RAYMOND JAMES® - CA.gov

NEW ISSUE ■ BOOK-ENTRY ONLY INSURED RATING: S&P: “AA”BANK QUALIFIED UNDERLYING RATING: S&P: “A”

See “RATINGS” herein.In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel, subject, however to certain

qualifications described herein, under existing law, the portion of lease payments designated as and comprising interest and received by the owners of the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax, although, in the case of tax years beginning prior to January 1, 2018, for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest earned by a corporation prior to the end of its tax year in 2018 is taken into account in determining certain income and earnings. The Lease Agreement is a “qualified tax-exempt obligation” within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986, as amended. In the further opinion of Special Counsel, such interest is exempt from California personal income taxes. See "TAXMATTERS" herein.

$2,960,0002018 CERTIFICATES OF PARTICIPATION

Evidencing the Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the

LIVE OAK UNIFIED SCHOOL DISTRICT (Bank Qualified)

Dated: Date of Delivery Due: September 1, as shown on inside cover

Purposes. The captioned Certificates of Participation (the “Certificates") are being executed and delivered to (i) Hind certain capital improvements of the Live Oak Unified School District (the “District") and (ii) pay certain costs of executing and delivering the Certificates. See “FINANCING PLAN" herein.

Security. The Certificates evidence direct, undivided fractional interests of the owners thereof in Lease Payments to be paid by the District for the use and occupancy of certain real property and improvements (the “Site") pursuant to a Lease Agreement dated as of June 1,2018 (the “Lease Agreement"), between the District and the Local Facilities Finance Corporation (the “Corporation").

Interest. Interest represented by the Certificates will be payable on March 1 and September 1 of each year commencing September 1, 2018. See “THE CERTIFICATES."

Book-Entry Only. Ownership interests in the Certificates will be in denominations of $5,000 and integral multiples thereof. When executed and delivered, the Certificates will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC"). DTC will act as securities depository of the Certificates. Ownership interests in the Certificates may be purchased in book-entry form only. Beneficial owners of Certificates will not receive physical certificates representing the Certificates purchased, but will receive a credit balance on the books of the nominees of such purchasers who are participants of DTC. Principal, premium, if any, and interest due with respect to the Certificates will be paid by U.S. Bank National Association, San Francisco, California, as Trustee, to DTC, which will in turn remit such principal, premium, if any, and interest to its participants for subsequent disbursement to the beneficial owners of the Certificates as described herein. See “APPENDIX F - Book-Entry Only System."

The Certificates are subject to prepayment prior to their maturity, as described herein. See “THE CERTIFICATES - Prepayment of the Certificates. ”

Limited Obligation. The District is required under the Lease Agreement to make semiannual Lease Payments (described herein), which comprise the interest and principal due on the Certificates. The District has agreed in the Lease Agreement to include the Lease Payments due in each fiscal year in its budget for that fiscal year and to make the necessary appropriations for the Lease Payments. Neither the Certificates nor the obligation of the District to make Lease Payments constitutes an indebtedness of the District, the Corporation, the State of California or any political subdivision thereof, within the meaning of the Constitution of the State of California or otherwise, or an obligation for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. The Lease Payments are subject to abatement as described herein. See “SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES - Abatement."

Bond Insurance. The scheduled payment of principal of and interest on the Certificates when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Certificates by MUNICIPAL ASSURANCE CORP. See “BOND INSURANCE."

MunicipalAssuranceCore

MATURITY SCHEDULE (See inside front cover)

The Certificates are offered when, as and if issued, subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel. Jones Hall is also acting as Disclosure Counsel to the District. Kronick Moskovitz Tiedemann & Girard, a Professional Corporation, Sacramento, California is acting as Underwriter's counsel. It is anticipated that the Certificates in book-entry form will be available through the facilities of DTC on or about June 28, 2018.

RAYMOND JAMES®Dated: June 14, 2018

MATURITY SCHEDULE

BaseCUSIPt; 538067

Maturity (September 1)

PrincipalAmount

InterestRate Yield Price CUSIP*

2019 $100,000 3.000% 1.500% 101.739% AA72020 105,000 4.000 1.730 104.823 AB52021 110,000 4.000 1.930 106.343 AC32022 115,000 4.000 2.070 107.679 AD12023 120,000 4.000 2.180 108.858 AE92024 125,000 4.000 2.310 109.671 AF62025 125,000 4.000 2.430 110.277 AG 42026 135,000 4.000 2.530 110.791 AH22027 140,000 4.000 2.590 110.325 C AJ82028 145,000 4.000 2.650 109.861 C AK52029 150,000 4.000 2.800 108.710 C AL32030 155,000 4.000 2.950 107.574 C AM12031 160,000 3.000 3.300 96.812 AN92032 165,000 3.125 3.360 97.364 AP42033 170,000 3.125 3.430 96.412 AQ22034 175,000 3.250 3.480 97.170 AR02035 180,000 3.250 3.520 96.538 AS82036 190,000 3.375 3.560 97.536 AT62037 195,000 3.375 3.590 97.034 AU32038 200,000 3.500 3.620 98.288 AV1

t CUSIF® 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. Copyright2018CUSIP 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 District nor the Underwriter assumes any responsibility for the accuracy of these CUSIP data.C: Priced fo first par call date on September 1, 2026.

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

Use of Official Statement. This Official Statement is submitted in connection with the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract between any certificate owner and the District or the Underwriter.

No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the District or the Underwriter.

No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

Information in Official Statement. The information set forth in this Official Statement has been furnished by the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness.

Involvement of Underwriter. The Underwriter has provided the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

Stabilization of and Changes to Offering Prices. The Underwriter may overallot or take other steps that stabilize or maintain the market price of the Certificates at levels above those that might otherwise prevail in the open market. If commenced, the Underwriter may discontinue such market stabilization at any time. The Underwriter may offer and sell the Certificates to certain securities dealers, dealer banks and banks acting as agent at prices lowerthan the public offering prices stated on the cover page of this Official Statement, and those public offering prices may be changed from time to time by the Underwriter.

Document Summaries. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents, and do not purport to be complete statements of any or all of such provisions.

Estimates and Projections. When used in this Official Statement and in any continuing disclosure by the District, in any press release and in any oral statement made with the approval of an authorized officer of the District, the words or phrases "will likely result," "are expected to", "will continue", "is anticipated", "estimate", "project," "forecast", "expect", "intend" and similar expressions identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material.

Bond Insurance. Municipal Assurance Corp. (“MAC”) makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, MAC 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 MAC supplied by MAC and presented under the heading “BOND INSURANCE” and “APPENDIX G - Specimen Municipal Bond Insurance Policy”.

Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Certificates will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District, the County, the other parties described in this Official Statement, or the condition of the property within the District since the date of this Official Statement.

THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE CERTIFICATES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

LIVE OAK UNIFIED SCHOOL DISTRICT COUNTY OF SUTTER

STATE OF CALIFORNIA

BOARD OF TRUSTEES OF THE DISTRICT

Ernest Rodriguez, President Roger Christianson, Clerk Talwinder Chetra, Trustee

Scott Davis, Trustee Kathy L. Walker, Trustee

DISTRICT ADMINISTRATION

Mathew Gulbrandsen, Superintendent Christopher Peters, Chief Financial Officer

PROFESSIONAL SERVICES

SPECIAL COUNSEL AND DISCLOSURE COUNSELJones Hall, A Professional Law Corporation

San Francisco, California

FINANCIAL ADVISORIsom Advisors, a Division of Urban Futures, Inc.

