:

Deferred Year Ended Outflows/ (In.flows)

June 30, of Resources 2017 $ (17,444,960) 2018 (17,444,960) 2019 (17,444,960) 2020 10,185,105 Total $ (42,149,775)

The deferred outflows/(inflows) of resources related to the net change in proportionate share of net pension liability and differences between expected and actual experience in the measurement of the total pension liability will be amortized over the Expected Average Remaining Service Life (EARSL) of all members that are provided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL of the 2014-15 measurement period is seven years and will be recognized in pension expense as follows:

Deferred Year Ended Outflows/ (In.flows)

June 30, of Resources 2017 $ 10,324,311 2018 10,324,311 2019 10,324,311 2020 10,324,311 2021 10,324,311

Thereafter 10,324,311 Total $ 61,945,866

55




Total pension liability for S1RP was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2014, and rolling forward the total pension liability to June 30, 2015. The financial reporting actuarial valuation as of June 30, 2014, used the following methods and assumptions, applied to all prior periods included in the measurement:

Valuation date Measurement date Experience study Actuarial cost method Discount rate Investment rate of return Consumer price inflation Wage growth

June 30, 2014 June 30, 2015 July 1, 2006 through June 30, 2010 Entry age normal 7.60% 7.60% 3.00% 3.75%

CalS1RS uses custom mortality tables to best fit the patterns of mortality among its members. These custom tables are based on RP2000 series tables adjusted to fit CalSTRS experience.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return ( expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. The best estimate ranges were developed using capital market assumptions from CalS1RS general investment consultant. Based on the model for CalS1RS consulting actuary's investment practice, a best estimate range was determined by assuming the portfolio is re-balanced annually and that the annual returns are lognormally distributed and independent from year to year to develop expected percentiles for the long-term distribution of annualized returns. The assumed asset allocation is based on Teachers' Retirement Board of the California State Teachers' Retirement System (board) policy for target asset allocation in effect on February 2, 2012, the date the current experience study was approved by the board. Best estimates of 10-year geometric real rates of return and the assumed asset allocation for each major asset class used as input to develop the actuarial investment rate of return are summarized in the following table:

Long-term Assumed Asset Expected Real

Asset Class Allocation Rate of Return GI ob al equity 47.00% 4.50% Private equity 12.00% 6.20% Real estate 15.00% 4.35% Inflation sensitive 5.00% 3.20% Fixed income 20.00% 0.20% Cash/liquidity 1.00% 0.00%

100.00%

56



Discount Rate

The discount rate used to measure the total pension liability was 7.60 percent. The projection of cash flows used to determine the discount rate assumed the contributions from plan members and employers will be made at statutory contribution rates. Projected inflows from investment earnings were calculated using the long-term assumed investment rate of return (7.60 percent) and assuming that contributions, benefit payments and administrative expense occurred midyear. Based on these assumptions, the S1RP's fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term assumed investment rate of return was applied to all periods of projected benefit payments to determine total pension liability.

The following presents the District's proportionate share of the net pension liability calculated using the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent I ower or higher than the current rate:

Discount Rate I% decrease ( 6.60%) Current discount rate (7.60%) I% increase (8.60%)

San Francisco Employees' Retirement System (SFERS)

Plan Description

Net Pension Liability

$ 780,738,556 $ 517,072,054 $ 297,973,916

Qualified employees are eligible to participate in the San Francisco Employees' Retirement System (SFERS); a cost-sharing multiple-employer, public employee, defined benefit pension plan administered by the City and County of San Francisco (the City). SFERS is a separate department of the City, deriving its powers, functions, and responsibility from the City Charter and ordinances of the Board of Supervisors of the City. Substantially all employees of the City and County are members, including most of the District's classified permanent full-time employees and certain certificated employees hired prior to July I, 1972. Members are classified according to City bargaining units as police, fire, and miscellaneous. District employees are members of the miscellaneous pool. SFERS issues a separate annual financial report that includes financial statements and required supplementary information. The SFERS annual financial report is available online at www.sfers.org.

Benefits Provided

The retirement system provides service retirement, disability, and death benefits based on specified percentages of defined final average monthly salary and annual cost-of-living adjustments after retirement. Employees with 20 years of service who have attained age 50 or those with 10 years of service who have attained age 60 are eligible for retirement benefits. The City Charter and the Administrative Code are the authorities that establish and amend the benefit provisions of the plan and employer and member obligations to the plan.

57

http://www.sfers.org



The SFERS provisions and benefits in effect at June 30, 2016, are sununarized as follows:

City Employer Pool (Miscellaneous Non-Safety Membership)

On or after On or after November 2, 1976 and July 1, 2010 and On or after

Hire date before July 1, 2010 before January 7, 2012 January 7, 2012 Benefit formula 2.3% at 62 2.3% at 62 2.3% at 65

Age 50 with 20 Years Age 50 with 20 Years Age 53 with 20 Years of Credited Service or of Credited Service or of Credited Service or Age 60 with 10 Years Age 60 with 10 Years Age 60 with 10 Years

Benefit vesting schedule of Credited Service of Credited Service of Credited Service Retirement age 65 65 65 Benefit payments Monthly for Life Monthly for Life Monthly for Life Benefits as a percentage of eligible compensation 1.00%-2.30% 1.00%-2.30% 1.00%-2.30%

Maximum annual benefits 75% 75% 75% Required employee contribution rate 0.13 0.13 0.13 Required employer contribution rate 0.2038 0.2038 0.2038

All retired members receive a benefit adjustment each July 1, which is the basic cost of living adjustment (COLA). The majority of adjustments are determined by changes in the Consumer Price Index with increases capped at 2%. The Plan provides for a supplemental COLA in years when there are sufficient "excess" investment earnings in the Plan and the Plan is fully funded on a market value of assets basis. The maximum benefit adjustment is 3.5% including that Basic COLA. For members hired on or after January 7, 2012, Supplemental COLAs will not be permanent adjustments to retirement benefits.

Contributions

Contributions are made to the plan by both the employers and the participating employees. The basic employer contributions are the amounts deemed necessary, on an actuarial basis using the entry age normal cost method, to provide the plan with assets sufficient to pay the basic benefits that are not provided for by employees' contributions. Employee and employer contributions are mandatory, as required by the City Charter. The District's contributions to SFERS, for the year ended June 30, 2016 were $15. 7 million or 20.4% of covered payroll.

58



Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions

As of June 30, 2016, the District reported net pension liabilities for its proportionate share of the collective SFERS net pension liability totaling $71.6 million. The net pension liability of the plan is measured as of June 30, 2015, and the total pension liability for the plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2014, rolled forward to June 30, 2015 using standard update procedures. The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The District's proportionate share for the measurement period June 30, 2015 and June 30, 2014, respectively, was 3.119 percent and 2.976 percent, resulting in a net increase in the proportionate share of 0.143 percent. The following table illustrates the change in the District's proportion during the year:

Proportion - June 30, 2014 measurement date Proportion - June 30, 2015 measurement date

Change in proportion

Miscellaneous Non-safety

2.9759% 3.1187% 0.1428%

For the year ended June 30, 2016, the District recognized pension expense of $5.9 million, including amortization of deferred outflows/inflows related pension items. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Pension contributions subsequent to measurement date Difference between expected and actual experience Changes in assumptions Adjustment due to differences in proportions Net difference between projected and actual earnings on plan investments

Total

59

$

$

Deferred Outflows of Resources

15,731,859

5,410,196 7,867,098

29,009,153

Deferred Inflows of Resources

$ 4,939,553 1,371,885

16,950,010 $ 23,261,448



The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. The deferred outflows/(inflows) of resources related to the difference between projected and actual earnings on pension plan investments will be amortized over a closed five-year period and will be recognized in pension expense as follows:

Year Ended June 30,

2017 2018 2019 2020 Total

Arnortizati on $ (7,058,440)

(7,058,440) (7,058,440) 4,225,310

$ (16,950,010)

The deferred outflows/(inflows) of resources related to the net change in proportionate share of net pension liability and differences between expected and actual experience in the measurement of the total pension liability will be amortized over the Expected Average Remaining Service Life (EARSL) of all members that are provided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL of the 2014-15 measurement period is five years and will be recognized in pension expense as follows:

Year Ended June 30,

2017 2018 2019 2020 Total


Arnortizati on $ 1,964,140

1,964,140 1,964,140 1,073,436

$ 6,965,856

The total pension liability was determined by an actuarial valuation as of June 30, 2014, which was rolled forward to June 30, 2015 using generally accepted actuarial procedures. The following is a summary of the actuarial methods and assumptions used in the actuarial valuation:

Valuation date Measurement date Actuarial cost method Inflation Salary increases Investment rate of return Municipal bond yield Discount rate Administrative expense Basic COLA

60

June 30, 2014 updated to June 30, 2015 June 30, 2015 Entry-age normal cost 3.33% 3. 83 % pl us merit component 7.50%, net of investment expense and inflation 3.85% 7.46% 0.45% of payroll 2.00%



Mortality rates for active members were based upon the RP-2000 Employee Tables for Males and Females projected using Scale AA to 2030 for females and to 2005 for males. Mortality rates for healthy annuitants were based upon the RP-2000 Healthy Annuitant Tables for Males and Females projected using Scale AA to 2020.

The probability of a Supplemental COLA as of June 30, 2015 was developed based upon the probability and amount of Supplemental COLA for each future year. The table below shows the net assumed Supplemental COLA for members with a 2.00% basic COLA for sample years.

Discount Rate

Fiscal Year 2016 2021 2026 2031

Thereafter

Assumption 0.000% 0.345% 0.375% 0.375% 0.375%

The beginning and end of year measurements are based on different assumptions and contribution methods that result in different discount rates. The discount rate was 7.58% as of June 30, 2014 measurement date and 7.46% as of June 30, 2015 measurement date.

The discount rate used to measure the total pension liability as of June 30, 2015 was 7.46%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will continue to be made at the rates specified in the Charter. Employer contributions were assumed to be made in accordance with the contribution policy in effect for July 1, 2015 actuarial valuation. That policy includes contributions equal to the employer portion of the entry age normal costs for members as of the valuation data plus an amortization payment on the unfunded actuarial liability.

The plan's fiduciary net position was projected to be available to make projected future benefit payments for current members until fiscal year-end 2084, when only a portion of the projected benefit payments can be made from the projected fiduciary net position. Projected benefit payments are discounted at the long-term expected return on assets of 7.46% to the extent the fiduciary net position is available to make the payments and at the municipal bond rate of 3.85% to the extent they are not available. Since the payments discounted at the municipal bond rate are relatively few and far in the future, the municipal bond rate does not affect the single equivalent rate when rounded to two decimal places. Consequently, the single equivalent rate used to determine the total pension liability as of June 30, 2015 is 7.46%

61



The long-term expected rate of return on pension plan investments was 7.46%. It was set by the Retirement Board after consideration of both expected future returns and historical returns experienced by the by the Retirement System. Expected future returns were determined by using a building-block method in which best-estimate ranges of expected future real rates of return were developed for each major asset class. These ranges were combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Target allocation and best estimates of geometric long-term expected real rates of return (net of pension plan investment expense and inflation) for each major asset class are summarized in the following table:

Long-Term Assumed Asset Expected Real

Asset Class Allocation Rate of Return Global equity 40% 5.1% Global fixed income 20% 1.2% Private equity 18% 7.5% Real estate 17% 4.1% Hedge Funds/ Absolute Returns 5% 3.5%

Total 100%

The following presents the District's allocation of the its proportionate share of the net pension liability, calculated using the 7.46% discount rate, as well as what the District's allocation would be if it were calculated using a discount rate that is 1 % lower or 1 % higher than the current rate:

Discount rate 1 % decrease ( 6.46%) Current discount rate (7.46%) 1 % increase (8.46%)

62

Net Pension Liability

$ 158,346,503 $ 71,606,381 $ (1,138,419)



On Behalf Payments

The State of California makes contributions to CalS1RS on behalf of the District. The State contributions are recorded in these financial statements as a component of state revenue and pension expense. On behalf payments are excluded from the calculation of available reserves and are not included in the budget amounts reported in the General Fund Budgetary Comparison Schedule.

The State contributions to CalSTRS on behalf of the District are as follows:

Fiscal Percent of General County School Child Development Total State Year Annual Payroll Fund Fund Fund Contribution

2015-16 7.101% $ 17,138,294 $ 3,341,823 $ 839,778 $ 21,319,895 2014-15 5.679% 13,233,214 2,470,374 634,347 16,337,935 2013-14 5.541% 12,571,992 2,451,432 616,029 15,639,453

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Grants

The District received financial assistance from federal and state agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the general fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, 2016.

