grossmont union high school district“insured bonds”), when due will be guaranteed under an...

NEW ISSUE – BOOK-ENTRY ONLY Insured* (Standard & Poor’s): “AA”(*Excludes August 1, 2016 maturity)

Underlying (Moody’s): “Aa3” Underlying (Standard & Poor’s): “A+” (See “MISCELLANEOUS – Ratings” herein.)

In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, 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, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding 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.”

$68,746,678.20GROSSMONT UNION HIGH SCHOOL DISTRICT

(San Diego County, California)2015 General Obligation Bonds (Election of 2008, Series F)

Dated: Date of Delivery Due: As shown on the inside cover

This cover page contains certain information for reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

The Grossmont Union High School District 2015 General Obligation Bonds (Election of 2008, Series F) (the “Bonds”) are being issued by the Grossmont Union High School District (the “District”), located in the County of San Diego, California (the “County”) for the purpose of providing funds (i) to finance construction, improvement and modernization projects approved by the voters; and (ii) to pay costs of issuance of the Bonds. The Board of Supervisors of the County 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.”

The Bonds are general obligation bonds of the District, secured and payable from ad valorem property taxes assessed on taxable properties within the District, without limitation as to rate or amount. The Bonds are not an obligation of the County or of the general fund of the District. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein.

The Bonds will be issued as capital appreciation bonds. The Bonds will not pay interest on a current, periodic basis; each Bond will accrue interest at the specified rate for such Bond maturity on the basis of a 360-day year comprised of 30-day months, over the term to its maturity, and such interest will compound on August 1, 2015, and semiannually thereafter on each February 1 and August 1, or, in case of the bond maturing June 1, 2040, on December 1, 2015, and semiannually thereafter on each June 1 and December 1 and be paid together with the principal thereof (collectively, the “Accreted Value”) at maturity or upon earlier redemption. The Bonds will mature on the dates and in each of the years as set forth on the inside front cover hereof. Payments of Accreted Value or maturity value of the Bonds will be made by the Paying Agent (initially, the Treasurer-Tax Collector of the County of San Diego) to The Depository Trust Company, New York, New York (“DTC”), for subsequent disbursement to DTC Participants, who will remit such payments to the Beneficial Owners (as defined in APPENDIX F) of the Bonds. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of a nominee of DTC. Purchasers will not receive physical certificates representing their interests in the Bonds. See “THE BONDS – Payment of Principal and Interest” and APPENDIX F – “BOOK-ENTRY ONLY SYSTEM.”

The scheduled payment of the accreted value of the capital appreciation bonds maturing on August 1 of the years 2017 through 2024 and 2026 through 2039, inclusive, on February 1 of the year 2025, and on June 1 of the year 2040 (collectively, the “Insured Bonds”), when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by ASSURED GUARANTY MUNICIPAL CORP. The Bond maturing on August 1, 2016 is not insured.

The Bonds are subject to redemption prior to maturity. See “THE BONDS – Redemption” herein.

The Bonds will be offered when, as, and if issued by the District and received by the Underwriters, subject to the approval of validity by Orrick, Herrington & Sutcliffe llp, Bond Counsel. Certain legal matters will be passed upon for the District by Orrick, Herrington & Sutcliffe llp, as Disclosure Counsel, and for the Underwriters by Stradling Yocca Carlson & Rauth, a Professional Corporation. It is anticipated that the Bonds, in definitive form, will be available for delivery through the facilities of DTC on or about June 4, 2015.

Citigroup

The date of this Official Statement is May 14, 2015.

$68,746,678.20 GROSSMONT UNION HIGH SCHOOL DISTRICT

(San Diego County, California) 2015 General Obligation Bonds (Election of 2008, Series F)

(Capital Appreciation Bonds)

BASE CUSIP†: 399262

MATURITY SCHEDULE

Maturity Principal Amount

Interest Rate

Yield to Maturity*

Denomination Amount per

$5,000 Maturity

Value Maturity Value*

CUSIP†

Number (399262)

8/1/2016‡ $798,407.55 6.000% 0.770% $4,669.05 $855,000.00 JH8 8/1/2017 118,827.00 6.000 1.240 4,401.00 135,000.00 JJ4 8/1/2018 228,162.00 6.000 1.700 4,148.40 275,000.00 JK1 8/1/2019 328,461.00 6.000 2.020 3,910.25 420,000.00 JL9 8/1/2020 272,749.20 6.000 2.320 3,685.80 370,000.00 JM7 8/1/2021 406,481.40 6.000 2.580 3,474.20 585,000.00 JN5 8/1/2022 301,277.00 6.000 2.830 3,274.75 460,000.00 JP0 8/1/2023 527,842.80 6.000 3.120 3,086.80 855,000.00 JQ8 8/1/2024 721,580.80 6.000 3.380 2,909.60 1,240,000.00 JR6 2/1/2025 1,042,585.50 4.810 3.600 3,159.35 1,650,000.00 JS4 8/1/2026 3,304,123.20 3.820 3.820 3,277.90 5,040,000.00 JT2 8/1/2027 2,959,799.75 4.060 4.060 3,067.15 4,825,000.00 JU9 8/1/2028 3,013,847.60 4.270 4.270 2,867.60 5,255,000.00 JV7 8/1/2029 3,049,729.45 4.460 4.460 2,677.55 5,695,000.00 JW5 8/1/2030 3,056,768.80 4.660 4.660 2,487.20 6,145,000.00 JX3 8/1/2031 3,085,944.60 4.770 4.770 2,334.30 6,610,000.00 JY1 8/1/2032 3,095,588.40 4.880 4.880 2,186.15 7,080,000.00 JZ8 8/1/2033 3,124,193.70 4.930 4.930 2,064.90 7,565,000.00 KA1 8/1/2034 6,079,565.85 4.940 4.940 1,963.05 15,485,000.00 KB9 8/1/2035 6,055,874.40 4.960 4.960 1,862.20 16,260,000.00 KC7 8/1/2036 5,327,281.75 4.990 4.990 1,762.25 15,115,000.00 KD5 8/1/2037 5,560,344.30 5.050 5.050 1,655.85 16,790,000.00 KE3 8/1/2038 5,488,792.20 5.080 5.080 1,564.65 17,540,000.00 KF0 8/1/2039 5,412,631.95 5.110 5.110 1,477.65 18,315,000.00 KG8 6/1/2040 5,385,818.00 5.130 5.130 1,409.90 19,100,000.00 KH6

* Yields certified by the Underwriters. The District takes no responsibility therefor. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright© 2014 CUSIP 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® numbers are provided for convenience of reference only. Neither the Underwriters nor the District assumes responsibility for the accuracy of such numbers. ‡ Not insured

GROSSMONT UNION HIGH SCHOOL DISTRICT

District Governing Board

Robert Shield President

Dr. Gary Woods Jim Kelly Vice President Clerk

Priscilla Schreiber Jim Stieringer

Member Member

District Administration

Ralf Swenson Superintendent

Scott H. Patterson

Deputy Superintendent, Business Services

Ken Leighton Executive Director, Fiscal Services

Katy Wright

Executive Director, Facilities Management

Bond Counsel and Disclosure Counsel

Orrick, Herrington & Sutcliffe LLP

San Francisco, California

Financial Advisor

KNN Public Finance, A Division of Zions Public Finance, Inc.

Los Angeles, California

Paying Agent

Treasurer-Tax Collector of the County of San Diego, California

San Diego, California

This Official Statement does not constitute an offering of any security other than the original offering of the Bonds by the District. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representation not so authorized should not be relied upon as having been given or authorized by the District.

The Bonds are exempted from registration under the Securities Act of 1933, as amended, pursuant to Section 3(a)2 thereof. This Official Statement 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 making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation.

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

The Underwriters listed on the cover page hereof (collectively, the “Underwriters”) have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

Assured Guaranty Municipal Corp. (“AGM”) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading “Bond Insurance” and Appendix H – “Specimen Municipal Bond Insurance Policy”.

Certain statements contained in this Official Statement reflect not historical facts but forecasts and “forward-looking statements.” In this respect, the words “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” and similar expressions are intended to identify forward-looking statements. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. All projections, forecasts, assumptions, expressions of opinions, estimates, and other forward-looking statements are expressly qualified in their entirety by the foregoing and the other cautionary statements set forth in this Official Statement.

The District maintains a website. However, the information presented on that website is not part of this Official Statement and should not be relied upon in making investment decisions with respect to the Bonds.

In connection with this offering, the Underwriters may overallot 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 lower than the public offering prices stated on the cover page hereof and said public offering prices may be changed from time to time by the Underwriters.

TABLE OF CONTENTS

Page

-i-

INTRODUCTION ....................................................................................................................................................... 1

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

THE BONDS ............................................................................................................................................................... 4

Authority for Issuance; Purpose .................................................................................................................... 4 Form and Registration ................................................................................................................................... 4 Payment of Principal and Interest .................................................................................................................. 5 Redemption ................................................................................................................................................... 5 Defeasance of Bonds ..................................................................................................................................... 6 Unclaimed Moneys ....................................................................................................................................... 7 Application and Investment of Bond Proceeds ............................................................................................. 8

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

DEBT SERVICE ......................................................................................................................................................... 9

Annual Debt Service ..................................................................................................................................... 9 Combined Annual Debt Service .................................................................................................................. 10

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ......................................................................... 12

General ...................................................................................................................................................... 12 Property Taxation System ........................................................................................................................... 12 Assessed Valuation of Property Within the District .................................................................................... 12 Tax Rates ..................................................................................................................................................... 18 Tax Collections and Delinquencies ............................................................................................................. 20

BOND INSURANCE ................................................................................................................................................ 23

Bond Insurance Policy ................................................................................................................................ 23 Assured Guaranty Municipal Corp .............................................................................................................. 23

TAX MATTERS ....................................................................................................................................................... 24

IRS Audit .................................................................................................................................................... 26

OTHER LEGAL MATTERS .................................................................................................................................... 26

Legal Opinion .............................................................................................................................................. 26 Limitation on Remedies .............................................................................................................................. 26 Legality for Investment in California .......................................................................................................... 27 Continuing Disclosure ................................................................................................................................. 27 Litigation ..................................................................................................................................................... 28

MISCELLANEOUS .................................................................................................................................................. 29

Ratings ...................................................................................................................................................... 29 Professionals Involved in the Offering ........................................................................................................ 29 Underwriting ............................................................................................................................................... 29 Additional Information ................................................................................................................................ 30

APPENDIX A INFORMATION RELATING TO THE DISTRICT ...................................................................... A-1

APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2014 ............................................................................................................................ B-1

APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL ........................................................... C-1

APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE ......................................................... D-1

APPENDIX E SAN DIEGO COUNTY INVESTMENT POOL ............................................................................. E-1

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

APPENDIX G TABLE OF ACCRETED VALUES ............................................................................................... G-1

APPENDIX H SPECIMEN MUNICIPAL BOND INSURANCE POLICY ........................................................... H-1

(THIS PAGE INTENTIONALLY LEFT BLANK)

1

$68,746,678.20 GROSSMONT UNION HIGH SCHOOL DISTRICT

(San Diego County, California) 2015 General Obligation Bonds (Election of 2008, Series F)

INTRODUCTION

This Official Statement, which includes the cover page and appendices hereto, is provided to furnish information in connection with the sale of the Grossmont Union High School District 2015 General Obligation Bonds (Election of 2008, Series F) (the “Bonds”).

This Official Statement speaks only as of its date, and the information contained herein is subject to change. Except as set forth in the Continuing Disclosure Certificate to be executed by the Grossmont Union High School District (the “District”), the District has no obligation to update the information in this Official Statement. See “OTHER LEGAL MATTERS – Continuing Disclosure.”

The Bonds are being issued pursuant to a resolution of the District adopted April 16, 2015 (the “District Resolution”), a resolution of the County of San Diego (the “County”) adopted May 5, 2015, and a paying agent agreement (the “Paying Agent Agreement”), dated as of May 1, 2015, by and between the District and the Office of the Treasurer-Tax Collector of the County (the “County Treasurer”), as paying agent (the “Paying Agent”).

The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds, the District Resolution and the Paying Agent Agreement providing for the issuance of the Bonds, and the constitutional provisions, statutes and other documents described herein, do not purport to be complete, and reference is hereby made to said documents, constitutional provisions and statutes for the complete provisions thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or owners of any of the Bonds.

Copies of documents referred to herein and information concerning the Bonds are available from the District upon request to the Superintendent, Grossmont Union High School District, 1100 Murray Drive, El Cajon, CA 92020-5664. The District may impose a charge for copying, handling and mailing such requested documents.

The District

The District, located in eastern San Diego County, was established in 1920 and encompasses an area of approximately 465 square miles, including all of the cities of El Cajon, Santee and Lemon Grove, most of the City of La Mesa, a small portion of the City of San Diego and the unincorporated communities of Alpine, Dulzura, Jamul, Lakeside, and Spring Valley. The District’s projected K-12 second period annual average daily attendance for fiscal year 2014-15 is 16,493, and the District’s 2014-15 projected general fund expenditures are approximately $187.5 million.

The District is a high school district, providing education to students in grades 9-12 from eight feeder elementary school districts. The District currently operates nine comprehensive high schools, two charter high schools, one continuation high school, two alternative education sites, four special education facilities, a middle college high school program, a Regional Occupational Program (“ROP”) and an adult education program.

Taxable property in the District has a fiscal year 2014-15 assessed value of approximately $39.8 billion. As of the District’s 2014-15 Second Interim Report, adopted by the governing board of the District on March 10, 2015, the District employed 845.8 full-time equivalent (“FTE”) certificated employees (teaching staff), 654.0 FTE classified employees and 83.8 FTE management, supervisory and confidential personnel. The District operates under the jurisdiction of the San Diego County Superintendent of Schools.

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Following the issuance of the Bonds, the District has $500,541,773.10 principal amount of general obligation bonds outstanding and $128,253,321.80 million remaining voter-approved authorization for future issuances. See APPENDIX A – “INFORMATION RELATING TO THE DISTRICT – District Debt Structure.”

The District is governed by a Governing Board consisting of five members. The members are elected to four-year terms in staggered years. Elections for positions to the Board are held every two years, alternating between two and three available positions. The day-to-day operations are managed by a board-appointed Superintendent. Ralf Swenson has served as Superintendent of the District since August 2010. Mr. Swenson came from the Nevada Joint Union High School District in Grass Valley, California, where he served as Superintendent for three years. Previously, Mr. Swenson served as Principal of Golden Valley High School in the Merced Union High School District, in Merced, California. Scott Patterson has served as Deputy Superintendent, Business Services of the District since June 2006. Prior to joining the District, Mr. Patterson served as Chief Financial Officer for the San Diego Unified School District.

For additional information about the District, see APPENDIX A – “INFORMATION RELATING TO THE DISTRICT.”

Alpine Unification Petition. Alpine is a mountain foothill community, located on the eastern side of the District, with approximately 800 high school students currently attending high schools in the District. The Alpine Union School District (“Alpine”) serves the community’s elementary and middle school students.

On October 23, 2013, registered voters of Alpine filed a petition with the San Diego County Superintendent of Schools requesting the reorganization of Alpine into a unified school district serving grades K-12 within the boundary lines of the existing Alpine Union School District (the “Alpine Unification Petition”). The primary objective of the Alpine Unification Petition is to require a high school to be constructed in Alpine. To this end, petitioners request that a plan of reorganization be adopted where the District transfers to Alpine $90 million in cash or, alternatively, $70 million in cash in addition to a tract of District property located in Alpine, to be used as the site of the new high school. Such a division of assets exceeds a customary division of assets under state law, but is being requested by Alpine in order for them to achieve their primary purpose for the unification petition. In order to be valid for consideration, the Alpine Unification Petition needed signatures from 25% of the registered voters in Alpine. In February 2014, the San Diego County Registrar of Voters certified to the San Diego County Office of Education (“SDCOE”) that sufficient valid signatures were obtained to proceed with consideration of the petition. SDCOE then authorized and conducted two hearings on April 29, 2014 and May 7, 2014 to receive public comment and input on the proposed unification.

An independent contractor, School Services of California (“SSC”), has conducted an in-depth study, on behalf of SDCOE in its capacity as the County Committee on School District Reorganization, to evaluate the proposal on the basis of whether each of the nine criteria specified in Education Code Section 35753 is substantially met. The study, dated August 1, 2014, found that the proposed unification substantially met seven of the nine criteria, and failed to clearly substantially meet the requirement that the proposed school district reorganization would result in the equitable division of property and facilities. The SSC also found that the proposed unification would not result in insignificant or incidental school facilities costs. Notwithstanding the study’s conclusions, on August 13, 2014, the County Committee unanimously voted to recommend approval of the Alpine Unification Petition based on its determination that the nine criteria were substantially met.

Among SDCOE’s recommendations were that the election to reorganize school districts should be held only in the territory of the Alpine Union School District, and that the division of property and liabilities should be based on an alternative calculation of the division of assets and liabilities that includes consideration of all assets and liabilities of Grossmont Union High School. SDCOE also recommended that any disputes arising from such division should be resolved by a board of arbitrators consisting of one person selected by each district and one person appointed by the County Superintendent of Schools. SDCOE further stated that the division of bonded indebtedness among the affected districts should be determined in accordance with Education Code Sections 35575, 35576 and 35738, based upon the relevant bonded indebtedness data existing at the time of unification.

The Grossmont Board of Trustees adopted a resolution on September 11, 2014 reaffirming its opposition to the unification. The Grossmont Board of Trustees does not believe a unified Alpine district will have the financial

3

resources to build and operate a high school that could provide the educational and extra-curricular programs comparable to those that the District currently provides. The Grossmont Board of Trustees objects to having the unification subject to a vote not encompassing all voters in the District and to any division of assets other than on a pro rata basis based on enrollment. A division of assets on such a pro rata basis or as contemplated by Education Code Section 35560 based on relative assessed value would result in approximately $5.8 million in cash and the District property located in Alpine being transferred to the new Alpine District. The Board also indicated that a payment from the District’s operating fund of $70 million (as requested by the Petitioners) was not feasible for the District and would materially adversely affect the general fund of the District. As described herein, the Bonds are not payable from the general fund of the District. Regardless of the outcome of the Petition, the obligation to pay the Bonds of the District from an unlimited ad valorem property tax would continue using the methods prescribed in State law as described below.

On September 19, 2014, SDCOE transmitted the Alpine Unification Petition to the State Board of Education (“SBE”) for final approval, where it is currently pending. The County Committee is not required to take any action after this point. The California Department of Education (“CDE”), as staff to the SBE, will review the materials submitted by SDCOE and will conduct its own analysis of the unification. At this time, it is estimated that the analysis by the CDE and other subsequent activities that may be required by the SBE will be completed towards the end of 2017. The Alpine Unification Petition will ultimately be decided by a vote, which may occur in November 2017, of registered voters, either within Alpine or, if determined by the SBE, within the District as a whole, and if successful, the election results will be submitted to the County Board of Supervisors for its action. The effective date of unification would be July 1 of the calendar year following the year in which the County Board of Supervisors takes action, possibly July 1, 2018.

If the petition is successful, the newly formed unified school district would provide high school services for the students located within the boundaries of Alpine unless such students choose to attend charter schools located outside of the Alpine boundaries, such as Helix Charter High School or Steele Canyon Charter High School located in the District, or other high schools located in the District through interdistrict transfers. Students residing in the Alpine boundaries who attend high school in the newly formed unified school district would no longer attend District high schools, and the territory of the newly formed unified school district would no longer be part of the District.

California law provides that when territory is taken from one school district and annexed to another school district and the area transferred contains no public school property or buildings, the territory drops any liability for outstanding bonded indebtedness in the district of which it was formerly a part. If the area transferred contains public school buildings or property, the acquiring district takes possession of the buildings and equipment on the day when the reorganization becomes effective for all purposes and must assume liability for the greater of (i) its proportionate share of the outstanding bonded indebtedness of the original district, which proportionate share will be the ratio of the total assessed valuation of the transferred property to the total assessed valuation of the original district in the year immediately preceding the date on which the transfer is effective, or (ii) that portion of the outstanding bonded indebtedness of the original district which was incurred for the acquisition or improvement of school lots or buildings situated in the territory transferred. California law also provides that a petition for reorganization may include a method of dividing the bonded indebtedness other than as set forth above for the purpose of providing greater equity in the division. The County would compute an annual tax rate on the acquiring district for such purpose.

While there are no District high schools located in the boundaries of Alpine, other public school property owned by the District is located in Alpine. If a petition to unify were ultimately approved by the requisite public agencies and approved by voters, the District would transfer such property to the newly formed unified school district and continue to receive ad valorem tax revenues from the taxable properties located in the boundaries of Alpine for payment of the Bonds. The District cannot predict whether such tax levy would be calculated as described above pursuant to statute, or be determined by another method set forth in the petition. As noted above, the SDCOE recommended the use of the statutory division based on outstanding indebtedness at the time of unification. As another method may be used, the District is unable to predict what portion of the outstanding bonded indebtedness would be borne by the newly formed district or the effect on tax rates in the District or the newly formed Alpine District. The tax rates imposed to pay debt service with respect to the Bonds may be different in the District and the newly formed Alpine District depending on the relative indebtedness assigned to each. However,

4

any reduction in assessed valuation of property located within the District would constrain the District’s ability to issue additional Proposition U bonds (if the District adheres to its Proposition U tax rate statement submitted to voters that projected tax revenues a $27.90/$100,000 tax rate would cover debt service of any new issuance). Furthermore, any such reduction in assessed value would limit the District’s ability to issue any additional bonds per Education Code Section 15102, unless waived (which limits District bonds to an amount up to 1.25% of the assessed valuation of taxable property within its boundaries). The 2014-15 assessed value of property located within Alpine is approximately $2.3 billion or about 5.8% of total current assessed value of property within the District. (Source: California Municipal Statistics)

The District cannot predict whether the petitioners’ efforts to unify Alpine will eventually succeed, or if they do, the effect such success would have on the number and value of taxable properties within the District subject to ad valorem taxation for repayment of the Bonds. Regardless of the outcome, under State law, the Bonds would continue to be payable from an unlimited ad valorem tax levied in the determined areas.

In October 2014, Alpine and a taxpayer’s association sued the District and Ralf Swenson, Superintendent of the District, seeking an injunction on the expenditure of bond funds. See “OTHER LEGAL MATTERS—Litigation” herein for more information.

THE BONDS

Authority for Issuance; Purpose

The Bonds described herein are authorized to be issued pursuant to the Constitution and laws of the State, including the provisions of Article 4.5 of Chapter 3, of Part 1 of Division 2 of Title 5 of the Government Code, and other applicable provisions of law, including applicable provisions of the Education Code, and a resolution adopted by the Governing Board of the District on April 16, 2015 (the “District Resolution”) and the Paying Agent Agreement. The County approved the financing on May 5, 2015.

The Bonds were authorized to be issued at an election held on November 4, 2008, by 55% or more of the votes cast by eligible voters within the District. The measure authorized the District to issue bonds in an aggregate principal amount not to exceed $417,000,000, labeled Proposition U, for the purposes summarized as: “to better prepare local high school students for college and high demand jobs by upgrading educational technology, constructing science labs, replacing deteriorated portables, rehabilitating aging classrooms/equipment/sites/joint-use facilities, improving safety/energy-efficiency, and constructing a new school in Alpine/Blossom Valley.” The full ballot proposition contains numerous projects which the Board will fund based on its determined priorities. Not all projects listed in the measure may be funded. In 2009, the County on behalf of the District issued $60,000,000 aggregate principal amount of the District’s 2009 General Obligation Bonds (Election of 2008, Series A) (the “Series A Bonds”). In 2010, the District issued $80,000,000 aggregate principal amount of its 2010 General Obligation Bonds (Election of 2008, Series B) (the “Series B Bonds”). In 2011, the District issued $15,000,000 aggregate principal amount of its 2011 General Obligation Bonds (Election of 2008, Series C) (the “Series C Bonds”) and $25,000,000 aggregate principal amount of its 2011 General Obligation Bonds (Election of 2008, Series D) Qualified School Construction Bonds (Taxable Direct Subsidy Bonds) (the “Series D Bonds”). In 2013, the District issued $40,000,000 aggregate principal amount of its 2013 General Obligation Bonds (Election of 2008, Series E) (the “Series E Bonds”). The Bonds are the sixth series of bonds issued under Proposition U, after which $128,253,321.80 of the Proposition U bonding authority will remain.

Proceeds of the Bonds will be applied (i) to finance construction, improvement and modernization projects approved by the November 4, 2008 election, and (ii) to pay costs of issuance of the Bonds. See “Application and Investment of Bond Proceeds” and “OTHER LEGAL MATTERS—Litigation” herein.

Form and Registration

The Bonds will be issued in fully registered book-entry form only, in denominations of $5,000 Maturity Value (as defined below) each or any integral multiple thereof. The Bonds will initially be registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), New York, New York. DTC will act as securities depository for the Bonds. Purchases of Bonds under the DTC system must be made by or through a DTC

5

participant, and ownership interests in Bonds or any transfer thereof will be recorded as entries on the books of said participants. Except in the event that use of this book-entry system is discontinued for the Bonds, beneficial owners will not receive physical certificates representing their ownership interests. See APPENDIX F – “BOOK-ENTRY ONLY SYSTEM.”

Payment of Principal and Interest

The Bonds will be issued as capital appreciation bonds, and shall mature on the dates and in each of the years as set forth on the inside front cover page hereof. The Bonds will be dated the date of their delivery, and will not pay interest on a current, periodic basis; instead, each Bond will accrue interest over the term to its maturity and such interest will compound on August 1, 2015, and semiannually thereafter on each February 1 and August 1, or, in case of the bond maturing June 1, 2040, on December 1, 2015, and semiannually thereafter on each June 1 and December 1 (each, an “Interest Compounding Date”). The Accreted Value of the Bonds will be paid at maturity or upon prior redemption.

The “Accreted Value” of each Bond is an amount equal to the principal amount of such Bond plus interest accrued thereon from the date of issuance, such interest to accrue at the specified rate for such Bond maturity on the basis of a 360-day year comprised of 30-day months, and such interest to compound on the first Interest Compounding Date and semiannually thereafter on each Interest Compounding Date for such maturity. Accreted Value on any date other than an Interest Compounding Date is equal to the ratable portion of the difference between the Accreted Value computed as of the immediately preceding Interest Compounding Date and the Accreted Value computed as of the immediately succeeding Interest Compounding Date, calculated based on the assumption that the Accreted Value increases during any period in equal daily amounts along a straight-line interpolation between Interest Compounding Dates.

The Underwriters have prepared the Table of Accreted Values shown in Appendix G hereto, in order to provide the Accreted Value per $5,000 of Maturity Value for each Bond on each Interest Compounding Date for such Bond prior to maturity.

The Accreted Value or Maturity Value of the Bonds is payable in lawful money of the United States of America upon the surrender thereof at the office of the Paying Agent at the maturity thereof or upon redemption prior to maturity, payable from moneys on deposit in the interest and sinking fund of the District (the “Interest and Sinking Fund”) within the treasury of the County, consisting of ad valorem taxes collected and held by the County Treasurer, together with any net premium and accrued interest received upon issuance of the Bonds and deposited therein. So long as all outstanding Bonds are held in book-entry form and registered in the name of a securities depository or its nominee, all payments of Accreted Value of and premium, if any, on the Bonds and all notices with respect to such Bonds will be made and given, respectively, to such securities depository or its nominee and not to beneficial owners. So long as the Bonds are held by Cede & Co., as nominee of DTC, payment will be made by wire transfer to DTC. See APPENDIX F – “BOOK-ENTRY ONLY SYSTEM.”

Redemption

Optional Redemption. The Bonds maturing on or before February 1, 2025, are not subject to redemption prior to their respective stated maturity dates. The Bonds maturing on and after August 1, 2026, shall be subject to redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, as a whole or in part on any date on or after February 1, 2025, at a redemption price equal to the stated Accreted Value at the redemption date of the Bonds called for redemption, without premium.

Selection of Bonds for Redemption. If less than all of the Bonds are called for redemption, the Paying Agent shall select the Bonds to be redeemed from all Bonds not previously called for redemption with respect to any optional redemption of such Bonds, among maturities of such Bonds as directed in a Written Certificate of the District, and by lot among Bonds with the same maturity in any manner which the Paying Agent in its sole discretion shall deem appropriate and fair. The Paying Agent shall promptly notify the District in writing of the numbers of the Bonds so selected for redemption on such date. For purposes of such selection, any Bond may be redeemed in part in authorized denominations.

6

Notice of Redemption. Notice of redemption of any Bond is required to be given by the Paying Agent, upon written request of the District, not less than 20 nor more than 60 days prior to the redemption date (i) by first class mail to the respective Owners thereof at the addresses appearing on the bond registration books, and (ii) as may be further required in accordance with the Continuing Disclosure Certificate. See APPENDIX D – “FORM OF CONTINUING DISCLOSURE CERTIFICATE.”

Each notice of redemption shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the series or subseries, the Bond numbers and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Paying Agent for redemption at the redemption price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption.

Effect of Notice of Redemption. When notice of redemption has been given substantially as provided for in the District Resolution, and the amounts necessary for the payment of Accreted Value of and premium, if any, shall be set aside for such purpose, the Bonds designated for redemption shall become due and payable on the date fixed for redemption thereof, and upon presentation and surrender of said Bonds at the place specified in the notice of redemption, such Bonds shall be redeemed and paid at said redemption price out of the money provided therefor, and interest shall cease to accrue on such Bonds called for redemption after the redemption date specified in such notice, and the registered owners of said Bonds so called for redemption after such redemption date shall look for the payment of such Bonds and the premium thereon only to such money provided therefor. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed.

Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the District shall execute and the Paying Agent shall authenticate and deliver to the Owner thereof, at the expense of the District, a new Bond of the same series in a Maturity Value equal to the unredeemed portion of the Bond surrendered.

Conditional Notice. Any notice of optional redemption delivered hereunder may be conditioned on any fact or circumstance stated therein, and if such condition shall not have been satisfied on or prior to the redemption date stated in such notice, said notice shall be of no force and effect on and as of the stated redemption date, the redemption shall be cancelled, and the District shall not be required to redeem the Bonds that were the subject of the notice. The Paying Agent shall give notice of such cancellation and the reason therefor in the same manner in which notice of redemption was originally given. The actual receipt by the owner of any Bond of notice of such cancellation shall not be a condition precedent to cancellation, and failure to receive such notice or any defect in such notice shall not affect the validity of the cancellation.

Rescission of Notice of Redemption. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the owners of the Bonds so called for redemption. Any optional redemption and notice thereof shall be rescinded if for any reason on the date fixed for redemption moneys are not available in the Interest and Sinking Fund or otherwise held in trust for such purpose in an amount sufficient to pay in full on said date the Accreted Value of, interest, and any premium due on the Bonds called for redemption. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. The actual receipt by the owner of any Bond of notice of such rescission shall not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice shall not affect the validity of the rescission.