Walnut Creek, California

UNDERWRITER’S COUNSELKronick Moskovitz Tiedemann & Girard, a Professional Corporation

Sacramento, California

TRUSTEEU.S. Bank National Association

San Francisco, California

TABLE OF CONTENTS

INTRODUCTION......................................................1THE CERTIFICATES.............................................. 3General..................................................................3Prepayment of the Certificates...............................3

SOURCES AND USES OF FUNDS.........................6LEASE PAYMENT SCHEDULE...............................7THE LEASED PROPERTY......................................8SECURITY AND SOURCES OF PAYMENTFOR THE CERTIFICATES......................................8General..................................................................8Lease Payments.................................................... 8Additional Rental Payments...................................9Abatement..............................................................9Substitution and Release of Property...................10Reserve Fund.......................................................10Covenant to Appropriate Funds............................ 11Action on Default................................................. 11Rental Interruption Insurance............................... 11Public Liability and Property DamageInsurance..............................................................12

BOND INSURANCE.............................................. 12Municipal Bond Insurance Policy..........................12Municipal Assurance Corp....................................12Additional Information Available from theBond Insurer.........................................................13

THE CORPORATION............................................ 14THE DISTRICT......................................................15Employee Relations............................................. 15Recent Enrollment Trends................................... 16

DISTRICT FINANCIAL INFORMATION.................17Education Funding Generally............................... 17District Accounting Practices................................ 19Financial Statements........................................... 19District Budget and Interim FinancialReporting..............................................................21Attendance - Revenue Limit and LCFFFunding................................................................24Revenue Sources................................................ 25District Retirement Systems.................................25Other Post-Employment Benefits.........................29Insurance..............................................................30Long-Term Debt Obligations................................31Overlapping Debt Obligations..............................31Ad Valorem Property Taxation.............................33

Assessed Valuations............................................ 33Alternative Method of Tax Apportionment-Teeter Plan.......................................................... 37Largest Secured Property Taxpayers in theDistrict..................................................................39

STATE FUNDING OF EDUCATION ANDRECENT STATE BUDGETS.................................40State Funding of Education..................................40Recent State Budgets..........................................412017- 18 Adopted State Budget........................... 412018- 19 Proposed State Budget......................... 42

COUNTY INVESTMENT POOL............................ 44CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS............................................... 45Article XIIIA of the California Constitution............ 45Article XIIIB of the California Constitution............ 46Unitary Property................................................... 46Articles XIIIC and XIIID........................................46Proposition 98...................................................... 47Proposition 111.................................................... 48Proposition 39...................................................... 49Proposition 30 and Proposition 55....................... 50Proposition 1A and Proposition 22...................... 51Future Initiatives.................................................. 51

RISK FACTORS.................................................... 52General Considerations - Security for theCertificates........................................................... 52Abatement........................................................... 52Limited Recourse on Default................................52No Acceleration Upon Default..............................53Loss ofTax Exemption.........................................53No Liability of Corporation to the Owners............ 53Absence of Earthquake and Flood Insurance.....53Economic Conditions in California....................... 54Limitations on Remedies; Bankruptcy.................. 54

TAX MATTERS..................................................... 54CERTAIN LEGAL MATTERS.................................57Continuing Disclosure.......................................... 57Absence of Material Litigation..............................57

RATINGS...............................................................58UNDERWRITING.................................................. 58ADDITIONAL INFORMATION...............................58EXECUTION......................................................... 59

APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F APPENDIX G

Summary of Principal Legal DocumentsAudited Financial Statements of the District for Fiscal Year Ended June 30, 2017General Information About the City of Live Oak and the County of SutterForm of Opinion of Special CounselForm of Continuing Disclosure CertificateBook-Entry Only SystemSpecimen Municipal Bond Insurance Policy

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$2,960,0002018 Certificates of Participation


LIVE OAK UNIFIED SCHOOL DISTRICT (Bank Qualified)

INTRODUCTION

Purpose of Official Statement The purpose of this Official Statement, which includes the cover page, inside cover page and Appendices hereto (the “Official Statement”), is to provide certain information concerning the sale and delivery of 2018 Certificates of Participation (the “Certificates”), representing direct, undivided fractional interests of the owners thereof (the “Owners”) in Lease Payments (described herein) to be paid by the Live Oak Unified School District (the “District”) as rent for certain real property and facilities (the “Leased Property”).

The Financing Structure. The Leased Property will be leased by the District from the Local Facilities Finance Corporation, a California nonprofit public benefit corporation (the “Corporation”), pursuant to a Lease Agreement, dated as of June 1, 2018 (the “Lease Agreement”), between the Corporation, as lessor, and the District, as lessee. The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of June 1, 2018 (the “Trust Agreement”), among U.S. Bank National Association, San Francisco, California, as trustee (the “Trustee”), the Corporation and the District. Pursuant to an Assignment Agreement, dated as of June 1, 2018 (the “Assignment Agreement”) between the Corporation and the Trustee, the Corporation has assigned to the Trustee, for the benefit of the Owners, substantially all of its rights under the Lease Agreement, including its rights to receive and collect Lease Payments from the District under the Lease Agreement and such other rights as may be necessary to enforce payment of Lease Payments.

Purpose. The net proceeds of the Certificates will be used to (i) fund certain capital improvement projects of the District (the “Project”) and (ii) pay costs incurred in connection with the execution and delivery of the Certificates.

The District. The District encompasses an area of approximately 95 square miles in Sutter County (the “County”). The District currently operates two elementary schools, an intermediate school, a high school, a continuation high school and an alternative school. Enrollment in the District for the 2017-18 school year is approximately 1,866 students. For more information regarding the District and its finances, see “DISTRICT FINANCIAL INFORMATION.” See Appendix C hereto for demographic and other information regarding the City of Live Oak and the County.

Sources of Payment for the Certificates. The District is required to pay to the Trustee, specified Lease Payments (the “Lease Payments”) for use and possession of the Leased Property, in amounts designed to be sufficient in both time and amount to pay, when due, the principal and interest represented by the Certificates. The Lease Payments are payable from any source of legally available funds. The District covenants in the Lease Agreement to take such action as may be necessary to include all Lease Payments in its annual budget, and to make the necessary appropriations therefor. The District's financial ability to pay Lease Payments will

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depend upon the sufficiency of monies in its general fund. See “THE DISTRICT” and “DISTRICT FINANCIAL INFORMATION.”

Payment of Lease Payments by the District is dependent upon beneficial use and occupancy by the District of the Leased Property; otherwise, the obligation of the District to pay Lease Payments is subject to full or partial abatement. The obligation of the District to pay the Lease Payments is subject to abatement during any period in which there is substantial interference with the District's use and possession of any portion of the Leased Property. In such event and to the extent of such abatement, Certificate Owners may not receive payment of principal or interest represented by the Certificates. Abatement of Lease Payments under the Lease Agreement, to the extent payment is not made from alternative sources as set forth below, would result in all Certificate Owners receiving less than the full amount of principal and interest represented by the Certificates. To the extent proceeds of rental interruption insurance or condemnation proceeds are available or there are monies in the Reserve Fund, Lease Payments (or a portion thereof) may be made during such abatement. See “RISK FACTORS - Abatement”.

Neither the Certificates nor the obligation of the District to pay Lease Payments constitutes an obligation of the District for which the District is obligated to levy or pledge, or for which the District has levied or pledged, any form of taxation. Neither the Certificates nor the obligation of the District to pay Lease Payments constitutes a debt of the District, the State of California or any of its political subdivisions within the meaning of any constitutional debt limitation or violates any statutory debt limitation or constitutes a pledge of the faith and credit of the District, the State of California or any of its political subdivisions.

Bond insurance; Reserve Fund insurance Policy. Concurrently with the delivery of the Certificates, Municipal Assurance Corp. ("MAC") will issue its Municipal Bond Insurance Policy for the Certificates (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Certificates when due as set forth in the form of the Policy included as an appendix to this Official Statement. Concurrently with the delivery of the Certificates, MAC will also issue a reserve fund insurance policy (the “Reserve Policy”) for the Reserve Fund. See SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES - Reserve Fund” and “BOND INSURANCE.”

Summary of information. A summary of the principal legal documents relating to the Certificates is contained in Appendix A. Such summary is not and does not purport to be comprehensive or complete. The descriptions in this Official Statement of the Trust Agreement, the Assignment Agreement, the Site Lease, the Lease Agreement and other agreements relating to the Certificates are qualified in their entirety by reference to such documents, and the descriptions herein of the Certificates are qualified in their entirety by the form thereof and the provisions with respect thereto included in the aforesaid documents. Copies of such documents may be obtained at the principal corporate trust office of the Trustee in San Francisco, California. All terms used herein and not otherwise defined shall have the meanings given such terms in the Trust Agreement and in Appendix A.

This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of documents referred to in this Official Statement and information concerning the Certificates are available from the District from the Superintendent's Office at 2201 Pennington Road, Live Oak, California 94953, Telephone: (530) 695-5400. The District may impose a charge for copying, mailing and handling.

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THE CERTIFICATES

General

The Certificates evidence direct, undivided fractional interests of the Owners thereof in the Lease Payments and any prepayments to be paid by the District pursuant to the Lease Agreement. The Certificates will be issued in registered form, without coupons. The Certificates will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository for the Certificates. Ownership interests in the Certificates may be purchased in book-entry form only, in denominations of $5,000 or any integral multiple thereof. While DTC acts as securities depository for the Certificates, all payments of principal, premium, if any, and interest represented by the Certificates shall be made to Cede & Co., as nominee of DTC. For information with respect to the payment and transfer of the Certificates, see “APPENDIX F - Book-Entry Only System”.