Litigation

The District is involved in litigation on various matters arising in the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30, 2016.

63



Construction Commitments

As of June 30, 2016, the District had the following commitments with respect to the unfinished capital projects:

Remaining Expected Construction Date of

Capital Proiect Site Commitment Completion Cesar Chavez Elementary School $ 85,943 August 19, 2016 Cleveland Elementary School 83,100 August 22, 2016 El Dorado Elementary School 256,123 November 8, 2016 Frank McCoppin Elementary School 7,941,339 August 31, 2017 George Peabody Elementary School 70,795 August 19, 2016 Gordon J. Lau Elementary School 1,406,445 August 31, 2016 Ida B. Wells High School 34,050 July 13, 2016 James Lick Elementary School 1,726,576 September 5, 2016 John Yehall Chin Elementary School 10,011,781 May 30, 2017 Lakeshore Elementary School 267,313 October 14, 2016 Leadership High School 2,425,535 November 18, 2016 Longfellow Elementary School 1,737,346 September 29, 2016 McKinley Elementary School 206,010 August 15, 2016 Miraloma Elementary School 36,625 August 19, 2016 Monroe Elementary School 80,693 August 19, 2016 Paul Revere Elementary School 3,352,770 September 3, 2016 Phillip and Sala Burton High School 2,285,315 September 6, 2016 Presidio Middle School 1,127,672 September 4, 2016 Robert L Stevenson Elementary School 14,211,231 September 12, 2017 Roosevelt Elementary School 310,698 July 30, 2016 Ruth Asawa San Francisco School of the Arts - McAteer campus 2,869,920 November 18, 2016 Sutro Elementary School 447,614 August 25, 2016 Sunnyside Elementary School 87,660 August 19, 2016 Visitacion Valley Elementary School 1,416,063 August 24, 2016 Visitacion Valley Middle School 5,440,348 January 17, 2017 Webster Elementary School 995,118 August 1, 2016 Willie L. Brown Jr. Middle School 63,118 August 14, 2016 Yick Wo Elementary School 99,658 August 19, 2016

Total outstanding construction commitments $ 59,076,859

NOTE 16 - PARTICIPATION IN PUBLIC ENTITY RISK POOLS AND JOINT POWER AUTHORITIES

The District is a member of the School Project for Utility Rate Reduction (SPURR) and participates in the Schools Excess liability Fund (SELF) joint powers authority (JP A). The District pays annual contributions to SELF for additional excess liability coverage. The relationship between the District and the JP A's is such that they are not component units of the District for financial reporting purposes.

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

64

REQUIRED SUPPLEMENTARY INFORMATION

65


GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2016

Variances -

Favorable (Unfavorable)

Budgeted Amounts Final Revenues Original Final Actual to Actual

Local control funding formula $475,617,066 $ 469,568,380 $ 475,932,385 $ 6,364,005

Federal sources 29,559,993 32,516,406 29,374,279 (3,142,127) Other state sources 58,345,992 74,404,502 58,516,086 (15,888,416)

Other local sources 169,805,067 176,264,198 189,349,630 13,085,432

TOTAL REVENUES' 733,328,118 752,753,486 753,172,380 418,894

Expenditures Current

Certificated salaries 277,417,479 284,429,222 277,893,869 6,535,353

Classified salaries 89,180,763 90,427,966 80,068,179 10,359,787 Employee benefits 142,068,631 163,403,969 135,080,384 28,323,585 Books and supplies 23,699,743 23,431,414 27,789,158 (4,357,744)

Services and operating expenditures 60,917,357 65,113,979 68,208,865 (3,094,886) Other outgo 98,755,069 94,155,069 94,289,238 (134,169)

Capital outlay 316,956 1,125,383 773,014 352,369 Debt service - interest 3,143,303 3,143,303 3,143,303

TOTAL EXPENDITURES' 695,499,301 725,230,305 687,246,010 37,984,295

Excess (deficiency) of revenues over expenditures 37,828,817 27,523,181 65,926,370 38,403,189

Other Financing Uses Transfers out (12,838,579) (12,838,579) (16,659,311) (3,820,732)

TOTAL FINANCING SOURCES (USES) (12,838,579) (12,838,579) (16,659,311) (3,820,732)

NET CHANGE IN FUND BALANCES 24,990,238 14,684,602 49,267,059 34,582,457 Fund balance - Beginning 69,316,503 69,316,503 69,316,503 Fund balance - Ending $ 94,306,741 $ 84,001,105 $ 118,583,562 $ 34,582,457

1 For comparison purpose, on behalf payments of $17,138,294 are excluded from this schedule.

See accompanying note to required supplementary information.

66


COUNTY SCHOOL SERVICE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2016

Variances -

Favorable (Unfavorable)

Budgeted Amounts Final Revenue Original Final Actual to Actual

Local control funding formula $ 10,974,621 $ 10,503,207 $ 10,475,770 $ (27,437)

Federal sources 13,436,324 13,873,633 13,494,741 (378,892) Other state sources 43,518,928 47,188,778 41,867,257 (5,321,521) Other local sources 97,933,944 98,833,944 99,114,562 280,618

TOTAL REVENUES' 165,863,817 170,399,562 164,952,330 (5,447,232)

Expenditures Current

Certificated salaries 50,599,747 50,587,951 49,881,370 706,581 Classified salaries 31,448,471 31,467,888 29,201,988 2,265,900

Employee benefits 31,897,177 34,360,242 29,779,617 4,580,625 Books and supplies 3,990,358 3,781,004 2,071,204 1,709,800 Services and operating expenditures 47,044,723 47,281,399 47,662,091 (380,692)

Capital outlay 104,746 71,746 71,746

TOTAL EXPENDITURES' 165,085,222 167,550,230 158,596,270 8,953,960

NET CHANGE IN FUND BALANCES 778,595 2,849,332 6,356,060 3,506,728 Fund balance - Beginning 9,850,337 9,850,337 9,850,337 Fund balance - Ending $ 10,628,932 $ 12,699,669 $ 16,206,397 $ 3,506,728

1 For comparison purpose, on behalf payments of $3,341,823 are excluded from this schedule.


67


SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2016

Actuarial Unfunded UAAL as a

Actuarial Actuarial Accrued AAL Funded Percentage of

Valuation Value Liability (UAAL) Ratio Covered Covered Payroll

Date of Assets (a) (AAL) - (b) (b - a) (a /b) Payroll ( c) ([b-a]/c)

December 1, 2015 $ $ 624,009,553 $ 624,009,553 0.00% $ 471,791,841 132%

December 1, 2013 680,924,643 680,924,643 0.00% 422,361,017 161 %

December 1, 2011 736,931,483 736,931,483 0.00% 396,102,456 186%


68


SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY FOR THE YEAR ENDED JUNE 30, 2016

(Armunts in thousands) CalSTRS District's proportion of the net pension liability District's proportionate share of the net pension liability State's proportionate share of the net pension liability associated with the District

Total

District's covered employee payroll at the measurement date District's proportionate share of the net pension liability as a percentage of its covered employee payroll

Plan fiduciary net position as a percentage of the total pension liability

SFERS District's proportion of the net pension liability District's proportionate share of the net pension liability District's covered employee payroll at the measurement date

District's proportionate share of the net pension liability as a percentage of its covered - employee payroll

Plan fiduciary net position as a percentage of the total pension liability

111 Historical inforrration is available only for rrmsurerrent periods for which GASB Staterrent No. 68 is applicable.


69

2015(!)

0.655% $ 382,762 $

231,113 $ 613,875 $

$ 300,327 $

127.45%

77%

2.976% $ 52,686 $ $ 63,892 $

82.46%

92%

201d')

0.768% 517,072 273,474 790,546

314,358

164.49%

74%

3.119% 71,606 69,040

103.72%

90%


SCHEDULE OF DISTRICT PENSION CONTRIBUTIONS FOR THE YEAR ENDED JUNE 30, 2016

(Armunts in thousands) 2012<1) 2013<1

) 2014<1) 2015<1

) 2016(l)

CalSTRS Contractually required contribution $ 23,290 $ 23,740 $ 24,777 $ 27,915 $ 35,778 Contributions in relation to the contractually required contribution (23,290) (23,740) (24,777) (27,915) (35,778)

Contribution deficiency (excess) $ $ $ $ $

District's covered - employee payroll $ 282,303 $ 287,758 $ 300,327 $ 314,358 $ 334,115 Contributions as a percentage of covered - employee payroll 8.25% 8.25% 8.25% 8.88% 10.71 %

SFERS Contractually required contribution $ 11,692 $ 12,388 $ 15,858 $ 18,475 $ 15,732 Contributions in relation to the contractually required contribution (11,692) (12,388) (15,858) (18,475) (15,732)

Contribution deficiency (excess) $ $ $ $ $

District's covered - employee payroll $ 64,632 $ 67,168 $ 63,892 $ 69,040 $ 77,181 Contributions as a percentage of covered - employee payroll 18.09% 18.44% 24.82% 26.76% 20.38%

111 I nforrration not available prior to 2012.


70


NOTE TO REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2016

NOTE 1 - PURPOSE OF SCHEDULES

Budgetary Comparison Schedule

The District employs budget control by object codes and by individual appropnat10n accounts. Budgets are prepared on the modified accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board. The budgets are revised during the year by the Board of Education to provide for revised priorities. Expenditures cannot legally exceed appropriations by major object code. The originally adopted and final revised budgets for the General Fund and County School Service Fund are presented as required supplementary information. The basis of budgeting is the same as GAAP.

The excess of expenditures over appropriations in the general fund and county school service fund at June 30, 2016 are as follows:

Fund General Fund

Books and supplies Services and operating expenditures

County School Service Fund Services and operating expenditures

$

Schedule of Other Postemployment Benefits (OPEB) Funding Progress

Excess Expenditures

4,357,744 3,094,886

380,692

This schedule is intended to show trends about the funding progress of the District's actuarially detennined liability for postemployment benefits other than pensions.

Schedule of the District's Proportionate Share of the Net Pension Liability

This schedule presents information on the District's proportionate share of the net pension liability (NPL), the plans' fiduciary net position and, when applicable, the State's proportionate share of the NPL associated with the District. In the future, as data becomes available, ten years of information will be presented.

Schedule of District Pension Contributions

This schedule presents information on the District's required contribution, the amounts actually contributed, and any excess or deficiency related to the required contribution. In the future, as data becomes available, ten years of information will be presented.

Changes in Benefit Terms

There were no changes in benefit terms since the previous valuation for either CalS1RS and SFERS.

Changes in Assumptions

The CalSTRS plan rate of investment return assumption was not changed from the previous valuation. The SFERS plan rate of investment return assumption was changed from 7.58 percent to 7.50 percent since the previous valuation.

71

SUPPLEMENTARY INFORMATION

72


SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2016

Pass-through

Federal Grantor/Pass-Through

Grantor/Program or Cluster Title

CFDA Identifying Federal

US DEPARTMENT OF EDUCATION

Passed through California Department of Education

Safe and Supportive Schools Programmatic Intervention

Career and Technical Education Title I grants to Local Educational Agencies

Title I, Part A, Basic Grants Low Income and Neglected Title I, Part A, Program Improvement District Intervention

Title I, Part D, Local Delinquent Programs Total, Title I grants to Local Educational Agencies

Title I, Part B, Reading First Program

Title I, Migration Education

Title I, Part C, Migrant Ed - Regular Program

Title I, Part C, Migrant Ed - Summer Program

Total Title I, Migration Education Title II, Supporting Effective Instruction State Grant

Title II, Part A, Teacher Quality

Title II, Part A, Administrator Training

Total Title II, Supporting Effective Instruction State Grant

Title II, Part B, Mathematics and Science Partnerships

Title II, Part D, Enhancing Education Through Technology

Title III, English Language Acquisition State Grants

Title III, Immigrant Education Program

Title III, Limited English Proficient Student Program

Total Title III, English Language Acquisition State Grants

Title IV, Part B, 21st Century Community Leaming Centers

See accompanying note to supplementary information.