Defeasance of Bonds

The District may pay and discharge any or all of the Bonds by depositing in trust with the Paying Agent or an escrow agent at or before maturity, money and/or Defeasance Securities (as defined below) in an amount which, together with the interest to accrue thereon, will be fully sufficient (in the opinion of a certified public accountant) to pay when due the indebtedness on such Bonds (including all principal, interest and redemption premiums) at the maturity dates or redemption date thereof.

7

Any Outstanding Bond shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in the District Resolution (i) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the District shall have given to the Paying Agent in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of the District Resolution, notice of redemption of such Bond on said redemption date, said notice to be given in accordance with such provisions, (ii) there shall have been deposited with the Paying Agent either (A) money in an amount which shall be sufficient, or (B) Defeasance Securities (defined below), the principal of and the interest on which when due, and without any reinvestment thereof, will provide moneys which shall be sufficient to pay when due the principal of, premium, if any, and interest on such Bond, and (iii) in the event such Bond is not by its terms subject to redemption within the next succeeding 60 days, the District shall have given the Paying Agent in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Owners of such Bond that the deposit required by clause (ii) above has been made with the Paying Agent and that such Bond is deemed to have been paid in accordance with the District Resolution and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of, premium, if any, and interest on such Bond.

No Bond shall be deemed to have been paid pursuant to clause (ii)(B) above unless the District shall have caused to be delivered (i) an executed copy of a Verification Report with respect to such deemed payment, addressed to the District and the Paying Agent, in form and in substance acceptable to the District and the Paying Agent, and (ii) a copy of the escrow agreement entered into in connection with the deposit pursuant to clause (ii)(B) above resulting in such deemed payment, which escrow agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new Verification Report, and no reinvestment of Defeasance Securities shall be permitted except as contemplated by the original Verification Report or upon delivery of a new Verification Report.

As defined in the District Resolution, “Defeasance Securities” means:

(i) direct, non-callable obligations of the United States Treasury; (ii) direct non-callable and non-prepayable obligations which are unconditionally guaranteed by the United States of America as to full and timely payment of principal and interest; (iii) non-callable, non-prepayable coupons from the above securities which are stripped pursuant to United States Treasury programs; (iv) non-callable and non-prepayable (or irrevocably called to a specified redemption date) refunded municipal bonds that are backed by an escrow funded with obligations of or guaranteed by the United States of America; (v) Resolution Funding Corporation (REFCORP) securities consisting of interest components stripped by the Federal Reserve Bank of New York; (vi) non-callable, and non-prepayable fixed rate Israel Notes guaranteed as to principal and interest by the United States of America through the United Agency for International Development (provided that, such notes maintain a rating at the same level as obligations of the United States Treasury and mature at least four business days before funds are needed for refunded bond debt service payments); (vii) United States State and Local Government Securities (SLGS); (viii) the following non-callable, non-prepayable obligations of federal government-sponsored agencies that are not backed by the full faith and credit of the U.S. Government: Federal Home Loan Bank, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Tennessee Valley Authority, Farm Credit System, Washington Metropolitan Area Transit Authority, United States Import-Export Bank, United States Department of Housing and Urban Development, Farmers Home Administration, General Services Administration and United States Maritime Administration (provided such entities maintain a rating at the same level as obligations of the United States Treasury); and (ix) any non-callable, non-prepayable (or irrevocably called to a specific redemption date) municipal security rated not less than the rating on obligations of the United States Treasury that carries a fixed interest rate and matures on a date certain.

Unclaimed Moneys

Any moneys held by the Paying Agent in trust for the payment and discharge of the Accreted Value on any Bonds which remain unclaimed for one year after the date when such Accreted Value has become payable, shall be transferred to the Interest and Sinking Fund of the District for payment of any outstanding bonds of the District payable from the fund, or, if no such bonds of the District are at such time outstanding, to be transferred to the general fund of the District as provided and permitted by law, and the Paying Agent shall thereupon be released and discharged with respect thereto and the Owners of such Bonds shall look only to the District for the payment of such Accreted Value.

8

Application and Investment of Bond Proceeds

The proceeds from the sale of the Bonds will be deposited in the County Treasury to the credit of the Building Fund of the District. Any premium received by the District will be deposited in the Interest and Sinking Fund. Earnings on the investment of moneys in either fund will be retained in that fund and used only for the purposes to which that fund may lawfully be applied. Moneys in the Building Fund may only be applied for the purposes for which the Bonds were approved. Moneys in the Interest and Sinking Fund may only be applied to make payments of Accreted Value on bonds of the District.

Amounts deposited into the Interest and Sinking Fund, as well as proceeds of taxes held therein for payment of the Bonds, will be invested at the County Treasurer’s discretion pursuant to law and the investment policy of the County. See APPENDIX E – “SAN DIEGO COUNTY INVESTMENT POLICY – DESCRIPTION OF POOLED MONEY INVESTMENT FUND.”

ESTIMATED SOURCES AND USES OF FUNDS

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

Sources of Funds: Principal Amount of Bonds $68,746,678.20 Original Issue Premium 829,126.05 Total Sources $69,575,804.25

Uses of Funds:

Deposit to Building Fund $68,746,678.20 Underwriters’ Discount 312,143.05 Costs of Issuance(1) 516,983.00 Total Uses $69,575,804.25

____________________ (1) Includes financial advisor fees, Bond Counsel fees, Disclosure Counsel fees, rating agency fees, paying agent fees, filing agent fees, printing fees, bond insurance premium and other miscellaneous expenses.

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DEBT SERVICE

Annual Debt Service

Upon issuance of the Bonds, the annual debt service will be as follows:

GROSSMONT UNION HIGH SCHOOL DISTRICT 2015 General Obligation Bonds (Election of 2008, Series F)

Debt Service Schedule

The Bonds

Year ending Principal Interest Paid at Maturity Total Annual Debt

Service 8/1/2016 $798,407.55 $56,592.45 $855,000 8/1/2017 118,827.00 16,173.00 135,000 8/1/2018 228,162.00 46,838.00 275,000 8/1/2019 328,461.00 91,539.00 420,000 8/1/2020 272,749.20 97,250.80 370,000 8/1/2021 406,481.40 178,518.60 585,000 8/1/2022 301,277.00 158,723.00 460,000 8/1/2023 527,842.80 327,157.20 855,000 8/1/2024 721,580.80 518,419.20 1,240,000 2/1/2025 1,042,585.50 607,414.50 1,650,000 8/1/2025 - - - 8/1/2026 3,304,123.20 1,735,876.80 5,040,000 8/1/2027 2,959,799.75 1,865,200.25 4,825,000 8/1/2028 3,013,847.60 2,241,152.40 5,255,000 8/1/2029 3,049,729.45 2,645,270.55 5,695,000 8/1/2030 3,056,768.80 3,088,231.20 6,145,000 8/1/2031 3,085,944.60 3,524,055.40 6,610,000 8/1/2032 3,095,588.40 3,984,411.60 7,080,000 8/1/2033 3,124,193.70 4,440,806.30 7,565,000 8/1/2034 6,079,565.85 9,405,434.15 15,485,000 8/1/2035 6,055,874.40 10,204,125.60 16,260,000 8/1/2036 5,327,281.75 9,787,718.25 15,115,000 8/1/2037 5,560,344.30 11,229,655.70 16,790,000 8/1/2038 5,488,792.20 12,051,207.80 17,540,000 8/1/2039 5,412,631.95 12,902,368.05 18,315,000 6/1/2040 5,385,818.00 13,714,182.00 19,100,000

TOTAL $68,746,678.20 $104,918,321.80 $173,665,000

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Combined Annual Debt Service

The District has bonds outstanding under two voter authorizations. On March 2, 2004, the District’s voters approved a measure, known as Proposition H, authorizing the District to issue up to $274 million in general obligation bonds. The District issued the full authorized amount of these bonds in three series in 2004, 2006 and 2008, representing full amount of obligations authorized under Proposition H. On November 4, 2008, the District received authorization from the voters to issue $417 million in general obligation bonds (“Proposition U”). Pursuant to Proposition U, the District has issued five series of bonds, prior to the issuance of the Bonds. In addition, the District has outstanding three issues of refunding bonds issued to pay prior outstanding bonds. A summary of the District’s general obligation bonds issued is presented below:

Series Issue Date Original Principal Amount Proposition H (2004)

Series 2004 06/17/2004 $60,841,197 Series 2006 06/21/2006 124,999,225 Series 2008 08/05/2008 88,159,578

Proposition U (2008) Series A 04/15/2009 60,000,000 Series B 08/18/2010 80,000,000 Series C 05/25/2011 15,000,000 Series D 05/25/2011 25,000,000 Series E 11/13/2013 40,000,000

Refunding Bonds Series 2011A 11/22/2011 10,260,000 Series 2011B 11/22/2011 10,660,000 Series 2012 05/17/2012 54,515,000

Prior to the sale of the Bonds, the District has $197 million in unused bonding authority for the issuance of additional Proposition U bonds. See APPENDIX A – “INFORMATION RELATING TO THE DISTRICT – District Debt Structure.” Upon the issuance of the Bonds, the combined annual debt service for all outstanding bonds of the District (assuming no optional redemptions prior to maturity) will be as follows:

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GROSSMONT UNION HIGH SCHOOL DISTRICT General Obligation Bonds Outstanding Debt Service

Year ending August

1

Election of 2004, Series

2004* Election of 2004,

Series 2006† Election of 2004,

Series 2008

Refunding Bonds Series

2011A


2011B


2012 Election of

2008, Series A Election of 2008,

Series B Election of

2008, Series C Election of

2008, Series D‡ Election of

2008, Series E Election of 2008,

Series F§ Combined

Debt Service 2015 - $4,677,750.00 $4,061,837.50 $489,250.00 $2,558,538.16 $2,387,650.00 $2,845,200.00 $4,034,881.26 $778,050.00 $1,003,418.75 $2,073,650.00 - $24,910,225.67 2016 - 5,071,500.00 4,279,837.50 489,250.00 2,725,984.16 2,387,650.00 2,889,400.00 4,034,881.26 778,050.00 1,104,047.50 2,364,150.00 $855,000 26,979,750.42 2017 - - 4,502,037.50 489,250.00 2,889,935.40 7,792,650.00 2,931,600.00 4,034,881.26 778,050.00 1,954,047.50 1,910,250.00 135,000 27,417,701.66 2018 - - 4,737,837.50 3,564,250.00 - 8,231,450.00 3,114,350.00 4,034,881.26 778,050.00 2,204,047.50 1,910,250.00 275,000 28,850,116.26 2019 - - 4,986,237.50 3,754,250.00 - 8,694,050.00 3,302,350.00 4,034,881.26 778,050.00 2,404,047.50 1,910,250.00 420,000 30,284,116.26 2020 - - 5,251,237.50 3,957,250.00 - 9,180,450.00 3,504,850.00 4,034,881.26 778,050.00 2,804,047.50 1,910,250.00 370,000 31,791,016.26 2021 $4,375,000.00 - 5,532,312.50 - - 9,689,250.00 3,715,600.00 4,034,881.26 778,050.00 2,954,047.50 1,910,250.00 585,000 33,574,391.26 2022 4,605,000.00 - 5,826,750.00 - - 10,227,250.00 3,942,150.00 4,034,881.26 1,028,050.00 3,204,047.50 1,910,250.00 460,000 35,238,378.76 2023 4,850,000.00 - 6,199,812.50 - - 10,731,500.00 4,186,400.00 4,034,881.26 1,015,550.00 3,204,047.50 1,910,250.00 855,000 36,987,441.26 2024 5,110,000.00 11,730,000.00 6,586,750.00 - - - 4,456,850.00 4,034,881.26 1,014,300.00 3,204,047.50 1,910,250.00 1,240,000 39,287,078.76 2025 5,380,000.00 12,360,000.00 6,931,750.00 - - - 4,742,600.00 4,034,881.26 1,001,300.00 3,204,047.50 1,910,250.00 1,650,000 41,214,828.76 2026 5,665,000.00 12,955,000.00 7,361,750.00 - - - 5,047,662.50 4,034,881.26 1,758,300.00 (582,851.25) 1,910,250.00 5,040,000 43,189,992.51 2027 5,965,000.00 13,515,000.00 7,876,750.00 - - - 5,374,912.50 4,034,881.26 1,761,800.00 - 1,910,250.00 4,825,000 45,263,593.76 2028 6,285,000.00 14,255,000.00 8,266,750.00 - - - 5,720,637.50 4,034,881.26 1,759,837.50 - 1,910,250.00 5,255,000 47,487,356.26 2029 6,620,000.00 15,030,000.00 8,686,750.00 - - - 6,090,562.50 4,034,881.26 1,759,987.50 - 1,910,250.00 5,695,000 49,827,431.26 2030 - 20,695,000.00 11,246,750.00 - - - 6,483,475.00 4,034,881.26 1,756,987.50 - 1,910,250.00 6,145,000 52,272,343.76 2031 - 21,805,000.00 11,831,750.00 - - - 6,900,500.00 4,034,881.26 1,755,837.50 - 1,910,250.00 6,610,000 54,848,218.76 2032 - - 35,416,750.00 - - - 7,349,025.00 4,034,881.26 1,751,275.00 - 1,910,250.00 7,080,000 57,542,181.26 2033 - - 37,296,750.00 - - - 7,823,437.50 4,034,881.26 1,749,825.00 - 1,910,250.00 7,565,000 60,380,143.76 2034 - - - - - - - 4,934,881.26 1,749,250.00 - 1,910,250.00 15,485,000 24,079,381.26 2035 - - - - - - - 5,188,256.26 1,757,000.00 - 1,910,250.00 16,260,000 25,115,506.26 2036 - - - - - - - 8,222,987.50 955,500.00 - 1,910,250.00 15,115,000 26,203,737.50 2037 - - - - - - - 8,633,750.00 - - 1,910,250.00 16,790,000 27,334,000.00 2038 - - - - - - - 9,064,237.50 - - 1,910,250.00 17,540,000 28,514,487.50 2039 - - - - - - - 9,517,000.00 - - 1,910,250.00 18,315,000 29,742,250.00 2040 - - - - - - - 9,994,350.00 - - 1,910,250.00 19,100,000 31,004,600.00 2041 - - - - - - - 10,493,362.50 - - 1,910,250.00 - 12,403,612.50 2042 - - - - - - - 11,019,150.00 - - 19,865,250.00 - 30,884,400.00 2043 - - - - - - - 11,567,037.50 - - 21,262,500.00 - 32,829,537.50 2044 - - - - - - - 12,148,537.50 - - - - 12,148,537.50 2045 - - - - - - - 12,754,287.50 - - - - 12,754,287.50 Total $48,855,000.00 $132,094,250.00 $186,880,400.00 $12,743,500.00 $8,174,457.72 $69,321,900.00 90,421,562.50 $190,200,581.46 $28,021,150.00 $26,661,042.50 $93,321,800.00 $173,665,000.00 $1,060,360,644

* Final debt service payment date of June 1, 2029. † Final debt service payment date of June 1, 2031. ‡ Debt service net of expected Qualified School Construction Bonds (QSCB) subsidy payments. Debt service reflects sinking fund deposits. § Includes February 1, 2025 maturity. Final debt service payment date of June 1, 2040.

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SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

General

In order to provide sufficient funds for payment of Accreted Value on the Bonds when due, the Board of Supervisors of the County is empowered and 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). Such taxes are in addition to other taxes levied upon property within the District, including the countywide tax of 1% of taxable value. When collected, the tax revenues levied to pay the Bonds will be deposited by the County Treasurer in the District’s Interest and Sinking Fund, which is required by law to be maintained by the County and to be used solely for the payment of bonds of the District.

Property Taxation System

Property tax revenues for each property are calculated by applying the appropriate tax rate to the total assessed value of taxable property in the District. School districts levy property taxes for payment of voter-approved bonds and receive property taxes for general operating purposes as well.

Local property taxation in California is the responsibility of various county officers. For each school district located in a county, the county assessor computes the value of locally assessed taxable property. Based on the assessed value of property and the scheduled debt service on outstanding bonds in each year, the county auditor-controller computes the rate of tax necessary to pay such debt service, and presents the tax rolls (including rates of tax for all taxing jurisdictions in the county) to the county board of supervisors for approval. The county treasurer-tax collector prepares and mails tax bills to taxpayers and collects the taxes. In addition, the treasurer-tax collector, as ex officio treasurer of each school district located in the county, holds and invests school district funds, including taxes collected for payment of school bonds, and is charged with payment of principal of and interest on such bonds when due. Taxes on property in a school district whose boundaries extend into more than one county are administered separately by the county in which the property is located. The State Board of Equalization also assesses certain special classes of property, as described later in this section.

Assessed Valuation of Property Within the District

Under Proposition 13, an amendment to the California Constitution adopted in 1978, the assessed value of ad valorem property was established as the county assessor’s valuation of real property as shown on the fiscal year 1975-76 tax bill, or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. Assessed value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction, market forces or other factors. See APPENDIX A – “DISTRICT FINANCIAL AND OPERATING INFORMATION – CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS.” As a result, property that has been owned by the same taxpayer for many years can have an assessed value that is lower than the market value of the property. Similar property that has recently been acquired may have a higher assessed value reflecting the recent acquisition price. Increases in assessed value in a taxing area due to the change in ownership of property may occur even when the rate of inflation or consumer price index do not permit a full 2% increase or require a reduction in assessed valuation of property.

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

State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, federal trusts, and charitable institutions. State law also exempts from taxation $7,000 of the full cash value of an owner-occupied dwelling provided that the owner files for such exemption. The Homeowners’ exemption does not result in any loss of revenue to local agencies, since the State reimburses local agencies for the value of this exemption.

13

On January 9, 2012, the County entered into an Intergovernmental Agreement with the Sycuan Band of the Kumeyaay Nation (“Sycuan”), a federally recognized American Indian Tribe located in the County, and the Sycuan Tribal Development Corporation, a business entity organized solely under the laws of Sycuan, by which agreement 1,357 acres of land, including land located in the District, was taken from the County into federal trust on behalf of Sycuan. As such, the County was unable to maintain the land on its tax rolls, which deprived it of tax revenues from such land. The assessed value in the District as a result of such removal was reduced by $41,417,255 or 0.115% of its assessed value for the 2012-13 fiscal year. The District is in the process of negotiating a mitigation agreement with Sycuan, by which it expects to receive funds to offset lost revenue caused by the removal of its land from County tax rolls. If received in a timely manner, such payment will be applied to the payment of the August 1, 2016 maturity of the Bonds.

The District has been approached by a developer requesting the transfer of land with an assessed value of approximately $7.3 million to the Sweetwater Union High School District to better serve students that may reside on the property after development. The District is considering such proposal which will be conditioned on appropriate compensation for the transfer.

Property values could be reduced by factors beyond the District’s control, such as a depressed real estate market due to general economic conditions in San Diego County, the region and the State. The District is located in a seismically active area. Active fault lines lie about 15 miles west of the District. Property within the District could sustain extensive damage in a major earthquake, and a major earthquake could adversely affect local economic activity. Other possible causes for a reduction in assessed values include the complete or partial destruction of taxable property caused by other natural or manmade disasters, such as flood, fire, toxic dumping, acts of terrorism, etc., or reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by federal, State and local agencies and property used for qualified educational, hospital, charitable or religious purposes) or declines due to market conditions in the housing industry or general economy.

For assessment and tax collection purposes, property is classified either as “secured” or “unsecured,” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed 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 by August 20 of each year.

The greater the assessed value of taxable property in the District, the lower the tax rate necessary to generate taxes sufficient to pay scheduled debt service on the Bonds. The table below shows a twenty-five year history of the District’s taxable assessed valuation. The total assessed valuation of secured and unsecured property of the District for fiscal year 2014-15 is $39,848,169,506, resulting in a 4.7% increase in total valuation for the fiscal year from the prior fiscal year.


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GROSSMONT UNION HIGH SCHOOL DISTRICT Summary of Taxable Assessed Valuation

Fiscal Years 1990-91 to 2014-15

Fiscal Year Ending June 30,

Total Secured (1) (2)

Annual % Change Unsecured

Annual % Change Total Valuation

Annual % Change

1990 12,539,565,716 10.04% 426,176,538 17.25% 12,965,742,254 -- 1991 13,896,795,763 10.82% 478,806,488 12.35% 14,375,602,251 10.87% 1992 15,113,104,989 8.75% 481,232,954 0.51% 15,594,337,943 8.48% 1993 15,945,529,483 5.51% 479,966,511 -0.26% 16,425,495,994 5.33% 1994 16,294,927,140 2.19% 451,582,930 -5.91% 16,746,510,070 1.95% 1995 16,695,760,514 2.46% 497,469,924 10.16% 17,193,230,438 2.67% 1996 16,857,561,131 0.97% 506,606,042 1.84% 17,364,167,173 0.99% 1997 16,820,811,898 -0.22% 515,892,035 1.83% 17,336,703,933 -0.16% 1998 17,009,224,500 1.12% 514,253,619 -0.32% 17,523,478,119 1.08% 1999 17,743,880,218 4.32% 585,814,497 13.92% 18,329,694,715 4.60% 2000 19,076,534,721 7.51% 617,442,232 5.40% 19,693,976,953 7.44% 2001 20,352,040,217 6.69% 685,889,485 11.09% 21,037,929,702 6.82% 2002 21,741,540,162 6.83% 779,359,841 13.63% 22,520,900,003 7.05% 2003 23,296,637,789 7.15% 771,882,592 -0.96% 24,068,520,381 6.87% 2004 25,180,840,862 8.09% 853,134,395 10.53% 26,033,975,257 8.17% 2005 27,585,623,242 9.55% 900,711,328 5.58% 28,486,334,570 9.42% 2006 31,036,108,480 12.51% 942,671,612 4.66% 31,978,780,092 12.26% 2007 34,560,613,407 11.36% 1,017,858,980 7.98% 35,578,472,387 11.26% 2008 37,309,204,695 7.95% 1,111,632,486 9.21% 38,420,837,181 7.99% 2009 38,261,778,383 2.55% 1,159,947,074 4.35% 39,421,725,457 2.61% 2010 36,228,048,586 -5.32% 1,151,172,293 -0.76% 37,379,220,879 -5.18% 2011 35,726,274,196 -1.39% 1,092,460,473 -5.10% 36,818,734,669 -1.50% 2012 35,929,085,384 0.57% 1,054,248,404 -3.50% 36,983,333,788 0.45% 2013 36,042,290,810 0.32% 1,008,416,103 -4.35% 37,050,706,913 0.18% 2014 37,070,696,416 2.85% 996,572,702 -1.17% 38,067,269,118 2.74% 2015 38,852,923,986 4.81% 995,245,520 -0.13% 39,848,169,506 4.68%

% Change, 1989-90 to 2014-15 209.84% 133.53% 207.33% Annual Compound Growth, 1989-90 to 2014-15

4.63% 3.45% 4.59%

____________________ (1) Net assessed valuation including the valuation of homeowners’ exemptions. (2) Includes local utility roll but not assessed valuation from the unitary utility roll, beginning in fiscal year 1988-89. Source: California Municipal Statistics, Inc., and San Diego County Auditor-Controller. Table prepared by Stifel, Nicolaus & Company, Incorporated.

The District includes all of the cities of El Cajon, Santee and Lemon Grove, most of the City of La Mesa, a small portion of the City of San Diego and the unincorporated communities of Alpine, Dulzura, Jamul, Lakeside and Spring Valley. The table on the following page gives a distribution of taxable property in the District by location.

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GROSSMONT UNION HIGH SCHOOL DISTRICT 2014-15 Assessed Valuation by Jurisdiction(1)

Assessed Valuation % of Assessed Valuation % of Jurisdiction Jurisdiction: in School District School District of Jurisdiction in School District City of El Cajon $ 7,606,978,502 19.09% $7,606,978,502 100.00% City of La Mesa 5,564,402,128 13.96 $5,567,723,492 99.94% City of Lemon Grove 1,721,882,714 4.32 $1,721,882,714 100.00% City of San Diego 430,878,506 1.08 $197,090,226,969 0.22% City of Santee 4,880,034,908 12.25 $4,880,210,488 100.00% Unincorporated San Diego County 19,643,992,748 49.30 $61,063,426,787 32.17% Total District $39,848,169,506 100.00% San Diego County $39,848,169,506 100.00% $419,094,352,304 9.51% __________ (1) Before deduction of redevelopment incremental valuation. Source: California Municipal Statistics, Inc.

As a high school district, the District may issue bonds in an amount up to 1.25% of the assessed valuation of taxable property within its boundaries. Based on the fiscal year 2014-15 assessment roll, including $579,618,219.44 of unitary utility assessment, the District’s gross bonding capacity is $505.3 million, and its net bonding capacity is $73.6 million, prior to the issuance of the Bonds. In accordance with the law which permitted the Bonds to be approved by a 55% affirmative vote, bonds approved by the District’s voters under Proposition U may not be issued unless the District projects that repayment of all outstanding bonds approved under Proposition U will require a tax rate no greater than $30.00 per $100,000 of assessed value. Based on the assessed value of taxable property in the District at the time of issuance of the Bonds and increases in future assessed value in accordance with Article XIIIA of the California Constitution, the District projects that the maximum tax rate required to repay all outstanding Proposition U bonds will be within the statutory limit. In its Proposition U tax rate statement submitted to the voters, the District estimated the total tax rate necessary for repayment of all bonds issued under Proposition U to be $27.90 per $100,000 of assessed value, and the District has structured the Proposition U bond program to maintain this estimated tax rate, which is slightly below the statutory limit.

Appeals and Adjustments of Assessed Valuation. State law affords an appeal procedure to taxpayers who disagree with the assessed value of their taxable property. Taxpayers may request a reduction in assessment directly from the County Assessor (the “Assessor”), who may grant or refuse the request in whole or in part, and taxpayers may appeal an assessment directly to the County Board of Equalization, which rules on appealed assessments whether or not settled by the Assessor. The Assessor is also authorized to reduce the assessed value of any taxable property upon a determination that the market value has declined below the then-current assessment, whether or not appealed by the taxpayer. Despite a significant number of reductions since fiscal year 2009-10 pursuant to Proposition 8, an amendment to Article XIIIA of the California Constitution that allows a temporary reduction in assessed value when real property suffers a decline in value, assessed value in the District has increased each year since fiscal year 2011-12.

The District can make no predictions as to the changes in assessed values that might result from pending or future appeals by taxpayers or actions by the Assessor. Any reduction in aggregate District assessed valuation due to appeals, as with any reduction in assessed valuation due to other causes, will cause the tax rate levied to repay the Bonds to increase accordingly, so that the fixed debt service on the Bonds (and other outstanding bonds) may be paid. Any refund of paid taxes triggered by a successful assessment appeal will be debited by the County Treasurer against all taxing agencies who received tax revenues, including the District. In addition, the tax rate may be affected by the Alpine unification action. See “INTRODUCTION – Alpine Unification Petition” above for more information.

State-Assessed Property. Under the State Constitution, the State Board of Equalization assesses property of State-regulated transportation and communications utilities, including railways, telephone and telegraph companies, and companies transmitting 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 value of property assessed by

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the Board of Equalization is allocated by a formula to local jurisdictions in the county, including school districts, and taxed by the local county tax officials in the same manner as for locally assessed property. Taxes on privately owned railway cars, however, are levied and collected directly by the Board of Equalization. Property used in the generation of electricity by a company that does not also transmit or sell that electricity is taxed locally instead of by the Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricity-generating property to non-utility companies, as often occurred under electric power deregulation in California, affects how 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 companies 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 County. The transfer of property located and taxed in the District to a State-assessed 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 County. The District is unable to predict future transfers of State-assessed property in the District and the County, the impact of such transfers on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility assets, the State’s methods of assessing utility property, or the method by which tax revenues of utility property is allocated to local taxing agencies, including the District.

Assessed Valuation by Land Use. The following table gives a distribution of taxable property located in the District by principal purpose for which the land is used, and the assessed valuation and number of parcels for each use.

GROSSMONT UNION HIGH SCHOOL DISTRICT 2014-15 Secured Assessed Valuation and Parcels by Land Use

2014-15 % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Agricultural/Rural $ 278,731,918 0.72% 1,416 1.11% Commercial 3,409,701,822 8.78 3,201 2.51 Vacant Commercial 190,821,006 0.49 518 0.41 Industrial 1,300,241,091 3.35 1,384 1.08 Vacant Industrial 66,960,620 0.17 229 0.18 Recreational 110,315,343 0.28 95 0.07 Government/Social/Institutional/Other 113,822,867 0.29 1,416 1.11 Subtotal Non-Residential $5,470,594,667 14.08% 8,259 6.47% Residential: Single Family Residence $24,670,099,030 63.50% 87,120 68.25% Condominium/Townhouse 2,878,636,928 7.41 14,510 11.37 Mobile Home 531,218,690 1.37 6,144 4.81 Mobile Home Park 332,251,673 0.86 185 0.14 2-4 Residential Units 1,267,730,578 3.26 4,352 3.41 5+ Residential Units/Apartments 3,372,604,108 8.68 1,479 1.16 Miscellaneous Residential Improvements 18,893,910 0.05 910 0.71 Vacant Residential 309,401,368 0.80 4,691 3.67 Subtotal Residential $33,380,836,285 85.92% 119,391 93.53% Total $38,851,430,952 100.005 127,650 100.00% ___________ (1) Local secured assessed valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc.

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Assessed Valuation of Single-Family Residential Properties. Single-family residential properties comprise 61.9% of the assessed value of property in the District. For the fiscal year 2014-15, the average assessed value of single-family homes is $283,174, and the median assessed value is $266,402.

GROSSMONT UNION HIGH SCHOOL DISTRICT Per Parcel 2014-15 Assessed Valuation of Single Family Homes

No. of 2014-15 Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 87,120 $24,670,099,030 $283,174 $266,402 2014-15 No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $49,999 2,511 2.882% 2.882% $ 104,906,638 0.425% 0.425% $50,000 - $99,999 9,003 10.334 13.216 643,281,270 2.608 3.033 $100,000 - $149,999 6,962 7.991 21.208 882,820,418 3.579 6.611 $150,000 - $199,999 9,609 11.030 32.237 1,698,007,173 6.883 13.494 $200,000 - $249,999 11,426 13.115 45.352 2,566,559,257 10.404 23.898 $250,000 - $299,999 11,718 13.450 58.803 3,210,875,775 13.015 36.913 $300,000 - $349,999 10,432 11.974 70.777 3,366,384,097 13.646 50.559 $350,000 - $399,999 8,660 9.940 80.717 3,211,726,335 13.019 63.577 $400,000 - $449,999 5,484 6.295 87.012 2,309,898,908 9.363 72.940 $450,000 - $499,999 3,381 3.881 90.893 1,593,895,509 6.461 79.401 $500,000 - $549,999 2,319 2.662 93.555 1,207,412,330 4.894 84.295 $550,000 - $599,999 1,682 1.931 95.486 961,657,597 3.898 88.194 $600,000 - $649,999 1,156 1.327 96.812 716,112,371 2.903 91.096 $650,000 - $699,999 867 0.995 97.808 580,162,318 2.352 93.448 $700,000 - $749,999 646 0.742 98.549 463,977,282 1.881 95.329 $750,000 - $799,999 384 0.441 98.990 295,147,867 1.196 96.525 $800,000 - $849,999 268 0.308 99.298 219,129,174 0.888 97.413 $850,000 - $899,999 153 0.176 99.473 132,755,232 0.538 97.951 $900,000 - $949,999 128 0.147 99.620 117,014,467 0.474 98.426 $950,000 - $999,999 78 0.090 99.710 75,478,830 0.306 98.732 $1,000,000 and greater 253 0.290 100.000 312,896,182 1.268 100.000 Total 87,120 100.000% $24,670,099,030 100.000%

___________ (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc.


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Largest Taxpayers in District. The twenty taxpayers in the District with the greatest combined assessed valuation of taxable property on the 2014-15 tax roll, and the assessed valuations thereof, are shown in the following table. In 2014-15, no single taxpayer accounted for more than 0.58% of the total taxable property in the District.