The Certificates will be dated their date of delivery. Interest represented by each Certificate will accrue on the principal components represented by such Certificate at the applicable interest rate from the date of delivery thereof until its date of maturity or prior prepayment, with interest becoming payable on each March 1 and September 1 (each, an “Interest Payment Date”), commencing September 1,2018.

Interest will accrue with respect to the Certificates on the basis of a 360-day year comprised of twelve 30-day months. The Certificates will mature on the dates and in the principal amounts set forth on the inside cover of this Official Statement.

Prepayment of the Certificates

Optional Prepayment The Certificates maturing on or after September 1, 2027, are subject to prepayment prior to their respective stated maturities, at the option of the District, in whole, or in part among maturities on such basis as designated by the District and by lot within any one maturity, on September 1, 2026, or on any date thereafter, upon payment of a prepayment price equal to 100% of the principal amount to be prepaid, together with accrued interest to the date fixed for prepayment, without premium.

Mandatory Prepayment from Net Proceeds of insurance or Condemnation. TheCertificates are subject to mandatory prepayment, in whole or in part, on any Interest Payment Date, in order of maturity determined by the District and by lot within a maturity, from the Net Proceeds of insurance or eminent domain proceedings credited towards the prepayment of the Lease Payments pursuant to the Lease Agreement, at a prepayment price equal to 100% of the principal amount to be prepaid, together with accrued interest represented thereby to the date fixed for prepayment, without premium, pursuant to the following provisions:

a. From the Net Proceeds of any insurance award resulting from damage to or destruction of all ora substantial portion of the Leased Property and deposited by the Trustee in the Lease Payment Fund in the event that the District certifies to the Trustee that replacement, repair, restoration, modification or improvement of the Leased Property is not economically feasible or in the best interests of the District and directing that the Net Proceeds are to be used to prepay Certificates; provided, however, that no such prepayment will occur unless such Net Proceeds, together with other available moneys, are sufficient to cause the corresponding prepayment of all Lease Payments; or

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b. From the Net Proceeds of a condemnation award resulting from eminent domain proceedings deposited by the Trustee in the Lease Payment Fund in the event (i) less than all of the Leased Property, shall have been taken in such eminent domain proceedings or sold to a government threatening the use of eminent domain powers, and the District certifies to the Trustee that such eminent domain proceedings have materially affected the interest of the District in the Leased Property or the ability of the District to meet any of its financial obligations under the Lease Agreement, or (ii) all of the Leased Property shall have been taken in such eminent domain proceedings.

Notice of Prepayment When prepayment is authorized or required pursuant to the Trust Agreement, the Trustee shall give notice of the prepayment of the Certificates on behalf and at the expense of the District. Such notice shall state the prepayment date and prepayment price and, if less than all of the then Outstanding Certificates are to be called for prepayment, shall designate the numbers of the Certificates to be prepaid by giving the individual number of each Certificate or by stating that all Certificates between two stated numbers, both inclusive, have been called for prepayment or by stating that all of the Certificates of one or more maturities have been called for prepayment, and shall require that such Certificates be surrendered on the prepayment date at the Office of the Trustee for prepayment at said prepayment price, giving notice also that further interest represented by the Certificates will not accrue after the prepayment date. Such notice shall further state that on the prepayment date there shall become due and payable, the principal and premium, if any, represented by each Certificate together with accrued interest represented thereby to said date, and that from and after such date interest represented thereby shall cease to accrue and be payable.

Notice of such prepayment will be mailed by first class mail with postage prepaid, to one or more of the Information Services, and to the Owners of Certificates designated for prepayment at their respective addresses appearing on the Registration Books, at least thirty (30) days but not more than sixty (60) days prior to the prepayment date. Such notice shall, in addition to setting forth the above information, set forth, in the case of each Certificate called only in part, the portion of the principal represented thereby which is to be prepaid. Neither failure to receive such notice so mailed nor any defect in any notice so mailed will affect the sufficiency of the proceedings for the prepayment of such Certificates or the cessation of accrual of interest represented thereby from and after the date fixed for prepayment.

Right to Rescind Notice of Prepayment. The District has the right to rescind any notice of the optional prepayment of the Certificates by written notice to the Trustee on or prior to the date fixed for prepayment. Any notice of prepayment will be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for prepayment for the payment in full of the Certificates then called for prepayment. The District and the Trustee will have no liability to the Certificate owners or any other party related to or arising from such rescission of prepayment. The Trustee will mail notice of such rescission of redemption in the same manner as the original notice of prepayment was sent under the Trust Agreement.

Partial Prepayment of Certificates. Upon surrender of any Certificate prepaid in part only, the Trustee shall execute and deliver to the Owner thereof a new Certificate or Certificates of authorized denominations equal in aggregate principal amount to the unprepaid portion of the Certificate surrendered and of the same interest rate and the same maturity.

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Effect of Notice of Prepayment. Moneys for the prepayment (including the interest to the applicable date of prepayment) of Certificates having been set aside in the Lease Payment Fund will become due and payable on the date of such prepayment, and, upon presentation and surrender thereof at the Office of the Trustee, said Certificates will be paid at the unpaid principal amount (or applicable portion thereof) represented thereby plus interest accrued and unpaid to said date of prepayment.

If, on said date of prepayment, moneys for the prepayment of all the Certificates to be prepaid, together with interest represented thereby to said date of prepayment, will be held by the Trustee so as to be available therefore on such date of prepayment, then, from and after said date of prepayment, interest represented by the Certificates will cease to accrue and become payable. All moneys held by the Trustee for the prepayment of Certificates will be held in trust for the account of the Owners of the Certificates so to be prepaid.

All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of the Trust Agreement will be canceled upon surrender thereof and destroyed.

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SOURCES AND USES OF FUNDS

The sources and uses of funds with respect to the Certificates are as follows:

Sources of Funds:Principal Amount of Certificates Plus Net Original Issue Premium

$2,960,000.0085,678.70

$3,045,678.70Total Sources

Uses of Funds:Deposit to Project Fund Delivery Costs(1)Deposit to the Capitalized Interest Fund

$2,800,000.00222,544.23

23,134.47Total Uses $3,045,678.70

(1) Delivery Costs include legal fees, printing costs, Underwriter’s discount, rating agency fee, financial advisor fee, bond insurance premium, and reserve fund insurance policy premium, title insurance premium and other miscellaneous expenses.

Additional Information. To assist investors with complying with applicable Federal Home Loan Bank collateral regulations, the District presently contemplates that approximately 91.93% of the proceeds of the Certificates will be used to finance the acquisition, development, and/or improvement of real estate.


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LEASE PAYMENT SCHEDULE

The aggregate annual amounts of Lease Payments, comprising interest and principal payable to Certificate Owners, assuming no optional prepayment, are set forth below:

LIVE OAK UNIFIED SCHOOL DISTRICT 2018 Certificates of Participation

Lease Payment Schedule

Year Ending PrincipalSeptember 1 Component

2018 —

2019 $100,000.002020 105,000.002021 110,000.002022 115,000.002023 120,000.002024 125,000.002025 125,000.002026 135,000.002027 140,000.002028 145,000.002029 150,000.002030 155,000.002031 160,000.002032 165,000.002033 170,000.002034 175,000.002035 180,000.002036 190,000.002037 195,000.002038 200,000.00Total $2,960,000.00

Interest TotalComponent Payments

$18,690.00 $18,690.00106,800.00 206,800.00103,800.00 208,800.0099,600.00 209,600.0095,200.00 210,200.0090,600.00 210,600.0085,800.00 210,800.0080,800.00 205,800.0075,800.00 210,800.0070,400.00 210,400.0064,800.00 209,800.0059,000.00 209,000.0053,000.00 208,000.0046,800.00 206,800.0042,000.00 207,000.0036,843.76 206,843.7631,531.26 206,531.2625,843.76 205,843.7619,993.76 209,993.7613,581.26 208,581.267,000.00 207,000.00

$1,227,883.80 $4,187,883.80


THE LEASED PROPERTY

The District will lease certain real property and improvements (collectively, the “Leased Property”) to the Corporation under the terms of a Site Lease dated as of June 1,2018 (the “Site Lease”), and will concurrently lease the Leased Property back from the Corporation under the Lease Agreement.