73

Number Number Expenditures

84.184 15164 $ 26,162

84048 14891/14894 373,063

84 010 14329 12,130,383

84 010 14581 71,083

84010 14357 111,305 12,312,771

84.357 14328 257,383

84 01 I 14838 248,888

84 01 I 10005 40,007

288,895

84.367 14341 2,748,686

84.367 14344 6,607

2,755,293

84.366 14512 386

84.318 14334 4,282

84.365 15146 2,411

84.365 14346 1,466,817

1,469,228

84.287 14349 7,938,842


SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) FOR THE YEAR ENDED JUNE 30, 2016

Pass-through

Federal Grantor/Pass-Through CFDA Identifying Federal

Grantor/Program or Cluster Title Number Number Expenditures

US DEPARTl\1ENT OF EDUCATION (CONTINUED)

Individuals with Disabilities Education Act Cluster

IDEA Basic Local Assistance Entitlement, Part B, Sec 611 84027 13379 11,267,786

IDEA Mental Health Allocation Plan, Part B, Sec 611 84027 15197 577,257

IDEA Preschool Local Entitlement, Part B, Sec 611 84 027A 13682 382,513

IDEA Preschool Grants, Part B, Sec 619 84.173 13430 180,958

IDEA Alternate Dispute Resolution, Part B, Sec 611 84.173A 13007 10,595

IDEA Preschool Staff Development, Part B, Sec 611 84.173A 13431 2,852

Total, Individuals with Disabilities Education Act Cluster 12,421,961

Speical Education - Grants for Infants and Families 84.181 23761 162,626

Passed through California Department of Rehabilitation

Workability II, Transition Partnership 84.158 10006 75,714

Direct Grants

Mission Promise Neighborhood 84.215N 709,193

Gaining Early Awareness and Readiness for Undergraduates 84.334A 208,688

Transition to Teaching 84.350A 208,124

Indian Education 84 060 21,583

Integrated School-Based Violence Intervention 84.184M 286,665

Total, US. Department of Education 39,520,859

US DEPARTl\1ENT OF AGRICULTURE


Child Nutrition Act Cluster

Especially Needy Breakfast Program 10.553 13526 2,478,818

School Breakfast Program 10.553 13390 46,120

National School Lunch Program 10.555 13391/13396 13,989,262 Commodity Supplemental Food Program 3 10.555 347,396

Total, Child Nutrition Act Cluster 16,861,596 Child Care Food Program - Centers and Family Day Homes 10.558 13393 1,160,929

Child Nutrition: Equipment Assistance Grants 10.579 14906 17,078

Fresh Fruit and Vegetable Program 10.582 14968 11,418

Total, US. Department of Agriculture 18,051,021


74


SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) FOR THE YEAR ENDED JUNE 30, 2016

Pass-through

Federal Grantor/Pass-Through CFDA Identifying

Grantor/Program or Cluster Title Number Number

US DEPARTl\1ENT OF DEFENSE


Junior Reserve Officers Training Corps 12.000

Total, US. Department of Defense

US DEPARTl\1ENT OF JUSTICE

Direct Grant

Mentoring for Success - Youth with Disabilities 16.000

Passed through University of Georgia

Group Mentoring for Resilience: Increasing Positive Development and Reducing involvement in the Juvenile Justice System 16.726

Total, US. Department of Justice

US DEF AR Tl\1ENT OF HEAL TH AND HUMAN SERVICES

Direct Grant

Substance Abuse and Mental Health Services 93.243

Comprehensive School Health Programs 93.938


Federal Child Care, Center-based 93.596 13609

Passed through Centers for Disease Control

School-Based Surveillance 93.079

Passed through California Department of Health Care Services

Medi-Cal Billing Option 93.778 10013

Total, US. Department of Health and Human Services Total, Expenditures of Federal Awards

1 Pass-through identifying number not applicable/available.


75

Federal

Expenditures

742,694

742,694

2,604

83,808

86,412

24,838

143,432

6,440,553

551,400

1,787,968

8,948,191 $ 67,349,177


LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2016

ORGANIZATION

The San Francisco Unified School District was established in 1851 and consists of an area compnsmg approximately 49 square miles. The District operates 9 transitional kindergartens, 65 elementary schools, 13 middle schools, 18 senior high schools (including two continuation schools and an independent study school), 4 court and county community schools, and 34 state-funded preschool sites.

MEMBER Emily M. Murase, Ph. D Rachel Norton

Sandra Lee Fewer

Matthew Haney Sharnann Walton

Hydra B. Mendoza

Jill Wynns

Richard Carranza

Danielle Houck Guadalupe Guerrero

Myong Leigh Don Daves-Rougeaux

Open

Richard Curci

David Wong Anakarita Allen

Kading Aguilera Fort

Jeannie Pon Bill Sanderson

Elizabeth Blanco Gentle Blythe

Carla Bryant

Melissa Dodd David Goldin

Jill Hoogendyk

RituKhanna Reeta Madhavan

Brent Stephens Kevin Truitt

Monica Vasquez

GOVERNING BOARD

OFFICE President Commissioner

Commissioner

Vice President Commissioner

Commissioner

Commissioner

TERM EXPIRES 2019

ADMINISTRATION Superintendent of Schools

General Counsel

2017 2017 2017 2019 2019 2017

Deputy Superintendent, Instruction, Innovation & Social Justice

Deputy Superintendent, Policy & Operations

Chief of Strategy and Fund Development Chief of Schools

Assistant Superintendent, Elementary - Cohort I

Assistant Superintendent, Elementary - Cohort II Assistant Superintendent, Elementary - Cohort III

Assistant Superintendent, Elementary - Cohort IV

Assistant Superintendent, Middle Schools Assistant Superintendent, High Schools

Chief, Special Education Chief Communications Officer

Chief of Early Childhood Education

Chief Technology Officer Chief Facilities Officer

Chief, Strategic Initiatives

Chief, Research Planning and Assessment Chief Financial Officer

Chief Academic Officer, Curriculum and Instruction Chief, Student, Family and Community Support Division

Chief, Human Resources


76


SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2016

Regular ADA Transitional kindergarten through third Fourth through sixth Seventh and eighth Ninth through twelfth

Total Regular ADA

Extended Year Special Education Transitional kindergarten through third Fourth through sixth Seventh and eighth Ninth through twelfth

Total Extended Year Special Education

Special Education, Nonpublic, Nonsectarian Schools Transitional kindergarten through third Fourth through sixth Seventh and eighth Ninth through twelfth

Total Special Education, Nonpublic, Nonsectarian Schools

Extended Year Special Education, Nonpublic, Nonsectarian Schools Transitional kindergarten through third Fourth through sixth Seventh and eighth Ninth through twelfth

Total Extended Year Special Education, Nonpublic, Nonsectarian Schools

Community Day School Fourth through sixth Seventh and eighth Ninth through twelfth

Total Community Day School

Juvenile Halls, Homes and Camp, Probation Referred Elementary High School

Total Juvenile Halls, Homes and Camp, Probation Referred Total ADA


77

Final Report Amended Second

Period Report

17,034.95 11,867.84 6,845.34

14,703.57 50,451.70

30 08 19.64 9.82

31.60 91.14

846 16.84 22.84 57.76

105.90

1.18 2.14 3.18 7.90

1440

0.24 2.26

25.93 2843

3.65 92.23 95.88

50,78745

Annual Report

17,055.03 11,87843 6,860.64

14,65949 50,453.59

30 08 19.64 9.82

31.60 91.14

9.17 18.13 25.25 66.68

119.23

1.18 2.14 3.18 7.90

1440

0.18 2.58

28.35 31.11

3.82 86.35 90.17

50,799.64


SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, 2016

Number 1986-87 2015-2016 of Days Minutes Actual Traditional

Grade Level Requirement Minutes Calendar Status Kindergarten 36,000 44,400 180 Complied Grades 1 - 3

Grade 1 50,400 50,520 180 Complied Grade 2 50,400 50,520 180 Complied Grade 3 50,400 50,460 180 Complied

Grades 4 - 6 Grade 4 54,000 54,000 180 Complied Grade 5 54,000 54,000 180 Complied Grade 6 54,000 57,584 180 Complied

Grades 7 - 8 Grade 7 54,000 57,584 180 Complied Grade 8 54,000 57,584 180 Complied

Grades 9 - 12 Grade 9 64,800 64,820 180 Complied Grade 10 64,800 64,820 180 Complied Grade 11 64,800 64,820 180 Complied Grade 12 64,800 64,820 180 Complied


78


RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2016

No adjustments are necessary to reconcile the unaudited actual financial report and the audited financial statements.


79


SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2016

(Budget)

2017 1 2016 GENERAL FUND

Revenues $ 746,120,913 $ 753,172,380

Expenditures 747,609,616 687,246,010 Other uses and transfers out 12,990,399 16,659,311

Total Expenditures and Other Uses 760,600,015 703,905,321

CHANGE IN FUND BALANCE $ (14,479,102) $ 49,267,059

ENDING FUND BALANCE $ 104,104,460 $ 118,583,562 AVAILABLE RESERVES $ 46,930,798 $ 61,409,900

AVAILABLE RESERVES AS A PERCENTAGE OF TOTAL

OUTGO 3 6.17% 8.72%

LONG-TERM OBLIGATIONS $ 947,546,956 $ 1,040,927,631

AVERAGE DAILY ATTENDANCE

AT P-2 2 50,595 50,787

2015 2014

$ 659,851,393 $ 607,265,622

644,024,394 595,889,105 9,248,336 9,043,610

653,272,730 604,932,715

$ 6,578,663 $ 2,332,907

$ 69,316,503 $ 62,737,840 $ 35,819,276 $ 20,107,328

548% 3.32% $ 1,515,183,926 $ 1,089,419,341

51,210 51,241

The General Fund balance has increased by $55.8 million over the past two years. The fiscal year 2016-17 budget projects a decrease of $14.5 million, or 12 percent For a district this size, the State reconnnends available reserves of at least two percent of total general fund expenditures, transfers out, and other uses (total outgo).

The District has incurred an operating gain in the General Fund during past three years. However, the District anticipates a General Fund operating deficit during the 2016-17 fiscal year. Total long-term liabilities have increased by $806.3 million over the past two years.

Average daily attendance has decreased by 454 over the past two years. A decrease of 192 ADA is anticipated during fiscal year 2016-17.

Available reserves increased $41.3 million from fiscal year 2013-14. The District projects a decrease of $14.5 million during the 2016-17 fiscal year.

1 Budget 2017 is based on the most current District projection and is included for analytical pmposes only and has not been subjected to audit.

2 ADA amounts include District and County programs.

3 On behalf payments of$17,138,294, $13,233,214, and $12,571,992, are excluded from this schedule.


80


SCHEDULE OF CHARTER SCHOOLS FOR THE YEAR ENDED JUNE 30, 2016

Name of Charter School City Arts and Technology High School Creative Arts Charter School Five Keys Adult School Five Keys Charter School Five Keys Independence High School Gateway High School Gateway Middle School KIPP Bayview Academy KIPP San Francisco Bay Academy KIPP San Francisco College Preparatory Leadership High School Life Learning Academy Thomas Edison Charter Academy


81

Included in Audit Report

No No No No No No No No No No No No No


NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2016

ASSETS Cash Investments Receivables Stores inventories

Total Assets

LIABILITIES AND FUND BALANCES

Liabilities Overdrafts Accounts payable Unearned revenue

Total Liabilities

Fund Balances Nonspendable Restricted Assigned

Total Fund Balances Total Liabilities and Fund Balances


Special Revenue Funds

Child Development Cafeteria

$ $ 7,150 $

5,471,521 4,231,306 80,527

$ 5,471,521 $ 4,318,983 $

$ 2,981,630 $ 2,411,263 $ 183,478 1,813,597

4,430 3,169,538 4,224,860

87,677 2,301,983 6,446

2,301,983 94,123 $ 5,471,521 $ 4,318,983 $

82

Deferred Maintenance

7,592 4,236,208

2,557

4,246,357

47,981

47,981

4,198,376 4,198,376 4,246,357

Capital Project Funds State County

Capital School School Facilities Building Facilities

$ $ $ 40,401,781 4,348,728 6,850,155

43,653 4,699 7,401

$ 40,445,434 $ 4,353,427 $ 6,857,556

$ $ $

2,874,464 2,476,899 3,756,272

2,874,464 3,756,272 2,476,899

37,570,970 597,155 4,380,657

37,570,970 597,155 4,380,657 $ 40,445,434 $ 4,353,427 $ 6,857,556

Special Reserve

Capital Outlay

$

$

$

$

83

11,475,270

11,475,270

299,953 656,001 955,954

10,164,622 354,694

10,519,316 11,475,270

Debt Service Fund

Tax Override

$ 33,269

$ 33,269

$

33,269

33,269 $ 33,269

Total Nonmajor

Governmental

$

$

$

$

Funds

14,742 67,345,411 9,761,137

80,527 77,201,817

5,392,893 7,696,372 4,416,703

17,505,968

87,677 55,055,102

4,553,070 59,695,849 77,201,817


NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2016

Special Revenue Funds

Child Deferred Development Cafeteria Maintenance

REVENUES Federal sources $ 7,601,482 $ 16,531,279 $ Other state sources 18,041,702 1,107,950