GROSSMONT UNION HIGH SCHOOL DISTRICT Largest 2014-15 Local Secured Taxpayers

Property Owner 2014-15

Primary Land Use % of

Assessed Valuation Total (1) 1. Star-West Parkway Mall LP Shopping Center $225,391,713 0.58% 2. Conrad Prebys, Trust Apartments 178,364,896 0.46 3. Avalon II California Value IV LP Apartments 115,380,000 0.30 4. Fairfield Grossmont Trolley LLC Apartments 102,388,029 0.26 5. Rainbow Investment Co. Shopping Center 96,568,543 0.25 6. Essex JMS Acquisition LP Apartments 87,489,155 0.23 7. ABS CA-O LLC Commercial 78,806,163 0.20 8. SP Lavida Real LLC Apartments 70,794,630 0.18 9. Wal-Mart Real Estate Business Trust Commercial 57,753,977 0.15

10. Baltimore Owner LLC Apartments 56,007,257 0.14 11. VSCRE Holdings LLC Convalescent Home 53,787,826 0.14 12. Vestar Kimco Santee LP Shopping Center 46,562,617 0.12 13. San Diego Forest Park LLC Apartments 45,596,069 0.12 14. Kaiser Foundation Health Plan Inc. Professional Building 43,958,405 (2) 0.11 15. GKN Aerospace Chem-Tronics Inc. Industrial 43,819,983 0.11 16. Vestar California XVII LLC Commercial 36,783,312 0.09 17. FW CA Rancho San Diego Village LLC Shopping Center 35,732,849 0.09 18. Costco Wholesale Corporation Commercial 35,173,745 0.09 19. 7149 Canyon View LLC Apartments 34,624,256 0.09 20. Home Depot USA Inc. Commercial 34,003,668 0.09 $1,478,987,093 3.81%

__________ (1) 2014-15 local secured assessed valuation: $38,851,430,952 (2) Net taxable value. Source: California Municipal Statistics, Inc.

Tax Rates

The State Constitution permits the levy of an ad valorem tax on taxable property not to exceed 1% of the full cash value of the property (determined in accordance with the State Constitution), and State law requires the full 1% tax to be levied. The levy of special ad valorem property taxes in excess of the 1% levy is permitted as necessary to provide for debt service payments on school bonds and other voter-approved indebtedness.

The rate of tax necessary to pay fixed debt service on the Bonds in a given year depends on the assessed value of taxable property in that year. (Unsecured property is taxed at the secured property tax rate from the prior year.) Lower assessed values could necessitate a corresponding increase in the annual tax rate to be levied to pay the principal of and interest on the Bonds. Issuance of additional authorized bonds in the future might also cause the tax rate to increase.

One factor in the ability of taxpayers to pay additional taxes for general obligation bonds is the cumulative rate of tax. There are a total of 1,325 tax rate areas in the District in 2014-15. A representative tax rate area located within the City of El Cajon, Tax Rate Area 03-001, has a fiscal year 2014-15 assessed valuation of $1,190,130,412, representing 3.0% of the District’s taxable assessed valuation. A representative tax rate area in the city of La Mesa, Tax Rate Area 05-003, has a fiscal year 2014-15 assessed valuation of $3,388,104,758, representing 8.5% of the District’s assessed valuation. A representative tax rate area located in unincorporated San Diego County, Tax Rate Area 83-171, has a fiscal year 2014-15 assessed valuation of $594,629,751, representing 1.5% of the District’s taxable assessed valuation.

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The following tables summarize the total ad valorem tax rates levied by all taxing entities in Tax Rate Areas 03-001, 05-003 and 83-171 from 2010-11 through 2014-15.

GROSSMONT UNION HIGH SCHOOL DISTRICT Summary of Ad Valorem Tax Rates $1 per $100 of Assessed Valuation

City of El Cajon – Tax Rate Area 03-001

2010-11 2011-12 2012-13 2013-14 2014-15 TRA 3-001 – 2014-15 Assessed Valuation: $1,190,130,412

General $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 Cajon Valley School District .05250 .06084 .06274 .08634 .08294 Grossmont Union High School District .05943 .06121 .06103 .06167 .06118 Grossmont-Cuyamaca Community College District .02929 .03082 .03173 .04752 .04650 Grossmont Healthcare .01315 .02005 .02005 .02005 .02005 Metropolitan Water District .00370 .00370 .00350 .00350 .00350 Total $1.15807 $1.17662 $1.17905 $1.21908 1.21417

City of La Mesa – Tax Rate Area 05-003

2010-11 2011-12 2012-13 2013-14 2014-15 TRA 5-003 – 2014-15 Assessed Valuation: $3,388,104,758

General $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 La Mesa-Spring Valley School District .02493 .02556 .02591 .02532 .02446 Grossmont Union High School District .05943 .06121 .06103 .06167 .06118 Grossmont-Cuyamaca Community College District .02929 .03082 .03173 .04752 .04650 Grossmont Healthcare .01315 .02005 .02005 .02005 .02005 City of La Mesa .02300 .02300 .02300 .02300 .02300 Metropolitan Water District .00370 .00370 .00350 .00350 .00350 Total $1.15350 $1.16434 $1.16522 $1.18106 1.17869

Unincorporated San Diego County – Tax Rate Area 83-171

TRA 83-171 – 2014-15 Assessed Valuation: $594,629,751

2010-11 2011-12 2012-13 2013-14 2014-15

General $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 La Mesa-Spring Valley School District .02493 .02556 .02591 .02532 .02446 Grossmont Union High School District .05943 .06121 .06103 .06167 .06118 Grossmont-Cuyamaca Community College District .02929 .03082 .03173 .04752 .04650 Grossmont Healthcare .01315 .02005 .02005 .02005 .02005 Metropolitan Water District .00370 .00370 .00350 .00350 .00350 Total $1.13050 $1.14134 $1.14222 $1.15806 1.15569

__________ Source: California Municipal Statistics, Inc.

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Tax Collections and Delinquencies

A school district’s share of the 1% countywide tax is based on the allocation of property tax revenues to each taxing jurisdiction in the county in fiscal year 1978-79, as adjusted according to a complex web of statutory modifications enacted since that time. Revenues derived from special ad valorem taxes for voter-approved indebtedness, including the Bonds, are reserved to the taxing jurisdiction that approved and issued the debt, and may only be used to repay that debt.

The county treasurer-tax collector prepares the property tax bills. Property taxes on the regular secured assessment roll are due in two equal installments. The first installment is due on November 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 paid by the delinquent date, a 10% penalty attaches. If taxes remain unpaid by 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 owner has the right to redeem the property by paying 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 subject to sale at a public auction by the county treasurer.

Annual bills for property taxes on the unsecured roll are generally issued in July, are due in a single payment within 30 days, and become delinquent after August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue on November 1. To collect unpaid taxes, the county treasurer may obtain a judgment lien upon and cause the sale of all property owned by the taxpayer in the county, and may seize and sell personal property, improvements and possessory interests of the taxpayer. The county treasurer may also bring a civil suit against the taxpayer for payment.

The date on which taxes on supplemental assessments are due depends on when the supplemental tax bill is mailed. The following table shows a recent history of secured property tax collections and delinquencies in the District.

GROSSMONT UNION HIGH SCHOOL DISTRICT Secured Tax Charges and Delinquencies


Fiscal Year Secured Tax Charge(1) Amount Delinquent

June 30(2)(3) % Delinquent

June 30(3) 2006-07 $73,266,691.87 $46,951.12 0.06% 2007-08 78,977,339.87 88,444.33 0.11 2008-09 80,616,165.78 73,513.57 0.09 2009-10 75,811,899.11 381,973.34 0.50 2010-11 74,399,855.51 171,790.11 0.23 2011-12 74,619,344.48 139,512.14 0.19 2012-13 75,177,713.06 143,391.15 0.19 2013-14 77,449,476.22 61,847.58 0.08

_______________________ (1) 1% General Fund apportionment. (2) San Diego County utilizes the Teeter Plan for assessment levy and distribution. This method guarantees distribution of

100% of the assessments levied to the taxing entity, with the County retaining all penalties and interest. (3) Delinquent amounts and percentage rates provided by the County. Source: California Municipal Statistics, Inc. and the County.

Teeter Plan. The Board of Supervisors of the County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), as provided for in Section 4701 and following of the California Revenue and Taxation Code. Under the Teeter Plan, the County distributes to each participating local tax-levying agency, including school districts, the amount levied on the secured and supplemental tax rolls, instead of the amount actually collected. In return, the County receives and retains delinquent payments, penalties and interest as collected that would have been due the local agency in the absence of the Teeter Plan.

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The County’s policy is that any new taxing entity that includes its levy on the County’s secured and supplemental tax rolls is qualified to be included in the Teeter Plan. The Teeter Plan is to remain in effect unless the County Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the County. The Board of Supervisors may also, after holding a public hearing on the matter, discontinue the procedures with respect to any tax levying agency or assessment levying agency in the County if the rate of secured tax delinquency in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured rolls in that agency. The County of San Diego applies the Teeter Plan to taxes levied on the secured roll for repayment of school district bonds.

Direct and Overlapping Debt. The following table was prepared by California Municipal Statistics Inc., and is included for general information purposes only. The District has not reviewed this table for completeness or accuracy and makes no representations in connection therewith. The first column in the table names each public agency which had outstanding debt as of March 1, 2015, and whose territory overlaps the District in whole or in part. The second column shows the percentage of each overlapping agency’s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in the third column, which is the apportionment of each overlapping agency’s outstanding debt to taxable property in the District.

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


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GROSSMONT UNION HIGH SCHOOL DISTRICT Direct and Overlapping Bonded Debt

as of March 1, 2015

2014-15 Assessed Valuation: $39,848,169,506 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 3/1/15 Metropolitan Water District 1.672% $ 1,846,222 Grossmont-Cuyamaca Community College District 97.410 239,543,547 Grossmont Union High School District 100.000 431,795,095 (1) Alpine Union School District 100.000 6,733,409 Cajon Valley Union School District 100.000 149,524,986 Dehasa School District 100.000 4,590,844 Jamul-Dulzura Union School District 100.000 2,186,389 La Mesa-Spring Valley School District 100.000 33,049,849 Lakeside Union School District 100.000 34,295,358 Lemon Grove School District 100.000 22,572,744 Santee School District 100.000 43,027,463 City of La Mesa 99.940 23,061,155 Grossmont Healthcare District 91.080 199,990,801 City of La Mesa 1915 Act Bonds 100.000 3,575,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $1,195,792,862 DIRECT AND OVERLAPPING GENERAL FUND DEBT: San Diego County General Fund Obligations 9.508% $ 34,289,176 San Diego County Pension Obligation Bonds 9.508 64,903,051 San Diego County Superintendent of Schools Obligations 9.508 1,400,766 Otay Municipal Water District Certificates of Participation 25.386 11,473,203 Grossmont-Cuyacama Community College District General Fund Obligations 97.410 1,237,107 Grossmont Union High School District Certificates of Participation 100.000 652,500 (2) Alpine Union School District Certificates of Participation 100.000 4,405,000 Cajon Valley Union School District Certificates of Participation 100.000 7,765,000 Santee School District Certificates of Participation 100.000 30,269,849 City of El Cajon General Fund Obligations 100.000 7,710,000 City of La Mesa Parking Authority 99.940 3,907,654 City of San Diego General Fund Obligations 0.219 1,170,259 City of Santee General Fund Obligations 99.996 729,971 Fire Protection District Certificates of Participation 98.955-100. 9,829,297 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $179,742,833 Less: Otay Municipal Water District Certificates of Participation (100% supported revenues) (11,473,203) City of El Cajon General Fund Obligations supported by sales taxes (7,710,000) TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $160,559,630 OVERLAPPING TAX INCREMENT DEBT: 0.020-100.000 % $146,868,768 GROSS COMBINED TOTAL DEBT $1,522,404,463 (3) NET COMBINED TOTAL DEBT $1,503,221,260 Ratios to 2014-15 Assessed Valuation: Direct Debt ($431,795,095) ........................................................................... 1.08% Total Direct and Overlapping Tax and Assessment Debt ............................... 3.00% Combined Direct Debt ($432,447,595) ........................................................ 1.09% Gross Combined Total Debt ............................................................................ 3.82% Net Combined Total Debt ................................................................................ 3.77% Ratios to Redevelopment Incremental Valuation ($3,752,088,343): Total Overlapping Tax Increment Debt 3.91% ___________ Source: California Municipal Statistics, Inc.

(1) Excludes the Bonds described herein. (2) Share of San Diego County Educational Authority obligations (50%). (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.

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BOND INSURANCE

Bond Insurance Policy

Concurrently with the issuance of the Bonds, Assured Guaranty Municipal Corp. (“AGM”) will issue its Municipal Bond Insurance Policy (the “Policy”) for the Bonds maturing on August 1 of the years 2017 through 2024 and 2026 through 2039, inclusive, on February 1 of the year 2025, and on June 1 of the year 2040 (collectively, the “Insured Bonds”). The Policy guarantees the scheduled payment of accreted value of the Insured Bonds when due as set forth in the form of the Policy included as an appendix to this Official Statement.

The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law.

Assured Guaranty Municipal Corp.

AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. (“AGL”), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol “AGO”. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligated to pay any debts of AGM or any claims under any insurance policy issued by AGM.

AGM’s financial strength is rated “AA” (stable outlook) by Standard and Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), “AA+” (stable outlook) by Kroll Bond Rating Agency, Inc. (“KBRA”) and “A2” (stable outlook) by Moody’s Investors Service, Inc. (“Moody’s”). Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM’s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn.

Current Financial Strength Ratings. On November 13, 2014, KBRA assigned an insurance financial strength rating of “AA+” (stable outlook) to AGM. AGM can give no assurance as to any further ratings action that KBRA may take.

On July 2, 2014, S&P issued a credit rating report in which it affirmed AGM’s financial strength rating of “AA” (stable outlook). AGM can give no assurance as to any further ratings action that S&P may take.

On July 2, 2014, Moody’s issued a rating action report stating that it had affirmed AGM’s insurance financial strength rating of “A2” (stable outlook). On February 18, 2015, Moody’s published a credit opinion under its new financial guarantor ratings methodology maintaining its existing rating and outlook on AGM. AGM can give no assurance as to any further ratings action that Moody’s may take.

For more information regarding AGM’s financial strength ratings and the risks relating thereto, see AGL’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Capitalization of AGM. At, March 31, 2015, AGM’s policyholders’ surplus and contingency reserve were approximately $3,730 million and its net unearned premium reserve was approximately $ 1,702 million. Such amounts represent the combined surplus, contingency reserve and net unearned premium reserve of AGM, AGM’s

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wholly owned subsidiary Assured Guaranty (Europe) Ltd. and 60.7% of AGM’s indirect subsidiary Municipal Assurance Corp.; each amount of surplus, contingency reserve and net unearned premium reserve for each company was determined in accordance with statutory accounting principles.

Incorporation of Certain Documents by Reference. Portions of the following documents filed by AGL with the Securities and Exchange Commission (the “SEC”) that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof:

(i) the Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (filed by AGL with the SEC on February 26, 2015); and

(ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 (filed by AGL with the SEC on May 8, 2015).

All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof “furnished” under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC’s website at http://www.sec.gov, at AGL’s website at http://www.assuredguaranty.com, or will be provided upon request to Assured Guaranty Municipal Corp.: 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) 974-0100). Except for the information referred to above, no information available on or through AGL’s website shall be deemed to be part of or incorporated in this Official Statement.

Any information regarding AGM included herein under the caption “BOND INSURANCE – Assured Guaranty Municipal Corp.” or included in a document incorporated by reference herein (collectively, the “AGM Information”) shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded.

Miscellaneous Matters. AGM or one of its affiliates may purchase a portion of the Insured Bonds or any uninsured bonds offered under this Official Statement and such purchases may constitute a significant proportion of the bonds offered. AGM or such affiliate may hold such Insured Bonds or uninsured bonds for investment or may sell or otherwise dispose of such Insured Bonds or uninsured bonds at any time or from time to time.

AGM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading “BOND INSURANCE”.

TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the District (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings, and court decisions, 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 (the “Code”) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX C hereto.

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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 similar 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 semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public.

Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The District has made certain representations and covenanted 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 covenants may result in interest on the Bonds 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 compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Bonds 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 ownership 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 liability. The nature and extent of these other tax consequences depend upon the particular tax status of the Beneficial Owner or the Beneficial 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 subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject 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, the Obama Administration’s budget proposals in recent 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 Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion.

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The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Bonds 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 enforcement thereof by the IRS. The District has covenanted, however, 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 separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar 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.

IRS Audit

On November 20, 2014, the District received an Information Document Request from the Internal Revenue Service (“IRS”) indicating that the IRS had selected the District’s General Obligation Bonds, Election of 2004, Series 2006 (the “2006 Bonds”) for an examination to determine compliance with the federal tax law requirements. This request stated that the 2006 Bonds were selected for examination as part of a project/initiative to examine financings of educational facilities, and stated that the IRS had no reason to believe that the 2006 Bonds failed to comply with the applicable tax requirements. The District responded to the IRS’s request. On May 18, 2015, the IRS closed the examination with no change to the tax-exempt status of the 2006 Bonds.

OTHER LEGAL MATTERS

Legal Opinion

The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel. A complete copy of the proposed form of opinion of Bond Counsel is contained in APPENDIX C hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement.

Limitation on Remedies

Bond Counsel’s opinion is qualified with respect to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws related to and affecting creditors’ rights. Before any district may file for bankruptcy certain steps have to be taken under California law. See APPENDIX C – “PROPOSED FORM OF OPINION OF BOND COUNSEL.”

Pursuant to a State law adopted in 1991 (“A.B. 1200”), school districts “certify” their budgets to the county office of education with jurisdiction (typically, the county in which the district resides) periodically throughout the course of each fiscal year. See “APPENDIX A INFORMATION RELATING TO THE DISTRICT – District Budget Process and County Review” below. In the event that a school district determines that its revenues are less than the amount necessary to meet its current year expenditure obligations, the County Superintendent of Schools and the State Superintendent of Public Instruction (the “State Superintendent”) are authorized to exercise increased control over the finances of the district. If remedial measures undertaken by the district, the county, and the State are insufficient to address the district’s financial problems, the district may request an emergency apportionment from the State. No California school district has filed for bankruptcy since the passage of A.B. 1200.

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As a condition of receiving an emergency apportionment from the State, the district must prepare a recovery plan, and the State Superintendent assumes the rights, duties and powers of the governing board of the district. The State Superintendent appoints an administrator (the “State Administrator”) to exercise the powers of the governing board on his or her behalf and to implement the recovery plan. When the State Superintendent determines that the district is complying with the recovery plan, and that compliance is likely to continue, the State Superintendent may permit the district board to re-assume its legal rights, duties and powers from the State Administrator, subject to the veto of a trustee (the “State Trustee”). The State Trustee’s power is unlike the State Administrator’s in that it is limited to staying or rescinding an action of the governing board, and does not extend to exercising the board’s powers.

One of the powers the State Administrator may exercise is the filing of a petition under Chapter 9 of Title 11 of the United States Code (“Chapter 9”). The District believes that State law mandates the State Superintendent of Public Instruction to appoint a State Administrator for the District before the District could file for bankruptcy under Chapter 9. The District can provide no assurance, however, that a bankruptcy court would agree with the District’s interpretation of the law. If the District were to become a debtor in a bankruptcy case, it would be a debtor under Chapter 9.

Chapter 9 specifies that it does not limit or impair the power of the applicable state to control its municipalities in the exercise of the political or governmental powers of such municipality, including expenditures for such exercise. California state law provides that the ad valorem taxes must be used to pay principal and interest on the Bonds. The District believes that this law would be respected in any bankruptcy proceeding so that the ad valorem tax revenues could not be used by the District for any purpose other than to make payments on the Bonds, but no assurance can be given that a bankruptcy court would not conclude otherwise.

If the County Treasurer commingles the tax revenues collected to make payments on the Bonds, those revenues may no longer be subject to the State law that requires ad valorem tax revenues to be used by the District to pay principal and interest on the Bonds, which may result in reductions or delays in payments on the Bonds.

There may be other possible effects of a bankruptcy of the District that could result in delays or reductions in payments on the Bonds, or result in losses to the holders of the Bonds. Regardless of any specific adverse determinations in a bankruptcy proceeding of the District, the fact of such a bankruptcy proceeding could have an adverse effect on the liquidity and market value of the Bonds.

Legality for Investment in California

Under provisions of the Financial Code of the State, including Financial Code Section 1510(d), 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. Under provisions of the Government Code of the State, the Bonds are eligible securities for deposits of public moneys in the State.

Continuing Disclosure

The District has covenanted for the benefit of the holders and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the District (the “Annual Report”) by not later than nine months following the end of the District’s fiscal year (currently ending June 30), commencing with the report for fiscal year 2014-15 (which is due no later than April 1, 2016), and to provide notices of the occurrence of certain enumerated events. The Annual Report will be filed by the District with the Municipal Securities Rulemaking Board (“MSRB”). The notices of enumerated events will be filed by the District with the MSRB. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is summarized in APPENDIX D – “FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5).

During the five-year period preceding the date of this Official Statement, the District failed to timely file certain material event notices and financial operating information required by the terms of its previous undertakings relating to previous issues of general obligation bonds, including but not limited to certain annual reports. In particular, the District’s Annual Report for the 2012-13 fiscal year required to be filed on April 1, 2014 was filed on

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June 19, 2014. In addition, the District failed to file on a timely basis notices of rating changes, or insurer-related rating changes, with respect to certain issues of bonds.

The District entered into an undertaking in connection with the issuance by the San Diego County Educational Facilities Authority No. 1 of its 2003 Lease Revenue Refunding Bonds. With respect to this undertaking, the District filed its annual report for 2013-14 in a timely manner; however, the District failed to make the required filings in a timely manner in the previous four years. In addition, the District failed in each instance to file financial operating information relating to developer fee collections and contractual agreements with employee bargaining units required to be filed by such undertaking. In August, 2013, the District made corrective filings of certain required information for fiscal years 2008-09 through 2011-12. In May, 2015, the District made corrective filings of all of the required financial operating information relating to developer fee collections and bargaining units. The District has registered with Electronic Municipal Market Access (EMMA) to receive reminders of filing dates for Annual Reports. In addition, the District has instituted procedures pursuant to which it intends to make required filings in connection with these lease revenue bonds as part of the same process by which it makes filings with respect to the District’s general obligation bonds.

Litigation

No litigation is pending or threatened concerning the validity of the Bonds, or the District’s ability to receive ad valorem taxes and to collect other revenues, or contesting the District’s ability to issue and retire the Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the title to their offices of District or County officials who will sign the Bonds and other certifications relating to the Bonds, or the powers of those offices. A certificate (or certificates) to that effect will be furnished to the Underwriters at the time of the original delivery of the Bonds.

In October 2014, Alpine School District and a taxpayer’s association sued the District and Ralf Swenson, Superintendent of the District, claiming that the District expended bond funds on projects not authorized by Proposition U. The plaintiffs sought a preliminary injunction on that basis. In January 2015, the Superior Court for the County of San Diego rejected plaintiffs’ claim that the District expended bond funds on projects not authorized by Proposition U. Nonetheless, the Court granted a preliminary injunction in plaintiffs’ favor requiring the District to set aside $42 million by January 2016 for potential expenditure on one of the projects identified in Proposition U, specifically a school in the Alpine, California area. The District has appealed the grant of preliminary injunction.

In March 2015, based on the District’s legal challenges to the sufficiency of the claims of Alpine School District and a taxpayer’s association, the Superior Court dismissed plaintiffs’ complaint allowing them leave to amend to cure those deficiencies. In April 2015, plaintiffs filed an amended complaint. The District intends to challenge the legal sufficiency of that amended complaint. A hearing on that challenge is currently scheduled for June 5, 2015.

A trial date has been set for December 5, 2015.

Separately, in February 2015, the District filed validation actions to validate construction contracts relating to two projects the District expects to complete using Bond proceeds. The Alpine School District responded to the validation actions, claiming the projects in question constitute waste. The Court has yet to set a time to hear Alpine School District’s challenges to the validation actions.

In order to comply with the injunction, the District may set aside up to $42 million of the bond funds from this issue.

In addition, the District is operating under a court order concerning its compliance with the Americans with Disabilities Act resulting from a 1999 settlement agreement in which the District agreed to implement an “ADA Compliance Plan.” The court is satisfied with the District’s progress.

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MISCELLANEOUS

Ratings

The Insured Bonds are expected to be assigned the rating of “AA” by Standard and Poor’s Ratings Services, a Standard and Poor’s Financial Services LLC business (“Standard & Poor’s”) with the understanding that, concurrently with the delivery of the Insured Bonds, a municipal bond insurance policy will be issued by AGM. The Bonds have received underlying ratings of “Aa3” by Moody’s Investors Service (“Moody’s”) and “A+” by Standard & Poor’s. Each rating agency generally bases its rating on its own investigations, studies and assumptions. The District has provided certain additional information and materials to the rating agencies (some of which does not appear in this Official Statement). All such ratings reflect only the views of the respective rating agency, and any explanation of the significance of any rating may be obtained from the rating agency furnishing such rating, from Moody’s at www.moodys.com and from Standard & Poor’s at www.standardandpoors.com. The information set forth on such websites is not incorporated herein by reference. There is no assurance that any rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agencies, if, in the judgment of the rating agencies, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Bonds. The District undertakes no responsibility to oppose any such downward revision, suspension or withdrawal.

Professionals Involved in the Offering

Orrick, Herrington & Sutcliffe LLP is acting as Bond Counsel to the District and as Disclosure Counsel, and will receive compensation from the District contingent upon the sale and delivery of the Bonds. KNN Public Finance, a Division of Zions Public Finance, Inc., is acting as Financial Advisor with respect to the Bonds, and will receive compensation from the District contingent upon the sale and delivery of the Bonds. Certain matters will be passed on for the Underwriters by their counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation, and will receive compensation contingent upon sale and delivery of the Bonds.

Underwriting

The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated, as representative of itself, and Citigroup Global Markets Inc. (collectively, the “Underwriters”) pursuant to the terms of a bond purchase contract between the District, the County and the Underwriters, dated May 14, 2015. The Underwriters have agreed to purchase the Bonds from the District at a purchase price of $68,746,678.20. The Underwriters’ discount is $312,143.05. Under the terms of the contract, the Underwriters will be obligated to purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions to be satisfied by the District.

The Underwriters may offer and sell the Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page. The offering prices may be changed from time to time by the Underwriters.

Citigroup Global Markets Inc., an underwriter of the Bonds, has entered into a retail distribution agreement with UBS Financial Services Inc. (“UBSFS”). Under the distribution agreement, Citigroup Global Markets Inc. may distribute municipal securities to retail investors through the financial advisor network of UBSFS. As part of this arrangement, Citigroup Global Markets Inc. may compensate UBSFS for their selling efforts with respect to the Bonds.

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Additional Information

Quotations from and summaries and explanations of the Bonds, the District Resolution and the Paying Agent Agreement providing for issuance and payment of the Bonds, and the constitutional provisions, statutes and other documents described herein, do not purport to be complete, and reference is hereby made to said documents, constitutional provisions and statutes for the complete provisions thereof.

_________________________

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

GROSSMONT UNION HIGH SCHOOL DISTRICT By: ________/s/ Scott H. Patterson Authorized District Representative

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APPENDIX A

INFORMATION RELATING TO THE DISTRICT

Any information in the following Appendix that indicates it has been obtained from a third-party has been obtained from sources which are believed to be reliable, but the District makes no guarantee as to the accuracy or completeness thereof, and is not to be construed as a representation by the District, the Underwriters or the Financial Advisor.

Prospective purchasers of the Bonds should be aware that the tables below, which demonstrate historical income, employment, sales and other figures, may not be accurate predictors of future trends, nor do they provide an entirely current report of economic circumstances as of the date of printing of this Official Statement. The historical data displayed in this section is derived from a number of third-party sources from data accumulated over time, and thus cannot be presented on a real-time basis.

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PART I

THE ECONOMY OF THE DISTRICT

The District encompasses all of the cities of El Cajon, Santee and Lemon Grove, most of the city of La Mesa, a small portion of the city of San Diego, as well as adjacent unincorporated areas of the County. The following economic data for selected cities and the County are presented for information purposes only. The Bonds are not a debt or obligation of the cities or the County.

General

The District is located in eastern San Diego County, encompassing a large portion of the urbanized area of the east county as well as foothill communities of the Cuyamaca Mountains. The District is traversed by U.S. Interstate Highway 8, State Route 94, State Route 125, and State Route 67.

The District is located about 12 miles east of downtown San Diego, the County seat, and the San Diego International Airport.

The local economy is closely tied to federal spending and actions taken by the federal government to reduce expenditures or failure by the United States Congress to take action prior to scheduled reductions in expenditures could adversely affect the County’s economy.

Population

The table below shows the recent population growth for the county and for the cities of El Cajon, La Mesa, Lemon Grove, and Santee. The population of the four cities in 2015 accounted for approximately 7.51% of the population of the County.