The Leased Property consists of certain real property and improvements generally constituting the Luther Elementary School located at 10123 Connecticut Avenue, Live Oak, California.

SECURITY AND SOURCES OF PAYMENT FORTHE CERTIFICATES

Neither the Certificates nor the obligation of the District to pay Lease Payments constitutes an obligation of the District for which the District is obligated to levy or pledge, or for which the District has levied or pledged, any form of taxation. Neither the Certificates nor the obligation of the District to pay Lease Payments constitutes a debt of the District, the State of California or any of its political subdivisions within the meaning of any constitutional debt limitation or violates any statutory debt limitation or constitutes a pledge of the faith and credit of the District, the State of California or any of its political subdivisions.

General

Each Certificate represents a direct, undivided fractional interest of the Owner of such Certificate in the Lease Payments and any prepayments thereof to be made by the District to the Trustee under the Lease Agreement. The District is obligated to pay Lease Payments from any source of legally available funds, and has covenanted in the Lease Agreement to include all Lease Payments coming due in its annual budgets and to make the necessary appropriations therefor. The Corporation, pursuant to the Assignment Agreement, has assigned all of its rights under the Lease Agreement (excepting only its right to receive reasonable attorneys' fees and expenses incurred in the event of a default), including the right to receive Lease Payments and any prepayments, to the Trustee for the benefit of the Owners of the Certificates. On the 15th day of February and August in each year during the term of the Lease Agreement, the District must pay to the Trustee a Lease Payment (to the extent required under the Lease Agreement) which is equal to the amount necessary to pay the principal, if any, and interest due with respect to the Certificates on the next succeeding Interest Payment Date.

Lease Payments

The Trust Agreement requires that Lease Payments be deposited in the Lease Payment Fund maintained by the Trustee. All moneys at any time deposited by the Trustee in the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates. Pursuant to the Trust Agreement, on March 1 and September 1 of each year, commencing September 1, 2018, the Trustee will apply such amounts in the Lease Payment Fund as are necessary to make principal and interest payments with respect to Certificates as the same shall become due and payable, in the amounts specified by the Lease Agreement, as shown in the annual payment schedule in the table below. All amounts in the Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the principal, interest and

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prepayment premiums (if any) with respect to the Certificates as the same shall become due and payable in accordance with the provisions of the Trust Agreement.Additional Rental Payments

The Lease Agreement requires the District to pay, as Additional Payments thereunder in addition to the Lease Payments, all costs and expenses incurred by the District and the Corporation to comply with the provisions of the Trust Agreement, including without limitation all Delivery Costs (as defined in the Lease Agreement), to the extent not paid from amounts on deposit in the Delivery Costs Fund, annual compensation due to the Trustee, all of the Trustee's reasonable costs payable as a result of the performance of and compliance with its duties under the Trust Agreement, and all other amounts due to the Trustee pursuant to the Trust Agreement, and all costs and expenses of attorneys, auditors, engineers and accountants.

Abatement

Lease Payments are paid by the District in each fiscal year for the District's right of use and possession of the Leased Property for such fiscal year. The obligation of the District to pay all or a portion of the Lease Payments will be subject to abatement during any period in which by reason of damage, destruction or taking by eminent domain or condemnation with respect to any portion of the Leased Property there is substantial interference with the District's right of use and possession of such portion of the Leased Property.

Termination or Abatement Due to Eminent Domain. If the Leased Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the term of the Lease Agreement will cease with respect thereto as of the day possession is taken. If less than all of the Leased Property is taken permanently, or if the Leased Property is taken temporarily, under the power of eminent domain, (a) the Lease Agreement will continue in full force and effect with respect thereto and shall not be terminated by virtue of such taking, and (b) there shall be a partial abatement of Lease Payments as a result of the application of the Net Proceeds (as defined in the Lease Agreement) of any eminent domain award to the prepayment of the Lease Payments, in an amount to be agreed upon by the District and the Corporation such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portion of the Leased Property. In the Site Lease, the District covenants not to exercise the power of eminent domain relating to the Leased Property as long as the Certificates are outstanding.

Abatement Due to Damage or Destruction. Lease Payments shall be abated during any period in which by reason of damage or destruction (other than by eminent domain) there is substantial interference with the use and occupancy by the District of the Leased Property or any portion thereof. The amount of such abatement shall be agreed upon by the District and the Corporation such that the resulting Lease Payments represent fair consideration for the use and occupancy of the portions of the Leased Property not damaged or destroyed, calculated in accordance with the Lease Agreement. Such abatement shall continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. In the event of any such damage or destruction, the Lease Agreement shall continue in full force and effect and the District waives any right to terminate the Lease Agreement by virtue of any such damage and destruction. Notwithstanding the foregoing, there shall be no abatement of Lease Payments to the extent that the proceeds of hazard insurance, rental interruption insurance or amounts in the Reserve Fund are available to pay Lease Payments which would otherwise be abated, it being declared in the Lease Agreement that such proceeds and amounts constitute a special fund for the payment of the Lease Payments.

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The Trustee cannot terminate the Lease Agreement in the event of such substantial interference. Abatement of Lease Payments is not an event of default under the Lease Agreement and does not permit the Trustee to take any action or avail itself of any remedy against the District. For a description of abatement resulting from condemnation of all or part of the Leased Property, see “APPENDIX A-Summary of Principal Legal Documents”.

Substitution and Release of Property

The District has the option at any time and from time to time during the term of the Lease Agreement, to substitute other real property for the Leased Property or any portion thereof, provided that the District comply with certain conditions precedent specified in the Lease Agreement. The District also has the option to release portions of the Leased Property from the Site Lease and the Lease Agreement upon compliance with certain conditions precedent specified in the Lease Agreement. See “APPENDIX A - Summary of Principal Legal Documents - Lease Agreement”. The District is not entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such substitution.

Reserve Fund

General. The Reserve Fund is established by the Trust Agreement to be held by the Trustee in trust for the benefit of the District and the Owners of the Certificates, as a reserve for the payment when due of the Lease Payments on behalf of the District. The Trustee will retain in the Reserve Fund amounts necessary to maintain an amount on deposit in the Reserve Fund equal to the Reserve Requirement. As defined in the Trust Agreement, the Reserve Requirement means as of the date of calculation thereof by the District, an amount equal to the lesser of (a) 10% of the original principal amount of the Certificates, or (b) the maximum amount of Lease Payments (excluding Lease Payments with respect to which the District shall have posted a security deposit pursuant to Section 9.1 of the Lease Agreement) coming due in the current or any future fiscal year, or (c) 125% of average annual Lease Payments.

If the Certificates are partially refunded, the Reserve Requirement shall be reduced to an amount equal to the maximum annual lease payments relating to the Certificate not so refunded, as specified in a certificate of a District Representative delivered to the Trustee.

If three Business Days prior to any Interest Payment Date the moneys available in the Lease Payment Fund do not equal the amount of the Lease Payment then coming due and payable, the Trustee shall apply the moneys available in the Reserve Fund to make such payments on behalf of the District by transferring the amount necessary for this purpose to the Lease Payment Fund.

The District will acquire a reserve fund insurance policy (the “Reserve Policy”) for the Certificates in an amount equal to the initial Reserve Requirement, which will be credited to the Reserve Fund for the Certificates. Amounts available in the Reserve Fund, including amounts available pursuant to the Reserve Policy, are to be used to make delinquent Lease Payments to the extent that the moneys available in the Lease Payment Fund do not equal the amount of the principal and interest evidenced by the Certificates then coming due.

If (i) funds have been withdrawn from the Reserve Fund in order to pay interest or principal evidenced by the Certificates ora draw on a reserve fund surety shall have been made or if there shall be a deficiency in the Reserve Fund resulting from a decrease of 10% or more in the market value of the Permitted Investments in the Reserve Fund, determined as provided in the Trust

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Agreement, (ii) Lease Payments are not in abatement under the Lease Agreement, (iii) the amount of the Lease Payments is less than the fair rental value of the Leased Property, and (iv) the amount on deposit in the Reserve Fund is less than the Reserve Requirement, then the Lease Agreement provides that the District shall pay from its first available moneys after payment of Lease Payments, to the Trustee, Reserve Replenishment Rent consistent with such fair rental value (a) over a one-year period, in substantially equal quarterly payments as further provided in the Trust Agreement, or (b) if such payments prescribed in clause (a) are inconsistent with fair rental value, in such maximum amounts as shall be recommended by the appraisal referenced in the Lease Agreement consistent with fair rental value on each Lease Payment Date until the amount on deposit in the Reserve Fund equals the Reserve Requirement; provided, if a draw on a reserve fund surety shall have been made, then the Lessee shall repay the costs in accordance with the Trust Agreement or such costs in accordance with the applicable reserve fund surety.