Other local sources 10,367,474 2,074,595 6,102

Total Revenues 36,010,658 19,713,824 6,102


Instruction 25,872,942

Instruction related activities:

Supervision of instruction 8,079,364 School site administration 3,859,417

Pupil Services:

Food services 2,952,197 21,985,087 All other pupil services 230,284

General administration: All other general administration 1,530,189 867,277

Plant services 631,360

Facility acquisition and construction 256,514 Debt service

Principal

Interest and other Total Expenditures 43,155,753 22,852,364 256,514

Excess ( deficiency) of revenues over expenditures (7,145,095) (3,138,540) (250,412)

Other Financing Sources: Transfers in 7,124,860 3,096,672 3,869,991 Other sources

Net Financing Sources 7,124,860 3,096,672 3,869,991

NET CHANGE IN FUND BALANCES (20,235) (41,868) 3,619,579 Fund Balance - Beginning 2,322,218 135,991 578,797 Fund Balance - Ending $ 2,301,983 $ 94,123 $ 4,198,376


84

Debt Capital Project Funds Service Fund Total

State County Special Nonmajor Capital School School Reserve Tax Governmental

Facilities Building Facilities Capital Outlay Override Funds

$ $ $ $ $ $ 24,132,761 19,149,652

13,000,550 27,376 46,765 1,826,661 27,349,523 13,000,550 27,376 46,765 1,826,661 70,631,936

25,872,942

8,079,364 3,859,417

24,937,284 230,284

2,397,466 631,360

11,342,283 4,300,313 986,828 16,885,938

1,679,411 1,679,411 888,377 888,377

11,342,283 4,300,313 3,554,616 85,461,843

1,658,267 27,376 (4,253,548) (1,727,955) (14,829,907)

2,567,788 16,659,311 1,348,794 1,348,794 3,916,582 18,008,105

1,658,267 27,376 (4,253,548) 2,188,627 3,178,198 35,912,703 569,779 8,634,205 8,330,689 33,269 56,517,651

$ 37,570,970 $ 597,155 $ 4,380,657 $ 10,519,316 $ 33,269 $ 59,695,849

85


GENERAL UNRESTRICTED AND RESTRICTED FUNDS BALANCE SHEET SCHEDULES JUNE 30, 2016

Total Unrestricted Restricted General Fnnd

ASSETS Cash and cash equivalents $ 500 $ $ 500 Investments 169,554,555 33,658,519 203,213,074 Receivables 10,455,521 26,281,707 36,737,228 Prepaid expenditures 79,369 4,320 83,689 Stores inventories 530,540 530,540

Total Assets $ 180,620,485 $ 59,944,546 $ 240,565,031

LIABILITIES AND FUND BALANCES Liabilities

Accounts payable $ 46,242,774 $ 9,982,771 $ 56,225,545 Interest payable 2,357,402 2,357,402 Current 1 oans 60,000,000 60,000,000 Unearned revenue 3,398,522 3,398,522

Total Liabilities 108,600,176 13,381,293 121,981,469

Fund Balances Nonspendable 610,409 610,409 Restricted 46,563,253 46,563,253 Assigned 10,000,000 10,000,000 Unassigned 61,409,900 61,409,900

Total Fund Balances 72,020,309 46,563,253 118,583,562 Total Liabilities and Fund Balances $ 180,620,485 $ 59,944,546 $ 240,565,031


86


GENERAL UNRESTRICTED AND RESTRICTED FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2016

Total Unrestricted Restricted General Fnnd

REVENUES Local control funding formula $ 475,932,385 $ $ 475,932,385 Federal sources 742,693 28,631,586 29,374,279 Other state sources 37,115,621 38,538,759 75,654,380 Otherlocal sources 52,614,948 136,734,682 189,349,630

Total Revenues 566,405,647 203,905,027 770,310,674


Instruction 234,042,374 56,557,250 290,599,624 Instruction related activities 69,451,279 93,341,662 162,792,941 Pupil Services 26,837,375 22,266,417 49,103,792 General administration 27,956,951 4,247,197 32,204,148 Facility acquisition and plant services 42,608,351 19,233,813 61,842,164 Ancilliaty services 366,283 4,497,461 4,863,744 Other outgo 98,707,088 1,122,918 99,830,006 Enterprise services 4,582 4,582

Debt service Interest 3,143,303 3,143,303

Total Expenditures 503,113,004 201,271,300 704,384,304

Excess of expenditures over revenues 63,292,643 2,633,727 65,926,370

OTHER FINANCING SOURCES (USES): Transfers out (11,225,320) (5,433,991) (16,659,311) Interfund transfers (16,464,578) 16,464,578

Net Financing Uses (27,689,898) 11,030,587 (16,659,311)

NET CHANGE IN FUND BALANCES 35,602,745 13,664,314 49,267,059 Fund Balance - Beginning 36,417,564 32,898,939 69,316,503 Fund Balance - Ending $ 72,020,309 $ 46,563,253 $ 118,583,562


87


NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2016

NOTE 1 - PURPOSE OF SCHEDULES

Schedule of Expenditures of Federal Awards

The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, UniformAdninistrative Requi rerrent, Cost P ri nci pies, and Audit Requi rerrents for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements. The District has not elected to use the ten percent de minimis cost rate as covered in Section 200.414 Indirect (F&A) costs of the Uniform Guidance.

The following schedule provides reconciliation between revenues reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances and the related expenditures reported on the Schedule of Expenditures of Federal Awards.

Total federal revenues reported on the statement of revenues, expenditures and changes in fund balance: Federal interest subsidy on qualified construction bonds and build ameri ca bonds Noncash federal awards are not recorded on the financial statements

Total schedule of expenditures of federal awards

Local Education Agency Organization Structure

CFDA Number

Not Applicable 10.555

$

$

Amount

68,682,855

(1,681,074) 347,396

67,349,177

This schedule provides information about the District's boundaries and schools operated, members of the governing board, and members of the administration.

Schedule of Average Daily Attendance (ADA)

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

Schedule oflnstructional Time

The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. The District neither met nor exceeded its target funding. The schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections 46200 through 46206. Districts must maintain their instructional minutes at the 1986-87 requirements, as required by Education Code Section 46201.

88


NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2016

Reconciliation of Annual Financial and Budget Report with Audited Financial Statements

This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Unaudited Actual Financial Report, to the audited financial statements.

Schedule of Financial Trends and Analysis

This schedule discloses the District's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time.

Schedule of Charter Schools

This schedule lists all schools chartered by the District or County Office of Education, and displays information for each charter school on whether or not the school is included in the District audit.

Nonmajor Governmental Funds- Combining Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances

The Nomnajor Governmental Funds Combining Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances is included to provide information regarding the individual funds that have been included in the Nomnajor Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances.

General Unrestricted and Restricted Funds - Balance Sheet Schedule and Schedule of Revenues, Expenditures and Changes in Fund Balances

The general unrestricted and restricted funds balance sheet and schedule of revenues, expenditures and changes in fund balances is included to provide information regarding the unrestricted and restricted funds that have been included in the General Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances.

89

I NOE PENDENT AUDITOR'S REPORTS

90

&: Certltied Public Accouniants

INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS

BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS


We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in GOJernrrent Auditing Standards issued by the Comptroller General of the United States, the financial statements of the goverrnnental activities, each major fund, and the aggregate remaining fund information of San Francisco Unified School District (the District) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the District's basic financial statements, and have issued our report thereon dated December 14, 2016.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we do not express an opinion on the effectiveness of the District's internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A rraterial weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

91

$0 Shem1~n Awnue, Sui@ 440 Palo Mu, CA 943116 fol: 650.462.!)100 WY!Yl'Ytdcpa.corn Fux: 650.462.0500

Compliance and Other Matters

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

Purpose of This Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with GOJernrrent Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

2Y~J-~-~ J-~u¥} Palo Alto, California December 14, 2016

92

INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL

OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE


Report on Compliance for Each Major Federal Program

We have audited San Francisco Unified School District's compliance with the types of compliance requirements described in the 0MB Corrpliance Supplement that could have a direct and material effect on each of San Francisco Unified School District's (the District) major federal programs for the year ended June 30, 2016. The District's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs.

M anagement' s R esponsi bi Ii ty

Management is responsible for compliance with the federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs.


Our responsibility is to express an opinion on compliance for each of the District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in GOJernmentAuditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, U niformAdni nistrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the District's compliance.

93

ZGO She1itkm AIICHUtr, Suire 440 Palu A!!o, CA 94306: Tel: eS0.462.0400 WV!WStdcpa,com Fat: 050.462.0500

Opinion on Each Major Federal Program

In our opinion, the District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2016.

Report on Internal Control Over Compliance

Management of the District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the District's internal control over compliance with the types of requirements that could have a direct and material effect on each major Federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over compliance.

A deficiency in internal control OJer corrpliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A rraterial weakness in internal control OJer corrpliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control OJer compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

0 . . Q_, a.,. »~k--~, ~ J. y .u¥J Palo Alto, California December 14, 2016

94

INDEPENDENT AUDITOR'S REPORT ON STATE COMPLIANCE


Report on State Compliance

We have audited San Francisco Unified School District's (the District) compliance with the types of compliance requirements as identified in the 2015-16 Guide for Annual Audits of K-12 Local Education Agencies and State Corrpliance Reporting that could have a direct and material effect on each of the District's state govermnent programs as noted below for the year ended June 30, 2016.

M anagerrent' s R esponsi bi Ii ty

Management is responsible for compliance with the requirements of state laws, regulations, and the terms and conditions of its State awards applicable to its state programs.


Our responsibility is to express an opinion on compliance of each of the District's state programs based on our audit of the types of compliance requirements referred to above. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in GOJernrrent Auditing Standards, issued by the Comptroller General of the United States; and the 2015-16 Guide for Annual Audits of K-12 Local Education Agencies and State Corrpliance Reporting. These standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the applicable govermnent programs noted below. An audit includes examining, on a test basis, evidence about the District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. Our audit does not provide a legal determination of the District's compliance with those requirements.

Unrrodified Opinion

In our opinion, the District complied, in all material respects, with the compliance requirements referred to above that are applicable to the govermnent programs noted below that were audited for the year ended June 30, 2016.

95

260 Sheridan Avenue, Suire 440 Palo Atto. GA 9430$ Tel; 650.462-0400 mvw.vtdtJJatom Fax: 650.4S:2.0500

In connection with the audit referred to above, we selected and tested transactions and records to determine the San Francisco Unified School District's compliance with the State laws and regulations applicable to the following items:

LOCAL EDUCATION AGENCIES OTIIBR TIIAN CHARTER SCHOOLS Attendance Teacher Certification and Misassignrnents Kindergarten Continuance Independent Study Continuation Education Instructional Time Instructional Materials Ratios of Administrative Employees to Teachers Classroom Teacher Salaries Early Retirement Incentive Gann Limit Calculation School Accountability Report Card Juvenile Court Schools Middle or Early College High Schools K-3 Grade Span Adjustment Transportation Maintenance of Effort

SCHOOL DIS1RICTS, COUNTY OFFICES OF EDUCATION, AND CHARTER SCHOOLS

Educator Effectiveness California Clean Energy Jobs Act After School Education and Safety Program:

General Requirements After School Before School

Proper Expenditure of Education Protection Account Funds Unduplicated Local Control Funding Formula Pupil Counts Local Control Accountability Plan Independent Study - Course Based Inununizations

CHARTER SCHOOLS Attendance Mode of Instruction Non Classroom-Based Instruction/Independent Study for Charter Schools Determination of Funding for Non Classroom-Based Instruction Annual Instruction Minutes Classroom-Based Charter School Facility Grant Program

96

Procedures Performed

Yes Yes Yes Yes Yes Yes Yes Yes Yes

No, see below Yes Yes Yes

No, see below Yes Yes

Yes Yes

Yes Yes

No, see below Yes Yes Yes

No, see below Yes

No, see below No, see below No, see below No, see below No, see below No, see below

The District did not offer an early retirement incentive program during the current year; therefore, we did not perform procedures related to the early retirement incentive program.

The District does not have middle or early college high schools; therefore, we did not perform any procedures related to middle or early college high schools.