POPULATION GROWTH San Diego County and Cities Within Grossmont Union High School District

2000-2015

Year City of

El Cajon City of

La Mesa City of Santee

City of Lemon Grove

County of San Diego

2000 94,869 54,749 52,946 24,918 2,813,833 2001 96,054 55,224 53,138 25,136 2,849,238 2002 96,432 55,414 52,770 25,169 2,890,256 2003 96,939 55,578 52,474 25,235 2,927,216 2004 97,354 55,547 52,142 25,228 2,953,703 2005 97,364 55,354 52,110 25,078 2,966,783 2006 96,699 55,098 51,983 24,878 2,976,492 2007 97,027 55,452 51,936 24,873 2,998,477 2008 97,684 55,753 52,367 24,949 3,032,689 2009 98,363 56,148 52,963 25,037 3,064,436 2010 99,478 57,065 53,413 25,320 3,095,313 2011 99,968 57,960 54,093 25,441 3,115,810 2012 100,024 57,977 54,345 25,462 3,128,387 2013 100,822 58,454 55,226 25,643 3,164,818 2014 101,003 58,615 55,658 25,856 3,192,457 2015 101,444 58,813 55,805 26,199 3,227,496

Note: For 2001-2009 and 2011-2015, population statistics are as of January 1. For 2000 and 2010, population statistics are as

of April 1.

Sources: State Department of Finance for 2001-2009, 2011-2015; U.S. Department of Commerce, Bureau of the Census, for 2000 and 2010.

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Employment

The following table summarizes wage and salary employment in the County from 2010 to 2014. The total wage and salary employment in the County increased by 12.3% between 2010 and 2014. Employment was highest in 2014 for this five-year period.

ANNUAL AVERAGE WAGE AND SALARY EMPLOYMENT County of San Diego

2010-2014

Employment (1)

Industry 2010 2011 2012 2013 2014

Total Farm 10,500 9,800 9,800 9,800 9,000 Natural Resources and Mining 400 400 400 400 400 Construction 55,400 55,200 56,300 61,200 66,500 Manufacturing 92,900 93,100 93,400 94,600 98,500 Trade, Transportation & Utilities 197,300 200,800 206,800 212,300 228,200 Information 25,100 24,200 24,600 24,100 24,700 Financial Activities 67,100 67,600 69,500 71,400 71,400 Professional and Business Services 207,700 209,800 215,500 222,600 238,400 Educational and Health Services 145,500 150,200 154,500 179,300 188,400 Leisure and Hospitality 154,500 155,600 161,000 167,500 173,100 Other Services 46,100 47,600 49,300 49,200 51,000 Government 230,400 229,000 227,600 229,500 235,500 Total 1,233,000 1,243,200 1,268,600 1,321,800 1,385,100 _______________ (1) Employment is reported by place of work; it does not include persons involved in labor-management disputes. Figures are rounded to the nearest hundred. Columns may not add to totals due to rounding. Source: California Employment Development Department, based on March 2012 benchmark.

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The following table summarizes civilian labor force, employment, and unemployment in the County from 2004 to 2014. The County’s civilian labor force increased by approximately 4.1% between 2004 and 2014. In the same period, the employed labor force in the County increased by approximately 2.2% and the unemployed labor force in the County increased by approximately 41.1%. The unemployment rate in the County in 2014 was 6.4%.

CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT County of San Diego

Annual Averages, 2004-2014

Year Civilian

Labor Force Employed

Labor Force (1) Unemployed

Labor Force (2) Unemployment

Rate (3) 2004 1,484,200 1,413,900 70,300 4.7% 2005 1,492,600 1,427,900 64,700 4.3 2006 1,499,900 1,440,400 59,400 4.0 2007 1,517,600 1,448,500 69,100 4.6 2008 1,548,600 1,455,900 92,700 6.0 2009 1,554,900 1,405,600 149,300 9.6 2010 1,574,100 1,408,200 165,900 10.5 2011 1,582,200 1,423,500 158,700 10.0 2012 1,599,200 1,456,300 142,800 8.9 2013 1,590,000 1,470,000 120,000 7.5 2014 1,544,600 1,445,400 99,200 6.4

_____________ (1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. Source: California Employment Development Department.

Major Employers

The largest employers in the City of El Cajon and in the County are as follows:

TEN LARGEST EMPLOYERS City of El Cajon

Firm Service Fiscal Year 2014

Employment Cajon Valley Union School District Education 1,412(1) GKN Aerospace Chem-Tronics, Inc. Manufacturer 859 Grossmont/Cuyamaca Community College District Education 712(1) City of El Cajon Local Government 450 Grossmont Union High School District Education 431(1)(2) Taylor-Listug Inc. Manufacturing 400 Country Hills Health Care Inc. Health Care 357 University Mechanical and Engineering Construction 352 Home Depot Retailer 339 Wal-Mart Retailer 260 _________________ (1) Includes full-time classified and certificated employees within the City of El Cajon. Also includes district office staff. (2) Includes four high schools in El Cajon only. Source: City of El Cajon Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2014.

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LARGEST EMPLOYERS County of San Diego

Firm Service San Diego CountyEmployees 2014(1)

State of California Administration of state functions, services, agencies 40,100 University of California, San Diego Higher education, research, health care 28,341 Sharp HealthCare

Health care, hospitals, medical groups, health services, health plans 16,477

Scripps Health Private, nonprofit, integrated health system based in San Diego 13,717 Qualcomm Inc. 3G and next-generation mobile technologies 13,700 City of San Diego Municipal government, public agency 10,584 UC San Diego Health System Academic health system 7,726 Kaiser Permanente

Nonprofit health maintenance hospital, outpatient medical, urgent care, medical offices 7,549

General Atomics (and affiliated companies)

Defense, energy systems 6,714

San Diego State University Higher education 6,042 Sempra Energy Energy services holding company 4,898 SeaWorld San Diego Marine-life park 4,845 San Diego Community College District

Higher education institution that includes City, Mesa and Miramar colleges and continuing education 4,539

Palomar Health

Inpatient hospital services, outpatient services, home care, health education 4,341

Solar Turbines Inc.

Manufacturer of gas turbine engines, gas compressors, mechanical-drive packages and generator sets 4,255

Rady Children’s Hospital-San Diego Health care for children, regional pediatric trauma center 4,045 YMCA of San Diego County Youth development, healthy living, social responsibility 3,815 Northrop Grumman Corp. Unmanned systems, Cyber solutions, C4ISR, Logistics 3,807 University of San Diego Private university 3,359 Barona Resort & Casino Gaming, hospitality, golf and dining 3,150 General Dynamics NASSCO

Design, construction, repair of oceangoing vessels for the U.S. Navy and commercial customers 3,100

Grossmont-Cuyamaca Community College District

Education, training 2,375

UTC Aerospace Systems – Aerostructures

Design, manufacture, support of nacelle systems for commercial and military airplanes 2,300

Sycuan Casino Golf resort, lodging, casino, theater entertainment 2,238 Tri-City Medical Center Full-service, acute-care hospital 2,096 Prime Healthcare/Alvarado & Paradise Valley Hospitals

Acute care hospitals serving central, east county and South Bay San Diego

2,044

Pala Casino Spa & Resort Casino, hotel, spa, restaurant, entertainment 1,989 United Parcel Service of America Package delivery, logistics services 1,913 Jack in the Box Inc.

Operates and franchises Jack in the Box and Qdoba Mexican Grill restaurants 1,874

Harrah’s Resort Southern California

Resort hotel with eight restaurants, events center, conference facilities, casino, and spa 1,729

ViaSat Inc.

Satellite and wireless systems and services, digital communications, cybersecurity 1,709

The Scripps Research Institute Biomedical research, graduate education 1,582 Rubio’s Restaurants Inc. Fish tacos and Mexican-inspired coastal food 1,329 City of Chula Vista Police, fire, recreation, library, streets, sewer 1,295 Hotel del Coronado Hotel, hospitality 1,273 California State University San Marcos

Four-year public university serving north San Diego County 1,263

Petco Animal Supplies Inc.

Pet specialty retailer with more than 1,300 locations across the U.S., Mexico and Puerto Rico 1,202

Omni La Costa Resort & Spa Hospitality; resort and spa, dining, golf course 1,200 _____________________ (1) As of August 1, 2014. Originally published September 29, 2014; revised October 10, 2014. Source: San Diego Business Journal 2015 Book of Lists

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Construction Activity

The level of construction activity in the cities of El Cajon and La Mesa and in the County as measured by total building valuations and number of residential units is shown in the following tables for the period from 2010 to 2014.

BUILDING PERMIT ACTIVITY City of El Cajon

2010-2014

2010 2011 2012 2013 2014 Valuation ($000):

Residential $13,833 $ 2,231 $ 3,169 $ 8,902 $ 7,261 Non-residential 14,526 15,090 8,423 14,567 14,808

Total $28,360 $17,321 $11,592 $23,469 $22,069 Dwelling Units:

Single family 42 11 15 18 15 Multiple family – – 4 7 6

Total 42 11 19 25 21 _____________ Source: Construction Industry Research Board.

BUILDING PERMIT ACTIVITY City of La Mesa

2010-2014

2010 2011 2012 2013 2014 Valuation ($000):

Residential $2,615 $4,901 $4,610 $10,473 $41,973 Non-residential 3,609 3,716 4,099 4,394 5,826

Total $6,224 $8,617 $8,709 $14,867 $47,799 Dwelling Units:

Single Family 1 22 20 34 41 Multi-Family – – – – 267

Total 1 22 20 34 308 _____________ Source: Construction Industry Research Board.

BUILDING PERMIT ACTIVITY County of San Diego

2010-2014

2010 2011 2012 2013 2014 Valuation ($000):

Residential $975,275 $717,133 $773,429 $2,079,565 $1,815,853 Non-residential 658,867 1,072,545 1,235,685 1,405,194 1,920,627

Total $1,634,142 $1,789,678 $2,009,114 $3,484,759 $3,736,480 Dwelling Units:

Single Family 2,270 2,258 2,100 2,575 2,254 Multi-Family 1,224 3,005 4,319 5,807 4,329

Total 3,494 5,263 6,419 8,382 6,583 _____________ Source: Construction Industry Research Board.

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Foreclosure Activity

The following table provides information on the number of foreclosures on residential property located in selected cities located entirely within the District (El Cajon, Lemon Grove and Santee) and almost entirely within the District (La Mesa), and in the County.

GROSSMONT UNION HIGH SCHOOL DISTRICT Annual Number of Residential Foreclosures for Select Cities and the County

Calendar Year City of

El Cajon City of

La Mesa City of

Lemon Grove City of Santee

County of San Diego

2005 21 1 0 3 211 2006 94 31 14 43 1,622 2007 368 120 81 161 7,633 2008 996 264 222 292 17,992 2009 684 267 142 226 13,902 2010 707 223 134 251 12,013 2011 594 210 101 238 10,203 2012 350 133 59 130 5,989 2013 158 61 25 61 2,408 2014 91 27 19 46 1,673 2015(1) 28 8 2 8 357

__________ (1) Through March 2015. Source: MDA DataQuick Information Systems. Income

Total personal income in the County increased by 71.2% between 2000 and 2013, representing an average annual compound growth rate of 4.2%. Per capita personal income in the County grew by 50.7% during this time, representing an average annual compound growth of 3.2%. The following tables summarize personal income for the County for the period 2000 to 2013 and per capita personal income for the period 2000 to 2013.

PERSONAL INCOME 2000-2013(1)

(in thousands)

Year County of San Diego

Annual Percent Change

2000 $96,358,158 – 2001 100,844,875 4.7% 2002 105,214,619 4.3 2003 110,331,713 4.9 2004 118,362,243 7.3 2005 123,631,177 4.5 2006 130,655,397 5.7 2007 136,331,810 4.3 2008 141,796,326 4.0 2009 137,336,773 (3.1) 2010 141,796,326 2.8 2011 151,466,837 7.2 2012 160,914,306 6.2 2013 165,008,428 2.5

(1) Most recent data available. Source: U.S. Department of Commerce, Bureau of Economic Analysis.

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PER CAPITA PERSONAL INCOME 2000-2013(1)

Year County of San Diego California United States

2000 $34,081 $33,366 $30,587 2001 35,142 34,066 31,524 2002 36,276 34,229 31,800 2003 37,854 35,303 32,677 2004 40,397 37,156 34,300 2005 42,075 38,964 35,888 2006 44,331 41,623 38,127 2007 45,814 43,152 39,804 2008 46,920 43,608 40,873 2009 44,864 41,587 39,379 2010 45,501 42,282 40,144 2011 48,260 44,749 42,332 2012 50,664 47,505 44,200 2013 51,384 48,434 44,765

. (1) Most recent data available. Source: U.S. Department of Commerce, Bureau of Economic Analysis

Retail Sales

Taxable sales in the cities of El Cajon and La Mesa and in the County from 2009 through 2013 are shown below. Increases in taxable sales between 2009 and 2013 were 27.8% in El Cajon, 15.1% in La Mesa, and 26.6% in the County during the same period.

TAXABLE SALES, 2009-2013

City of El Cajon (in thousands)

Taxable Sales ($000)

2009 2010 2011 2012 2013 Apparel $ 82,861 $ 86,746 $ 91,641 $ 100,376 $ 103,359 General Merchandise 149,321 149,660 148,055 145,498 147,203 Food Stores 67,418 67,575 65,884 67,884 69,759 Eating and Drinking 125,390 124,360 126,198 133,283 136,138 Home Furnishings & Appliances 78,188 76,582 72,979 72,523 71,939 Building Materials and Farm Implements 121,005 128,938 133,710 142,949 146,946 Auto Dealers & Supplies 317,905 337,206 378,710 454,361 513,428 Service Stations 152,703 183,070 230,470 230,666 211,685 Other Retail Stores 118,132 114,356 112,609 112,061 114,069 Total Retail Stores $ 1,212,924 $ 1,268,494 $ 1,360,256 $ 1,459,601 $ 1,514,525 All Other Outlets 342,037 396,226 411,703 437,264 472,520 Total All Outlets $ 1,554,961 $ 1,664,720 $ 1,771,959 $ 1,896,865 $ 1,987,045 Source: California Board of Equalization.

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TAXABLE SALES, 2009-2013

City of La Mesa (in thousands)


2009 2010 2011 2012 2013 Apparel $ 44,385 $ 45,014 $ 43,810 $ 46,478 $ 49,590 General Merchandise 211,088 209,576 207,054 211,563 213,909 Food Stores 51,771 51,671 51,856 52,646 50,322 Eating and Drinking 119,609 119,544 122,535 132,702 133,465 Home Furnishings & Appliances 39,738 37,116 37,133 36,479 36,952 Building Materials and

Farm Implements 11,689 23,534 22,844 24,462 27,010 Auto Dealers & Supplies 159,166 184,481 198,752 224,039 245,784 Service Stations 67,419 78,799 89,141 90,120 85,094 Other Retail Stores 98,952 98,306 97,283 95,351 95,532 Total Retail Stores $ 803,816 $ 848,040 $ 870,408 $ 914,239 $ 937,659 All Other Outlets 73,539 62,495 68,177 68,141 72,278 Total All Outlets $ 877,355 $ 910,535 $ 938,584 $ 982,380 $ 1,009,937 Source: California Board of Equalization.

TAXABLE SALES, 2009-2013 County of San Diego

(in thousands)


2009 2010 2011 2012 2013Apparel $ 2,560,683 $ 2,769,897 $ 2,988,756 $ 3,208,810 $ 3,425,325 General Merchandise 4,254,037 4,381,526 4,528,053 4,695,436 4,784,812 Drug Stores 732,221 789,760 869,965 876,663 915,651 Food Stores 1,667,243 1,657,119 1,707,963 2,087,821 2,179,811 Packaged Liquor Stores 267,569 286,850 302,441 324,249 344,928 Eating and Drinking Places 4,717,292 4,873,578 5,214,419 5,665,929 5,954,220 Home Furnishings & Appliances 2,024,448 2,101,996 2,210,069 962,420 1,015,878 Building Materials and

Farm Implements 1,841,740 1,945,310 2,072,358 2,204,608 2,376,043 Auto Dealers & Supplies 4,196,256 4,486,375 5,059,516 5,851,723 6,355,973 Service Stations 3,153,090 3,663,149 4,437,173 4,595,421 4,515,941 Other Retail Stores 2,543,941 2,519,928 2,594,579 1,473,767 1,539,376 Total Retail Stores $27,958,518 $29,475,489 $31,985,292 $34,153,236 $35,948,594 All Other Outlets 11,770,139 12,148,147 13,105,090 13,793,799 14,348,737 Total All Outlets $39,728,657 $41,623,636 $45,090,382 $47,947,035 $50,297,331 Source: California Board of Equalization.

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PART II

FINANCIAL AND OPERATING INFORMATION

The information in this Part II of Appendix A concerning the operations of the District, the District’s finances, and State funding of education, is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the 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 approved by the voters of the District pursuant to all applicable laws and State Constitutional requirements, and required to be levied by the County on property within the District in an amount sufficient for the timely payment of principal of and interest on the Bonds. See “SECURITY AND SOURCE OF PAYMENT FOR THE BONDS” in the front section of this Official Statement.

General

The District, located in eastern San Diego County, was established in 1920 and encompasses an area of approximately 465 square miles, including all of the cities of El Cajon, Santee and Lemon Grove, most of the City of La Mesa, a small portion of the City of San Diego and the unincorporated communities of Alpine, Dulzura, Jamul, Lakeside and Spring Valley. The District’s estimated annual K-12 second period average daily attendance for fiscal year 2014-15 is 16,493, and the District’s 2014-15 projected general fund expenditures are approximately $187.5 million.

The District is a high school district, providing education to students in grades 9-12 from eight feeder elementary school districts. The District currently operates nine comprehensive high schools, two charter high schools, one continuation high school, two alternative education sites, four special education facilities, a middle college high school program, a Regional Occupational Program (“ROP”) and an adult education program.

Taxable property in the District has a fiscal year 2014-15 assessed value of approximately $39.8 billion. As of the District’s 2014-15 Second Interim Report, adopted by the governing board of the District on March 10, 2015, the District employed 845.8 full-time equivalent (“FTE”) certificated employees (teaching staff), 654.0 FTE classified employees and 93.8 FTE management, supervisory and confidential personnel. The District operates under the jurisdiction of the San Diego County Superintendent of Schools.

The District is governed by a five-member Governing Board (the “Board”), each of whom is elected to a four-year term. Elections for positions to the Board are held every two years alternating between two and three available positions. Current members of the Board, together with their offices and the dates their terms expire, are listed below:

Board Member Office Term Expires Robert Shield President November 2016 Dr. Gary Woods Vice President November 2018 Jim Kelly Clerk November 2018 Priscilla Schreiber Member November 2018 Jim Stieringer Member November 2016

The administrative staff of the District includes Ralf Swenson, Superintendent; Scott Patterson, Deputy

Superintendent, Business Services; Steve Sonnich, Associate Administrator, Human Resources; Ken Leighton, Executive Director, Fiscal Services; and Katy Wright, Executive Director, Facilities Management.

On October 23, 2013, registered voters of Alpine filed a petition with the San Diego County Superintendent of Schools requesting the reorganization of Alpine into a unified school district serving grades K-12 within the boundary lines of the existing Alpine Union School District (the “Alpine Unification Petition”). In October 2014, Alpine and a taxpayer’s association sued the District and Ralf Swenson seeking an injunction on the expenditure of bond funds. See “INTRODUCTION – Alpine Unification Petition” above and “OTHER LEGAL MATTERS—Litigation” herein for more information.

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State Funding of Education; State Budget Process

Constitutional Provisions Governing School Finance. On November 8, 1988, voters approved Proposition 98, a combined initiative constitutional amendment and statute called the “Classroom Instructional Improvement and Accountability Act” (the “Accountability Act”). The Accountability Act changed State funding of public education below the university level, and the operation of the State’s Appropriations Limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (collectively, “K-14 districts”) at a level 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, adjusted for growth in enrollment and inflation.

The Accountability Act also changes how tax revenues in excess of the State Appropriations Limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 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 by 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 decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which could be transferred to schools is 4% of the minimum State spending for education mandated by the Accountability Act, as described above.

On June 5, 1990, California voters approved Proposition 111 (Senate Constitutional Amendment 1), which further modified the Constitution to alter the spending limit and education funding provisions of Proposition 98. Most significantly, Proposition 111 (1) liberalized the annual adjustments to the spending limit by measuring the “change in the cost of living” by the change in State per capita personal income rather than the Consumer Price Index, and specified that a portion of the State’s spending limit would be adjusted to reflect changes in school attendance; (2) provided that 50% of the “excess” tax revenues, determined based on a two-year cycle, would be transferred to K-14 school districts with the balance returned to taxpayers (rather than the previous 100% but only up to a cap of 4% of the districts’ minimum 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 following year and would not increase the State’s appropriations limit; (3) excluded from the calculation of appropriations that are subject to the limit appropriations for certain “qualified capital outlay projects” and certain increases in gasoline taxes, sales and use taxes, and receipts from vehicle weight fees; (4) provided that the Appropriations Limit for each unit of government, including the State, would be recalculated beginning in the 1990-91 fiscal year, based on the actual limit for fiscal year 1986-87, adjusted forward to 1990-91 as if Senate Constitutional Amendment 1 had been in effect; and (5) adjusted the Proposition 98 formula that guarantees K-14 school districts a certain amount of general fund revenues, as described below.

Under prior law, K-14 school districts were guaranteed the greater of (a) 40.9% of general fund revenues (the “first test”) or (b) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the “second test”). Under Proposition 111, 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 growth in per capita general fund revenues from the prior year was less than the annual growth in State per capita personal income. Under the third test, school districts would receive the amount appropriated in the prior year adjusted for change in enrollment and per capita general fund revenues, plus an additional small adjustment 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 paid in future years when general fund revenue growth exceeds personal income growth.

General. As is true for most school districts in California, the District’s operating income consists primarily of three components: 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), State portion funded from the Education Protection Account, and a local portion derived from the District’s share of the 1% local ad valorem tax authorized by the State Constitution. In addition, school districts may be eligible for other special categorical funding from State and federal government programs. The District projects to receive approximately 47.5% of its general fund revenues from State funds (not including the local portion derived

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from the District’s share of the local ad valorem tax), projected at approximately $85.5 million in fiscal year 2014-15. As a result, decreases or deferrals in State revenues, or in State legislative appropriations made to fund education, may significantly affect the District’s revenues and operations.

In prior years there have been frequent reductions in State personal income taxes, sales and use taxes, and corporate taxes, making it increasingly difficult for the State to meet its Proposition 98 funding mandate, which normally commands about 45% of all State general fund revenues, while providing 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 adjustments.

The State budget for fiscal 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 limit funding system and most categorical programs. See “– Allocation of State Funding to School Districts; Local Control Funding Formula” herein for more information.

State Budget Process. According to the State Constitution, the Governor must propose a budget to the State Legislature no later than January 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 passage. However, on November 2, 2010, the State’s voters approved Proposition 25, which amended the State Constitution to lower the vote requirement necessary for each house of the State Legislature to pass a budget bill and send it to the Governor. Specifically, the vote requirement was lowered from two–thirds to a simple majority (50% plus one) of each house of the State Legislature. The lower vote requirement also would apply to trailer bills that appropriate funds and are identified by the State Legislature “as related to the budget in the budget bill.” The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. Under Proposition 25, a two–thirds vote of the State Legislature is still required to override any veto by the Governor. School district budgets must generally be adopted by July 1, and revised by the school board within 45 days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget.

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 constitutional mandate for appropriations to school districts without an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed by the State Controller until that time unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the Constitution (such as appropriations for salaries of elected State officers), or (iii) mandated by federal law (such as payments to State workers at no more than minimum wage). Should the Legislature fail to pass the budget or emergency appropriation before the start of any fiscal year, the District might experience delays in receiving certain expected revenues. The District is authorized to borrow temporary funds to cover its annual cash flow 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 flow borrowings, or to borrow earlier in the fiscal year. The District does not expect the White v. Davis decision to have any long-term effect on its operating budgets.

Aggregate State Education Funding. The Proposition 98 guaranteed amount for education is based on prior-year funding, as adjusted through various formulas and tests that take into account State proceeds of taxes, local property tax proceeds, school enrollment, per-capita personal income, 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 fiscal year’s budget, from the Governor’s initial budget proposal to actual expenditures to post-year-end revisions, as better information regarding the various factors becomes available. Over the long run, the guaranteed amount will increase as enrollment and per capita personal income grow.

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 level permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount is reduced in years when general

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fund revenue growth lags personal income growth, and may be suspended for one year at a time by enactment of an urgency statute. In either case, in subsequent years when State general fund revenues grow faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to the guaranteed amount, the obligation to do so being referred to as “maintenance factor.”

In recent years, the State’s response to fiscal difficulties has had a significant impact 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 Governor 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 has so far resulted in over $4 billion in accrued State settle-up obligations. However, legislation enacted to pay down the obligations through additional education funding over time, including the Quality Education Investment Act of 2006, have also become part of annual budget negotiations, resulting in repeated adjustments 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: by treating any excess appropriations as advances against subsequent years’ Proposition 98 minimum funding levels rather than current year increases; by temporarily deferring apportionments of Proposition 98 funds from one fiscal year to the next; by permanently deferring apportionments of Proposition 98 funds from one fiscal year to the next; by 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 by proposing to amend the State Constitution’s definition of the guaranteed amount and settle-up requirement under certain circumstances.

The District cannot predict how State income or State education funding will vary over the term to maturity of the Bonds, and the District takes no responsibility for informing owners of the Bonds as to actions the State Legislature or Governor may take affecting the current year’s budget after its adoption. Information about the State budget and State spending for education is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various State of California official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the District, and the District can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.

2014-15 State Budget. The Governor signed the fiscal year 2014-15 State budget (the “2014-15 State Budget”) on June 20, 2014. The 2014-15 State Budget represents a multiyear plan that is balanced and that continues to focus on paying down budgetary debt from prior years, setting aside reserves and implementing a funding plan for the State Teachers’ Retirement System (“CalSTRS”). The 2014-15 State Budget provides for $109.4 billion in revenues and transfers for fiscal year 2014-15 (which amount includes a $3.9 billion prior year general fund balance from fiscal year 2013-14), $108.0 billion in expenditures and a balance of $450 million in the general fund traditional reserve and $1.6 billion in a rainy day fund (the “Rainy Day Fund”). Revenues and expenditures for fiscal year 2013-14, as revised under the 2014-15 State Budget, were $102.2 billion (which amount includes a $2.4 billion prior year general fund balance from fiscal year 2012-13) and $100.7 billion, respectively.

The 2014-15 State Budget projects that budgetary debt, which was approximately $35 billion at the end of fiscal year 2010-11 and $26 billion at the end of fiscal year 2013-14, will be eliminated by the end of fiscal year 2017-18. For fiscal year 2014-15, specifically, the 2014-15 State Budget dedicates to paying down more than $10 billion of budgetary debt, including approximately $5 billion to pay down the deferral of payments to schools.

As it relates to K-12 education, the 2014-15 State Budget provides total funding of $76.6 billion ($45.3 billion general fund and $31.3 billion other funds). The 2014-15 State Budget provides Proposition 98 funding for all K-14 education of $60.9 billion for fiscal year 2014-15. Such amount, when combined with an aggregate increase of $4.4 billion from fiscal years 2012-13 and 2013-14 provided for in the 2014-15 State Budget, results in an increase of $10 billion in funding for K-14 education. The 2014-15 State Budget notes that Proposition 98

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funding for K-12 education has grown by more than $12 billion from fiscal year 2011-12 to fiscal year 2014-15, representing an increase of more than $1,900 per student.

Certain budget adjustments for K-12 programs include the following:

• Local Control Funding Formula. An increase of $4.75 billion in Proposition 98 general funds to continue the State’s transition to the Local Control Funding Formula. This formula commits most new funding to districts serving English language learners, students from low-income families, and youth in foster care. This increase will close the remaining funding implementation gap by more than 29%. Additionally, the 2014-15 State Budget addresses an administrative problem related to the collection of income eligibility forms that are used to determine student eligibility for free or reduced-price meals.

• K-12 Deferrals. The 2014-15 State Budget repays nearly $4.7 billion in Proposition 98 general funds for K-12 expenses that had been deferred from one year to the next during the economic downturn, leaving an outstanding balance of less than $900 million in K-12 deferrals. Further, the 2014-15 State Budget includes a trigger mechanism that will appropriate any additional funding resources attributable to the 2013-14 and 2014-15 fiscal years subsequent to the enactment of the 2014-15 State Budget for the purpose of retiring this remaining deferral balance.

• Independent Study. The 2014-15 State Budget streamlines the existing independent study program, reducing administrative burdens and freeing up time for teachers to spend on student instruction and support, while making it easier for schools to offer and expand instructional opportunities available to students through non-classroom based instruction.

• K-12 Mandates. An increase of $400.5 million in one-time Proposition 98 general funds to reimburse K-12 local educational agencies for the costs of State-mandated programs. These funds will make a significant down payment on outstanding mandate debt, while providing school districts, county offices of education and charter schools with discretionary resources to support critical investments such as Common Core implementation.

• K-12 High-Speed Internet Access. An increase of $26.7 million in one-time Proposition 98 general funds for the K-12 High Speed Network to provide technical assistance and grants to local educational agencies to address the technology requirements necessary for successful Common Core implementation. Based on an assessment by the K-12 High Speed Network, these funds will be targeted to those local educational agencies most in need of help with securing required internet connectivity and infrastructure to implement the new computer adaptive tests under Common Core.

• Career Technical Education Pathways Program. An increase of $250 million in one-time Proposition 98 general funds to support a second cohort of competitive grants for participating K-14 local educational agencies. Established in the State Budget Act for fiscal year 2012-13, the Career Pathways Trust Program provides grant awards to improve career technical programs and linkages between employers, schools, and community colleges.

Rainy Day Fund. The 2014-15 State Budget proposed certain constitutional amendments to the Rainy Day Fund on the November 2014 ballot, which proposition was approved by the voters. Such constitutional amendments (i) require deposits into the Rainy Day Fund whenever capital gains revenues rise to more than 8% of general fund tax revenues (and the 2014-15 State Budget notes that capital gains revenues are expected to account for approximately 9.8% of general fund revenues in fiscal year 2014-15); (ii) set the maximum size of the Rainy Day Fund at 10% of general fund revenues; (iii) for the next 15 years, require half of each year’s deposit to be used for supplemental payments to pay down the budgetary debts or other long-term liabilities and, thereafter, require at least half of each year’s deposit to be saved and the remainder used for supplemental debt payments or savings; (iv) allow the withdrawal of funds only for a disaster or if spending remains at or below the highest level of spending from the past three years; (v) require the State to provide 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 paid all amounts owing to school districts relating to the Proposition 98 maintenance factor for fiscal years prior to fiscal year 2014-15. The State, in addition, may 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 maintenance factor is created.

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SB 858. As part of the 2014-15 State Budget, the Governor signed Senate Bill 858 (“SB 858”) which includes provisions which could limit the amount of reserves that may be maintained by a school district in certain circumstances. Such provisions became effective upon the State voters approval of the constitutional amendments relating to the Rainy Day Fund described above. Under SB 858, in any fiscal year immediately following a fiscal year in which the State has made a transfer into the Public School System Stabilization Account, any adopted or revised budget by a school district would need to contain a combined unassigned and assigned ending fund balance that (a) for school districts with an Average Daily Attendance (“A.D.A.”) of less than 400,000, is not more than two times the amount of the reserve for economic uncertainties mandated by the Education Code, or (b) for school districts with an A.D.A. that is more than 400,000, is not more than three times the amount of the reserve for economic uncertainties mandated by the Education Code. In certain cases, the county superintendent of schools may grant a school district a waiver from this limitation on reserves for up to two consecutive years within a three-year period if there are certain extraordinary fiscal circumstances.