See “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” for a further description of the application of funds in the Reserve Fund.

Earnings on Reserve Fund. All interest or income received by the Trustee on investment of the Reserve Fund shall be retained in the Reserve Fund in the event that amounts on deposit in the Reserve Fund are less than the Reserve Requirement. In the event that amounts then on deposit in the Reserve Fund equal or exceed the Reserve Requirement, such excess shall, semiannually on or before each March 1 and September 1, be transferred to the Lease Payment Fund and shall be applied as a credit against the Lease Payment due by the District pursuant to the Lease Agreement on the Lease Payment Date following the date of deposit.

Covenant to Appropriate Funds

The District covenants in the Lease Agreement to take such action as may be necessary to include all Lease Payments coming due in each of its annual budgets during the term of the Lease Agreement and to make the necessary annual appropriations for all such Lease Payments.

Action on Default

Should the District default under the Lease Agreement, the Trustee, as assignee of the Corporation under the Lease Agreement, may terminate the Lease Agreement and recover certain damages from the District, or may retain the Lease Agreement and hold the District liable for all Lease Payments thereunder on an annual basis. Lease Payments may not be accelerated upon a default under the Lease Agreement. See “RISK FACTORS - Limited Recourse on Default”.

For a description of the events of default and permitted remedies of the Trustee (as assignee of the Corporation) contained in the Lease Agreement and the Trust Agreement, see “APPENDIX A - Summary of Principal Legal Documents - Lease Agreement” and “- Trust Agreement”.

Rental Interruption Insurance

The Lease Agreement requires the District to maintain, or cause to be maintained, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any part of the Leased Property during the term of the Lease Agreement as a result of any of fire and other hazards, in an amount at least equal to the maximum Lease Payments in any 24-month period during the term of the Lease Agreement. Such insurance may not be maintained in the form of

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self-insurance. The Net Proceeds of such insurance shall be paid to the Trustee and deposited in the Lease Payment Fund and shall be credited towards the payment of the Lease Payments in the order in which such Lease Payments come due and payable. See “APPENDIX A - Summary of Principal Legal Documents - Lease Agreement”.

Public Liability and Property Damage Insurance

The Lease Agreement requires the District to obtain and maintain certain public liability, property damage, fire and extended coverage and rental interruption insurance coverage, which may have certain deductibles and may in some cases be maintained as part of or in conjunction with other insurance carried by the District and/or in the form of self-insurance or budgeted reserve. The Net Proceeds of any insurance award resulting from any damage to or destruction of the Project by fire or other casualty shall be applied as set forth in the Lease Agreement. See “APPENDIX A - Summary of Principal Legal Documents - Lease Agreement”.

BOND INSURANCE

Municipal Bond Insurance Policy

Concurrently with the issuance of the Certificates, Municipal Assurance Corp. ("MAC") will issue its Municipal Bond Insurance Policy for the Certificates (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Certificates 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 or Connecticut insurance law.

Municipal Assurance Corp.

MAC 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 the shareholders or affiliates of AGL, other than MAC, is obligated to pay any debts of MAC or any claims under any insurance policy issued by MAC.

MAC is wholly owned by Municipal Assurance Holdings Inc., which, in turn, is owned 61% by Assured Guaranty Municipal Corp. and 39% by Assured Guaranty Corp.

MAC'S financial strength is rated "AA" (stable outlook) by S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC (“S&P”) and "AA+" (stable outlook) by Kroll Bond Rating Agency, Inc. (“KBRA”). Each rating of MAC 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 MAC in its sole discretion. In addition, the rating agencies may at any time change MAC'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

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a negative watch list may have an adverse effect on the market price of any security guaranteed by MAC. MAC only guarantees scheduled principal and scheduled interest payments payable by the issuer of certificates insured by MAC 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 July 14, 2017, KBRA announced it had affirmed MAC'S financial strength rating of “AA+” (stable outlook). MAC can give no assurance as to any further ratings action that KBRA may take.

On June 26, 2017, S&P announced it had affirmed MAC'S financial strength rating of “AA” (stable outlook). MAC can give no assurance as to any further ratings action that S&P may take.

For more information regarding MAC'S financial strength ratings and the risks relating thereto, see AGL's Annual Report on Form 10-K for the fiscal year ended December 31,2017.

Additional Information Available from the Bond Insurer

Capitalization of MAC. As of March 31, 2018, MAC'S policyholders' surplus and contingency reserve were approximately $506 million and its unearned premium reserve was approximately $235 million, in each case, 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 MAC 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, 2017 (filed by AGL with the SEC on February 23, 2018); and

(ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31,2018 (filed by AGL with the SEC on May 4, 2018).

All financial statements of MAC and all other information relating to MAC 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 Certificates 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.assuredauarantv.com, or will be provided upon request to Municipal Assurance Corp.: 1633 Broadway, 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.

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http://www.sec.gov

http://www.assuredauarantv.com

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

Miscellaneous Matters. MAC makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, MAC 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 MAC supplied by MAC and presented under the heading “MUNICIPAL BOND INSURANCE”.

THE CORPORATION

The Local Facilities Finance Corporation, a nonprofit public benefit corporation was incorporated pursuant to the Nonprofit Public Benefit Corporation Law of the State (Title 1, Division 2, Part 2 of the California Corporation Code). The Corporation was established in order to facilitate and assist public entities in financing its public facilities and equipment needs.


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THE DISTRICT

The District is governed by a five-member Board of Trustees, each member of which is elected to a four-year term. Elections or appointments for positions to the Board of Trustees are held every two years, alternating between two and three available positions. Current members of the Board of Trustees, together with their office and the date their term expires, are listed below.

Name Office Term ExpiresErnest Rodriguez President December 2018

Roger Christianson Clerk December 2018Talwinder Chetra T rustee December 2020

Scott Davis T rustee December 2020Kathy L. Walker T rustee December 2020

Superintendent and Administrative Personnel. The day-to-day operations are managed by a board-appointed Superintendent of the District, and District finances are managed by the Chief Financial Officer. Mathew Gulbrandsen is the District Superintendent, and Christopher Peters is the Chief Financial Officer.

Employee Relations

The District currently has 96.2 full-time equivalent (“FTE”) certificated, 94.3 FTE classified and 21.0 FTE management full-time equivalent positions. The certificated and classified employees of the District are represented by their respective bargaining units, as set forth in the following table.

BARGAINING UNITS Live Oak Unified School District

Number ofEmployee Employees Contract

Group Representation Represented Expiration DateLive Oak Teachers Association Certificated 96.2 June 30,2020

California School Employees Association Classified 94.3 June 30,2019

Source: Live Oak Unified School District.


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Recent Enrollment Trends

The following table shows recent enrollment history for the District.

ANNUAL ENROLLMENT Fiscal Years 2005-06 through 2017-18

Live Oak Unified School District

School Year Enrollment % Changi2005-06 1,798 —

2006-07 1,876 4.3%2007-08 1,906 1.62008-09 1,896 (0.5)2009-10 1,883 (0.7)2010-11 1,781 (5.4)2011-12 1,789 (0.4)2012-13 1,740 (2.7)2013-14 1,757 1.02014-15 1,757 0.02015-16 1,810 3.02016-17 1,806 (0.2)2017-18* 1,866 3.3

"Projected.Source: California Department of Education for enrollment through 2015-16; Live Oak Unified School District Second Interim Report for 2016-17 and 2017-18.


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DISTRICT FINANCIAL INFORMATION

Education Funding Generally

School districts in California receive operating income primarily from two sources: the State funded portion which is derived from the State's general fund, and a locally funded portion, being the district's share of the one percent general ad valorem tax levy authorized by the California Constitution. Asa result, decreases or deferrals in education funding by the State could significantly affect a school district's revenues and operations.

From 1973-74 to 2012-13, California school districts operated under general purpose revenue limits established by the State Legislature. In general, revenue limits were calculated for each school district by multiplying (1) the ADA for such district by (2) a base revenue limit per unit of ADA. The revenue limit calculations were adjusted annually in accordance with a number of factors designated primarily to provide cost of living increases and to equalize revenues among all California school districts of the same type. Funding of the District's revenue limit was provided by a mix of local property taxes and State apportionments of basic and equalization aid. Generally, the State apportionments amounted to the difference between the District's revenue limit and its local property tax revenues.