The District does not offer a before school education and safety program; therefore, we did not perform any procedures related to the before school education and safety program.

The District does not offer a course based independent study program; therefore, we did not perform any procedures related to the independent study - course based.

The District does not have any dependent charter schools; therefore, we did not perform any procedures for charter school programs.

,J~),~~J~Mj) Palo Alto, California December 14, 2016

97

SCHEDULE OF FINDINGS AND QUESTIONED (OSTS

98


SUMMARY OF AUDITOR'S RESULTS FOR THE YEAR ENDED JUNE 30, 2016

FINANCIAL STATEMENTS Type of auditor's report issued:

Internal control over financial reporting:

Material weakness identified? Significant deficiency identified?

Noncompliance material to financial statements noted?

FEDERAL AW ARDS Internal control over major Federal programs:

Material weakness identified? Significant deficiency identified?

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

Any audit findings disclosed that are required to be reported in accordance with Section 200.516(a) of the Uniform Guidance?

Identification of major Federal programs:

CFDA Numbers

10.553, 10.555 84.027, 84.173

Name of Federal Program or Cluster Child Nutrition Cluster

IDEA Cluster

Dollar threshold used to distinguish between Type A and Type B programs: Audi tee qualified as low-risk auditee?

STATE AWARDS Type of auditor's report issued on compliance for all programs:

99

Urnnodifi ed

No None reported

No

No None reported

Urnnodifi ed

No

$ 2,020,475

Yes

Urnnodifi ed


FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2016

None reported.

100


FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2016

None reported.

101


STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2016

None reported.

102


SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2016

Except as specified in previous sections of this report, sunnnarized below is the current status of all audit findings reported in the prior year's schedule of financial statement findings.

Financial Statement Findings None reported.

Federal Awards Findings None reported.

State Awards Findings

2015-001 Code 40000

Unduplicated Local Control Funding Formula Pupil Counts

Finding There were instances where students were improperly classified as free or reduced priced meal eligible (FRPM) when the supporting documentation indicated the correct classification of "paid."

In order to determine the total impact of the error, management of the District assessed the complete population of CALP ADS reported data for the 2014-15 fiscal year. It was determined that CALPADS overstated the unduplicated count by 1,898 pupils erroneously designated as only free or reduced priced meal eligible, when in fact the pupils did not qualify for such designation. 1bis overstatement resulted in a dollar impact of additional LCFF revenue in the amount of $2,501,409.

The overstatement was due to challenges experienced with integrating and analyzing data across several data systems, significant staff turnover on the CALP ADS reporting team, and an absence of a formalized, cross-functional process for CALPADS data review and validation.

Recommendation The District should appoint an individual to review the listing of pupils designated as free and reduced price eligible in report 1.18 and reconcile the listing with data from the student nutrition department.

Current Status Resolved.

103

Board of Education

APPENDIX D

PROPOSED FORM OF Fl NAL OPINION OF BOND COUNSEL

April 6, 2017

San Francisco Unified School District San Francisco, California

Ladies and Gentlemen:

San Francisco Unified School District (City and County of San Francisco, California)

General Obligation Bonds, Election of 2016, Series A and 2017General Obligation Refunding Bonds

(Final Opiniori)

We have acted as bond counsel to the San Francisco Unified School District (the "District"), which is located in the City and County of San Francisco, California (the "City"), in connection with the issuance by the District of $180,CXXl,CXXl aggregate principal arrount of bonds designated as "San Francisco Unified School District General Obligation Bonds, Election of 2016, Series A" (the "Series 2016 Bonds") and $53,890,CXXJ aggregate principal arrount of bonds designated as "San Francisco Unified School District 2017 General Obligation Refunding Bonds'' (the "Refunding Bonds" and, together with the Series 2016 Bonds, the "Bonds"). The Series 2016 Bonds are authorized by a resolution adopted by the Board of Education of the District on February 14, 2017 (the "Series 2016 Resolution"), and issued pursuant to a Paying Agent Agreement dated as of April 1, 2017 (the "Series 2016 Paying Agent Agreement''), between the District and the City as Paying Agent (the "Paying Agent''). The Refunding Bonds are authorized by a resolution adopted by the Board of Education of the District on February 14, 2017 (the "Refunding Resolution" and, together with the Series 2016 Resolution, the "Resolutions''), and issued pursuant to a Paying Agent Agreement dated as of April 1, 2017 (the "Refunding Paying Agent Agreement'' and, together with the Series 2016 Paying Agent Agreement, the "Paying Agent Agreements"), between the District and the City as Paying Agent. Capitalized terms used but not defined herein have the meanings ascribed thereto in the Paying Agent Agreement

In such connection, we have reviewed the Resolutions, the Paying Agent Agreements, the tax certificate of the District dated the date hereof (the "Tax Certificate''), certificates of the District, the Paying Agent, the City and others, opinions of counsel to the District and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and w,er certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or orritted or events occurring after the date hereof. We have not undertaken to deterrrine, or to inform any person, whether any such actions are taken or orritted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the District We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furtherrrore, we have assumed compliance with all cCNenants and agreements contained in the Resolutions, the Paying Agent Agreements and the Tax Certificate, including (without lirritatiori) cCNenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Resolutions, the Paying Agent Agreements and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency,

D-1

receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the Ii nitations on legal remedies against school districts and counties in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated darrages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-€Xclusivity of remedies, waiver or severability prCNisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the assets described in or as subject to the lien of the Resolutions, or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering rraterial relating to the Bonds and express no opinion with respect thereto.

Based on and sugect to the foregoing, and in reliance thereon, as of the date hereof, we are of the follcwing opinions:

1. The Bonds constitute the valid and binding obligations of the District

2. The Paying Agent Agreements have been duly executed and delivered Of, and constitute valid and binding agreements of, the District.

3. The Board of Supervisors of the City has power and is obligated to levy ad valoremtaxes without linitation as to rate or amount upon all property within the District's boundaries subject to taxation 0y the District (except certain personal property which is taxable at linited rates) for the payment of the Bonds and the interest thereon.

4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative ninimum taxes. Bond Counsel observes that such interest on the Series 2016 Bonds is included in adjusted current earnings when calculating corporate alternative ninimum taxable income, but such interest on the Refunding Bonds is not included in adjusted current earnings when calculating corporate alternative ni ni mum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

D-2

APPENDIX E

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the "Disclosure Certificate'') is executed and delivered 0y the San Francisco Unified School District (the" District'') in connection with the issuance of $180,000,000 aggregate principli amount of San Francisco Unified School District General Obligation Bonds, Election of 2016, Series A and $53,890,000 aggregate principal amount of San Francisco Unified School District 2017 General Obligation Refunding Bonds (collectively, the "Bonds"). The Bonds are being issued as authorized 0y resolutions adopted 0y the Board of Education of the District on February 14, 2017 (the" Resolutions''). The District cOJenants and agrees as fol lo.vs:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered 0y the District for the benefit of the Holders and Beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Cornnission Rule 15c2-12(b)(5).

SECTION 2. Definitions. In addition to the definitions set forth in the Paying Agent Agreements, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the follo.ving capitalized terms shall have the follo.ving meanings:

"Annual Report" shall mean any Annual Report prc,,1ided 0y the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

"B enefi ci al owner" shal I mean any person who has or shares the po.ver, directly or indirectly, to make investment decisions concerning o.vnership of any Bonds (including persons holding Bands through noni nees, depositories or other i ntermedi ari es).

"Dissemination Agent" shall mean Digital Assurance Certification, LLC, or any successor Dissemination Agent designated in writing 0y the District and which has filed with the District a written acceptance of such designation.

" Halder" shal I mean the person in whose name any B and shal I be registered.

"Listed Events'' shall mean any of the events listed in Section S(a) or (b) of this Disclosure Certificate.

"MSRB" shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized 0y the Securities and Exchange Comnission to receive reports pursuant to the Rule. Until otherwise designated 0y the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipli Market Access (EMMA) website of the MSRB currently located at http: //emma.m;rb.org.

"Participating Underwriter" shall mean the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Rule" shall mean Rule 15c2-12(b)(5) adopted 0y the Securities and Exchange Cornnission underthe Securities Exchange Act of 1934, as the same may be amended from time to time.

E-1

http://errma.msrb.org

SECTION 3. PrOJision 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 June 30), commencing with the Annual Report for the fiscal year of the District endingJ une 30, 2017 (which is due no later than April 1, 2018), prOJide to the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Each Annual Report must be submitted in electronic format, accompanied b,t such i denti fyi ng information as is prescri bed b,t the M SR B , and may i ncl ude b,t reference other i nformati on as prc,,1ided 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 abo.ie for the fi I i ng of the Annual Report if they are not avai I able b,t that date. Neither the Paying Agent nor the Dissenination Agent shall have any duties or responsibilities with respect to the contents of the Annual Report. 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.

(b) Not later than fifteen ( 15) Business Days priorto the date specified in subsection (a) for prc,,1iding the Annual Report to the MSRB, the District shall prOJide the Annual Report to the Dissenination Agent and the Paying Agent (if the Paying Agent is not the Dissenination Agent). If b,t such date, the Dissemination Agent has not received a cop,t of the Annual Report, the Dissenination Agent shall contact the District and the Paying Agent to deternine if the District is in compliance with the first sentence of this subsection ( b).

(c) If the Paying Agent is unable to verify that an Annual Report has been prOJided to the MSRB b,t the date required in subsection (a), the Paying Agent shall send a notice, in electronic format, to the MSRB, such notice to be in substantially the form attached as Exhibit A.

(cl) If the Annual Report is delivered to the Dissemination Agent for filing, the Dissenination Agent shall file a report with the District and (if the Dissenination Agent is not the Paying Agent) the Paying Agent certifying that the Annual Report has been prc,,1ided pursuant to this Disclosure Certificate and stating the date it was prOJi ded.

SECTION 4. Content of Annual Reports. The District's Annual Report shall contain or incl ude b,t reference the fol Io.vi ng:

* Audited financial statements of the District for the preceding fiscal year, prepared in accordance with the laws of the State of California and including all statements and information prescribed for inclusion therein b,t the Controller of the State of California If the District's audited financial statements are not avai I able b,t the ti me the Annual Report is requi red to be provided to the MSRB pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format sinilar to the financial statements contained in the final Official Statement, and the audited financial statements shall be prOJided to the MSRB in the same manner as the Annual Report when they become avai I able.

To the extent not included in the audited financial statement of the District, the Annual Report shall also include the follo.ving:

* Adopted budget of the District for the then-current fiscal year, or a summary thereof, and any i nteri m budget reports apprc,,1ed as of the date of fi I i ng of the Annual Report.

*

*

District average daily attendance.

District outstanding debt.

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* lnforrration regarding total assessed valuation of taxable properties within the District, if and to the extent prc,,1ided to the District 0y the City and County of San Francisco.

* lnforrration regarding total secured tax charges and delinquencies on taxable properties within the District, if and to the extent prc,,1ided to the District 0y the City and County of San Francisco.

* lnforrration regarding total assessed valuation and pll'Cels 0y land usewithinthe District, if and to the extent prc,,1ided to the District 0y the City and County of San Francisco.

* lnforrration regarding the assessed valuation per i:arcel of single family horres within the District, if and to the extent prc,,1idedtothe District 0y the City and County of San Francisco.

* lnforrration regarding the largest local secured taxi:ayers within the District, if and to the extent prOJided to the District 0y the City and County of San Francisco.

Any or all of the items listed abo.ie rray be set forth in one or a set of docurrents or rray be incl uded 0y specific reference to other docurrents, incl udi ng official staterrents of debt issues of the District or related public entities, which are available to the public on the MSRB website. If the docurrent included 0y reference is a final official staterrent, it must be available from the MSRB. The District shall clearly identify each such other docurrent so included 0y reference.

SECTION 5. RepqtinqofSiqnificant Events.

(a) The District shall give, or cause to be given, notice of the occurrence of any of the follCM!ing events with respect to the Bonds not laterthan ten business days afterthe occurrence of the event:

1. Principal and interest i:ayrrent delinquencies;

2. Unscheduled draws on debt service reserves reflecting financial difficulties;

3. U nschedul ed draws on credit enhancerrents reflecting financial di ffi cul ti es;

4. Substitution of credit or liquidity providers, or their failure to perform;

5. AdJerse tax opinions or issuance 0y the Internal Revenue Service of proposed or final determination oftaxability or of a Notice of Proposed Issue (IRS Form 5701 TEB);

6. Tender offers;

7. Defeasances;

8. Rating changes; or

9. Bankruptcy, insolvency, receivership or sinilar event of the obligated person.

Note: For the purposes of the event identified in subplragraph ( 9) , the event is considered to occur when any of the follcwing occur: the appointrrent of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governrrental authority has assurredjurisdiction OJer substantially all of the assets or

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business of the obligated person, or ifsuchjurisdiction has been assurred b,t leavingthe existing governrrental body and officials or officers in possession but sul::iject to the supervision and orders of a court or governrrental authority, or the entry of an order confirning a plan of reorganization, arrangerrent or liquidation b,t a court or governrrental authority having supervision or jurisdiction over substantially all of the assets or business of the obi igated person.