The District, which has an A.D.A. of less than 400,000, is required to maintain a reserve for economic uncertainty in an amount equal to 3% of its general fund expenditures and other financing uses. The District’s Second Interim Report for fiscal year 2014-15 projected total expenditures and other financing uses of approximately $187.5 million, 3% of which is approximately $5.6 million. The estimated maximum amount permitted under SB 858 in fiscal year 2014-15, if SB 858 were in effect for such fiscal year, would be approximately $11.3 million. The District’s Second Interim Report for fiscal year 2014-15 projected a combined assigned and unassigned ending fund balance of approximately $11.0 million. The District does not expect SB 858, if approved and operative, to adversely affect its ability to pay the principal of and interest on the Bonds as and when due.

AB 1469. As part of the 2014-15 State Budget, the Governor signed Assembly Bill 1469 (“AB 1469”) which implements a new funding strategy for CalSTRS, increasing the employer contribution rate in fiscal year 2014-15 from 8.25% to 8.88% of covered payroll and to 19.1% in future fiscal years. See “District Expenditures—CalSTRS” herein for more information about CalSTRS and AB 1469.

The complete 2014-15 State Budget is available from the California Department of Finance website at www.dof.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference.

Prohibitions on Diverting Local Revenues for State Purposes. Beginning in 1992-93, the State satisfied a portion of its Proposition 98 obligations by 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, objecting to invasions of their local revenues by the State, sponsored a statewide ballot initiative intended to eliminate the practice. In response, the State Legislature proposed an amendment to the State Constitution, which the State’s voters approved as Proposition 1A at the November 2004 election. That measure was generally superseded by the passage of a new initiative constitutional amendment at the November 2010 election, known 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 government projects and services. It prevents the State from redirecting redevelopment agency property tax increment to any other local government, including school districts, or from temporarily shifting property taxes from cities, counties and special districts to schools, as in the ERAF program. This is intended to, among other things, stabilize local government revenue sources by restricting the State’s control over local property taxes. One effect of this amendment will be to deprive the State of fuel tax revenues to pay debt service on most State bonds for transportation projects, reducing the amount of State general fund resources available for other purposes, including education.

Prior to the passage of Proposition 22, the State invoked Proposition 1A to divert $1.935 billion in local property tax revenues in 2009-10 from 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 from local redevelopment agencies, which local redevelopment agencies have now been dissolved (see “—Dissolution of Redevelopment Agencies” below). Redevelopment agencies had sued the State over this latter diversion. However, the lawsuit was decided against the California Redevelopment

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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 community college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State’s general fund.

Dissolution of Redevelopment Agencies. The adopted State budget for fiscal year 2011-12, as signed by the Governor of the State on June 30, 2011, included as trailer bills Assembly Bill No. 26 (First Extraordinary Session) (“AB1X 26”) and Assembly Bill No. 27 (First Extraordinary Session) (“AB1X 27”), which the Governor signed on June 29, 2011. AB1X 26 suspended most redevelopment agency activities and prohibited redevelopment agencies from incurring indebtedness, making loans or grants, or entering into contracts after June 29, 2011. AB1X 26 dissolved all redevelopment agencies in existence and designated “successor agencies” and “oversight boards” to satisfy “enforceable obligations” of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. Certain provisions of AB1X 26 are described further below.

In July of 2011, various parties filed an action before the Supreme Court of the State of California (the “Court”) challenging the validity of AB1X 26 and AB1X 27 on various grounds (California Redevelopment Association v. Matosantos). On December 29, 2011, the Court rendered its decision in Matosantos upholding virtually all of AB1X 26 and invalidating AB1X 27. In its decision, the Court also modified various deadlines for the implementation of AB1X 26. The deadlines for implementation of AB1X 26 described below take into account the modifications made by the Court in Matosantos.

On February 1, 2012, and pursuant to Matosantos, AB1X 26 dissolved all redevelopment agencies in existence and designated “successor agencies” and “oversight boards” to satisfy “enforceable obligations” of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. With limited exceptions, all assets, properties, contracts, leases, records, buildings and equipment, including cash and cash equivalents of a former redevelopment agency, will be transferred to the control of its successor agency and, unless otherwise required pursuant to the terms of an enforceable obligation, distributed to various related taxing agencies pursuant to AB1X 26.

AB1X 26 requires redevelopment agencies to continue to make scheduled payments on and perform obligations required under its “enforceable obligations.” For this purpose, AB1X 26 defines “enforceable obligations” to include “bonds, including the required debt service, reserve set-asides, and any other payments required under the indenture or similar documents governing the issuance of outstanding bonds of the former redevelopment agency” and “any legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy.” AB1X 26 specifies that only payments included on an “enforceable obligation payment schedule” adopted by a redevelopment agency shall be made by a redevelopment agency until its dissolution. However, until a successor agency adopts a “recognized obligation payment schedule” the only payments permitted to be made are payments on enforceable obligations included on an enforceable obligation payment schedule. A successor agency may amend the enforceable obligation payment schedule at any public meeting, subject to the approval of its oversight board.

Under AB1X 26, commencing February 1, 2012, property taxes that would have been allocated to each redevelopment agency if the agencies had not been dissolved are instead deposited in a “redevelopment property tax trust fund” created for each former redevelopment agency by the related county auditor-controller and held and administered by the related county auditor-controller as provided in AB1X 26. AB1X 26 generally requires each county auditor-controller, on May 16, 2012 and June 1, 2012 and each January 16 and June 1 (now each January 2 and June 1 pursuant to AB 1484, as described below) thereafter, to apply amounts in a related redevelopment property tax trust fund, after deduction of the county auditor-controller’s administrative costs, in the following order of priority:

• To pay pass-through payments to affected taxing entities in the amounts that would have been owed had the former redevelopment agency not been dissolved; provided, however, that if a successor agency determines that insufficient funds will be available to make payments on the recognized obligation payment schedule and the county auditor-controller and State Controller verify such

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determination, pass-through payments that had previously been subordinated to debt service may be reduced;

• To the former redevelopment agency’s successor agency for payments listed on the successor agency’s recognized obligation payment schedule for the ensuing six-month period;

• To the former redevelopment agency’s successor agency for payment of administrative costs; and

• Any remaining balance 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 AB1X 26 and there may be additional legislation proposed and/or enacted in the future affecting the current scheme of dissolution and winding up of redevelopment agencies currently contemplated by AB1X 26. For example, AB 1484 was signed by the Governor on June 27, 2012, to clarify and amend certain aspects of AB1X 26. AB 1484, among other things, attempts to clarify the role and requirements of successor agencies, provides successor agencies with more control over agency bond proceeds and properties previously owned by redevelopment agencies and adds other new and modified requirements and deadlines. AB 1484 also provides for a “tax claw back” provision, wherein the State is authorized to withhold sales and use tax revenue allocations to local successor agencies to offset payment of property taxes owed and not paid by such local successor agencies to other local taxing agencies. This “tax claw back” provision has been challenged in court by 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.

Proposed 2015-16 State Budget. The Governor released his proposed fiscal year 2015-16 State budget (the “2015-16 Proposed State Budget”) on January 9, 2015. The 2015-16 Proposed State Budget proposes a multiyear plan that is balanced, while paying off budgetary debt from past years and setting aside reserves. The 2015-16 Proposed State Budget projects general fund revenues (after transfers to the Rainy Day Fund in the amount of $1.6 billion and $1.2 billion in fiscal year 2014-15 and 2015-16, respectively) in the amount of $108 billion in fiscal year 2014-15 and $113.4 billion in fiscal year 2015-16, which is an additional $2.5 billion and $1 billion in revenues in fiscal years 2014-15 and 2015-16, respectively, as compared to projections from the 2014-15 State Budget. According to the 2015-16 Proposed State Budget, the primary reason for such additional revenues is the higher forecast for the personal income tax and corporation tax, up almost $2.3 billion and $2 billion, respectively. Of the total State general fund revenues and transfers for fiscal year 2015-16, personal income taxes are expected to contribute $75.2 billion (66.3%), sales and use taxes are expected to contribute $25.2 billion (22.2%) and corporation taxes are expected to contribute $10.2 billion (9%). Under the 2015-16 Proposed State Budget, general fund expenditures for fiscal year 2015-16 are $113.3 billion (an increase of $1.5 billion from fiscal year 2014-15 general fund expenditures), of which $47.1 billion (41.6%) is allocated to K-12 education.

The 2015-16 Proposed State Budget proposes to reduce budgetary debt by repaying the remaining $1 billion in deferred payments to school districts and community college districts and making the final payments on the $15 billion in Economic Recovery Bonds borrowed to cover budget deficits since 2002 and the $533 million in mandate reimbursements owed to local governments. Additionally, the 2015-16 Proposed State Budget increases the State’s Rainy Day Fund to a total balance of $2.8 billion by the end of fiscal year 2015-16. The 2015-16 Proposed State Budget notes that the passage of Proposition 2, the Rainy Day Budget Stabilization Fund Act in November 2014 was a significant step toward a long‑term balanced budget. For more information about the Rainy Day Fund, see “– Rainy Day Fund” above.

Despite the recent budgetary improvements as compared to recent years, the 2015-16 Proposed State Budget acknowledges that the additional tax revenues from capital gains are temporary in nature and that the additional revenues from Proposition 30 will expire in 2016 (with respect to the sales tax increase) and 2018 (with respect to the income tax increase). Further, the 2015-16 Proposed State Budget observes several risks that the State should plan for, including: the inevitable occurrence of another recession, ongoing fiscal challenges of the federal government, the budget’s heavy dependency on the performance of the stock market in fiscal year 2015-16, the high

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levels of State debts and liabilities, including unfunded retirement liabilities, and deferred maintenance of the State’s roads and other infrastructure.

As it relates to K-12 education, the 2015-16 Proposed State Budget provides Proposition 98 funding of $65.7 billion for fiscal year 2015-16, as well as an additional $2.3 billion and $400 million for fiscal years 2014-15 and 2013-14, respectively. This translates to K-12 Proposition 98 per-pupil expenditures of $9,361 in fiscal year 2014-15 and $9,667 in fiscal year 2015-16. Such amounts are significant increases when compared to recent years, such as the $7,008 provided in fiscal year 2011-12. Total per-pupil expenditures from all sources are projected to be $13,223 in fiscal year 2014-15 and $13,462 in fiscal year 2015-16, including funds provided for prior year “settle-up” obligations. The 2015-16 Proposed State Budget notes that attendance in public schools increased in fiscal years 2013-14 and 2014-15, however, it is projected to decline slightly during 2015-16. For fiscal year 2014-15, K-12 A.D.A. is estimated to be 6,000,733, an increase of 8,166 from fiscal year 2013-14. K-12 A.D.A. is estimated to drop by 585 in fiscal year 2015-16 to 6,000,148.

The 2015-16 Proposed State Budget provides a third-year investment of $4 billion in the Local Control Funding Formula, which is expected to eliminate more than 32% of the remaining funding gap between actual funding and the target level of funding. With respect to K-12 school facilities, the 2015-16 Proposed State Budget acknowledges the ongoing discussion of the State’s role, if any, in future school facilities funding and notes several problems with the current program that should be addressed in any future plan. While such discussion is ongoing, the 2015-16 Proposed State Budget dedicates $273.4 million in one time Proposition 98 general fund resources to the Emergency Repair Program to fund all remaining Emergency Repair Program projects. The 2015-16 Proposed State Budget also includes reforms and investments relating to adult education, the implementation of Common Core standards, and energy efficiency.

Certain workload adjustments for K-12 programs included in the 2015-16 Proposed State Budget include the following:

• K-12 Deferrals. An increase of almost $900 million in one‑time Proposition 98 general funds in fiscal year 2014‑15 to eliminate all remaining outstanding deferral debt for K‑12. Inter‑year deferrals for K‑12 had reached a high of $9.5 billion in fiscal year 2011‑12.

• Emergency Repair Program. An increase of $273.4 million in one‑time Proposition 98 general fund resources for the Emergency Repair Program. This funding will retire the State’s facilities funding obligation under the terms of an existing lawsuit settlement agreement.

• School District Local Control Funding Formula. Additional growth of approximately $4 billion in Proposition 98 general funds for school districts and charter schools in 2015‑16, an increase of 8.7% from fiscal year 2014-15.

• County Offices of Education Local Control Funding Formula. An increase of $109,000 Proposition 98 general funds to support a cost‑of‑living adjustment for those county offices of education at their target funding level under the Local Control Funding Formula.

• Charter Schools. An increase of $59.5 million Proposition 98 general funds to support projected charter school A.D.A. growth.

• Special Education. An increase of $15.3 million Proposition 98 general funds to reflect a projected increase in Special Education A.D.A.

• Cost-of-Living Adjustment Increases. An increase of $71.1 million to support a 1.58% cost-of-living adjustment for categorical programs that remain outside of the Local Control Funding Formula, including Special Education, Child Nutrition, Foster Youth, Preschool, American Indian Education Centers, and the American Indian Early Childhood Education Program. Cost‑of‑living adjustments for school districts and charters schools are provided within the increases for school district Local Control Funding Formula implementation noted above.

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• Local Property Tax Adjustments. A decrease of $11.4 million Proposition 98 general funds for the school district and county office of education in 2014‑15 as a result of higher offsetting property tax revenues. A decrease of $1.7 billion in Proposition 98 general funds for school districts and county offices of education in fiscal year 2015‑16 as a result of increased offsetting local property tax revenues.

• Average Daily Attendance. An increase of $197.6 million in fiscal year 2014‑15 for school districts and county offices of education as a result of an increase in projected A.D.A. from the 2014-15 State Budget, and a decrease of $6.9 million in fiscal year 2015‑16 for school districts and county offices of education as a result of projected decline in A.D.A. for fiscal year 2015‑16.

• Full-Day State Preschool Slots. An increase of $14.8 million Proposition 98 general funds and $18.8 million non‑Proposition 98 general funds to support 4,000 State Preschool slots with full‑day wraparound care. These slots were established in the 2014-15 State Budget as of June 15, 2015 (for 15 days in fiscal year 2014‑15) and these increases reflect the difference in full‑year cost for these slots in fiscal year 2015‑16.

The complete 2015-16 Proposed State Budget is available from the California Department of Finance website at www.dof.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference.

LAO Overview of Proposed 2015-16 State Budget. The Legislative Analyst’s Office (“LAO”), a nonpartisan State office which provides fiscal and policy information and advice to the State Legislature, released its report on the 2015-16 Proposed State Budget entitled “The 2015-16 Budget: Overview of the Governor’s Budget” on January 13, 2015 (the “2015-16 Proposed Budget Overview”), in which the LAO commends the State for preserving budgetary balance. The LAO notes that such balance has been facilitated by the stock market, increased revenues from personal and corporate income taxes, and the Governor’s reluctance to propose significant new non-Proposition 98 spending commitments. Further, the LAO is generally supportive of the Governor’s priorities and the 2015-16 Proposed State Budget’s emphasis on debt repayment, which the LAO expects to place the State on even stronger fiscal footing. The LAO also notes that fiscal year 2014-15 revenues could be significantly higher than the projections in the 2015-16 Proposed State Budget. Nevertheless, what might happen to State revenues thereafter is uncertain and the LAO warns that budget vulnerability remains and that cautious budgetary decision making is necessary. For example, the LAO suggests that weak growth in an upcoming year could make it difficult to sustain the State’s spending level, particularly, the higher level of school spending, and therefore, larger reserves would be desirable.

With respect to the Proposition 98 budget plan in the 2015-16 Proposed State Budget, the LAO states that the Proposition 98 budget plan provides a reasonable mix of programmatic funding increases and pay downs of outstanding obligations. The LAO commends the proposal to eliminate K-14 budgetary deferrals, and recognizes that the use of new funding for one-time purposes helps the State minimize any future disruption in school funding as a result of revenue volatility or an economic slowdown. The LAO, however, observes that the Proposition 98 minimum guarantee in fiscal years 2014-15 and 2015-16 will be highly sensitive to changes in general fund revenues and could experience large swings over the coming months. Thus, the LAO cautions against committing all available 2015-16 Proposition 98 funds to ongoing purposes, as a sustained economic slowdown could force the State to cut programs and potentially backpedal in its implementation of the Local Control Funding Formula.

The 2015-16 Budget Overview is available on the LAO website at www.lao.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference.

May Revision to Proposed 2015-16 State Budget. On May 14, 2015, the Governor released the “Governor’s Budget May Revision 2015-16” (the “May Revise”), which outlines proposed revisions to the 2015-16 Proposed State Budget. The May Revise projects a net increase of $6.7 billion in expected revenues compared to the 2015-16 Proposed State Budget. General fund revenues are forecast to exceed the 2015-16 Proposed State Budget by $700 million in 2013-14, $3.3 billion in 2014-15 and $1.7 billion in 2015-16. Under the May Revise, total general fund revenues are now projected to be $111.3 billion and $115 billion (including the amounts proposed to be

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transferred to the Rainy Day Fund) for fiscal years 2014-15 and 2015-16, respectively. However, projected expenditures have also increased under the May Revise and offset the projected additional revenues. For example, total general fund expenditures are now projected to be $114.5 billion in fiscal year 2014-15 and $115.3 billion in fiscal year 2015-16 (as compared to $111.7 billion and $113 billion, respectively, in the 2015-16 Proposed State Budget).

The improved budget forecast since the Governor’s 2015-16 Proposed State Budget is a result of strong cash trends through April. Cash tax receipts are up approximately $3.2 billion over the forecast and data suggests that personal income tax receipts are up $2.7 billion, corporation tax receipts are up nearly $250 million, and sales and use tax (sales tax) receipts are up $230 million. The State is steadily paying down budgetary debts accumulated over the past decade and a half, and in the next three months alone, the State will repay the remaining $1 billion in deferrals to schools and community colleges and make the final payment on the $15 billion in Economic Recovery Bonds used to cover budget deficits dating back to 2002.

Although the May Revise predicts continued economic growth over the next four years, it notes that the current expansion has already exceeded the average post-war expansion by over a year. Risks to the economy include a correction in the stock market and a weaker global economy. The May Revise maintains the principal of using higher revenues from capital gains to pay down debt and prepare for the inevitable next recession. By the end of the year, the State’s Proposition 2 Rainy Day Fund will have a total balance of $3.5 billion. The May Revise also pays down an additional $633 million in debts and liabilities (for a total of $1.9 billion) from Proposition 2 funds. The elimination of budgetary debts and a healthier Rainy Day Fund balance will allow the State fiscal capacity when the next recession begins.

For K-12 schools, funding levels will increase by more than $3,000 per student in 2015-16 over 2011-12 levels. The May Revise proposes to utilize a combination of one-time and ongoing resources to pay down debts owed to schools and invest significantly in the Local Control Funding Formula. Rising State revenues allow the State to substantially increase funding for the formula by providing an additional $2.1 billion to the $4 billion allocated in the 2015-16 Proposed State Budget. When the formula was adopted in 2013-14, funding was expected to be $47 billion in 2015-16. The May Revise provides a formula instead allocating $53.1 billion this coming year.

The May Revise includes total funding of $83 billion for K-12 education programs. Proposition 98 funding obligations are projected to increase across fiscal years 2013-14 through 2015-16 driven by the changes in projected general fund revenues. Under the May Revise, as compared to the 2015-16 Proposed State Budget, Proposition 98 funding is projected to increase by $241 million in fiscal year 2013-14, $3.1 billion in fiscal year 2014-15 and $2.7 billion in fiscal year 2015-16 due to significant growth in general fund revenues. As a result of such changes, the revised Proposition 98 guarantee levels for fiscal years 2013-14, 2014-15 and 2015-16 are projected to be $58.9 billion, $66.3 billion and $68.4 million, respectively. The Proposition 98 maintenance factor—an indicator of the past reductions made to schools and community colleges—totaled nearly $11 billion as recently as 2011-12. Under the May Revise, this amount is reduced to $772 million.

Certain budget adjustments for K-12 programs under the May Revise include the following:

• Career Technical Education. The 2015-16 Proposed State Budget submitted $250 million in one-time Proposition 98 funding in each of the next three years to support a transitional Career Technical Education Incentive Grant Program. School districts, county offices of education, and charter schools receiving funding from the program would be required to provide a dollar-for-dollar match each year. The May Revise proposes an additional $150 million in 2015-16, an additional $50 million in 2016-17, and a reduction of $50 million in 2017-18.

• Quality Education Investment Act Transition Funding. An increase of $4.6 million one-time Proposition 98 funding to provide half of the final apportionment of Quality Education Investment Act (“QEIA”) funding to selected school districts in 2015-16 that do not qualify for concentration grant funding under the Local Control Funding Formula. This funding will help ease the transition off QEIA funding for districts with isolated concentrations of English learners and students who qualify for free or reduced-priced meals.

• Simon Wiesenthal Center. An increase of $2 million Proposition 98 General Fund for the Los Angeles County Office of Education to contract with the Simon Wiesenthal Center to support the Museum of Tolerance’s

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“Tools for Tolerance” training programs. The center will be able to partner with schools throughout the State to advance anti-bias education, inclusion, and equity through professional development programs.

• Average Daily Attendance. An increase of $94.4 million in 2014-15 and $173.5 million in 2015-16 for school districts, charter schools, and county offices of education under the Local Control Funding Formula as a result of an increase in 2013-14 A.D.A., which drives projections of A.D.A. in both 2014-15 and 2015-16.

• Proposition 39. A decrease in the amount of California Clean Energy Jobs Act (Proposition 39) energy efficiency funds available to K-12 schools in fiscal year 2015-16 by $6.7 million to $313 million to reflect reduced revenue estimates.

• Local Property Tax Adjustments. A decrease of $123.3 million Proposition 98 General Fund in 2014-15 for school districts, special education local plan areas, and county offices of education as a result of higher offsetting property tax revenues. A decrease of $224 million Proposition 98 General Fund in 2015-16 for school districts, special education local plan areas, and county offices of education as a result of higher offsetting property tax revenues.

• Categorical Program Growth. An increase of $18.4 million in Proposition 98 general funds for selected categorical programs based on updated estimates of projected A.D.A. growth.

• Cost-of-Living Adjustments. A decrease of $22.1 million in Proposition 98 general funds to selected categorical programs to reflect a change in the cost-of-living factor from 1.58% in the 2015-16 Proposed State Budget to 1.02% at the May Revise.

• K-12 Mandates Block Grant. An increase of $1.2 million in Proposition 98 general funds to reflect greater school district participation in the mandates block grant. This additional funding is required to maintain statutory block grant funding rates assuming 100% program participation.

The complete May Revise is available from the California Department of Finance website at www.dof.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference.

LAO Overview of the May Revise. The LAO released its report on the May Revise on May 18, 2015 (the “May Revise Overview”). The May Revise Overview provides that the continuing commitment to pay down debts and build a reserve under the May Revise is sound and a careful approach to State finances. The LAO projects $3.2 billion more in general fund revenues than the Governor across fiscal years 2013-14 through 2015-16. Specifically, when compared to the Governor’s projections in the May Revise, the LAO projects slightly more general fund revenues in fiscal years 2013-14 and 2014-15 and $3 billion more general fund revenues in fiscal year 2015-16 (primarily as a result of differences in the projection of personal income tax realizations).

The May Revise Overview, as it relates to K-12 education, provides that the Proposition 98 spending package in the May Revise is sound and reasonable. The LAO, however, expresses some concern over new Proposition 98 spending proposals in the May Revise as it contains little cushion to insulate ongoing K-14 programs from volatile State revenues. Of the $68.4 billion in proposed Proposition 98 spending counting toward the 2015-16 guarantee, the Governor designates only $600 million for one-time purposes. The LAO recommends waiting later in the fiscal year for additional revenues to ultimately materialize and then providing additional Proposition 98 funding to one-time priorities.

The May Revise Overview provides other comments and recommendations with regards to specific policy proposals. For example, the LAO notes the Governor’s proposed distribution of mandates backlog funding is inefficient. Approximately 91% of remaining claims are associated with high school and unified districts but only 79% of backlog funds under Governor’s plan would go to these entities. The LAO recommends targeting K-12 payments more toward high schools and allocating $3.3 billion of $3.6 billion to unified and high school districts on the basis of A.D.A.

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The May Revise Overview is available on the LAO website at www.lao.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference.

Changes in State Budget. The final fiscal year 2015-16 State budget, which requires approval by a majority vote of each house of the State Legislature, may differ substantially from the Governor’s budget proposal. Accordingly, the District cannot provide any assurances that there will not be any changes in the final fiscal year 2015-16 State budget from the 2015-16 Proposed State Budget or the May Revise. Additionally, the District cannot predict the impact that the final fiscal year 2015-16 State Budget, or subsequent budgets, will have on its finances and operations. The final fiscal year 2015-16 State Budget may be affected by national and State economic conditions and other factors which the District cannot predict.

Future Budgets and Budgetary Actions. The District cannot predict what future actions will be taken by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors beyond the District’s ability to predict or control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State’s ability to fund schools during future fiscal years. Certain factors, like an economic recession, could result in State budget shortfalls in any fiscal year and could have a material adverse financial impact on the District.

Allocation of State Funding to School Districts; Local Control Funding Formula

Prior to the implementation of the Local Control Funding Formula in fiscal year 2013-14, under California Education Code Section 42238 and following, each school district was determined to have a target funding level: a “base revenue limit” per student multiplied by the district’s student enrollment measured in units of average daily attendance. The base revenue limit was calculated from the district’s prior-year funding level, as adjusted for a number of factors, such as inflation, special or increased instructional needs and costs, employee retirement costs, especially low enrollment, increased pupil transportation costs, etc. Generally, the amount of State funding allocated to each school district was the amount needed to reach that district’s base revenue limit 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 growth in local property assessed valuation, the additional revenue was offset by a decline in the State’s contribution; ultimately, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State equalization aid, and received only its special categorical aid, which is deemed to include the “basic aid” of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known as “basic aid districts,” which are now referred to as “community funded districts.” School districts that received some equalization aid were commonly referred to as “revenue limit districts,” which are now referred to as “LCFF districts.” The District is a LCFF district.

Beginning in fiscal year 2013-14, the LCFF replaced the revenue limit funding system and most categorical programs, and distributes combined resources to school districts through a base revenue limit funding grant (“Base Grant”) per unit of A.D.A. with additional supplemental funding allocated to local educational agencies based on their proportion of English language learners, students from low-income families and foster youth. The LCFF has an eight year implementation program to incrementally close the gap between actual funding and the target level of funding, as described below. The LCFF includes the following components:

• A Base Grant for each local education agency, equivalent to $7,643 per unit of A.D.A. in fiscal year 2013-14. Such Base Grant per unit of A.D.A., adjusted by grade span variation and to be adjusted annually for cost-of-living, is as follows: $6,845 for grades K-3, $6,947 for grades 4-6, $7,154 for grades 7-8 and $8,289 for grades 9-12. This amount includes an adjustment of 10.4% to the Base Grant to support lowering class sizes in grades K-3, and an adjustment of 2.6% to reflect the cost of operating career technical education programs in grades 9-12.

• A 20% supplemental grant for the unduplicated number of English language learners, students from low-income families and foster youth to reflect increased costs associated with educating those students.

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• An additional concentration grant of up to 50% of a local education agency’s Base Grant, based on the number of English language learners, students from low-income families and foster youth served by the local education agency that comprise more than 55% of enrollment.

• An Economic Recovery Target (the “ERT”) that is intended to ensure that almost 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.), adjusted 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.

Of the projected $25 billion in new funding to be invested through the LCFF over the next eight years, the vast majority of new funding will be provided for Base Grants. Specifically, of every dollar invested through the LCFF, 84 cents will go to Base Grants, 10 cents will go to supplemental grants and 6 cents will go to concentration grants.

Under the new formula, for “basic aid districts” (now, “community funded districts”), local property tax revenues would be used to offset up to the entire allocation under the new formula. However, community funded districts would continue 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 annually update a three-year local 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, including student achievement, parent engagement and school climate, as well as detail a course of action to attain those goals. Moreover, 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 submit its LCAP annually on or before July 1 for approval by 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 submit recommendations for amending the LCAP, and such recommendations must be considered, but are not mandatory. A school district’s LCAP must be approved by its county superintendent by October 8 of each year if such superintendent finds (i) the LCAP adheres to the State template, and (ii) the district’s budgeted expenditures are sufficient to implement the strategies outlined in the LCAP.

Performance evaluations are to be conducted to assess progress toward goals and guide future actions. County superintendents are expected to review 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 “Collaborative”), a newly established body of educational specialists, was created to advise and assist local education agencies in achieving the goals identified in their LCAPs. For local education agencies that continue to struggle in meeting their goals, 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 recent A.D.A. history per the District’s Second Period Reports (P2) and total enrollment as reported to the CDE is set forth in the table below:

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GROSSMONT UNION HIGH SCHOOL DISTRICT Average Daily Attendance and Total Enrollment(1)(2)


Fiscal Year Average Daily Attendance Total Enrollment(3) 2004-05 20,843 22,529 2005-06 20,654 22,145 2006-07 20,715 21,374 2007-08 18,463 19,721 2008-09 19,037 20,268 2009-10 18,855 20,538 2010-11 18,368 19,530 2011-12 17,659 18,792 2012-13 17,022 18,325 2013-14 16,827 17,908 2014-15 16,493(4) 17,565(4)

__________ (1) Excludes Helix Charter High School and, beginning in the 2007-08 school year, Steele Canyon Charter High School, which voted to become a charter school in 2006. Also excludes adult education. (2) Figures include approximately 800 Alpine high school students currently attending high schools in the District. (3) Declining enrollment has been anticipated due to reduced population in feeder elementary schools in the District. (4) Projected. Source: The District.

On October 23, 2013, registered voters of the unincorporated community of Alpine, from which approximately 800 high school students currently attend high schools in the District, filed a petition with the San Diego County Superintendent of Schools requesting the reorganization of Alpine into a unified school district serving grades K-12 within the boundary lines of the existing Alpine Union School District. If such petition is successful and there is a decrease in enrollment in the District, a loss of State aid related to such reduction will result. See “INTRODUCTION – Alpine Unification Petition” above and “— Effect of Changes in Enrollment” below.

Attendance and LCFF. The following table sets forth the District’s estimated and budgeted A.D.A., enrollment (including percentage of students who are English language learners, from low-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 and 2014-15, respectively. The A.D.A. and enrollment numbers reflected in the following table include special education but exclude adult education charter school attendance.