The fiscal year 2013-14 State budget package (the “2013-14 State Budget”) replaced the previous K-12 finance system with a new formula known as the Local Control Funding Formula (the “LCFF”). Linder the LCFF, revenue limits and most state categorical programs were eliminated. School districts instead receive funding based on the demographic profile of the students they serve and gain greater flexibility to use these funds to improve outcomes of students. The LCFF creates funding targets based on student characteristics. For school districts and charter schools, the LCFF funding targets consist of grade span-specific base grants plus supplemental and concentration grants that reflect student demographic factors. The LCFF includes the following components:

• A base grant for each local education agency per unit of ADA, which varies with respect to different grade spans. The base grant is $2,375 more than the average revenue limit provided prior to LCFF implementation. The base grants will be adjusted upward each year to reflect cost-of-living increases. In addition, grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in grades K-3 and the provision of career technical education in grades 9-12.

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

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

• An economic recovery target to ensure that almost every local education agency receives at least their pre-recession funding level, adjusted for inflation, at full implementation of the LCFF.

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The LCFF was implemented for fiscal year 2013-14 and will be phased in gradually. Beginning in fiscal year 2013-14, an annual transition adjustment was required to be calculated for each school district, equal to each district's proportionate share of the appropriations included in the State budget (based on the percentage of each district's students who are low-income, English learners, and foster youth (“Targeted Students”), to close the gap between the prior-year funding level and the target allocation at full implementation of LCFF. In each year, districts will have the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district's funding gap.

Based on revenue projections, districts will reach what is referred to as “full funding” in fiscal year 2020-21. This projection assumes that the State's economy will improve each year; if the economy falters it could take longer to reach full funding.

The target LCFF amounts for State school districts and charter schools based on grade levels and Targeted Students are shown below.

Grade Span Funding at Full LCFF Implementation (Target Amount)

K-3 Class

GradeSpan

BaseGrant*1’

SizeReduction and 9-12

Adjustments

Average Assuming 0%

Targeted Students

Average Assuming 25%

Targeted Students

Average Assuming 50%

Targeted Students

Average Assuming

100% Targeted Students

K-3 $6,845 $712 $7,557 $7,935 $8,313 $10,7694-6 6,947 N/A 6,947 7,294 7,642 9,8997-8 7,154 N/A 7,154 7,512 7,869 10,194

9-12 8,289 $216 8,505 8,930 9,355 12,119

(1) Does not include adjustments for cost of living. Source: California Department of Education.

The new legislation includes a “hold harmless” provision which provides that a district or charter school will maintain total revenue limit and categorical funding at least equal to its fiscal year 2012-13 level, unadjusted for changes in ADA or cost of living adjustments.

The LCFF includes an accountability component. Districts are required to increase or improve services for English language learners, low income, and foster youth students in proportion to supplemental and concentration grant funding received. All school districts, county offices of education, and charter schools are required to develop and adopt local control and accountability plans, which identify local goals in areas that are priorities for the State, including pupil achievement, parent engagement, and school climate.

County superintendents review and provide support to the districts under their jurisdiction, and the Superintendent of Public Instruction performs a corresponding role for county offices of education. In addition, the 2013-14 State Budget created the California Collaborative for Education Excellence to advise and assist school districts, county offices of education, and charter schools in achieving the goals identified in their plans. Linder the LCFF and related legislation, the State will continue to measure student achievement through statewide assessments, produce an Academic Performance Index for schools and subgroups of students, determine the contents of the school accountability report card, and establish policies to implement the federal accountability system.

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District Accounting Practices

The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section 41010 of the California Education Code, is to be followed by all California school districts.

District accounting is organized on the basis of fund groups, with each group consisting of a separate set of self-balancing accounts containing assets, liabilities, fund balances, revenues and expenditures. The majorfund classification is the general fund which accounts for all financial resources not requiring a special fund placement. The District's fiscal year begins on July 1 and ends on June 30.

District expenditures are accrued at the end of the fiscal year to reflect the receipt of goods and services in that year. Revenues generally are recorded on a cash basis, except for items that are susceptible to accrual (measurable and/or available to finance operations). Current taxes are considered susceptible to accrual. Revenues from specific state and federally funded projects are recognized when qualified expenditures have been incurred. State block grant apportionments are accrued to the extent that they are measurable and predictable. The State Department of Education sends the District updated information from time to time explaining the acceptable accounting treatment of revenue and expenditure categories.

The Governmental Accounting Standards Board (“GASB”) published its Statement No. 34 “Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments” on June 30, 1999. Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management's Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting, (iii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iv) required supplementary information.

Financial Statements

General. The District's Audited Financial Statements for the fiscal year ending June 30, 2017, were prepared by Tittle & Company, LLP, Chico, California (the “Auditor”). Audited financial statements for the District for the fiscal year ended June 30, 2017 and prior fiscal years are on file with the District and available for public inspection at the Superintendent's Office. See Appendix B hereto for the Audited Financial Statements for fiscal year 2016-17. The District has not requested, and the auditor has not provided, any additional review of such financial statements in connection with their inclusion in the Official Statement. Copies of such financial statements will be mailed to prospective investors and their representatives upon written request to the District.

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General Fund Revenues, Expenditures and Changes in Fund Balance. The following table shows the audited income and expense statements for the District for the fiscal years 2012- 13 through 2016-17.

REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fiscal Years 2012-13 through 2016-17 (Audited)


Audited Audited Audited Audited Audited2012-13 2013-14 2014-15 2015-16 2016-17

RevenuesRevenue limit/LCFF(1) sources $6,709,796 $9,157,055 $10,852,618 $10,702,088 $17,251,364Local sources 2,349,232 2,376,043 2,581,075 2,411,263Federal revenues 1,592,877 1,142,610 1,267,001 1,015,698 1,002,695Other state revenues 2,007,527 772,784 425,138 1,792,005 1,608,729Other local revenues 439,817 279,638 359,481 3,535,173 545,637Interest and investment earnings - 27,663 30,398 65,481Total Revenues 13,099,249 13,755,793 15,515,711 19,521,708 20,408,425

ExpendituresInstruction 7,649,116 7,928,989 9,121,459 10,560,453 11,733,399Instruction-related services 1,471,918 1,322,053 1,501,826 1,732,026 1,958,512Pupil services 1,127,166 1,266,697 1,432,537 1,875,411 1,809,955Ancillary services 112,616 126,489 132,211 143,851 164,345Community services 79,864 77,170 105,049 116,760 131,436General administration 994,161 1,355,517 1,256,660 1,278,630 1,360,047Plant services 1,213,559 1,243,971 1,356,621 2,011,627 1,786,099Other outgo 30,161 182,370 549,660 610,784 667,652Capital outlayDebt Service:

292,349

Principal 50,415 43,389 43,175 44,603 46,078Interest and other charges 6,480 26,389 23,998 22,559 19,667

Total Expenditures 12,735,456 13,573,034 15,523,196 18,396,704 19,969,539

Excess of Revenues Over/(Under) Expenditures

363,793 182,759 (7,485) 1,125,004 438,886

Other Financina Sources (Uses)Interfund transfers inInterfund transfers out (1,000,000) (500,250) (557,047) (427,946) (319,970)Total Other Fin. Source (Uses) (1,000,000) (500,250) (557,047) (427,946) (319,970)

Net change in fund balance (636,207) (317,491) (546,532) 697,058 118,916

Fund Balance, July 1 4,149,835 3,575,011 3,257,520 2,692,988 3,390,046

Fund Balance, June 30 $3,513,628 $3,257,520 $2,692,988 $3,390,046 $3,508,962

(1) Local Control Funding Formula ("LCFF") commenced in fiscal year 2013-14.(2) The discrepancy between ending fund balance on June 30, 2013 and the beginning fund balance on July 1, 2013 is due to reclassification of funds in the Capital Projects Fund to the General Fund.Source: Live Oak Unified School District Audit Reports

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District Budget and Interim Financial Reporting

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

School districts must adopt a budget on or before July 1 of each year. The budget must be submitted to the county superintendent within five days of adoption or by July 1, whichever occurs first. A district must be on a single budget cycle. The single budget is only readopted if it is disapproved by the county office of education, or as needed. The District is on a single budget cycle and adopts its budget on or before July 1.