(b) The District shall give, or cause to be given, notice of the occurrence of any of the fol I cwi ng events with respect to the Bands, if rrateri al , not I ater than ten business days after the occurrence of the event:

1. U nl ess descri bed i n i:aragraph 5( a) ( 5) , other rrateri al notices or determinations b,t the Internal Revenue Service with respect to the tax status of the Bonds or other rrateri al events affecting the tax status of the Bands;

2. Modifications to rights of B ond holders;

3. Optional , unscheduled or con ti ngent B ond cal Is;

4. Release, substitution or sale of property securing rei:ayrrent of the Bonds;

5. Non--p3.yrrent related defaults;

6. The consumrration of a rrerger, consolidation or acquisition involving an obi i gated person or the sale of al I or substantially al I of the assets of the obi i gated person, other than in the ordinary course of business, the entry into a definitive agreerrent to undertake such an action or the ternination of a definitive agreerrent relating to any such actions, otherthan pursuantto its terms; or

7. Appointrrent of a successor or additional i:aying agent or the change of narre of a i:ayi ng agent.

(c) The District shall gve, or cause to be given, in a tirrely rranner, notice of a failure to provide the annual financial inforrration on or before the date specified in Section 3, as prOJided in Section 3(b).

(cl) Whenever the District obtains kncwledge of the occurrence of a Listed Event described in Section S(b), the District shall deternine if such event would be rraterial under applicable federal securities laws.

(e) If the District learns of the occurrence of a Listed Event described in Section S(a), or determines that kncwledge of a Listed Event described in Section S(b) would be rraterial under applicable federal securities laws, the District shall within ten business days of occurrence file a notice of such occurrence with the MSRB in electronic forrrat, accorrpanied b,t such identifying inforrration as is prescribed b,t the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsection (b)(3) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Resolutions.

SECTION 6. Terninatiai of Reporting Obligation. The District's obligations under this Di sci osure Certificate shal I terni nate upon the I egal defeasance, prior redemption or i:ayrrent in ful I of al I of the Bonds. If such ternination occurs prior to the final rraturity of the Bonds, the District shal I give notice of such ternination in the same rranner as fcr a Listed Event under Section S(e).

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SECTION 7. Dissenination Agent. The District may, from time to time, appoint or en93.ge a Dissenination Agent to assist it in carrying out its obligations uncl2r this Disclosure Certificate, and may dscharge ar1y such Agent, with or without ai:pdnting a successor Dissemination Agent. The Dissenination Agent shall not be responsible in arly' manner for the caitent of arly' notice or report preplred b,t the District i:ursuant to this Disclosure Certificate. The initial Dissenination Agent shall be Digital Assurance Corporation, LL C.

SECTION 8. Amendment; Waiver. Notwithstanding arly' other prc,,1isiai of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any prc,,1ision of this Disclosure Certificate may be waived, prc,,1icl2dthatthe follcwing caidtiais are satisfied

(a) If the amendment cr waiver relates to the prc,,1isions of Sectiais 3(a), 4, or S(a), it may only be macl2 in connection with a change in circumstances that arises from a change in legai reqJirements, change in law, or change in the icl2ntity, nature or status of an obligated person with respect to the Bands, cr the type of business conducted;

(b) The uncl2rtaking, as amencl2d or taking into account such waiver, would, in the opiniai of nationally recognized bond counsel, have corrplied with the reqJirements of the Rule at the time of the original issuance of the Bands, after taki ng into account arly' amendments or i nterpretati ms of the Rule, as well as arly' change in circum;tances; and

(c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially irrµiirthe interests of the Holcl2rs or Beneficial ONners of the Baids.

In the a,ent of ar1y amendment or waiver of a prOJision of this Disclosure Certificate, the District shall cl2scribe such amendment in the next Annual Report, and shall inclucl2, as applical:je, a narrative explanation of the reason fcr the amendment or waiver and its i rrp3.ct on the type ( or i n the case of a change of accoonting principles, on the presentation) of financial information or q:erating data being presented b,t the District. In additiai, if the amendment relates to the accoonting principles to be fdlcwed in preplring financial statements, (i) notice of such change shall be given in the same manner as fcr a Listed Event uncl2r Section S(e), and (ii) the Annual Report for the year in which the change is macl2 should present a COITTplrison (in narrative form and also, if feasible, in quantitative fcrrn) between the financial statements as prepared on the basis of the mw accounting principles and those preplred on the basis of the fcrmer accounting principles.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to pra,ent the District from di sseni nati ng arly' other information, usi ng the means of di sseni nation set forth in this Disclosure Certificate or arly' other means of communication, or including ar1y other informatiai in arly'

Annual Report or notice of occurrence of a Listed Event, in addition to that which is reqJired b,t this Disclosure Certificate. If the District chooses to inclucl2 arly' information in arly' Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required b,t this Disclosure Certificate, the District shall have no obligatiai uncl2r this Certificate to update such information or inclucl2 it in arly'

future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the a,ent of a failure of the Districttocorrply with any prc,,1ision of this Disclosure Certificate arly' Holcl2r or Beneficial ONner of the Bonds may take such actions as may be necessary and ai:propri ate, including seeking mandate or specific performance b,t court orcl2r, to cause the Districttocorrplywith its obligations uncl2rthis Disclosure Certificate; prc,,1icl2dthat arly' such actiai may be instituted aily in Supericr Coort of the State of Califcrnia in and for the City and Coonty of San Francisco or in U.S. District Court in cr nearest to the City and County. The sole remedy unc12rthis Disclosure Certificate in the a,ent of any failure of the District to ccrnply with this Disclosure Certificate shall be an actiai to compel perfcrmance.

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SECTION 11. Beneficiaries. This Disclosure Certificate shall inure sdely to the benefit of the District, the Dissenination Agent, the Participclting Uncl2rwriter and Hdcl2rs and Beneficial OWners from ti rre to ti rre of the Bands, and shal I create no rights in any other person or entity.

Date: Apri I 6, 2017


By ________ ~------R eeta Madhavan

Chief Financial Officer

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CONTINUING DISCLOSURE EXHIBIT A

FORM OF NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT

Name of District:

Name of Bond Issue:

Date of Issuance:


San Francisco Unified School District General Obligation Bonds, Election of 2016, Series A

San Francisco Unified School District 2017 General Obligation Refunding Bonds

April 6, 2017

NOTICE IS HE RE BY GI VEN that the District has not prc,,1ided an Annual Report with respect to the above--narred Bonds as required b,t Section 4 of the Continuing Disclosure Certificate of the District, dated the Date of Issuance. [The District anticipc1.tes that the Annual Report will be filed b,t ------------- .]

Dated: ______________ _


By ___ ~[~to~be~s~ig~ne~d~on~IY~i~f~fi~le~~~---

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APPENDIX F

CITY AND COUNTY OF SAN FRANCISCO INVESTMENT POLICY STATEMENT AND INVESTMENT REPORT

The fol lc:Mi ng inforrration has been furnished b,t the Office of the Treasurer, City and County of San Francisco. It describes (i) the policies applicable to investrrent of District funds, including bond proceeds and tax levies, and funds of other agencies held b,t the Treasurer and (ii) the corrposition, carrying arrount, rrarket value and other inforrration relating to the investrrent pool. Further inforrration rray be obtained directly from the Treasurer, 1 Dr. Carlton B. Goodlett Place, City Hall -Room 140, San Francisco, CA 94102.

F-1

CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE TREASURER & TAX COLLECTOR

INVESTMENT POLICY Effective May 2016

1.0 Policy

It is the policy of the Office of the Treasurer & Tax Collector of the City and County of San Francisco (Treasurer's Office) to invest public funds in a manner which will preserve capital, meet the daily cash flow demands of the City, and provide a market rate of return while conforming to all state and local statutes governing the investment of public funds.

2.0 Scope

This investment policy applies to all funds over which the Treasurer's Office has been granted fiduciary responsibility and direct control for their management.

3.0 Prudence

The standard of prudence to be used by the Treasurer's Office shall be the Prudent Investor Standard as set forth by California Government Code, Section 53600.3 and 27000.3. The Section reads as follows: The Prudent Investor Standard states that when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the Treasurer's Office, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the Treasurer's Office.

This standard of prudence shall be applied in the context of managing those investments that fall under the Treasurer's direct control. Investment officers acting in accordance with written procedures and this investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.

4.0 Objective

The primary objectives, in priority order, of the Treasurer's Office's investment activities shall be:

May 2016

4.1 Safety: Safety of principal is the foremost objective of the investment program. Investments of the Treasurer's Office shall be undertaken in a manner that seeks to ensure the preservation of capital. To attain this objective, the Treasurer's Office will diversify its investments.

4.2 Liquidity: The Treasurer's Office investment portfolio will remain sufficiently liquid to enable the Treasurer's Office to meet cash flow needs which might be reasonably anticipated.

5.0

4.3 Return on Investments: The portfolio shall be designed with the objective of generating a market rate ofreturn without undue compromise of the first two objectives.

Delegation of Authority

The Treasurer of the City and County of San Francisco (Treasurer) is authorized by Charter Section 6.106 to invest funds available under California Government Code Title 5, Division 2, Part 1, Chapter 4, Article 1. The Treasurer shall submit any modification to this Investment Policy to the Treasury Oversight Committee members within five ( 5) working days of the adoption of the change.

6.0 Authorized Broker/Dealer Firms

The City seeks to employ a fair and unbiased broker-dealer selection process, which culminates in an array of medium to large-sized firms that provide the best investment opportunities and service to the City.

The Treasurer's Office will evaluate and classify broker-dealers based on the qualifications of the firm and firm's assigned individual. Approved broker-dealers will be evaluated and may be classified into one of the following categories:

FULL ACCESS - Broker-dealers will have significant opportunity to present investment ideas to the investment team.

LIMITED ACCESS - Broker-dealers will have limited opportunity to present investment ideas to the investment team.

All others may apply for Provisional status appointment. Provisional appointments will be made for:

(1) Applicants who have changed firms; (2) Applicants (firm and individual) who were not approved by the Treasurer's Office in the

past year; and (3) Broker-dealers who have been classified as Limited Access, but are seeking Full Access

status.

Broker-dealers, who are granted Provisional status, will be treated as Full Access firms for a limited time period of up to six months. During the Provisional status period, the investment team will evaluate the applicant and provide a determination of status (Full Access, Limited Access or Not Approved). Brokerdealers may reapply for Provisional status every two years. A limited number of broker-dealers will be granted Provisional status concurrently.

All broker-dealers are encouraged to apply for consideration. All applicants will be evaluated and classified based on the qualifications of the firm and the firm's assigned individual. A score will be assigned to each applicant and will serve as the sole determinant for Full Access, Limited Access, or NotApproved status.

All approved broker-dealers will be re-assessed annually. During the reassessment period, broker-dealers will be sent the City's most recent Investment Policy and are expected to respond with a policy acknowledgement letter, updated profile information and a completed questionnaire.

May 2016

All securities shall be purchased and sold in a competitive enviromnent.

The Treasurer's Office will not do business with a firm which has, within any consecutive 48-month period following January I, 1996, made a political contribution in an amount exceeding the limitations contained in Rule G-37 of the Municipal Securities Rulemaking Board, to the Treasurer, any member of the Board of Supervisors, or any candidate for those offices.

7.0 Authorized & Suitable Investments

Investments will be made pursuant to the California Govermnent Code (including Section 53601 et seq.) and this investment policy to ensure sufficient liquidity to meet all anticipated disbursements.

Unless otherwise noted, the maximum maturity from the trade settlement date can be no longer than five years.

Types of investment vehicles not authorized by this investment policy are prohibited.

In an effort to limit credit exposure, the Treasurer's Office will maintain Eligible Issuer, Eligible Counterparty and Eligible Money Market lists for security types where appropriate. These lists are intended to guide investment decisions. Investments, at time of purchase, are limited solely to issuers, counterparties and money market funds listed; however, investment staff may choose to implement further restrictions at any time.