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GROSSMONT UNION HIGH SCHOOL DISTRICT (San Diego County, California)

Average Daily Attendance, Enrollment and Targeted Base Grant Fiscal Years 2013-14 and 2014-15

A.D.A./Base Grant Enrollment(5)

Fiscal Year 9-12

Total A.D.A.

Total Enrollment

Unduplicated Percent of

EL/LI Students

2013-14

A.D.A.(2): 16,827 16,827 17,908 56.1% Targeted Base

Grant(3): $8,638 – – –

2014-15(1)

A.D.A.(2): 16,493 16,493 17,565 55.6% Targeted Base

Grant(3)(4): $8,712 – – – _______________________________ (1) Figures are projections. (2) A.D.A. for the second period of attendance, typically in mid-April of each school year. (3) Such amounts represent the targeted amount of Base Grant per unit of A.D.A., and do not include any supplemental and concentration grants under the LCFF. Such amounts are not expected to be fully funded in fiscal years 2013-14 and 2014-15. (4) Targeted fiscal year 2014-15 Base Grant amounts reflect a 0.85% cost of living adjustment from targeted fiscal year 2013-14 Base Grant amounts. (5) Reflects enrollment as of October report submitted to the CBEDS in each school year. For purposes of calculating Supplemental and Concentration Grants, a school district’s fiscal year 2013-14 percentage of unduplicated EL/LI Students will be expressed solely as a percentage of its fiscal year 2013-14 total enrollment. For fiscal year 2014-15, the percentage of unduplicated EL/LI Students enrollment will be based on the two-year average of EL/LI Students enrollment in fiscal years 2013-14 and 2014-15. Beginning in fiscal year 2015-16, a school district’s percentage of unduplicated EL/LI Students will be based on a rolling average of such school district’s EL/LI Students enrollment for the then-current fiscal year and the two immediately preceding fiscal years. Source: The District.

The District received approximately $129.5 million in aggregate revenues allocated under the LCFF in fiscal year 2013-14, and projects to receive approximately $135.3 million in aggregate revenues under the LCFF in fiscal year 2014-15 (or approximately 75.2% of its general fund revenues in fiscal year 2014-15). Such amount includes an estimated $14.2 million in supplemental grants and $460.3 thousand in concentration grants in fiscal year 2014-15.

Effect of Changes in Enrollment. Changes in local property tax income and student enrollment (or A.D.A.) affect community funded districts and revenue limit districts, now known as “LCFF districts,” differently. In a LCFF district, increasing enrollment increases the amount allocated under 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 typically increase disproportionately slower than enrollment growth until 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 typically decrease slowly until the district decides to lay off teachers, close schools, or initiate other cost-saving measures.

In community funded districts, the opposite is generally true: increasing enrollment does increase the amount allocated under LCFF, but since all LCFF income (and more) is already generated by local property taxes, there is typically no increase in State income. New students impose increased operating costs, but typically at a slower pace than enrollment growth, and the effect on the financial condition of a community funded district would depend on whether property tax growth keeps pace with enrollment growth. Declining enrollment typically 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.

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For LCFF districts, any loss of local property taxes is made up by an increase in State aid. For community funded districts, the loss of tax revenues is not reimbursed by the State.

Enrollment can fluctuate due to factors such as population growth, competition from private, parochial, and public charter schools, inter-district transfers in and out, and other causes. Losses in enrollment will cause a school district to lose operating revenues, without necessarily permitting the district to make adjustments in fixed operating costs.

The District cannot make any predictions regarding how the current economic environment or changes thereto will affect the State’s ability 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 projected A.D.A. 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 level for fiscal year 2014-15 or beyond. Certain adjustments will 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 the school district’s property tax revenues, i.e., the District’s share of the local 1% property tax, received pursuant to Sections 75 and following and Sections 95 and following of the California Revenue and Taxation Code. Education Code Section 42238(h) itemizes the local revenues that are counted towards the amount allocated under the LCFF (and formerly, the base revenue limit) before calculating how much the State must provide in State aid. The more local property taxes a district receives, the less State aid it is entitled to. Prior to the implementation of the LCFF, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State aid, and received only its special categorical aid which was deemed to include the “basic aid” of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known colloquially as “basic aid districts.” Districts that received some aid were commonly referred to as “revenue limit” districts.

Under the LCFF, local property tax revenues are used to offset up to the entire State aid collection under the new formula; however, basic aid districts, now known as “community funded districts,” would continue to receive the same level of State aid as allotted in fiscal year 2012-13. See “—Allocation of Funding to School Districts; Local Control Funding Formula” herein for more information about the LCFF.

Local property tax revenues account for approximately 59.8% of the District’s aggregate revenues allocated under the LCFF, and are projected to be approximately $80.9 million, or 44.9% of total general fund revenues in fiscal year 2014-15. 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 REVENUES AND APPROPRIATIONS” herein.

Other District Revenues

Federal Revenues. The federal government provides funding for several District programs, including special education programs. Federal revenues, most of which are restricted, comprise approximately 7.0% (or approximately $12.6 million) of the District’s general fund projected revenues for fiscal year 2014-15.

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 4.3% (or approximately $7.8 million) of the District’s general fund budgeted revenues for fiscal year 2014-15. A significant portion of such other State revenues are amounts the District expects to receive from State lottery funds, 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 projected at $3.3 million for fiscal year 2014-15.

Other Local Revenues. In addition to ad valorem property taxes, the District receives additional local revenues from items such as leases and rentals, interest earnings, redevelopment funds and other local sources.

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Other local revenues comprise approximately 13.5% (or approximately $24.2 million) of the District’s general fund projected revenues for fiscal year 2014-15.

Charter Schools

Charter schools operate as autonomous public schools, under charter from a school district, county office of education, or the State Board of Education, with minimal supervision by the local school district. 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 required to accommodate charter school students originating in the District in facilities comparable to those provided to regular District students.

Two charter schools have been approved by and are currently operating in the District, Helix Charter High School (serving grades 9–12) and Steele Canyon Charter High School (serving grades 9–12). A third charter school, Liberty Charter High School, closed following the 2011-12 school year. Enrollment figures for the charter schools are presented in the table below.

GROSSMONT UNION HIGH SCHOOL DISTRICT Charter School Annual Enrollment 2007-08 to 2014-15

School Year

Helix Charter High School

Steele Canyon Charter High School

2007-08 2,414 2,090 2008-09 2,422 2,133 2009-10 2,395 2,193 2010-11 2,413 2,174 2011-12 2,469 2,186 2012-13 2,440 2,200 2013-14 2,434 2,186 2014-15 2,445 2,195

__________ Source: Data Reporting Office, California Department of Education.

District Expenditures

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) employees. Changes in salary and benefit expenditures from year to year are generally based on changes in staffing levels, negotiated salary increases, and the overall cost of employee benefits.

In its 2014-15 Second Interim Report, the District budgets that it will expend $155.7 million in salaries and benefits, or approximately 83.0% of its general fund expenditures. This amount represents an increase of 4.8% from the $148.5 the District expended in 2013-14.

Labor Relations. As of the District’s 2014-15 Second Interim Report, approximately 1,500 employees were represented by labor organizations, as shown in the table below. The District employed 845.8 full-time position (“FTE”) certificated employees (teaching staff) and 654.0 FTE classified employees (non-instructional support staff). The District also employed 93.8 FTE management, supervisory and confidential employees who are not represented by labor organizations.

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GROSSMONT UNION HIGH SCHOOL DISTRICT Labor Organizations

Labor Organization Represented Employees (FTE) Contract Expiration Grossmont Education Association (GEA) 845.8 6/30/2015 California School Employees Association

Chapter No. 443 (CSEA 443) 589.0 6/30/2015 Service Employees International Union,

Local 221 (SEIU 221) 65.0 6/30/2015 CalSTRS. Contributions to the California State Teachers’ Retirement System (“CalSTRS”) are fixed in

statute. In fiscal year 2013-14, teachers contributed 8% 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). Unlike typical defined benefit programs, however, neither the CalSTRS employer nor the State contribution rate varies 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 (generally consisting of 2% of salary for each year of service at age 60 referred to herein as “pre-enhancement benefits”) within a 30-year period. However, this surcharge does not apply to systemwide unfunded liability resulting from recent benefit enhancements.

As of June 30, 2013, an actuarial valuation (the “2013 CalSTRS Actuarial Valuation”) for the entire CalSTRS defined benefit program showed an estimated unfunded actuarial liability of $74.4 billion, an increase of $3.4 billion from the June 30, 2012 valuation. The funded ratios of the actuarial value of valuation assets over the actuarial accrued liabilities as of June 30, 2013, June 30, 2012 and June 30, 2011, based on the actuarial assumptions, were approximately 67%, 67% and 69%, respectively. The following are certain of the actuarial assumptions set forth in the 2013 CalSTRS Actuarial Valuation: measurement of accruing costs by the “Entry Age Normal Actuarial Cost Method,” 7.50% investment rate of return, 4.50% interest on member accounts, 3.75% projected wage growth, and 3.00% projected inflation. The 2013 CalSTRS Actuarial Valuation also assumes that all members hired on or after January 1, 2013 are subject to the provisions of PEPRA (as defined herein). See “−California Public Employees’ Pension Reform Act of 2013” below for a discussion of the pension reform measure signed by the Governor in August 2012 expected to help reduce future pension obligations of public employers with respect to employees 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 assumptions.

As indicated above, 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 2013 CalSTRS Actuarial Valuation noted that, as of June 30, 2013, the contribution rate, inclusive of contributions from the teachers, the school districts and the State, was equivalent to 19.497% over the next 30 years. The 2013 CalSTRS Actuarial Valuation provides that the contribution rate would need to have been raised by 13.382% to a total of 32.879% to amortize the unfunded liability over a 30-year period as of June 30, 2013.

As part of the 2014-15 State Budget, the Governor signed Assembly Bill 1469 which implements a new funding strategy for CalSTRS, increasing the employer contribution rate in fiscal year 2014-15 from 8.25% to 8.88% of covered payroll. Such rate would increase by 1.85% beginning in fiscal year 2015-16 until the employer contribution rate is 19.10% of covered payroll as further described below. Teacher contributions will also increase from 8.00% to a total of 10.25% of pay, phased in over 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 payment of 2.5% of payroll annual for a supplemental inflation protection program for a total of 8.80%. In addition, AB 1469 provides the State Teachers Retirement Board with authority to modify the percentages paid by employers and employees for fiscal year 2021-22 and each fiscal year thereafter to eliminate the CalSTRS unfunded liability by June 30, 2046. The State Teachers Retirement Board would also have authority to reduce employer and State contributions if they are no longer necessary.

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Pursuant to Assembly Bill 1469, school districts’ contribution rates will increase in accordance with the following schedule:

Effective Date (July 1)

School District Contribution Rate

2014 8.88% 2015 10.73 2016 12.58 2017 14.43 2018 16.28 2019 18.13 2020 19.10

___________________________ Source: Assembly Bill 1469.

The District’s employer contribution to CalSTRS from the general fund was $6.5 million for fiscal year 2013-14 and is projected to be approximately $7.0 million in fiscal year 2014-15. The following table sets forth the District’s regular annual contributions to CalSTRS for fiscal years 2008-09 through 2013-14, and its budgeted contribution for fiscal year 2014-15. With the implementation of AB 1469, the District anticipates that its contributions to CalSTRS will significantly increase in future fiscal years as compared to prior fiscal years.

Annual Regular CalSTRS Contributions Fiscal Years 2008-09 through 2014-15

Fiscal Year District Contributions 2008-09 $7,323,086 2009-10 7,517,117 2010-11 6,832,085 2011-12 6,700,543 2012-13 6,484,581 2013-14 6,543,472 2014-15(2) 7,029,304

____________________ (1) 2014-15 Second Interim Report projections. Source: The District.

CalSTRS produces a comprehensive annual financial report which includes financial statements and required supplementary information. Copies of the CalSTRS comprehensive annual financial report may be obtained from CalSTRS. The information presented in these reports is not incorporated by reference in this Official Statement.

CalPERS. All qualifying classified employees of K-12 school districts in the State are members in the California Public Employees’ Retirement System (“CalPERS”), and all of such districts participate in the same plan. As such, all such districts share the same contribution rate in each year. However, unlike school districts’ participating in CalSTRS, the school districts’ contributions to CalPERS fluctuate each year and include a normal cost component and a component equal to an amortized amount of the unfunded liability. Accordingly, the District cannot provide any assurances that the District’s required contributions to CalPERS will not significantly increase in the future above current levels.

According to the CalPERS Schools Pool Actuarial Valuation as of June 30, 2013, the CalPERS Schools plan had a funded ratio of 80.5% on a market value of assets basis. The funded ratio as of June 30, 2012, June 30, 2011, June 30, 2010, June 30, 2009 and June 30, 2008 was 75.5%, 78.7%, 69.5%, 65.0% and 93.8%, respectively. According to the actuarial valuation as of June 30, 2013, the latest increase in the funded ratio was mainly due to the investment return for 2012-13 being greater than expected. On April 17, 2013, the CalPERS Board of Administration approved a recommendation changing the CalPERS amortization and smoothing policies.

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Beginning with the June 30, 2014 valuation used to set the 2015-16 employer contribution rate, CalPERS will no longer use an actuarial value of assets and will employ a new amortization and rate smoothing policy that will pay for all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a five-year period. Such changes are expected to increase contribution rates in the near term but lower contribution rates in the long term.

In March of 2012, the CalPERS Board of Administration adopted new economic actuarial assumptions to be used with the June 30, 2011 actuarial valuation; in particular, lowering the price inflation assumption from 3.00% to 2.75%. Lowering the price inflation assumption resulted in a reduced discount rate, which is the fund’s assumed rate of return calculated based on expected price inflation and the expected real rate of return, from 7.75% to 7.5%. According to CalPERS, this reduction in the discount rate is anticipated to increase State and school district employer contributions for each fiscal year beginning in fiscal year 2012-13 by 1.2% to 1.6% for miscellaneous plans (which includes general office and others) and by 2.2% to 2.4% for safety plans beginning in fiscal year 2012-13. In 2014, the CalPERS Board of Administration completed a two-year asset liability management study incorporating actuarial assumptions and strategic asset allocation, and adopted changes to the current asset allocation that will reduce the expected volatility of returns. The adopted asset allocation is expected to have a long-term blended return that continues to support a discount rate assumption of 7.5%.

In February of 2014, the CalPERS Board of Administration adopted new actuarial demographic assumptions that take into account greater life expectancies of public employees. Such assumptions are expected to increase costs for the State and public agency employers (including school districts), which costs will be amortized over 20 years and phased in over three years beginning in fiscal year 2014-15 for the State and amortized over 20 years and phased in over five years beginning in fiscal year 2016-17 for the employers. CalPERS estimates that the new demographic assumptions could cost public agency employers up to 9% of payroll for safety employees and up to 5% of payroll for miscellaneous employees at the end of the five year phase-in period. To the extent, however, that future experiences differ from CalPERS’ current assumptions, the required employer contributions may vary.

The District is required to contribute toward CalPERS, at a State-determined percentage of CalPERS-eligible salaries. For fiscal year 2014-15, the contribution percentage is 11.771%. In the current budget year, the total contribution is projected at $4.4 million, compared to a fiscal year 2013-14 general fund expense of $4.5 million. With the change in actuarial assumptions described above, the District anticipates that its contributions to CalPERS will increase in future fiscal years as the increased costs are phased in. The implementation of PEPRA (see “−California Public Employees’ Pension Reform Act of 2013” below), however, is expected to help reduce certain future pension obligations of public employers with respect to employees hired on or after January 1, 2013.

Annual CalPERS Regular Contributions Fiscal Years 2008-09 through 2014-15

Fiscal Year District Contributions(1) 2008-09 $ 3,971,972 2009-10 4,161,340 2010-11 4,365,463 2011-12 4,473,615 2012-13 4,501,216 2013-14 4,546,065 2014-15(2) 4,374,485

____________________ (1) Includes Regular Contributions and employee contributions paid by the District and “PERS Recapture.” Pursuant to State law, the State is allowed to recapture the savings corresponding to a lower CalPERS rate by reducing a school district’s revenue limit apportionment by the amount of the school district’s CalPERS savings in that year. Such recapture has occurred with respect to the District in each fiscal year since fiscal year 1982-83. (2) 2014-15 Second Interim Report projection. Sources: The District.

California Public Employees’ Pension Reform Act of 2013. The Governor signed the California Public Employee’s Pension Reform Act of 2013 (the “Reform Act” or “PEPRA”) into law on September 12, 2012. The Reform Act affects both CalSTRS and CalPERS, most substantially as they relate to new employees hired after

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January 1, 2013 (the “Implementation Date”). As it pertains to CalSTRS participants hired after the Implementation Date, the Reform Act changes the normal retirement age, increasing the eligibility for the 2% “age factor” (the percent of final compensation to which an employee is entitled to for each year of service) from age 60 to 62 and increasing the eligibility of the maximum age factor of 2.4% from age 63 to 65. For non-safety CalPERS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor from age 55 to 62 and also increases the eligibility requirement for the maximum age factor of 2.5% to age 67.

The Reform Act also implements certain other changes to CalPERS and CalSTRS including the following: (a) all new participants enrolled in CalPERS and CalSTRS after the Implementation Date are required to contribute at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary, (b) CalSTRS and CalPERS are both required to determine the final compensation amount for employees based upon the highest annual compensation earnable averaged over a consecutive 36-month period as the basis for calculating retirement benefits for new participants enrolled after the Implementation Date (currently 12 months for CalSTRS members who retire with 25 years of service), and (c) “pensionable compensation” is capped for new participants enrolled after the Implementation Date at 100% of the federal Social Security contribution and benefit base for members participating in Social Security or 120% for CalSTRS and CalPERS members not participating in social security.

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 (except as already announced). CalSTRS and CalPERS liabilities are more fully described in APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2014,” Note 14.

GASB 67 and 68. In June 2012, the Governmental Accounting Standards Board approved a pair of related statements, GASB 67, Financial Reporting for Pension Plans (“GASB 67”), which addresses financial reporting for pension plans, and GASB 68, Accounting and Financial Reporting for Pensions (“GASB 68”), which establishes new accounting and financial reporting requirements for governments that provide their employees with pensions. The guidance contained in these statements will change how governments calculate and report the costs and obligations associated with pensions. GASB 67 replaces the current requirements of GASB 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, for most public employee pension plans, and GASB 68 replaces the current requirements of GASB 27, Accounting for Pensions by State and Local Governmental Employers, for most government employers. The new statements also replace the requirements of GASB 50, Pension Disclosures, for those governments and pension plans. Certain of the major changes include: (i) the inclusion of unfunded pension liabilities on the government’s balance sheet (such unfunded liabilities are currently typically included as notes to the government’s financial statements); (ii) full pension costs would be shown as expenses regardless of actual contribution levels; (iii) lower actuarial discount rates would be required to be used for most plans for certain purposes of the financial statements, resulting in increased liabilities 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. GASB 67 took effect in fiscal years beginning after June 15, 2013, and GASB 68 took effect in fiscal years beginning after June 15, 2014.

Other Post-Employment Benefits (“OPEB”). The District implemented GASB Statement No. 45, Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions, during the year ended June 30, 2008, recognizing OPEB liabilities in its audited financial reports. The Post-Employment Benefit Plan (the “OPEB Plan”) is a single-employer defined benefit healthcare plan administered by the District. The OPEB Plan provides medical and dental insurance benefits to eligible retirees and their spouses. As of June 30, 2013, membership of the OPEB Plan consists of 245 retirees and beneficiaries currently receiving benefits, and 1,863 active OPEB Plan members. The contribution requirements of OPEB Plan members and the District are established and may be amended by the District and the Grossmont Education Association (“GEA”), the local California Service Employees Association (“CSEA”), and the local Service Employees International Union (“SEIU”). The required contribution is based on projected pay-as-you-go financing requirements. In fiscal year 2013-14, the annual OPEB cost for the OPEB Plan was $6,135,215. The District contributed 65.5% of the annual required contribution to the plan, or $4,019,496, all of which was used for current premiums. The net obligation for fiscal year 2013-14 was $17,516,649. For fiscal year 2014-15, the District projects an annual required contribution

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of $6,540,926 and a pay-as-you-go amount of $2,405,821. See “APPENDIX B – AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2014,” Note 15.

The District undertook an actuarial study, which was completed May 29, 2014. In the actuarial valuation, the projected unit credit method was used. The actuarial assumptions included a 5% investment rate of return, based on the OPEB Plan being funded in an irrevocable employee benefit trust invested in a long-term fixed income portfolio. The unfunded accumulated actuarial liability is being amortized at a level dollar method over an initial 30 years. The District’s actuarial accrued liability as of June 30, 2013 was $50,239,240. The District commenced prefunding for retiree health benefits through the California Employers’ Retiree Benefit Trust (CERBT) in June 2014. As of December 2014, the District has contributed approximately $3.1 million to CERBT.

Accrued Vacation and other Obligations. The long-term portion of accumulated and unpaid employee vacation for the District as of June 30, 2014 was $2,612,603.


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Summary of District Revenues and Expenditures

The following tables summarize the District’s actual or projected general fund revenue, expenditures and fund balances for fiscal years 2010-11 through 2014-15. The following table presents audited figures in a format showing expenditures by object rather than by function. See also APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2014” for the District’s audited financial statements for the year ending June 30, 2014.

GROSSMONT UNION HIGH SCHOOL DISTRICT General Fund

Revenues, Expenditures and Fund Balances 2010-11 through 2014-15

2010-11 Actuals

2011-12 Actuals

2012-13 Actuals

2013-14 Actuals

2014-15 Projected

Revenue/Receipts Revenue Limit/LCFF Sources $ 116,638,153 $ 112,914,145 $ 108,422,328 $ 129,545,694 $ 135,289,626

State Aid 58,697,614 55,093,457 42,787,910 67,419,275 77,050,900 Local Sources 69,346,525 70,763,244 78,923,169 77,445,216 80,850,175 Transfers (11,405,986) (12,942,556) (13,288,751) (15,318,797) (22,611,449)

Federal Revenue 21,447,297 13,534,764 11,366,375 11,847,681 12,635,766 Other State Revenue 36,720,505 26,726,819 26,327,679 10,499,301 7,764,720 Other Local Revenue 29,246,838 25,404,589 24,159,022 25,720,914 24,218,692

TOTAL $ 204,052,793 $ 178,580,317 $ 170,275,404 $ 177,612,555 $ 179,908,804

Expenditures/Disbursements Certificated Salaries $ 81,357,778 $ 79,974,654 $ 77,083,257 $ 77,916,760 $ 81,016,316 Classified Salaries 36,654,921 36,581,238 35,166,496 35,441,146 36,509,164 Employee Benefits 38,909,902 37,167,454 36,210,879 35,134,311 38,132,762 Books and Supplies 6,808,688 6,652,451 6,687,244 9,307,127 10,206,826 Services/Other Operating Expenditures 22,795,796 21,998,910 19,642,369 22,810,052 20,822,636 Capital Outlay 412,405 489,208 1,257,771 1,090,539 798,240 Other Outgo (excluding

Transfers of Indirect/Direct Support Costs) 1,471,803 1,712,751 1,489,669 712,252 748,607

Transfers of Indirect/Direct Supports Costs (789,045) (874,952) (769,628) (968,204) (763,098)

TOTAL $ 187,622,248 $ 183,701,714 $ 176,768,057 $ 181,443,983 $ 187,471,453

Excess of Revenues Over/(Under) Expenditures $ 16,430,545 $ (5,121,397) $ (6,492,653) $ (3,831,428) $ (7,562,649) Other Financing Sources/(Uses)

Transfers In 41,181 3,147,913 97,117 30,628 50,000 Transfers Out (8,013,077) (2,383,934) (88,554) – -- Other Uses – – – – --

TOTAL $ (7,971,896) $ 763,979 $ 8,563 $ 30,628 $ 50,000 Fund Balance, Beginning $ 27,835,100 $ 33,159,076 $ 28,801,658 $ 22,317,568 $ 18,516,768 Fund Balance, Ending $ 36,293,749 $ 28,801,658 $ 22,317,568 $ 18,516,768 $ 11,004,119 _______________________ Sources: District’s audited financial statements for fiscal years ended June 30, 2011, 2012; 2013; 2014; District’s Second Interim Report for fiscal year ended 2015.

As shown in the previous table, the District’s expenditures exceeded its revenues in fiscal years 2011-12, 2012-13, and 2013-14, and expenditures are also projected to exceed the District’s Revenues in fiscal year 2014-15.

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In these years when the District has run a deficit, such deficit has been filled by drawing down the District’s General Fund balance. The District’s 2014-15 Second Interim Report projects that revenues will increase approximately 1.3% to approximately $179.9 million, expenditures will increase approximately 3.3% to approximately $187.5 million, and the year-end balance will decrease approximately 40.9% to approximately $11.0 million, continuing the trend of drawing down the District’s fund balance.

District Debt Structure and Long Term Obligations

Certain of the District’s outstanding indebtedness is described below. For a further discussion of the District’s outstanding indebtedness, see “APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2014,” Note 10.

General Obligation Bonds. On June 17, 2004, the District issued $60,841,197.25 of its General Obligation Bonds, Election of 2004, Series 2004 (the “Series 2004 Bonds”) to finance the construction of new schools, financing site acquisition costs and the redemption of outstanding certificates of participation issued by the District in 1991 and 1997. The final maturity of the Series 2004 Bonds is June 1, 2029, and the bonds have interest or compounding rates of 5.53% - 5.92%. As of February 1, 2015, Series 2004 Bonds totaling $14,521,197.25 were still outstanding.

On June 21, 2006, the District issued $124,999,224.95 of its General Obligation Bonds, Election of 2004, Series 2006 (the “Series 2006 Bonds”) to finance the modernization of existing school facilities. The final maturity of the Series 2006 Bonds is June 1, 2031, and the bonds have interest or compounding rates of 4.91% to 5.05%. As of February 1, 2015, Series 2006 Bonds totaling $50,509,224.95 were still outstanding.

On August 5, 2008, the District issued $88,159,577.80 of its General Obligation Bonds, Election of 2004, Series 2008 (the “Series 2008 Bonds”) to finance the modernization of existing school facilities. The final maturity of the Series 2008 Bonds is August 1, 2033, and the bonds have interest or compounding rates of 3.50% to 6.45%. As of February 1, 2015, Series 2008 Bonds totaling $85,169,672.70 were still outstanding. No unused authorization remains for the Election of 2004 bonds.

On April 15, 2009, the District issued $60,000,000 of its General Obligation Bonds, Election of 2008, Series A (the “Series A Bonds”) to finance construction, improvement and modernization project approved by the voters. The final maturity of the Series A Bonds is August 1, 2033, and the bonds have interest rates of 4.00% to 5.50%. As of February 1, 2015, Series A Bonds totaling $51,170,000 were still outstanding.

On August 18, 2010, the District issued $80,000,000 of its General Obligation Bonds, Election of 2008, Series B (the “Series B Bonds”) to finance construction, improvement and modernization project approved by the voters. The final maturity of the Series B Bonds is August 1, 2045, and the bonds have interest rates of 4.625% to 5.500%. As of February 1, 2015, Series B Bonds totaling $80,000,000 were still outstanding.

On May 25, 2011, the District issued $15,000,000 of its General Obligation Bonds, Election of 2008, Series C (the “Series C Bonds”) and $25,000,000 of its General Obligation Bonds, Election of 2008, Series D (the “Series D Bonds”) to finance construction, improvement and modernization project approved by the voters. The final maturity of the Series C Bonds is August 1, 2036, and the bonds have interest rates of 4.50% to 5.50%. The final maturity of the Series D Bonds is August 1, 2025, and the bonds have an interest rate of 5.479%. As of February 1, 2015, Series C Bonds totaling $15,000,000 and Series D Bonds totaling $25,000,000 were still outstanding. The Series D Bonds are designated as qualified school construction bonds under Section 54F of the Code, entitling the District to receive subsidies for the interest cost of such bonds. The federal Balanced Budget and Emergency Deficit Control Act of 1985, as amended, included provisions that reduced the direct subsidy payments made pursuant to Section 6431 of the Code by 7.2%, or approximately $90,540 with respect to the District. Without Congressional intervention, the sequestration rate is subject to change in the federal fiscal year. The District cannot predict whether or how subsequent sequestration actions may affect subsidy payments currently scheduled for receipt in future federal fiscal years.

On November 22, 2011, the District issued $10,260,000 of its General Obligation Refunding Bonds, Election of 2004, Series 2011A (the “Series 2011A Refunding Bonds”) and $10,660,000 of its General Obligation

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Refunding Bonds, Election of 2004, Series 2011B (the “Series 2011B Refunding Bonds”) to refund a portion of its outstanding Obligation Refunding Bonds, Election of 2004, Series 2004. The final maturity of the Series 2011A Refunding Bonds is August 1, 2020, and the bonds have interest rates of 4.00% to 5.00%. The final maturity of the Series 2011B Refunding Bonds is August 1, 2017, and the bonds have an interest rate of 1.427%-3.028%. As of February 1, 2015, Series 2011A Refunding Bonds totaling $10,260,000 and Series 2011B Refunding Bonds totaling $7,740,000 were still outstanding.

On May 17, 2012, the District issued $54,515,000 of its General Obligation Refunding Bonds, Election of 2004, Series 2012 (the “2012 Refunding Bonds”) to advance refund a portion of its outstanding General Obligation Bonds, Election of 2004, Series 2006. The final maturity of the 2012 Refunding Bonds is August 1, 2023, and the bonds have interest rates of 3.00% to 5.00%. As of February 1, 2015, 2012 Refunding Bonds totaling $53,625,000 were still outstanding.

On November 13, 2013, the District issued $40,000,000 of its General Obligation Bonds, Election of 2008, Series E. The final maturity of the 2013 Bonds is August 1, 2043, and the bonds have interest rates of 2.00% to 5.00%. As of February 1, 2015, 2013 Bonds totaling $38,800,000 were still outstanding.

The principal amount outstanding does not include the accreted value on those portions of the General Obligation Bonds, Election of 2004 and the General Obligation Bonds, Election of 2008 that were issued as Capital Appreciation Bonds. See “APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2012”,” Note 9.

GROSSMONT UNION HIGH SCHOOL DISTRICT Outstanding General Obligation Bonded Debt

Issue Date

Final Maturity

Date

Coupon or Compounding

Rate(s)

Original Principal Amount

Outstanding as of February 1, 2015

06/17/2004 06/01/2029 5.530 – 5.920% $ 60,841,197.25 $14,521,197.25 06/21/2006 06/01/2031 4.910 – 5.050 124,999,224.95 50,509,224.95 08/05/2008 08/01/2033 3.500 – 6.450 88,159,577.80 85,169,672.70 04/15/2009 08/01/2033 4.000 – 5.500 60,000,000.00 51,170,000.00 08/18/2010 08/01/2045 4.625 – 5.500 80,000,000.00 80,000,000.00 05/25/2011 08/01/2036 4.500 – 5.500 15,000,000.00 15,000,000.00 05/25/2011 08/01/2025 5.479 25,000,000.00 25,000,000.00 11/22/2011 08/01/2020 4.000 – 5.000 10,260,000.00 10,260,000.00 11/22/2011 08/01/2017 1.427 – 3.028 10,660,000.00 7,740,000.00 05/17/2012 08/01/2023 3.000 – 5.000 54,515,000.00 53,625,000.00 11/13/2013 08/01/2043 2.000 – 5.000 40,000,000.00 38,800,000.00

Total $ 569,435,000.00 $431,795,094.90 The District is entitled to receive subsidy payments for all or a portion of interest payments on its Series D

Bonds issued as qualified school construction bonds.