The county superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Trustees and identify technical corrections necessary to bring the budget into compliance, will determine if the budget allows the district to meet its current obligations and will determine if the budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments. On or before September 15, the county superintendent will approve or disapprove the adopted budget for each school district. Budgets will be disapproved if they fail the above standards. The district board must be notified by September 15 of the county superintendent's recommendations for revision and reasons for the recommendations. The county superintendent may assign a fiscal advisor or appoint a committee to examine and comment on the superintendent's recommendations. The committee must report its findings no later than September 20. Any recommendations made by the county superintendent must be made available by the district for public inspection. The law does not provide for conditional approvals; budgets must be either approved or disapproved. No later than November8, the county superintendent must notify the Superintendent of Public Instruction of all school districts whose budgets have been disapproved.

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

interim Certifications Regarding Ability to Meet Financial Obligations. Under the provisions of AB 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the then- current fiscal year and, based on current forecasts, for the subsequent two fiscal years. 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

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any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years.

Under California law, any school district and office of education that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or in the next succeeding fiscal year, certificates of participation, tax anticipation notes, revenue bonds or any other debt instruments that do not require the approval of the voters of the district, unless the applicable county superintendent of schools determines that the district's repayment of indebtedness is probable.

District’s Budget Approval/Disapproval and Certification History. The District has not received any qualified or negative certifications of its financial reports in the past five years, nor have any of its budgets been disapproved. The District's most recent interim report, the 2nd Interim Report for fiscal year 2017-18, was certified as positive by the Board, and its fiscal year 2017-18 Budget was approved by the County Office of Education.

Copies of the District's budget, interim reports and certifications may be obtained upon request from the District Office at Live Oak Unified School District, 2201 Pennington Road, Live Oak, California 95953; phone (530) 695-5400. The District may impose charges for copying, mailing and handling.


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District’s 2017-18 Budget. The following table shows the income and expense statements for the District's General Fund for the District's 2017-18 Adopted Budget and Second Interim Projections.

REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE(1)Fiscal Year 2017-18 (Adopted Budget and Second Interim Report)


RevenuesLCFFFederal Revenues Other State Revenues Other Local Revenues Total Revenues

ExpendituresCertificated SalariesClassified SalariesEmployee BenefitsBooks and SuppliesContract Services & Operating Exp.Capital OutlayOther Outgo (excluding indirect costs) Other Outgo - Transfers of Indirect Costs Total Expenditures

Excess of Revenues Over/(Under) Expenditures

Other Financing Sources (Uses)Operating transfers inOperating transfers outTotal Other Financing Sources/(Uses)

Net change in fund balance

Fund Balance, July 1 Fund Balance, June 30

(1) Totals may not foot due to rounding. Source: Live Oak Unified School District.

Adopted Budget 2017-18

Second Interim Projections

2017-18$18,337,036 $18,380,254

1,004,112 1,003,0131,018,383 1,498,986

224,174 416,66920,583,705 21,298,922

8,619,097 8,643,4583,388,180 3,384,8544,515,744 4,513,1021,617,164 1,505,8922,103,673 1,995,301

207,137 928,007662,215 662,215(55,126) (55,126)

21,058,083 21,577,702

(474,379) (278,781)

(61,939) (61,939)

(61,939) (61,939)

(536,318) (340,720)

3,508,962 3,508,962

$2,972,644 $3,168,242

District Reserves. In general, the State requires that the California school districts maintain the equivalent of 3% of annual general fund expenditures in reserve to be available during financial crisis. The District has historically had an unrestricted reserve in excess of the 3% minimum requirement.

In connection with legislation adopted in connection with the State's fiscal year 2014-15 Budget (“SB 858”), the Education Code was amended to provide that, beginning in fiscal year 2015-16, if a district's proposed budget includes a local reserve above the minimum recommended level, the governing board must provide the information for review at the annual public hearing on its proposed budget. In addition, SB 858 included a provision, which became

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effective upon the passage of Proposition 2 at the November 4, 2014 statewide election, which limits the amount of reserves which may be maintained at the school district level. Specifically, the legislation, among other things, enacted Education Code Section 42127.01, which became operative December 15, 2014, and provides that in any fiscal year immediately after a fiscal year in which a transfer is made to the State's Public School System Stabilization Account (the Proposition 98 reserve), a school district may not adopt a budget that contains a reserve for economic uncertainties in excess of twice the applicable minimum recommended reserve for economic uncertainties established by the State Board (for school districts with ADA over 400,000, the limit is three times the amount). Exemptions can be granted by the County Superintendent under certain circumstances.

Effective January 1,2018, Senate Bill 751, which was signed by the Governor on October 11,2017, amends Section 42127.01 of the Education Code to raise the reserve cap to no more than 10% of a school district's combined assigned or unassigned ending general fund balance. In addition, the amendment provides that the reserve cap will be effective only if there is a minimum balance of 3% in the Proposition 98 reserve referenced in the preceding paragraph. Basic aid school districts and small districts with 2,500 or fewer ADA are exempted from the reserve cap contained in Education Code Section 42127.01.

Attendance - Revenue Limit and LCFF Funding

As previously described, prior to fiscal year 2013-14, school districts in the State derived most State funding based on a formula which considered a revenue limit per unit of ADA. With the implementation of the LCFF, commencing in fiscal year2013-14, school districts receive base funding based on ADA, and may also be entitled to supplemental funding, concentration grants and funding based on an economic recovery target.

The following table sets forth ADA and LCFF Funding for the District for fiscal years 2013- 14 through 2017-18 (Budgeted).

ADA AND LCFF FUNDING Fiscal Years 2013-14 through 2017-18 (Budgeted)


Fiscal Year ADA<1> LCFF Funding2013-14 1,710 $9,157,0552014-15 1,721 10,852,6182015-16 1,765 10,702,0882016-17 1,722 17,251,3642017-18(2) 1,780 18,380,254

(1) P-2 for Fiscal Year 2013-14 through 2016-17; Second Interim for Fiscal Year 2017-18.(2) Second Interim Report.Source: Live Oak Unified School District

The District's unduplicated pupil count for fiscal years 2016-17 and 2017-18, for purposes of calculating entitlement under the LCFF for supplemental funding and concentration grant funding, was 81.2% and 81.3%, respectively.

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Revenue Sources

The District categorizes its general fund revenues into four sources, being LCFF, Federal Revenues, Other State Revenues and Local Revenues. Each of these revenue sources is described below.

LCFF Sources. District funding is provided by a mix of (1) local property taxes and (2) State apportionments of funding under the LCFF. Generally, the State apportionments will amount to the difference between the District's LCFF funding entitlement and its local property tax revenues.

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

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. California Education Code Section 42238(h) itemizes the local revenues that are counted towards the base revenue limit before calculating how much the State must provide in equalization aid. Historically, the more local property taxes a district received, the less State equalization aid it is entitled to.

Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under Every Student Succeeds Act, the Individuals With Disabilities Education Act, and specialized programs such as Drug Free Schools.

Other State Revenues. Other State Revenues consist primarily of apportionments for mandated costs reimbursements, special education master plan, and State lottery apportionments.

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

District Retirement Systems

Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers' Retirement System (“STRS”) and classified employees are members of the Public Employees' Retirement System (“PERS”). Both STRS and PERS are operated on a Statewide basis. The information set forth below regarding the STRS and PERS programs, other than the information provided by the District regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not to be construed as a representation by either the District or the Underwriter.

Implementation ofGASB Nos. 68 and 71. Commencing with fiscal year ended June 30, 2015, the District implemented the provisions of GASB Statement Nos. 68 and 71 which require certain new pension disclosures in the notes to its audited financial statements commencing with the audit for fiscal year2014-15. Statement No. 68 generally requires the District to recognize its

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proportionate share of the unfunded pension obligation for STRS and PERS by recognizing a net pension liability measured as of a date (the measurement date) no earlier than the end of its prior fiscal year. As a result of the implementation of GASB Statement Nos. 68 and 71, the District was required to restate its beginning net position as of July 1,2014. See “APPENDIX B - Audited Financial Statements of the District for Fiscal Year Ending June 30, 2017.”

STRS. All full-time certificated employees participate in STRS, a cost-sharing, multiple- employer contributory public employee retirement system. STRS provides retirement, disability and survivor benefits to plan members and beneficiaries under a defined benefit program. Benefit provisions and contribution amounts are established by State statutes, as legislatively amended. The program is funded through a combination of investment earnings and statutorily set contributions from three sources: employees, employers and the State. The District's employer contributions to STRS for recent fiscal years are set forth in the following table.