The Treasurer's Office shall establish a Credit Committee comprised of the Treasurer, Chief Assistant Treasurer, Chieflnvestment Officer and additional investment personnel at the Treasurer's discretion. The Committee shall review and approve all eligible issuers and counterparties prior to inclusion on the aforementioned Eligible Issuer and Eligible Counterparty lists. The Committee shall also be charged with determining the collateral securing the City's repurchase agreements.

In the event of a downgrade of the issuer's credit rating below the stated requirements herein, the Credit Committee shall convene and determine the appropriate action.

In addition, the Treasurer's Office shall conduct an independent credit review, or shall cause an independent credit review to be conducted, of the collateralized CD issuers to determine the creditworthiness of the fmancial institution. The credit review shall include an evaluation of the issuer's financial strength, experience, and capitalization, including, but not limited to leverage and capital ratios relative to benchmark and regulatory standards (See Section 7.4). The following policy shall govern unless a variance is specifically authorized by the Treasurer and reviewed by the Treasury Oversight Committee pursuant to Section 5.0.

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7.1 U.S. Treasuries

United States Treasury notes, bonds, bills or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest.

Allocation Issuer Limit Issue Limit Maximum Maturity/Term Maximum Maximum Maximum 100% of the 100% 100% 5 years portfolio value

7.2 Federal Agencies

Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises.

Allocation Issuer Limit Issue Limit Maximum

Maturity/Term Maximum Maximum Maximum 100% of the 100% 100% 5 years portfolio value

7.3 State and Local Government Agency Obligations

The Treasurer's Office may purchase bonds, notes, warrants, or other evidences of indebtedness of any local or State agency within the 50 United States, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency or State, or by a department, board, agency, or authority of the local agency or State.


Maturity/Term Maximum Maximum Maximum 20% of the 5% No Limit 5 years portfolio value

Issuer Minimum Credit Rating: Issuers must possess either a short-term or long-term credit rating (dependent upon maturity length) of the second highest ranking or better (irrespective of+/-) from at least one NRSRO (Nationally Recognized Statistical Rating Organization). This limitation applies to all local and State agencies within the 50 United States with the exception of the State of California.

May 2016

7.4 Public Time Deposits (Term Certificates Of Deposit)

The Treasurer's Office may invest in non-negotiable time deposits (CDs) that are FDIC insured or fully collateralized in approved financial institutions.

The Treasurer's Office will invest in FDIC-insured CDs only with those firms having at least one branch office within the boundaries of the City and County of San Francisco.

Collateralized CDs are required to be fully collateralized with 110% of the type of collateral authorized in California Government Code, Section 53651 (a) through (i). The Treasurer's Office, at its discretion, may waive the collateralization requirements for any portion that is covered by federal deposit insurance. The Treasurer's Office shall have a signed agreement with any depository accepting City funds per Government Code Section 53649.

Allocation Issuer Limit Issue Limit Maturity/Term Maximum Maximum Maximum Maximum No Limit None NIA 13 months

Issuer Minimum Credit Rating (applies to collateralized CDs only): Maintenance of the minimum standards for "well-capitalized" status as established by the Federal Reserve Board. The current standards are as follows: • Tier 1 risk-based capital ratio of 8% or greater • Combined Tier 1 and Tier 2 capital ratio of 10% or greater • Leverage ratio of 5% or greater

Failure to maintain minimum standards may result in early termination, subject to the discretion of the Treasurer's Office.

7.5 Negotiable Certificates Of Deposit/ Yankee Certificates Of Deposit

Negotiable certificates of deposit issued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a state-licensed branch of a foreign bank. Yankee certificates of deposit are negotiable instruments that are issued by a branch of a foreign bank.


Maturity/Term Maximum Maximum Maximum 30% of the No Limit NIA 5 years portfolio value

Issuer Minimum Credit Rating: Issuers must possess either a short-term or long-term credit rating (dependent upon maturity length) of the second highest ranking or better (irrespective of+/-) from at least oneNRSRO.

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7.6 Bankers Acceptances

Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers' acceptances.

Allocation Issuer Limit Issue Limit Maximum Maturity/Term Maximum Maximum Maximum 40% of the No Limit No Limit 180 days portfolio value

Issuer Minimum Credit Rating: None

7.7 Commercial Paper

Obligations issued by a corporation or bank to finance short-term credit needs, such as accounts receivable and inventory, which may be unsecured or secured by pledged assets.


Maturity/Term Maximum Maximum Maximum 25% of the 10% None 270 days portfolio value

Issuer Minimum Credit Rating: Issuers must possess a short-term credit rating of the second highest ranking or better (irrespective of+/-) from at least one NRSRO.

7.8 Medium Term Notes

Medium-term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the U.S. or any state, and operating within the U.S.

Allocation Maximum Issuer Limit Issue Limit Maturity/Term Maximum Maximum Maximum

25% of the portfolio 10% 5% 24months value


May 2016

7.9 Repurchase Agreements To the extent that the Treasurer's Office utilizes this investment vehicle, said collateral shall be delivered to a third party custodian, so that recognition of ownership of the City and County of San Francisco is perfected.

Type of collateral Allocation Maximum Issuer Limit Maturity/Term Maximum Maximum

Govermnent securities No Limit NIA 1 year

Securities permitted by CA Govermnent

10% NIA 1 year Code, Sections 53601 and 53635

7.10 Reverse Repurchase and Securities Lending Agreements

This procedure shall be limited to occasions when the cost effectiveness dictates execution, specifically to satisfy cash flow needs or when the collateral will secure a special rate. A reverse repurchase agreement shall not exceed 45 days; the amount of the agreement shall not exceed $75MM; and the offsetting purchase shall have a maturity not to exceed the term of the repo.

7.11 Money Market Funds Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.).

Fund Type Allocation Issuer Limit Percentage of Maturity/Term Maximum Maximum Fund's Net Assets Maximum

Maximum Institutional NI A (397-day Govermnent 10% of total NIA 5%

mandated final Funds Pool assets maturity

maximum) Institutional 5% of total Pool NIA NIA 60-day maximum Prime Funds assets final maturity

Issuer Minimum Credit Rating: Fund rating must be rated in at least the second highest rating category from two NRSRO or independent investment research firms ( e.g. Morningstar or Lipper).

May 2016

7.12 Local Agency Investment Fnnd (LAIF)

Investments in LAIF, a California state investment fund available to California municipalities, are authorized.

7.13 Supranationals*

United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by:

• International Bank for Reconstruction and Development, • International Finance Corporation, or • Inter-American Development Bank,

Allocation Issuer Limit Issue Limit Maturity/Term Maximum Maximum Maximum Maximum 5% None None 5 years


* Effective as of January 1, 2015, as consistent with State Law.

8.0 Interest and Expense Allocations

The costs of managing the investment portfolio, including but not limited to: investment management; accounting for the investment activity; custody of the assets, managing and accounting for the banking; receiving and remitting deposits; oversight controls; and indirect and overhead expenses are charged to the investment earnings based upon actual labor hours worked in respective areas. Costs of these respective areas are accumulated and charged to the Pooled Investment Fund on a quarterly basis, with the exception of San Francisco International Airport costs which are charged directly through a work order.

The San Francisco Controller allocates the net interest earnings of the Pooled Investment Fund. The earnings are allocated monthly based on average balances.

9.0 Safekeeping and Custody

All security transactions, including collateral for repurchase agreements, entered into by the Treasurer's Office shall be conducted on a delivery-versus-payment (DVP) basis pursuant to approved custodial

May 2016

safekeeping agreements. Securities will be held by a third party custodian designated by the Treasurer and evidenced by safekeeping receipts.

10.0 Deposit and Withdrawal of Funds

California Government Code Section 53684 et seq. provides criteria for outside local agencies, where the Treasurer does not serve as the agency's treasurer, to invest in the County's Pooled Investment Fund, subject to the consent of the Treasurer. Currently, no government agency outside the geographical boundaries of the City and County of San Francisco shall have money invested in City pooled funds.

The Treasurer will honor all requests to withdraw funds for normal cash flow purposes that are approved by the San Francisco Controller. Any requests to withdraw funds for purposes other than cash flow, such as for external investing, shall be subject to the consent of the Treasurer. In accordance with California Government Code Sections 27136 et seq. and 27133(h) et seq., such requests for withdrawals must first be made in writing to the Treasurer. These requests are subject to the Treasurer's consideration for the stability and predictability of the Pooled Investment Fund, or the adverse effect on the interests of the other depositors in the Pooled Investment Fund. Any withdrawal for such purposes shall be at the value shown on the Controller's books as of the date of withdrawal.

11.0 Limits on Receipt ofHonoraria, Gifts and Gratuities

In accordance with California Govermnent Code Section 27133(d) et seq., this Investment Policy hereby establishes limits for the Treasurer, individuals responsible for management of the portfolios, and members of the Treasury Oversight Committee on the receipt of honoraria, gifts and gratuities from advisors, brokers, dealers, bankers or others persons with whom the Treasurer conducts business. Any individual who receives an aggregate total of gifts, honoraria and gratuities in excess of those limits must report the gifts, dates and firms to the Treasurer and complete the appropriate State disclosure.

These limits may be in addition to the limits set by a committee member's own agency, by state law, or by the California Fair Political Practices Commission. Members of the Treasury Oversight Committee also must abide by the following sections of the Treasurer's Office Statement oflncompatible Activities: Section III(A)(l)(a), (b) and (c) entitled "Activities that Conflict with Official Duties," and Section III(C) entitled "Advance Written Determination".

12.0 Reporting

In accordance with the provisions of California Govermnent Code Section 53646, which states that the Treasurer may render a quarterly report or a monthly report on the status of the investment portfolio to the Board of Supervisors, Controller and Mayor; the Treasurer regularly submits a monthly report. The report includes the investment types, issuer, maturity date, par value, and dollar amount invested; market value as of the date of the report and the source of the valuation; a statement of compliance with the investment policy or an explanation for non-compliance; and a statement of the ability or inability to meet expenditure requirements for six months, as well as an explanation of why moneys will not be available if that is the case.

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13.0 Social Responsibility

In addition to and subordinate to the objectives set forth in Section 4.0 herein, investment of funds should be guided by the following socially responsible investment goals when investing in corporate securities and depository institutions. Investments shall be made in compliance with the forgoing socially responsible investment goals to the extent that such investments achieve substantially equivalent safety, liquidity and yield compared to investments permitted by state law.

13.1 Social and Environmental Concerns Investments are encouraged in entities that support community well-being through safe and environmentally sound practices and fair labor practices. Investments are encouraged in entities that support equality of rights regardless of sex, race, age, disability or sexual orientation. Investments are discouraged in entities that manufacture tobacco products, firearms, or nuclear weapons. In addition, investments are encouraged in entities that offer banking products to serve all members of the local community, and investments are discouraged in entities that fmance high-cost check-cashing and deferred deposit (payday-lending) businesses. Prior to making investments, the Treasurer's Office will verify an entity's support of the socially responsible goals listed above through direct contact or through the use of a third party such as the Investors Responsibility Research Center, or a similar ratings service. The entity will be evaluated at the time of purchase of the securities.

13.2 Community Investments Investments are encouraged in entities that promote community economic development. Investments are encouraged in entities that have a demonstrated involvement in the development or rehabilitation of low income affordable housing, and have a demonstrated commitment to reducing predatory mortgage lending and increasing the responsible servicing of mortgage loans. Securities investments are encouraged in financial institutions that have a Community Reinvestment Act (CRA) rating of either Satisfactory or Outstanding, as well as financial institutions that are designated as a Community Development Financial Institution (CDFI) by the United States Treasury Department, or otherwise demonstrate commitment to community economic development.

13.3 City Ordinances All depository institutions are to be advised of applicable City contracting ordinances, and shall certify their compliance therewith, if required.

14.0 Treasury Oversight Committee

A Treasury Oversight Committee was established by the San Francisco Board of Supervisors m Ordinance No. 316-00. The duties of the Committee shall be the following:

(a) Review and monitor the investment policy described in California Government Code Section 27133 and prepared annually by the Treasurer.

(b) Cause an annual audit to be conducted to determine the Treasurer's compliance with California Government Code Article 6 including Sections 27130 through 27137 and City Administrative Code Section 10. 80-1. The audit may examine the structure of the investment portfolio and risk. This audit may

May 2016

be a part of the County Controller's usual audit of the Treasurer's Office by internal audit staff or the outside audit finn reviewing the Controller's Annual Report.