Lease Revenue Bonds. In July 1995, the San Diego County Educational Facilities Authority No. 1 (the “Facilities Authority”) sold $4,620,000 in lease revenue bonds (the “1995 Lease Revenue Bonds”) on behalf of the District and the San Diego County Board of Education (the “County Board”). The proceeds of the 1995 Lease Revenue Bonds were used to construct the East County Regional Education Center, which is used jointly by the District and the County Board and is located in the city of El Cajon, within the territory of the District. In November 2003, the Facilities Authority issued $4,155,000 principal amount of refunding bonds (the “2003 Lease Revenue Bonds”) to accomplish an advance refunding of the 1995 Lease Revenue Bonds to achieve debt service savings. The annual repayment of the 2003 Lease Revenue Bonds is shared equally by the District and the County. The bonds mature in 2019. The District’s required total lease payment is $1,417,936, which represents $1,212,500 principal and $205,436 interest. As of June 30, 2014, the District’s required remaining total lease payments are $885,299, representing $800,000 principal and $85.299 interest.

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Certificates of Participation. The District has no outstanding certificates of participation.

Tax and Revenue Anticipation Notes. On August 7, 2014, the District issued $20,000,000 of Tax and Revenue Anticipation Notes to finance cash shortfalls occurring in 2014-15. The Notes bear interest at 2.00%, and interest and principal are due and payable on June 30, 2015. The District made two deposits of pledged revenues into a repayment fund in January and April of 2015.

Capital Leases. The District leases facilities and equipment under agreements that provide for title to pass upon expiration of the lease period. Future minimum lease payments as of June 30, 2014, are as follows:

GROSSMONT UNION HIGH SCHOOL DISTRICT Annual Lease Payments

Capital Leases

Year Ended June 30, Annual

Lease Payments 2015 $ 251,567 2016 251,567 2017 251,568 2018 251,567 2019 87,744 Total $ 1,094,013

Capital Financing Plan

The District Board approved its original Long Range Facility Plan (the “Master Plan”) in October 2003, which led to the authorization of a bond issue (“Proposition H”) in 2004, and issuance, in 2004, 2006, and 2008, of an aggregate $274 million in facilities improvement bonds. Since 2004, substantial modernization work has been completed at each of the District’s campuses.

In June, 2008, the District undertook an update of the Master Plan, which identified additional facilities improvement needs of approximately $1 billion to (a) modernize campus facilities and structures at its eleven comprehensive high schools, one alternative education facility and several adult education facilities not anticipated in Proposition H, (b) complete the first phase of construction of a new high school, and (c) bring all campus facilities up to a common standard parity. The District expects to finance the school modernization and construction costs (“a” and “b” above) from the proceeds of voter-approved debt and State matching funds. The Proposition U bonding authority of $417 million, combined with expected State matching funds of approximately $81.9 million, are expected to fund up to 90% of these costs over the next five years. The District has not yet identified funding sources for the parity facilities improvements (“c” above) identified in the updated Master Plan. The Master Plan was further revised in October 2009 in order to accommodate programmatic improvements in career technical education, special education, and the arts.

Insurance, Risk Pooling and Joint Powers Arrangements

The District participates in joint ventures under joint powers agreements (“JPAs”) with the San Diego County Risk Management Authority (the “Risk Pool”) and the San Diego County Educational Facilities Authority No. 1 (the “Facilities Authority”). The relationship between the District and the JPAs is such that the JPAs are not component units of the District for financial reporting purposes.

The Risk Pool arranges for and provides workers’ compensation, property, and liability insurance and other programs for various school districts in the County. The governing board of the Risk Pool is comprised of a representative from each member school district. The Risk Pool has budgeting and financial reporting requirements independent of the participating school districts. During the year ended June 30, 2014, the District made payment of $3,141,789 to San Diego County School Risk Management for premiums.

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The Facilities Authority is a JPA of the District and the County Board that was established to provide funding for a joint use educational facility (the “Joint Use Facility”). The governing board of the Facilities Authority is comprised of two representatives from each of the two participants. For information on financing related to the funding of the Joint Use Facility, see “Lease Revenue Bonds” above.

The District is not a member of any other joint powers agencies or authorities. See APPENDIX B – “AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2012,” Note 14.

SCHOOL DISTRICT BUDGET PROCEDURES AND REQUIREMENTS

District Budget Process and County Review

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

Under current law, a school district governing board must adopt and file with the county superintendent of schools a tentative budget by July 1 in each fiscal year. The District is under the jurisdiction of the San Diego County Superintendent of Schools.

The county superintendent must review and approve or disapprove the budget no later than August 15. The county superintendent is required to examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance with the established standards. If the budget is disapproved, it is returned to the District with recommendations for revision. The District is then required to revise the budget, hold a public hearing thereon, adopt the revised budget and file it with the county superintendent no later than September 8. Pursuant to State law, the county superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved. After approval of an adopted budget, the school district’s administration may submit budget revisions for governing board approval.

Subsequent to approval, the county superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the county superintendent determines that a district cannot meet its current or subsequent year obligations, the county superintendent will notify the district’s governing board of the determination and may then do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the county superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district’s budget and operations; (ii) develop and impose, after also consulting with the district’s board, revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the county superintendent may not abrogate any provision of a collective bargaining agreement that was entered into prior to the date upon which the county superintendent assumed authority.

A State law adopted in 1991 (“A.B. 1200”) imposed additional financial reporting requirements on school districts, and established guidelines for emergency State aid apportionments. Under the provisions 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 by mid-March for the period ended January 31) as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent fiscal year. The county superintendent reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that is deemed unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. A school district that receives a qualified or negative certification may not issue tax and revenue anticipation notes or certificates of participation without approval by the county

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superintendent. The District received a positive certification on its first and second interim reports for fiscal year 2014-15.

Accounting Practices

The accounting policies of the District conform to generally accepted accounting principles in accordance with the definitions, instructions and procedures of the California School Accounting Manual, as required by 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 recognized in the period in which the liability is incurred.

Nigro & Nigro PC, Certified Public Accountants, serves as independent auditor to the District and its report for fiscal year ended June 30, 2014, is attached hereto as APPENDIX B. 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 excerpts herein that there has been no material change in the financial condition of the District since the audit was concluded.

The final (unaudited) statement of receipts and expenditures for each fiscal year ending June 30 is required by State law to be approved by the District’s Governing Board by September 15, and the audit report must be filed with the San Diego County Superintendent of Schools and State officials by December 15 of each year. The District is required by law to adopt its audited financial statements following a public meeting to be conducted no later than January 31 following the close of each fiscal year.

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS

Limitations on Revenues

On June 6, 1978, California voters approved Proposition 13 (“Proposition 13”), which added Article XIIIA to the State Constitution (“Article XIIIA”). Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness, and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities, approved by 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 approved at the elections of 2004 and 2008 falls within the exception for bonds approved by a 55% vote. Article XIIIA defines full cash value to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment.” This full cash value may be increased at a rate not to exceed 2% per year to account for inflation.

Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways.

County of Orange v. Orange County Assessment Appeals Board No. 3. Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently “recapture” such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor’s measure of the restoration of value of the damaged property. The constitutionality of this procedure was challenged in a lawsuit brought in 2001 in the Orange County Superior Court, and in similar lawsuits brought in other counties, on the basis that the decrease in assessed value creates a new “base year value” for purposes of Proposition 13 and that subsequent increases in the

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assessed value of a property by more than 2% in a single year violate Article XIIIA. On appeal, the California Court of Appeal upheld the recapture practice in 2004, and the State Supreme Court declined to review the ruling, leaving the recapture law in place.

Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1989.

Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the “taxing area” based upon their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years.

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

Article XIIIB of the California Constitution

An initiative to amend the State Constitution entitled “Limitation of Government Appropriations” was approved on September 6, 1979, thereby adding Article XIIIB to the State Constitution (“Article XIIIB”). Under Article XIIIB state and local governmental entities have an annual “appropriations limit” and are not permitted to spend certain moneys which are called “appropriations subject to limitation” (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the “appropriations limit.” Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of “appropriations subject to limitation,” including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the “appropriations limit” is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities’ revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.

In fiscal year 2013-14, the District had an appropriations limit of $113,496,191.44 and proceeds of taxes subject to such limit of $113,496,191.44, and estimates an appropriations limit in 2014-15 of $111,264,858.59. Any proceeds of taxes received by the District in excess of the allowable limit are absorbed into the State’s allowable limit.

Article XIIIC and Article XIIID of the California Constitution

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

According to the “Title and Summary” of Proposition 218 prepared by the California Attorney General, Proposition 218 limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.” Among other things, Article XIIIC establishes that every tax is either a “general tax” (imposed for general governmental purposes) or a “special tax” (imposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes,

A-40

assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the District. Developer fees imposed by the District are restricted as to use and are neither pledged nor available to pay the Bonds.

The District receives a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the California Constitution. The provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District.

Statutory Limitations

On November 4, 1986, State voters approved Proposition 62, an initiative statute limiting the imposition of new or higher taxes by local agencies. The statute (a) requires new or higher general taxes to be approved by 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 (d) required local agencies to stop collecting any new or higher general tax adopted after July 31, 1985, unless a majority of the voters approved the tax by November 1, 1988.

Appellate court decisions following the approval of Proposition 62 determined that certain provisions of Proposition 62 were unconstitutional. However, the California Supreme Court upheld Proposition 62 in its decision on September 28, 1995 in Santa Clara County Transportation Authority v. Guardino. 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 subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities.

Proposition 98 and Proposition 111

Under Proposition 98, a constitutional and statutory amendment adopted by the State’s voters in 1988 and amended by Proposition 111 in 1990 (now found at Article XVI, Sections 8 and 8.5 of the Constitution), a minimum level of funding is guaranteed to school districts, community college districts, and other State agencies that provide direct elementary and secondary instructional programs. See “DISTRICT FINANCIAL MATTERS – State Funding of Education; State Budget Process – Constitutional Provisions Governing School Finance” above.

Proposition 30

On November 6, 2012, voters approved Proposition 30, also referred to as the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment. Proposition 30 temporarily (a) increased the personal income tax on certain of the State’s income taxpayers by 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 by one-quarter percent for a period of four years beginning on January 1, 2013 and ending with the 2016 tax year. The revenues generated from such tax increases are included in the calculation of the Proposition 98 minimum funding guarantee (see “– Proposition 98 and Proposition 111” above). The revenues generated from such temporary tax increases are deposited into a State account created pursuant to Proposition 30 (the Education Protection Account), and 89% of the amounts therein are allocated to school districts and 11% of the amounts therein are allocated to community college districts.

The Proposition 30 tax increases are temporary and expire at the end of the 2016 and 2019 tax years. The District cannot predict the effect the loss of the revenues generated from such temporary tax increases will have on total State revenues and the effect on the Proposition 98 formula for funding schools.

A-41

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 how the provisions of Proposition 98 have been applied to school funding see “DISTRICT FINANCIAL MATTERS – State Funding of Education; State Budget Process.”

Future Initiatives

Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID, 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.

APPENDIX B

AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2014

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LA�MESA,�CALIFORNIA��

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GROSSMONT�UNION�HIGH�SCHOOL�DISTRICT�Notes�to�Financial�Statements�June�30,�2014��NOTE�1�–�SIGNIFICANT�ACCOUNTING�POLICIES��A. Reporting�Entity�

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1. Basis�of�Presentation��Government�Wide�Financial�Statements�;(��$��(��$��!��$� ��9��(�� !� ��G�(�� H��;(��(��$��!��$��(��!� ��!� ��+��-��$� �$�� !�� ,��(�!��9��8��(�� 9��"�� $� �� !�� !� �� !�� $�� ( ��(��-��+�� !� �� !��+��(� ��-�(�� ;(��$��!�� 9��#�� -�� !��$� ��(�$��$��(�� <��!� ��!�� -�� (��(�� $��#��(�� $��+��(� �$� �+�� $��9�� $��& �� !�� G�H� $��+� $��+� �� (� �� 9�� (�� $� �� !��$$� �� 9�� (�� G9H� � �� 9�� (�� (�� 5� �� $� �� !�� (�� $�� !��+��-��+�� !��Fund�Financial�Statements�;(��$��$�� !�� $� ��9��(�� <�� $��+� �� $�� $�� $� � ��(� $�� "�governmental+�proprietary+� �� fiduciary� "� � �� ;(�� (�� $� $�� $�� :� � ��!� �� $��+� ��(�� !� �� $�� "��:� �$��

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GROSSMONT�UNION�HIGH�SCHOOL�DISTRICT�Notes�to�Financial�Statements�June�30,�2014��NOTE�1�–�SIGNIFICANT�ACCOUNTING�POLICIES�(continued)��B. Basis�of�Presentation,�Basis�of�Accounting�(continued)�

�Major�Governmental�Funds�(continued)�

�Building�Fund:� �;(�� $�� $� ��(��5��$��:� ��!� ��$��9��$ ��(��$�� 9��9��County�School�Facilities�Fund:��;(��$��$� �� !��$� �� 8��$��(��$�� *3��Bond� Interest� and�Redemption�Fund:� � ;(�� $� � �(��$� �� $� +��(�� $+�� 9��+�� +��

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�Special�Revenue�Funds:��

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GROSSMONT�UNION�HIGH�SCHOOL�DISTRICT�Notes�to�Financial�Statements�June�30,�2014��NOTE�1�–�SIGNIFICANT�ACCOUNTING�POLICIES�(continued)�

�B. Basis�of�Presentation,�Basis�of�Accounting�(continued)�

�1. Basis�of�Presentation�(continued)�

�Proprietary�Funds�(continued)�

�Internal� Service� Funds:� �� !�� $�� !�� (� � � ��8�� $� �(�� " ��9 �� 9�� ;(�� $�� 9��$"�� #��(��(��$�$�� !� ��$��+�� $��(��$��+��( ��(�� $��(� ��

Self�Insurance�Fund:��;(��$��9��$� ��!��$� �#(��(�� !�� !�� (� � $��$� �(�� $� � �� $�� !� � �(�� $�� ;(�� $"�� $��$� ��$"�� (��(��#��$� ��9��$��!��$� ��(��(� ��9��$��

�Fiduciary�Funds�� $�� $�� (�� $�� (�� $� ��(� ��(� �$� ��9�� (�� #�� ;(�� $�� $�� G�� (� ��9��$��H�� $��+��!�� $��+�� !��"� �� $��+��$��;(�� (��$��#��$�� $��

�Foundation�Private�Purpose�Trust�Fund:�;(�� $�� $� ��$�� 9�5�� Education� Code� Section� )�3�� (�� 9��$�� !��+� � �!�� 8��+� � ��(� ��!� �� #(��(��(� �� 9��$� �� (�� (�� O��#�� Agency�Funds:�;(�� $�� $� ��(��(�� (�� G��H��+�#(��(� �� 8��

�Student�Body�Fund:�;(��$��+��(� �$� �+��$��(��(��9��9��+��(�� ;(�� 9�� $�� #�� $��+�#(��(� �� $� � �(�� $��(�� -�� (�� #��$� �+� �� +� ��-�� $��(��9��GEducation�Code�Sections�)12�34)12�1H��

�2. Measurement�Focus,�Basis�of�Accounting�

�Government�Wide,�Proprietary,�and�Fiduciary�Fund�Financial�Statements�;(�� !� ��"#��+� � �� +� �� $�� $�� $�� (�� $��(�� 9��$��!�� #(�� -�� (�� 9�� +� �� $�#(��(�� (� $��#�� D�� %��"�-�(�� +� ��#(��(� �(�� !�� G� � ��!��H�!��#��(�� !��G� ��!��H��5��!�� -�(��+� �� -��+�� +��+�� 7�� 9��+� �!��$ �� -�� 8��(��$�� #(��(��9�� 5� ��(�!��9��$��

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�B. Basis�of�Presentation,�Basis�of�Accounting�(continued)�

�2. Measurement�Focus,�Basis�of�Accounting�(continued)�

�Government�Wide,�Proprietary,�and�Fiduciary�Fund�Financial�Statements�(continued)�%��5��$� ��$��#��$� �� 9��$� ��$��#��$� �� %�� !�� $� �� +� �� $� �� +� �� 9�� (�� 9�� $� �� 9� �#�� $� � �(�� 5��+�� !�� $� �(�� ;(�� (�� 9�� #(�� (� ��-�� 9�� G��(��( ��(��9��!��H+�� +� �� 9�� +�� #�� $��(� ��!� �� 9�� #��( ��(� �� !�� 9�� ;(�� $� � ��(� ��!�� $ �� !��$��(�� (�� & �� $��(�� !��-��$ ��"�� 7�� !��-�� $ �� !�� !�� !� �� #��(� �� $��<�� ;(�� !��$��(�� !��$�� (� ��(� �$��$� ��$� �� 7�� -�� $� � �� !�� $�� (�� $� �� $"�� Governmental�Fund�Financial�Statements� �!� �� $�� (�� $�� $��(��$�� 9��$��?�� (��(��+� �!�� 8��#(�� 9��!��9��;(�� !�� (��!� ��$��9��!��9��$� �(�� !�� #��(�� /3� �� $�� "�� ,-�� #(�� (�� $��9�� +��-��$� �� "�� 9�+��:��+��9��+�#(��(�� 8��-�� (��-��(��(�!�� .�� 5�� -�� !� �� $��& ��$�� "�� 9��$��$ �� (� �$��

C. Budgetary�Data�;(�� 9�� 9�� 9�� !�� $� �(�� .��$� �� Education� Code� �� 5� �� (��!� ��9�� (��9��(�� 9�� (��B��$��(�� ;(�� !� ��9�� $��(�� 5� ��;(��9��9:��( ��(��(�� !�� !��-�� $ ��!��D��#��(��$�9��#��(��(�� (��-�� -�� 9��:� ��9:��;(�� (�� 9��(��9�� $��(��#(��(�� #� ��;(�� (��$��9��(��9�� $��(��$�� 9��(�!��9��$� �� 9�� +��9�(��$��(�!��9�� !��-�� 5� ��

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�D. Encumbrances�

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�E. Assets,�Deferred�Outflows�of�Resources,�Liabilities,�and�Net�Position�

�1. Cash�and�Cash�Equivalents�

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2. Inventories�and�Prepaid�Items��!�� !��(��$� ��"��P$� ��"��G��7H��(��;(��$��!� ��$��"��!�� -�� #(�� (� ��(��#(�� (��.� ��!�� $��9��$� ��

3. Capital�Assets�& �(�� (�� $�-�� (�� $�� !��(��$��;(�� 8��( ��(��$�E*+333��;(��$�� (��(��!��$��(�� -��<��!�� 8��.�� (�� (�"�� (�� !� � �(�� $��#�� $��!��

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�4. Compensated�Absences�

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5. Property�Tax�Calendar�;(��.�� 9��$� ��(��+��+�� $�� -��$� ��: ��(��(�� #��(��(��.��;(�� $�� !�� !�� -��$��9� �� !��B�� -�� #��5��;(��$� �� %�!��9� ��5��#��(��9� ��3+��(�� 9 � ��5��#��(�� 3�� -��9��(�� B��

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NOTE�1�–�SIGNIFICANT�ACCOUNTING�POLICIES�(continued)��

E. Assets,�Deferred�Outflows�of�Resources,�Liabilities,�and�Net�Position�(continued)��

6. Fund�Balances�;(��$��9��$� ��!� ��$�� $��9��(��-��#(��(��(��!� �� 9��(�� (��$�� $� �#(��(�� (��$��9��

Nonspendable�� ;(�� 9�� $�� 9�� $�� $�� (�� 9�� $� �� ,-�� !�� +� � �� +� �(�� "�� $� �� !�9��+��$��(��$� � ��;(��$�� $��(�� 9��$� ��9��(�� 5� �� +��(��(�� $�� #��

Restricted��;(�� $��9��$�� $��9:��-�� $� ��9�� (� �� 9�� 9�� +� � �� +�� 9�� +� � � ��#�� $� ��(� � ��!� ��+� � � �� 9�� 9�� #� �( ��(�� !�� 9��

Committed�� ;(�� $�� 9�� $�� $�� 9:�� $�� 9�� $� �� $� �(�� !� �� ;(�� !�� $��9��9�� (��(��$� �(�� ;(�� 9�� 9��5�� (�� 9�� (�� $� �(�� $�� $��9��+��$��9��9�� 9��(��!� �� (� � � �� (�� !�� $�� (�� +��#(��(��(��#� ��+��(��+�9��(��$� ��$��(�� !� �� ;(��$� �� 5� ��:� ��!��9��(�� !� ��

Assigned��;(��$��9��$�� $��(��(��!� ��intends��9��$� ��$�� 9��9��(��(� �9��(�� !� �� 9�� $� �(�� !� �� 9��+� �� 9:�� (� � �(�� !�� $�� (�� !�� $��9��+�� !�� $��9�� 5� ��9�� +��$��+�� !��9��$� ��$��(�� !� �� ;(�� 5� ��(��!��$�$� ��9��(� � 9�� $$�� +� �(�� 9�� 9�$� �� (�� $� �(�� +�9�� (� ��9�� (��$��(��$��;(�� !� �� (� �8��(�� (�� $��$��$��9��L��M�#(��(� ��(��$��$� ��$��

Unassigned�� (�� +� �(�� $�� 9�� $�� $�� (�� 9��(��(��9��(� �$��(�� +��+�� $�� @�#�!� +��$��$��+��(�� (��9�� 9�� (� � � �� !��$��9��

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��NOTE�1�–�SIGNIFICANT�ACCOUNTING�POLICIES�(continued)��

E. Assets,�Deferred�Outflows�of�Resources,�Liabilities,�and�Net�Position�(continued)��

7. Deferred�Outflows/Inflows�of�Resources�� +� �(�� $� �� #�� $� ��$� �� $��#�� $� �� ;(�� $�� +� deferred� outflows� of�resources+� �� $��(��$� �� #��9�� 8��$��#��$� �� G�-��P�-�� H�� (�� ;(�� (��(��5��$��$� � �� (�� ;(��$� �� $��+�#(��(� ��$ ��(��$$� ��(�� !��$� �$��9�� 5�� ;(��(�#��$� �� 8��!� ��(��(� �� $��(��$��$��(�� $�� $��9�� 9��+� �(�� $��#�� $� ��$� �� $��#�� $� �� ;(�� $�� +� deferred� inflows� of�resources+� �� 5�� $� �� (�� $� �� #�� 9�� 8��$��#��$� �� G �!��H��(��;(�� (��$� ��$��#��$� ��

�8. Net�Position�

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�F. Use�of�Estimates�

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GROSSMONT�UNION�HIGH�SCHOOL�DISTRICT�Summary�Schedule�of�Prior�Audit�Findings��For�the�Fiscal�Year�Ended�June�30,�2014�

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C-1

APPENDIX C

PROPOSED FORM OF OPINION OF BOND COUNSEL

[Dated Date]

Governing Board Grossmont Union High School District El Cajon, California

Grossmont Union High School District (San Diego County, California)

2015 General Obligation Bonds (Election of 2008, Series F) (Final Opinion)

Ladies and Gentlemen:

We have acted as bond counsel to the Grossmont Union High School District (the “District”), which is located in the County of San Diego, California (the “County”), in connection with the issuance by the District of $68,746,678.20 aggregate principal amount of bonds designated as “Grossmont Union High School District 2015 General Obligation Bonds (Election of 2008, Series F) (the “Bonds”). The Bonds are issued under and pursuant to a resolution of the Governing Board of the District adopted on April 16, 2015 (the “Resolution”) and a Paying Agent Agreement, dated as of May 1, 2015 (the “Paying Agent Agreement”), by and between the District and the County of San Diego, California, Office of the Treasurer-Tax Collector, as paying agent (the “Paying Agent”). Capitalized terms used but not defined herein shall have the meanings set forth in the Paying Agent Agreement.

In such connection, we have reviewed the Paying Agent Agreement, the Resolution, the resolution of the County adopted on May 5, 2015 (the “County Resolution”), the tax certificate for the Bonds of the District, dated the date hereof (the “Tax Certificate”), certificates of the District, the Paying Agent, the County 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 cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted 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 and the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Paying Agent Agreement, the Resolution, the County Resolution and the Tax Certificate, including (without limitation) covenants 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 Paying Agent Agreement, the Resolution, the County Resolution and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, 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

C-2

limitations on legal remedies against school districts and counties in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, 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-exclusivity of remedies, waiver or severability provisions contained in the documents mentioned in the preceding sentence. We also express no opinion regarding the accreted value table or calculation set forth or referred to in any of the Bonds or in the Paying Agent Agreement. 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 material relating to the Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Bonds constitute valid and binding obligations of the District.

2. The Resolution has been duly and legally adopted and constitutes a valid and binding obligation of the District.

3. The Paying Agent Agreement has been duly and legally executed and delivered by, and constitutes a valid and binding obligation of, the District.

4. The Board of Supervisors of the County has power and is obligated to levy ad valorem taxes without limitation as to rate or amount upon all property within the District’s boundaries subject to taxation by the District (except certain personal property which is taxable at limited rates) for the payment of the Bonds and the interest thereon.

5. 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 minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum 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

per

D-1

APPENDIX D

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”), dated June 4, 2015, is executed and delivered by the Grossmont Union High School District (the “District”) in connection with the issuance of the above-named bonds (the “Bonds”). The Bonds are being issued pursuant to a resolution (the “Resolution”) adopted by the Governing Board of the District on April 16, 2015, and in accordance with the terms of a Paying Agent Agreement, dated as of May 1, 2015 (the “Paying Agent Agreement”), by and between the District and the County of San Diego, California, Office of the Treasurer-Tax Collection (the “Paying Agent”). The District covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission (“S.E.C.”) Rule 15c2-12(b)(5).

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

“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Beneficial Owner” shall mean any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).

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

“Holder” shall mean the person in whose name any Bond shall be registered.

“Listed Events” shall mean any of the events listed in Section 5(a) or (b) of this Disclosure Certificate.

“MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the S.E.C., filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.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 by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

SECTION 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District’s fiscal year (currently ending June 30), commencing with the report for the fiscal year of the District ending June 30, 2015 (which is due not later than April 1, 2016), provide to the Participating Underwriter and the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided, that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(e).

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(b) Not later than 15 business days prior to said date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If the District is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the District shall send a notice to the MSRB in substantially the form attached as Exhibit A.

(c) The Dissemination Agent shall (if the Dissemination Agent is other than the District), file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided to the MSRB.

SECTION 4. Content of Annual Reports. The District’s Annual Report shall contain or include by reference the following:

(a) 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 by the Controller of the State of California. If the District’s audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be provided to the MSRB in the same manner as the Annual Report when they become available.

To the extent not included in the audited financial statement of the District, the Annual Report shall also include the following:

(b) The District’s approved annual budget for the then-current fiscal year;

(c) Assessed value of taxable property in the District as shown on the most recent equalized assessment role;

(d) District outstanding debt.

(e) If the County no longer includes the tax levy for payment of the Bonds in its Teeter Plan, the property tax levies, collections, and delinquencies for the District for the most recently completed fiscal year; and

(f) Top ten property owners in the District for the then-current fiscal year, as measured by secured assessed valuation, the amount of their respective taxable value, and their percentage of total secured assessed value, if material.

Any or all of the items listed above may be set forth in one or a set of documents or may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB website. If the document included by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.

(a) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds not later than ten business days after the occurrence of the event:

1. Principal and interest payment delinquencies;

2. Unscheduled draws on debt service reserves reflecting financial difficulties;

3. Unscheduled draws on credit enhancements reflecting financial difficulties;

4. Substitution of credit or liquidity providers, or their failure to perform;

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5. Issuance by the Internal Revenue Service of proposed or final determination of taxability 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 similar event of the obligated person.

Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment 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 governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.

(b) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, not later than ten business days after the occurrence of the event:

1. Unless described in paragraph 5(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds;

2. Modifications to rights of Bond holders;

3. Optional, unscheduled or contingent Bond calls;

4. Release, substitution, or sale of property securing repayment of the Bonds;

5. Non-payment related defaults;

6. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or

7. Appointment of a successor or additional paying agent or the change of name of a paying agent.

(c) The District shall give, or cause to be given, in a timely manner, notice of a failure to provide the annual financial information on or before the date specified in Section 3, as provide in Section 3(b).

(d) Whenever the District obtains knowledge of the occurrence of a Listed Event described in Section 5(b), the District shall determine if such event would be material under applicable federal securities laws.

(e) If the District learns of the occurrence of a Listed Event described in Section 5(a), or determines that knowledge of a Listed Event described in Section 5(b) would be material 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 format, accompanied by such identifying information as is prescribed by the MSRB. Notwithstanding the

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foregoing, notice of the Listed Event described in subsections (a)(7) or (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 Resolution.

SECTION 6. Termination of Reporting Obligation. The District’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(e).

SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the District.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, 5(a) or 5(b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(c), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate; provided, that any such action may be instituted only in Superior Court of the State of California in and for the County or in U.S. District Court in or nearest to the County. The sole

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remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

IN WITNESS WHEREOF, the undersigned has executed and delivered this Continuing Disclosure Certificate on the date as first written above.

GROSSMONT UNION HIGH SCHOOL DISTRICT

By: Scott H. Patterson

Deputy Superintendent, Business Services

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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: GROSSMONT UNION HIGH SCHOOL DISTRICT

Name of Bond Issue: GROSSMONT UNION HIGH SCHOOL DISTRICT 2015 GENERAL OBLIGATION BONDS (ELECTION OF 2008, SERIES F)

Date of Issuance: June 4, 2015

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the District, dated the Date of Issuance. [The District anticipates that the Annual Report will be filed by _____________.]

Dated: _______________

GROSSMONT UNION HIGH SCHOOL DISTRICT By [to be signed only if filed]

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APPENDIX E

SAN DIEGO COUNTY INVESTMENT POOL

The following information concerning the Treasury Pool of San Diego County (the “Treasury Pool”) has been provided by the Treasurer and has not been confirmed or verified by the District or the Underwriters. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained or incorporated hereby by reference is correct as of any time subsequent to its date.

In accordance with Government Code Section 53600 et seq., the Treasurer manages funds deposited with it by the District. The County is required to invest such funds in accordance with California Government Code Sections 53635 et seq. In addition, counties are required to establish their own investment policies which may impose limitations beyond those required by the Government Code.

All investments in the Treasurer’s investment portfolio conform to the statutory requirements of Government Code Section 53635 et seq., authorities delegated by the County Board of Supervisors and the Treasurer’s investment policy.

General

Pursuant to a resolution adopted July 8, 1958, the Board of Supervisors delegated to the County Treasurer the authority to invest and reinvest funds of the County. Applicable law limits this delegation of authority to a one-year period and must be renewed annually by action of the Board of Supervisors. In addition to funds of the County (and the various departments in the County, such as Public Works and Public Administration), funds of certain local agencies within the County, including school districts in the County, are required under state law to be deposited into County Treasury (“Involuntary Depositors”). In addition, certain agencies, including community college districts, invest certain of their funds in the County Treasury on a voluntary basis (“Voluntary Depositors” and together with the Involuntary Depositors, the “Depositors”). Deposits made by the County and the various local agencies are commingled in a pooled investment fund (the “Treasury Pool” or the “Pool”). No particular deposits are segregated for separate investment.

Under State law, Depositors in the Pool are permitted to withdraw funds which they have deposited on 30 days notice. The County does not expect that the Pool will encounter liquidity shortfalls based on its current portfolio and investment guidelines or realize any losses that may be required to be allocated among all Depositors in the Pool.

The County has established an Oversight Committee pursuant to State law. The members of the Oversight Committee include the County Treasurer, the County Auditor, the County Superintendent of Schools or designee, a representative from special districts, a representative from school districts and community college districts in the County, and members of the public. The role of the Oversight Committee is to review and approve the Investment Policy that is prepared by the County Treasurer.

The Treasury Pool’s Portfolio

As of March 31, 2015, the securities in the Treasury Pool had a market value of $7,218,514,783 and a book value of $7,209,750,747, for a net unrealized gain of $8,764,035 of the book value of the Treasury Pool.

The effective duration for the Treasury Pool was 0.75 years as of March 31, 2015. “Duration” is a measure of the price volatility of the portfolio and reflects an estimate of the projected increase or decrease in the value of the portfolio based upon a decrease or increase in interest rates. A duration of 0.75 means that for every one percent increase in interest rates the market value of the portfolio would decrease by 0.75%.

As of March 31, 2015, approximately 8.23% of the total funds in the Pool were deposited by Voluntary Depositors, such as cities and fire districts, 8.77% by community colleges, 42.23% by the County, 2.65% by the Non-County and 38.12% by K-12 school districts.

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Standard & Poor’s Ratings Group maintains ratings of “AAAf” (extremely strong protection against losses and credit defaults) and “S-1” (low sensitivity to changing market conditions) on the Pool. The ratings reflect only the view of the rating agency and any explanation of the significance of such ratings may be obtained from such rating agency as follows: Standard & Poor’s Rating Services, a Division of McGraw-Hill Companies, Inc., 55 Water Street, New York, New York 10041.

Investments of the Treasury Pool

Authorized Investments: Investments of the Pool are placed in those securities authorized by various sections of the California Government Code, which include obligations of the United States Treasury, Agencies of the United States Government, local and State bond issues, bankers acceptances, commercial paper of prime quality, certificates of deposit (both collateralized and negotiable), repurchase and reverse repurchase agreements, medium term corporate notes, shares of beneficial interest in diversified management companies (mutual funds), and asset backed (including mortgage related) and pass-through securities.

Generally, investments in repurchase agreements cannot exceed a term of one year and the security underlying the agreement shall be valued at 102% or greater of the funds borrowed against the security and the value of the repurchase agreement shall be adjusted no less than quarterly. In addition, reverse repurchase agreement generally may not exceed 20% of the base value of the portfolio and the term of the agreement may not exceed 92 days.

Securities lending transactions are considered reverse repurchase agreements for purposes of this limitation. Base Value is defined as the total cash balance excluding any amounts borrowed (i.e., amounts obtained through selling securities by way of reverse repurchase agreements or other similar borrowing methods).

Legislation which would modify the currently authorized investments and place restrictions on the ability of municipalities to invest in various securities is considered from time to time by the California State Legislature. At all times, the Pool’s investments will comply with California Government Code and the County’s Investment Policy (the “Investment Policy”).

The Investment Policy: The Investment Policy currently states the primary goals of the County Treasurer when investing public funds to be as follows: the primary objective is to safeguard the principal of the funds under the County Treasurer’s control, the secondary objective is to meet the liquidity needs of the Pool Participants, and the third objective is to achieve an investment return on the funds under the control of the County Treasurer within the parameters of prudent risk management. The Investment Policy contains a goal that 50% of the Pool should be invested in securities maturing in one year or less, with the remainder of the portfolio being invested in debt securities with maturities spread over more than one year to five years. Furthermore, at least 25% of the securities must mature within 90 days. The maximum effective duration for the Pool shall be 1.50 years.

With respect to reverse repurchase agreements, the Investment Policy provides for a maximum maturity of 92 days (unless the reverse repurchase agreement includes a written guarantee of a minimum earning or spread for the entire period of such agreement) and a limitation on the total amount of reverse repurchase agreements and/or securities lending agreements to 20% of the total investments in the Pool. The Investment Policy states that the uses of reverse repurchase agreements shall be to invest the proceeds from the agreement into permissible securities that have the highest short-term credit ratings; to supplement the yield on securities owned by the Pool; or to provide funds for the immediate payment of an obligation. The maturity of the reverse repurchase agreement and the maturity of the security purchased shall be the same.

The County from time to time has engaged in securities lending transactions. Generally, these transactions involve the transfer by the governmental entity, through an agent, of securities to certain broker-dealers and financial institutions or other entities in exchange for collateral, and this collateral may be cash or securities. Most commonly, these transactions provide for the simultaneous return of the collateral to the securities borrower upon receipt of the same securities at a later date. Presently, the County has suspended its securities lending transactions program, but may decide to enter into a securities lending agreement in the future. Any such securities lending transactions are considered reverse repurchase agreements under the Investment Policy and, accordingly, the total principal amount of reverse repurchase agreements and securities lending agreements may not exceed 20% of the

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Pool. Since the inception of the County’s securities lending program in 1987, there has not been any loss of principal to the Pool resulting from these securities lending transactions or the investment of the related collateral.

The Investment Policy also authorizes investments in covered call options and put options, which are options that the Treasurer sells to a third party the right to buy an existing security in the Pool or sell a security to the Pool, both at a specific price within a specific time period. Under the Investment Policy, securities subject to covered calls are not to be used for reverse repurchase agreements; cash sufficient to pay for outstanding puts are to be invested in securities maturing on or before the expiration date of the option; the maximum maturity of a covered call option/put option is to be 90 days and not more than 10% of the total investments in the Pool could have options written against them at any given time.

Certain Information Relating to Pool

The following table reflects information with respect to the Pool as of the close of business March 31, 2015. As described above, a wide range of investments is authorized by state law. Therefore, there can be no assurances that the investments in the Pool will not vary significantly from the investments described below. In addition, the value of the various investments in the Pool will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Therefore, there can be no assurance that the values of the various investments in the Pool will not vary significantly from the values described below. In addition, the values specified in the following table were based upon estimates of market values provided to the County by a third party. Accordingly, there can be no assurance that if these securities had been sold on March 31, 2015, the Pool necessarily would have received the values specified.

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TREASURER-TAX COLLECTOR SUMMARY OF SAN DIEGO CITY PORTFOLIO STATISTICS

AS OF MARCH 31, 2015

Percent of

Portfolio WAM WAC YTM Current Par/

Share Current Book Market

Price Market Value Current Accr Int

Yield to Worst

Unrealized Gain/Loss

Certificates of Deposit 0.96% 202 202 0.21% $ 69,363,000 $ 69,363,000 1.000 $ 69,363,000 $ 2,527 0.21% $ 0 Commercial Paper 24.23 79 79 0.24 1,748,000,000 1,747,050,116 1.000 1,747,290,569 0 0.24 240,452 Fannie Mae 12.33 896 799 1.00 889,613,000 888,762,061 1.001 890,795,432 2,742,485 1.00 2,033,371 Federal Farm Credit Bank Notes 3.67 689 358 0.89 265,000,000 264,674,746 0.999 264,853,500 469,444 0.89 178,754 Federal Home Loan Bank Notes 10.63 584 368 0.79 765,050,000 766,155,101 1.004 767,800,975 1,394,942 0.73 1,645,874 Federal Home Loan Mortgage Corp 6.64 922 504 0.95 476,000,000 478,515,769 1.009 480,106,500 1,502,995 0.87 1,590,731 Money Market Funds 7.76 1 1 0.07 559,280,000 559,280,000 1.000 559,420,140 16,514 0.07 140,140 Negotiable CD 27.56 84 84 0.23 1,986,700,000 1,986,704,148 1.000 1,986,700,000 1,508,490 0.23 (4,148) Repurchase Agreements 0.13 1 - 0.00 9,693,067 9,693,067 1.000 9,693,067 (3) 0.00 0 Supranationals 0.69 1,081 351 1.23 50,000,000 50,000,000 1.000 50,000,000 25,625 1.23 0 U.S. Treasury Notes 5.40 987 987 1.15 387,000,000 389,552,739 1.014 392,491,600 1,301,898 1.15 2,938,861 Totals for March 2015 100.00% 364 274 0.50% $7,205,699,067 $7,209,750,747 1.002 $7,218,514,783 $8,964,917 0.49% $8,764,035 Totals for February 2015 100.00% 386 284 0.51% $7,028,489,446 $7,033,070,435 1.001 $7,037,041,420 $9,041,806 0.50% $3,970,985 Change From Prior Month (22) (10) (0.01) $177,209,621 $176,680,312 0.001 $181,473,363 $(76,889) (0.01)% $4,793,050 Portfolio Effective Duration 0.75 years

March Return Annualized

Fiscal Year to Date Return Annualized

Calendar Yearto Date Return Annualized

Book Value 0.043% 0.512% 0.363% 0.483% 0.128% 0.520% Market Value 0.043% 0.511% 0.361% 0.481% 0.126% 0.512%

______________________________ Notes: Yield to maturity (YTM) is the estimated rate of return on a bond given its purchase price, assuming all coupon payments are made on a timely basis and reinvested at this same rate to the maturity date. Yield to call (YTC) is the estimated rate of return on a bond given its purchase price, assuming all coupon payments are made on a timely basis and reinvested at this same rate of return to the call date. Yield to worst (YTW) is the lesser of yield to maturity or yield to call, reflecting the optionality of the bond issuer. Yields for the portfolio are aggregate based on the book value of each security. Source: County of San Diego, Treasurer-Tax Collector

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APPENDIX F

BOOK-ENTRY ONLY SYSTEM

The information in this APPENDIX F has been provided by DTC for use in securities offering documents, and the District takes no responsibility 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 premium, if any, with respect to the Bonds or (b) certificates representing ownership interest in or other confirmation of ownership interest in the Bonds, or that they will so do on a timely basis or that DTC, DTC Participants 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 Commission and the current “Procedures” of DTC to be followed 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.

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds (the “Securities”). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each series and maturity of the Securities, each in the aggregate principal amount of such series and maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any series and maturity exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such series and maturity.

2. DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of 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. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

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4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

6. Redemption notices will be sent to DTC. If less than all of the Securities within a series and maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such series and maturity to be redeemed.

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

8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the issuer or the paying agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the paying agent, or the issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the issuer or the paying agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the issuer or the paying agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

10. The issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.

APPENDIX G

TABLE OF ACCRETED VALUES

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Bond Accreted Value Table Grossmont Union High School District

2015 General Obligation Bonds, Election of 2008, Series F AGM Insured 2017-2040 Maturities

Final Numbers as of 5/14/2015

Date

2015 CABs

08/01/2016 6%

2015 CABs

(Insured) 08/01/2017

6%

2015 CABs

(Insured) 08/01/2018

6%

2015 CABs

(Insured) 08/01/2019

6%

2015 CABs

(Insured) 08/01/2020

6%

2015 CABs

(Insured) 08/01/2021

6%

2015 CABs

(Insured) 08/01/2022

6%

2015 CABs

(Insured) 08/01/2023

6%

2015 CABs

(Insured) 08/01/2024

6%

2015 CABs

(Insured) 02/01/2025

4.81%

2015 CABs

(Insured) 08/01/2026

3.82%

2015 CABs

(Insured) 08/01/2027

4.06%

2015 CABs

(Insured) 08/01/2028

4.27%

2015 CABs

(Insured) 08/01/2029

4.46%

2015 CABs

(Insured) 08/01/2030

4.66%

2015 CABs

(Insured) 08/01/2031

4.77%

2015 CABs

(Insured) 08/01/2032

4.88%

2015 CABs

(Insured) 08/01/2033

4.93%

2015 CABs

(Insured) 08/01/2034

4.94%

2015 CABs

(Insured) 08/01/2035

4.96%

2015 CABs

(Insured) 08/01/2036

4.99%

2015 CABs

(Insured) 08/01/2037

5.05%

2015 CABs

(Insured) 08/01/2038

5.08%

2015 CABs

(Insured) 08/01/2039

5.11%

2040 Maturity (Insured)

06/01/2040 5.13%

6/4/2015 4,669.05 4,401.00 4,148.40 3,910.25 3,685.80 3,474.20 3,274.75 3,086.80 2,909.60 3,159.35 3,277.90 3,067.15 2,867.60 2,677.55 2,487.20 2,334.30 2,186.15 2,064.90 1,963.05 1,862.20 1,762.25 1,655.85 1,564.65 1,477.65 1,409.90 8/1/2015 4,712.95 4,442.40 4,187.40 3,947.00 3,720.45 3,506.85 3,305.55 3,115.80 2,936.95 3,183.20 3,297.60 3,086.70 2,886.85 2,696.30 2,505.40 2,351.80 2,202.90 2,080.85 1,978.30 1,876.70 1,776.05 1,669.00 1,577.15 1,489.50

12/1/2015 1,445.45 2/1/2016 4,854.35 4,575.70 4,313.00 4,065.45 3,832.05 3,612.10 3,404.75 3,209.30 3,025.05 3,259.75 3,360.60 3,149.40 2,948.50 2,756.45 2,563.75 2,407.90 2,256.70 2,132.15 2,027.15 1,923.25 1,820.35 1,711.15 1,617.20 1,527.55 6/1/2016 1,482.50 8/1/2016 5,000.00 4,712.95 4,442.40 4,187.40 3,947.00 3,720.45 3,506.85 3,305.55 3,115.80 3,338.15 3,424.75 3,213.30 3,011.45 2,817.90 2,623.50 2,465.35 2,311.75 2,184.70 2,077.20 1,970.95 1,865.75 1,754.35 1,658.30 1,566.55

12/1/2016 1,520.55 2/1/2017 4,854.35 4,575.70 4,313.00 4,065.45 3,832.05 3,612.10 3,404.75 3,209.30 3,418.45 3,490.20 3,278.55 3,075.75 2,880.75 2,684.65 2,524.15 2,368.15 2,238.60 2,128.55 2,019.85 1,912.30 1,798.65 1,700.40 1,606.60 6/1/2017 1,559.55 8/1/2017 5,000.00 4,712.95 4,442.40 4,187.40 3,947.00 3,720.45 3,506.85 3,305.55 3,500.65 3,556.85 3,345.10 3,141.40 2,945.00 2,747.20 2,584.35 2,425.95 2,293.75 2,181.10 2,069.95 1,960.05 1,844.05 1,743.60 1,647.65

12/1/2017 1,599.55 2/1/2018 4,854.35 4,575.70 4,313.00 4,065.45 3,832.05 3,612.10 3,404.75 3,584.85 3,624.80 3,413.00 3,208.50 3,010.70 2,811.20 2,645.95 2,485.10 2,350.30 2,235.00 2,121.25 2,008.95 1,890.60 1,787.90 1,689.75 6/1/2018 1,640.60 8/1/2018 5,000.00 4,712.95 4,442.40 4,187.40 3,947.00 3,720.45 3,506.85 3,671.05 3,694.00 3,482.30 3,277.00 3,077.80 2,876.70 2,709.10 2,545.75 2,408.25 2,290.20 2,173.90 2,059.05 1,938.35 1,833.30 1,732.90

12/1/2018 1,682.65 2/1/2019 4,854.35 4,575.70 4,313.00 4,065.45 3,832.05 3,612.10 3,759.35 3,764.55 3,553.00 3,346.95 3,146.45 2,943.75 2,773.70 2,607.90 2,467.60 2,346.75 2,227.80 2,110.45 1,987.30 1,879.85 1,777.20 6/1/2019 1,725.85 8/1/2019 5,000.00 4,712.95 4,442.40 4,187.40 3,947.00 3,720.45 3,849.75 3,836.45 3,625.10 3,418.40 3,216.60 3,012.30 2,839.85 2,671.50 2,528.45 2,404.70 2,283.05 2,163.10 2,037.50 1,927.60 1,822.60

12/1/2019 1,770.10 2/1/2020 4,854.35 4,575.70 4,313.00 4,065.45 3,832.05 3,942.35 3,909.75 3,698.70 3,491.40 3,288.35 3,082.50 2,907.55 2,736.70 2,590.75 2,464.10 2,339.65 2,217.05 2,088.90 1,976.55 1,869.15 6/1/2020 1,815.50 8/1/2020 5,000.00 4,712.95 4,442.40 4,187.40 3,947.00 4,037.15 3,984.45 3,773.80 3,565.95 3,361.70 3,154.35 2,976.90 2,803.45 2,654.60 2,525.00 2,397.70 2,272.35 2,141.65 2,026.75 1,916.90

12/1/2020 1,862.05 2/1/2021 4,854.35 4,575.70 4,313.00 4,065.45 4,134.25 4,060.55 3,850.40 3,642.05 3,436.65 3,227.85 3,047.90 2,871.90 2,720.05 2,587.35 2,457.15 2,329.05 2,195.75 2,078.25 1,965.90 6/1/2021 1,909.85 8/1/2021 5,000.00 4,712.95 4,442.40 4,187.40 4,233.70 4,138.10 3,928.55 3,719.85 3,513.30 3,303.05 3,120.60 2,941.95 2,787.10 2,651.25 2,518.10 2,387.20 2,251.20 2,131.05 2,016.15

12/1/2021 1,958.80 2/1/2022 4,854.35 4,575.70 4,313.00 4,335.50 4,217.10 4,008.30 3,799.25 3,591.65 3,380.00 3,195.05 3,013.75 2,855.80 2,716.75 2,580.55 2,446.75 2,308.05 2,185.15 2,067.65 6/1/2022 2,009.05 8/1/2022 5,000.00 4,712.95 4,442.40 4,439.80 4,297.65 4,089.65 3,880.35 3,671.70 3,458.75 3,271.25 3,087.25 2,926.20 2,783.85 2,644.55 2,507.80 2,366.30 2,240.70 2,120.45

12/1/2022 2,060.60 2/1/2023 4,854.35 4,575.70 4,546.55 4,379.75 4,172.70 3,963.20 3,753.60 3,539.35 3,349.25 3,162.60 2,998.35 2,852.60 2,710.10 2,570.35 2,426.05 2,297.60 2,174.65 6/1/2023 2,113.45 8/1/2023 5,000.00 4,712.95 4,655.90 4,463.40 4,257.40 4,047.80 3,837.30 3,621.80 3,429.15 3,239.75 3,072.25 2,923.05 2,777.35 2,634.50 2,487.30 2,355.95 2,230.20

12/1/2023 2,167.65 2/1/2024 4,854.35 4,767.90 4,548.65 4,343.80 4,134.25 3,922.90 3,706.20 3,510.95 3,318.80 3,147.95 2,995.25 2,846.20 2,700.20 2,550.15 2,415.80 2,287.20 6/1/2024 2,223.25 8/1/2024 5,000.00 4,882.55 4,635.55 4,432.00 4,222.50 4,010.35 3,792.55 3,594.65 3,399.80 3,225.55 3,069.25 2,916.80 2,767.60 2,614.50 2,477.15 2,345.65

12/1/2024 2,280.30 2/1/2025 5,000.00 4,724.10 4,522.00 4,312.65 4,099.80 3,880.90 3,680.40 3,482.75 3,305.10 3,145.05 2,989.15 2,836.65 2,680.55 2,540.05 2,405.55 6/1/2025 2,338.80 8/1/2025 4,814.30 4,613.75 4,404.75 4,191.20 3,971.35 3,768.20 3,567.75 3,386.55 3,222.75 3,063.25 2,907.40 2,748.20 2,604.60 2,467.05

12/1/2025 2,398.75 2/1/2026 4,906.25 4,707.45 4,498.80 4,284.70 4,063.90 3,858.05 3,654.80 3,470.05 3,302.35 3,139.25 2,979.95 2,817.60 2,670.75 2,530.05 6/1/2026 2,460.30 8/1/2026 5,000.00 4,803.00 4,594.85 4,380.25 4,158.55 3,950.05 3,743.95 3,555.55 3,383.90 3,217.10 3,054.30 2,888.75 2,738.60 2,594.70

12/1/2026 2,523.40 2/1/2027 4,900.50 4,692.95 4,477.90 4,255.45 4,044.25 3,835.30 3,643.20 3,467.50 3,296.85 3,130.50 2,961.70 2,808.15 2,661.00 6/1/2027 2,588.15 8/1/2027 5,000.00 4,793.10 4,577.75 4,354.60 4,140.75 3,928.90 3,733.00 3,553.15 3,378.65 3,208.60 3,036.50 2,879.50 2,729.00

12/1/2027 2,654.50 2/1/2028 4,895.45 4,679.85 4,456.10 4,239.50 4,024.75 3,825.05 3,640.90 3,462.40 3,288.70 3,113.15 2,952.60 2,798.70 6/1/2028 2,722.60

G-2

Date

2015 CABs

08/01/2016 6%

2015 CABs

(Insured) 08/01/2017

6%

2015 CABs

(Insured) 08/01/2018

6%

2015 CABs

(Insured) 08/01/2019

6%

2015 CABs

(Insured) 08/01/2020

6%

2015 CABs

(Insured) 08/01/2021

6%

2015 CABs

(Insured) 08/01/2022

6%

2015 CABs

(Insured) 08/01/2023

6%

2015 CABs

(Insured) 08/01/2024

6%

2015 CABs

(Insured) 02/01/2025

4.81%

2015 CABs

(Insured) 08/01/2026

3.82%

2015 CABs

(Insured) 08/01/2027

4.06%

2015 CABs

(Insured) 08/01/2028

4.27%

2015 CABs

(Insured) 08/01/2029

4.46%

2015 CABs

(Insured) 08/01/2030

4.66%

2015 CABs

(Insured) 08/01/2031

4.77%

2015 CABs

(Insured) 08/01/2032

4.88%

2015 CABs

(Insured) 08/01/2033

4.93%

2015 CABs

(Insured) 08/01/2034

4.94%

2015 CABs

(Insured) 08/01/2035

4.96%

2015 CABs

(Insured) 08/01/2036

4.99%

2015 CABs

(Insured) 08/01/2037

5.05%

2015 CABs

(Insured) 08/01/2038

5.08%

2015 CABs

(Insured) 08/01/2039

5.11%

2040 Maturity (Insured)

06/01/2040 5.13%

8/1/2028 5,000.00 4,784.20 4,559.90 4,340.60 4,123.00 3,919.35 3,730.85 3,548.30 3,370.75 3,191.75 3,027.60 2,870.20 12/1/2028 2,792.45 2/1/2029 4,890.90 4,666.15 4,444.10 4,223.60 4,015.95 3,823.00 3,636.30 3,454.85 3,272.35 3,104.50 2,943.55 6/1/2029 2,864.05 8/1/2029 5,000.00 4,774.85 4,550.10 4,326.65 4,114.95 3,917.40 3,726.45 3,541.05 3,355.00 3,183.35 3,018.75

12/1/2029 2,937.55 2/1/2030 4,886.15 4,658.65 4,432.20 4,216.35 4,014.20 3,818.90 3,629.40 3,439.70 3,264.25 3,095.90 6/1/2030 3,012.90 8/1/2030 5,000.00 4,769.75 4,540.35 4,320.30 4,113.35 3,913.60 3,719.95 3,526.55 3,347.15 3,175.00

12/1/2030 3,090.15 2/1/2031 4,883.50 4,651.15 4,426.80 4,214.95 4,010.65 3,812.75 3,615.60 3,432.15 3,256.10 6/1/2031 3,169.45 8/1/2031 5,000.00 4,764.60 4,535.90 4,319.05 4,110.10 3,907.85 3,706.90 3,519.35 3,339.30

12/1/2031 3,250.75 2/1/2032 4,880.90 4,647.75 4,425.70 4,212.05 4,005.35 3,800.50 3,608.75 3,424.65 6/1/2032 3,334.10 8/1/2032 5,000.00 4,762.30 4,535.05 4,316.50 4,105.30 3,896.45 3,700.40 3,512.15

12/1/2032 3,419.65 2/1/2033 4,879.70 4,647.05 4,423.55 4,207.75 3,994.85 3,794.40 3,601.85 6/1/2033 3,507.35 8/1/2033 5,000.00 4,761.85 4,533.25 4,312.70 4,095.70 3,890.75 3,693.90

12/1/2033 3,597.30 2/1/2034 4,879.45 4,645.70 4,420.30 4,199.15 3,989.60 3,788.30 6/1/2034 3,689.60 8/1/2034 5,000.00 4,760.90 4,530.60 4,305.15 4,090.90 3,885.05

12/1/2034 3,784.20 2/1/2035 4,879.00 4,643.65 4,413.85 4,194.85 3,984.35 6/1/2035 3,881.30 8/1/2035 5,000.00 4,759.50 4,525.30 4,301.40 4,086.15

12/1/2035 3,980.85 2/1/2036 4,878.25 4,639.60 4,410.65 4,190.55 6/1/2036 4,082.95 8/1/2036 5,000.00 4,756.75 4,522.65 4,297.60

12/1/2036 4,187.70 2/1/2037 4,876.85 4,637.55 4,407.40 6/1/2037 4,295.10 8/1/2037 5,000.00 4,755.35 4,520.00

12/1/2037 4,405.25 2/1/2038 4,876.10 4,635.50 6/1/2038 4,518.25 8/1/2038 5,000.00 4,753.95

12/1/2038 4,634.15 2/1/2039 4,875.40 6/1/2039 4,753.00 8/1/2039 5,000.00

12/1/2039 4,874.95 6/1/2040 5,000.00

APPENDIX H

SPECIMEN MUNICIPAL BOND INSURANCE POLICY

MUNICIPAL BONDINSURANCE POLICY

ISSUER:

BONDS: $ in aggregate principal amount of

Policy No: -N

Effective Date:

Premium: $

ASSURED GUARANTY MUNICIPAL CORP. ("AGM"), for consideration received, herebyUNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the"Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) forthe Bonds, for the benefit of the Owners or, at the election of AGM, directly to each Owner, subject only tothe terms of this Policy (which includes each endorsement hereto), that portion of the principal of andinterest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment bythe Issuer.

On the later of the day on which such principal and interest becomes Due for Payment or theBusiness Day next following the Business Day on which AGM shall have received Notice of Nonpayment,AGM will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and intereston the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, butonly upon receipt by AGM, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right toreceive payment of the principal or interest then Due for Payment and (b) evidence, including anyappropriate instruments of assignment, that all of the Owner's rights with respect to payment of suchprincipal or interest that is Due for Payment shall thereupon vest in AGM. A Notice of Nonpayment will bedeemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on suchBusiness Day; otherwise, it will be deemed received on the next Business Day. If any Notice ofNonpayment received by AGM is incomplete, it shall be deemed not to have been received by AGM forpurposes of the preceding sentence and AGM shall promptly so advise the Trustee, Paying Agent orOwner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement inrespect of a Bond, AGM shall become the owner of the Bond, any appurtenant coupon to the Bond or rightto receipt of payment of principal of or interest on the Bond and shall be fully subrogated to the rights of theOwner, including the Owner's right to receive payments under the Bond, to the extent of any payment byAGM hereunder. Payment by AGM to the Trustee or Paying Agent for the benefit of the Owners shall, tothe extent thereof, discharge the obligation of AGM under this Policy.

Except to the extent expressly modified by an endorsement hereto, the following terms shall havethe meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) aSaturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer'sFiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment"means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the dateon which the same shall have been duly called for mandatory sinking fund redemption and does not refer toany earlier date on which payment is due by reason of call for redemption (other than by mandatory sinkingfund redemption), acceleration or other advancement of maturity unless AGM shall elect, in its solediscretion, to pay such principal due upon such acceleration together with any accrued interest to the dateof acceleration and (b) when referring to interest on a Bond, payable on the stated date for payment ofinterest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficientfunds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal andinterest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, anypayment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuerwhich has been recovered from such Owner pursuant to the

of 2 Policy No. -N

United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable orderof a court having competent jurisdiction. "Notice" means telephonic or telecopied notice, subsequentlyconfirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee orthe Paying Agent to AGM which notice shall specify (a) the person or entity making the claim, (b) the PolicyNumber, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner"means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under theterms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person orentity whose direct or indirect obligation constitutes the underlying security for the Bonds.

AGM may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy bygiving written notice to the Trustee and the Paying Agent specifying the name and notice address of theInsurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the PayingAgent, (a) copies of all notices required to be delivered to AGM pursuant to this Policy shall besimultaneously delivered to the Insurer's Fiscal Agent and to AGM and shall not be deemed received untilreceived by both and (b) all payments required to be made by AGM under this Policy may be made directlyby AGM or by the Insurer's Fiscal Agent on behalf of AGM. The Insurer's Fiscal Agent is the agent of AGMonly and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's FiscalAgent or any failure of AGM to deposit or cause to be deposited sufficient funds to make payments dueunder this Policy.

To the fullest extent permitted by applicable law, AGM agrees not to assert, and hereby waives,only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses(including, without limitation, the defense of fraud), whether acquired by subrogation, assignment orotherwise, to the extent that such rights and defenses may be available to AGM to avoid payment of itsobligations under this Policy in accordance with the express provisions of this Policy.

This Policy sets forth in full the undertaking of AGM, and shall not be modified, altered oraffected by any other agreement or instrument, including any modification or amendment thereto. Except tothe extent expressly modified by an endorsement hereto, (a) any premium paid in respect of this Policy isnonrefundable for any reason whatsoever, including payment, or provision being made for payment, of theBonds prior to maturity and (b) this Policy may not be canceled or revoked. THIS POLICY IS NOTCOVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76OF THE NEW YORK INSURANCE LAW.

In witness whereof, ASSURED GUARANTY MUNICIPAL CORP. has caused this Policy to beexecuted on its behalf by its Authorized Officer.

ASSURED GUARANTY MUNICIPAL CORP.

ByAuthorized Officer

A subsidiary of Assured Guaranty Municipal Holdings Inc.31 West 52nd Street, New York, N.Y. 10019(212) 974-0100

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