( c) Nothing herein shall be construed to allow the Committee to direct individual decisions, select individual investment advisors, brokers, or dealers, or impinge on the day-to-day operations of the Treasurer. (See California Govermnent Code, Section 27137.)

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APPENDIX

Glossary

AGENCIES: Federal agency securities and/or Government-sponsored enterprises.

ASK/OFFER: The price at which securities are offered.

BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer.

BENCHMARK: A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio's investments.

BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer.

BROKER: A broker brings buyers and sellers together for a commission.

CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a Certificate. Large-denomination CD's are typically negotiable.

COLLATERAL: Securities, evidence of deposit or other property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.

COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The CAFR is the City's official annual financial report. It consists of three major sections: introductory, financial, and statistical. The introductory section furnishes general information on the City's structure, services, and environment. The financial section contains all basic financial statements and required supplementary information, as well as information on all individual funds and discretely presented component units not reported separately in the basic fmancial statements. The financial section may also include supplementary information not required by GAAP. The statistical section provides trend data and nonfinancial data useful in interpreting the basic financial statements and is especially important for evaluating economic condition.

COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond evidencing interest due on a payment date.

DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.

DEBENTURE: A bond secured only by the general credit of the issuer.

DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities.

DEPOSITORY INSTITUTIONS: These institutions hold City and County moneys in the forms of certificates of deposit (negotiable or term), public time deposits and public demand accounts.

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DERN ATIVES: (I) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities).

DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount.

DISCOUNT SECURITIES: Non-interest bearing money market instruments that are issued a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills.

DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns.

FDIC DEPOSIT INSURANCE COVERAGE: The FDIC is an independent agency of the United States government that protects against the loss of insured deposits if an FDIC-insured bank or savings association fails. Deposit insurance is backed by the full faith and credit of the United States govermnent. Since the FDIC was established, no depositor has ever lost a single penny of FDIC-insured funds. FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs). FDIC insurance does not, however, cover other financial products and services that insured banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities. There is no need for depositors to apply for FDIC insurance or even to request it. Coverage is automatic. To ensure funds are fully protected, depositors should understand their deposit insurance coverage limits. The FDIC provides separate insurance coverage for deposits held in different ownership categories such as single accounts, joint accounts, Individual Retirement Accounts (IRAs) and trust accounts. Basic FDIC Deposit Insurance Coverage Limits* Single Accounts ( owned by one person) $250,000 per owner Joint Accounts (two or more persons) $250,000 per co-owner IRAs and certain other retirement accounts $250,000 per owner Trust Accounts $250,000 per owner per beneficiary subject to specific limitations and requirements** *The financial reform bill, officially named the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, made the $250,000 FDIC coverage limit permanent.

FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm cooperatives, and exporters.

FEDERAL FUNDS RATE: The rate of interest that depository institutions lend monies overnight to other depository institutions. Also referred to as the overnight lending rate. This rate is currently pegged by the Federal Reserve through open-market operations.

FEDERAL HOME LOAN BANKS (FHLB): Govermnent sponsored wholesale banks (currently 12 regional banks), which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the housing related assets of its members who must purchase stock in their district Bank.

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FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest.

FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC): Freddie Mac's m1ss10n is to provide liquidity, stability and affordability to the housing market. Congress defined this mission in (their) 1970 charter. Freddie Mac buys mortgage loans from banks, thrifts and other financial intermediaries, and re-sells these loans to investors, or keeps them for their own portfolio, profiting from the difference between their funding costs and the yield generated by the mortgages.

FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Govermnent Securities in the open market as a means of influencing the volume of bank credit and money.

FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Govermnent. Ginnie Mae securities are backed by the FHA, VA or FmHA mortgages. The term "pass-throughs" is often used to describe Ginnie Maes.

GOVERNMENT SECURITIES: Obligations of the U.S. Government and its agencies and instrumentalities.

LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes.

LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment.

MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold.

MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase-reverse repurchase agreements that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller borrower.

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MATURITY: The date upon which the principal or stated value of an investment becomes due and payable.

MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers' acceptances, etc.) are issued and traded.

NRSRO: Nationally Recognized Statistical Rating Organization; Credit rating agencies that are registered with the SEC. Such agencies provide an opinion on the creditworthiness of an entity and the financial obligations issued by an entity.

OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid.

OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool.

PAR VALUE: The principal amount of a bond returned by the maturity date.

PORTFOLIO: Collection of securities held by an investor.

PRIMARY DEALER: A group of govermnent securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC)registered securities broker-dealers, banks, and a few unregulated firms.

PRUDENT PERSON RULE: An investment standard. In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state-the so-called legal list. In other states the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital.

PUBLIC TIME DEPOSITS (Term Certificates Of Deposit): Time deposits are issued by depository institutions against funds deposited for a specified length of time. Time deposits include instruments such as deposit notes. They are distinct from certificates of deposit (CDs) in that interest payments on time deposits are calculated in a manner similar to that of corporate bonds whereas interest payments on CDs are calculated similar to that of money market instruments.

QUALIFIED PUBLIC DEPOSITORIES: A fmancial institution which does not claim exemption from the payment of any sales or compensating use or ad valorern taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits.

RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return.

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REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these secunbes to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to fmance their positions. Exception: When the Fed is said to be doing RP, it is lending money that is, increasing bank reserves.

SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection.

SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution.

SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors m securities transactions by administering securities legislation.

SEC RULE 15(C))3-1: See Uniform Net Capital Rule.

STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FIILB, FNMA, SLMA, etc.) and Corporations, which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative-based returns) into their debt structure. Their market performance is impacted by the fluctuation of interest rates, the volatility of the irnbedded options and shifts in the shape of the yield curve.

TREASURY BILLS: A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year.

TREASURY BONDS: Long-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years.

TREASURY NOTES: Medium-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years.

UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to I; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash.

YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond.

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As of: February 28, 2017

City and County of San Francisco Pooled Fund Portfolio Statistics

For the month ended February 28, 2017

Average Daily Balance Net Earnings Earned Income Yield Weighted Average Maturity

Investment T e $ million U.S. Treasuries Federal Agencies State & Local Government

Agency Obligations Public Time Deposits Negotiable CDs Commercial Paper Medium Term Notes Money Market Funds Sueranationals

Total $

$8,210,421,185 $6,094,079

0.97% 426 days

Par Book Value Value

1,575.0 1,570.5 4,170.7 4,170.6

320.5 324.1 1.2 1.2

765.0 765.0 820.0 815.2

92.9 93.1 386.3 386.3 130.0 129.9

8 261.6 $ 8 255.9

Public Time Deposits 0.01%

Negotiable CDs 9.27%

$

Market Value

1,572.7 4,166.4

321.7 1.2

765.4 818.6

93.1 386.3 129.8

8 255.1

State & Local Government

3.90% Money Market Funds 4.68%

Supranationals 1.57%

Asset Allocation by Market Value

Totals may not add due to rounding.

Medium Term Notes 1.13%

Posted on: 03/15/2017

APPENDIX G

BOOK-ENTRY ONLY SYSTEM

The information in this APPENDIX G has been prOJided b,t DTC for use in securities offering ck:x:uments, and the District takes no responsi bi I ity for the accuracy or completeness thereof. The District cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial OWners either (a) payments of interest, principal or preniurn if any, with respect to the Bonds or (b) certificates representing OM1ership interest in or other confirmation of OM1ershi p interest in the Bonds, or that they wi 11 so do on a timely basis or that DTC, DTC P arti ci pants or DTC 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 Cormission and the current "Procedures" of DTC to be follcwed in dealing with DTC Participants are on file with DTC. As used in this appendix, "Securities'' means the Bonds, "Issuer" means the District, and "Agent'' means the Paying Agent. The District notes that it will issue one fully registered certificate for each maturity of the Bonds in the principal arrount of such maturity, and suggests that this is ½hat the first nurrbered paragraph bel cw intends to convey.

1. The Depository Trust Company ("DTC"), Ne.v York, NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully,egistered securities registered in the name of Cede & Co. (DTC's partnership noninee) or such other name as may be requested b,t an authorized representative of DTC. One fully,egistered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, hcwever, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate wi 11 be issued with respect to any remai ni ng pri nci pal amount of such issue.

2. DTC, the world's largest securities depository, is a linited--purpose trust company organized under the Ne.v Yark Banking Law, a "banking organization" within the meaning of the New Yark Banking LiM', a merrber of the Federal Reserve System a "clearing corporation" within the meaning of the NewY ark Uniform Commercial Code, and a "clearing agency" registered pursuant to the prc,,1isions of Section 17A of the Securities Exchange Act of 1934. DTC holds and prc,,1ides 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 Parti ci pants") deposit with DT C. DT C al so faci Ii tat es the post-trade senl ement among Direct Parti ci pants of sales and other securities transactions in deposited securities, through electronic computerized bookentry transfers and pledges between Direct Participants' accounts. This elininates the need for physical mOJement 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-o.vned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, al I of which are registered cl eari ng agencies. DT CC is cwned b,t 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"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Comnission. More information about DTC can be found at www.dtcc.com

3. Purchases of Securities under the DTC system must be made b,t or through Direct Participants, which will receive a credit for the Securities on DTC's records. The cwnership interest of

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http://www.dtcc.com

each actual purchaser of each Security ("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. B enefi ci al owners are, hcwever, expected to receive written confi rrrati ons prOJi di ng detai Is of the transaction, as well as periodic staterrents of their holdings, frorn the Direct or Indirect Participant through which the B enefi ci al owner entered i nto the transaction. Transfers of cwnershi p interests i n the Securities are to be accomplished b,t entries rrade on the books of Direct and Indirect Participants acting on behalf of B enefi ci al owners. B enefi ci al owners wi 11 not receive certificates representing thei r cwnership interests in Securities, except in the eventthat use of the book-€ntry systern forthe Securities is discontinued.

4. To facilitate subsequent transfers, all Securities deposited b,t Direct Participants with DTC are registered in the narre of DTC's partnership noninee, Cede & Co., or such other narre as rray be requested b,t an authorized representative of DTC. The deposit of Securities with DTC and their registration in the narre of Cede & Co. or such other DTC noninee do not effect any change in beneficial cwnership. DTC has no kncwledge of the actual Beneficial owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which rray or rray not be the Beneficial owners. The Direct and Indirect Participants will rerrain responsible for keepi ng account of their hol di ngs on behalf of thei r customers.

5. Conveyance of notices and other communications b,t DTC to Direct Participants, b,t Direct Participants to Indirect Participants, and b,t Direct Participants and Indirect Participants to Beneficial owners will be governed b,t arrangerrents among thern, sul::iject to any statutory or regulatory requirerrents as rray be in effect from tirre to tirre. Beneficial owners of Securities rray wish to take certain steps to augrrent the transnission to thern of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults and proposed arnendrrents to the Security docurrents. For example, Beneficial owners of Securities rray wish to ascertain that the noninee holding the Securities for their benefit has agreed to obtain and transnit notices to Beneficial owners. In the alternative, Beneficial owners rnay wish to prOJide their narres and addresses to the registrar and request that copies of notices be prc,,1ided directly to them

6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine b,t lot the amount of the interest of each Direct Participant in such issue to be redeerred.

7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized b,t a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC rrails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omni bus Proxy assigns Cede & Co.' s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omni bus Proxy).

8. Redemption proceeds, distributions and dividend payrrents on the Securities will be rnade to Cede & Co., or such other noni nee as rray be requested b,t an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail inforrration from Issuer or Agent, on payable date in accordance with their respective holdings shewn on DTC's records. Payrrents b,t Participants to Beneficial owners will be governed b,t standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer forrn or registered in "street narre," and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, sul::iject to any statutory or regulatory requirerrents as rray be in effect from tirre to tirre. Payrrent of redemption proceeds, distributions and dividend payrrents to Cede & Co. (or such other nominee as rray be requested b,t an authorized representative of DTC) is the responsibility of Issuer

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or Agent, disburserrent of such i:ayrrents to Direct Particii:ants will be the responsibility of DTC, and disburserrent of such i:ayrrents to the Beneficial owners will be the responsibility of Direct and Indirect Parti ci i:ants.

9. DTC may discontinue providing its services as depository with respect to the Securities at any tirre 0y giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successcr securities depository). In that event, Security certificates will be printed and delivered to DTC.

11. The information in this section concerning DTC and DTC's book-entry system has been obtai ned from sources that I ssuer believes to be rel i able, but I ssuer takes no responsi bi Ii ty for the accuracy thereof.

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