STRS EMPLOYER CONTRIBUTIONS Live Oak Unified School District

Fiscal Years 2011-12 through 2017-18

Fiscal Year Amount2011-12 $496,5592012-13 507,1492013-14 502,9392014-15 612,4772015-16 822,1192016-17 1,011,3742017-18(1) 1,225,890

(1) Second Interim Projection.Source: Live Oak Unified School District

Historically, employee, employer and State contribution rates did not vary annually to account for funding shortfalls or surpluses in the STRS plan. In recent years, the combination of investment earnings and statutory contributions were not sufficient to pay actuarially required amounts. As a result, the STRS defined benefit program showed an estimated unfunded actuarial liability of approximately $96.7 billion as of June 30, 2016 (the date of the last actuarial valuation). In connection with the State's adoption of its fiscal year 2014-15 Budget, the Governor signed into law Assembly Bill 1469 (“AB 1469”), which represents a legislative effort to address the unfunded liabilities of the STRS pension plan. AB 1469 addressed the funding gap by increasing contributions by employees, employers and the State. In particular, employer contribution rates are scheduled to increase through at least fiscal year 2020-21, from a contribution rate of 8.25% in fiscal year 2013-14 to 19.1% in fiscal year 2020-21. Thereafter, employer contribution rates will be determined by the STRS board to reflect the contribution required to eliminate unfunded liabilities by June 30, 2046.

The District's employer contribution rates for fiscal years 2015-16 and 2016-17 were 10.73% and 12.58%, respectively. Projected employer contribution rates for school districts (including the District) for fiscal year 2017-18 through fiscal year 2021-22 are set forth in the following table.

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PROJECTED EMPLOYER CONTRIBUTION RATES (STRS) Fiscal Years 2017-18 through 2021-22

Fiscal YearProjected Employer Contribution Rate(1)

2017-18 14.43%2018-19 16.282019-20 18.132020-21 19.102021-22 19.10

(1) Expressed as a percentage of covered payroll. Source: AB 1469

PERS. All full-time and some part-time classified employees participate in PERS, an agent multiple-employer contributory public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State. PERS provides retirement, disability, and death benefits to plan members and beneficiaries. The District is part of a cost-sharing pool within PERS known as the “Schools Pool.” Benefit provisions are established by State statutes, as legislatively amended. Contributions to PERS are made by employers and employees. Each fiscal year, the District is required to contribute an amount based on an actuarially determined employer rate. The District's employer contributions to PERS for recent fiscal years are set forth in the following table.

PERS EMPLOYER CONTRIBUTIONS Live Oak Unified School District

Fiscal Years 2011-12 through 2017-18

Fiscal Year Amount2011-12 $189,8842012-13 207,1992013-14 229,6312014-15 265,5032015-16 312,5282016-17 396,7122017-18(1) 454,886

(1) Second Interim Projection.Source: Live Oak Unified School District

Like the STRS program, the PERS program has experienced an unfunded liability in recent years. The PERS unfunded liability, on a market value of assets basis, was approximately $23.6 billion as of June 30, 2017 (the date of the last actuarial valuation). To address this issue, the PERS board has taken a number of actions. In April 2013, for example, the PERS board approved changes to the PERS amortization and smoothing policy intended to reduce volatility in employer contribution rates. In addition, in April 2014, PERS set new contribution rates, reflecting new demographic assumptions and other changes in actuarial assumptions. The new rates and underlying assumptions, which were aimed at eliminating the unfunded liability of PERS in approximately 30 years, were implemented for school districts beginning in fiscal year 2016-17, with the costs spread over 20 years and the increases phased in over the first five years.

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The District's employer contribution rates for fiscal years 2015-16, 2016-17 and 2017-18 were 12.6%, 13.888% and 15.531%, respectively. Projected employer contribution rates for school districts (including the District) for fiscal year 2018-19 through fiscal year 2020-21 are set forth in the following table.

PROJECTED EMPLOYER CONTRIBUTION RATES (PERS)Fiscal Years 2018-19 through 2020-21

Projected Employer _____Fiscal Year________ Contribution Rate(1)

2018- 19 18.062%2019- 20 20.8002020- 21 23.500

(1) Expressed as a percentage of covered payroll. Source: PERS

California Public Employees’ Pension Reform Act of 2013. On September 12, 2012, the Governor signed into law the California Public Employees' Pension Reform Act of 2013 (“PEPRA”), which impacted various aspects of public retirement systems in the State, including the STRS and PERS programs. In general, PEPRA (i) increased the retirement age for public employees depending on job function, (ii) capped the annual pension benefit payouts for public employees hired after January 1,2013, (iii) required public employees hired after January 1,2013 to pay at least 50% of the costs of their pension benefits (as described in more detail below), (iv) required final compensation for public employees hired after January 1,2013 to be determined based on the highest average annual pensionable compensation earned over a period of at least 36 consecutive months, and (v) attempted to address other perceived abuses in the public retirement systems in the State. PEPRA applies to all public employee retirement systems in the State, except the retirement systems of the University of California, and charter cities and charter counties whose pension plans are not governed by State law. PEPRA's provisions went into effect on January 1,2013 with respect to new State, school, and city and local agency employees hired on or after that date; existing employees who are members of employee associations, including employee associations of the District, have a five-year window to negotiate compliance with PEPRA through collective bargaining.

PERS has predicted that the impact of PEPRA on employees and employers, including the District and other employers in the PERS system, will vary, based on each employer's current level of benefits. As a result of the implementation of PEPRA, new members must pay at least 50% of the normal costs of the plan, which can fluctuate from year to year. To the extent that the new formulas lower retirement benefits, employer contribution rates could decrease over time as current employees retire and employees subject to the new formulas make up a larger percentage of the workforce. This change would, in some circumstances, result in a lower retirement benefit for employees than they currently earn.

With respect to the STRS pension program, employees hired after January 1, 2013 will pay the greater of either (1) fifty percent of the normal cost of their retirement plan, rounded to the nearest one-quarter percent, or (2) the contribution rate paid by then-current members (i.e., employees in the STRS plan as of January 1, 2013). The member contribution rate could be increased from this level through collective bargaining or may be adjusted based on otherfactors. Employers will pay at least the normal cost rate, after subtracting the member's contribution.

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The District is unable to predict the amount of future contributions it will have to make to PERS and STRS as a result of the implementation of PEPRA, and as a result of negotiations with its employee associations, or, notwithstanding the adoption of PEPRA, resulting from any legislative changes regarding the PERS and STRS employer contributions that may be adopted in the future.

Additional Information. Additional information regarding the District's retirement programs is available in Note M to the District's audited financial statements attached hereto as APPENDIX B. In addition, both STRS and PERS issue separate comprehensive financial reports that include financial statements and required supplemental information. Copies of such reports may be obtained from STRS and PERS, respectively, as follows: (i) STRS, P.O. Box 15275, Sacramento, California 95851-0275; and (ii) PERS, 400 Q Street, Sacramento, California 95811. More information regarding STRS and PERS can also be obtained at their websites, www.calstrs.com and www.calpers.ca.gov, respectively. The references to these Internet websites are shown for reference and convenience only and the information contained on such websites is not incorporated by reference into this Official Statement. The information contained on these websites may not be current and has not been reviewed by the District or the Underwriter for accuracy or completeness.

Other Post-Employment Benefits

Other Post-Employment Benefits. In June 2004, the Governmental Accounting Standards Board (“GASB”) issued Statement No. 45 (“GASB 45”), which addresses how state and local governments should account for and report their costs and obligations related to postemployment health care and other non-pension benefits (“OPEB”). GASB 45 generally requires that local governments account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Annual OPEB cost for most local governments will be based on actuarially determined amounts that, if paid on an ongoing basis, generally would provide sufficient resources to pay benefits as they come due.

Plan Description. The District provides postemployment health care benefits (the “Plan”) to qualifying employees through a single-employer defined benefit health care plan administered by the District. The District provides the Plan to all certificated employees who retire from the District on or after attaining the age of 55 with at least 20 years of service in the District or on or after attaining age 60 with at least 17 years of service in the District and was employed in the District prior to July 1, 1994. The benefits are paid until the retiree reaches the age of 65.

The District also provides the Plan to all classified employees and their dependents who retire from the District on or after attaining age 55 with 20 years of service or on or after attaining age 60 with at least 17 years of service in the District and was employed in the District prior to July 1, 1994. The classified retirees shall be included in the program until age 65. At June 30, 2017, 13 retirees met these eligibility requirements.

Annual OPEB Cost and Net OPEB Obligation. The District's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (“ARC”), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (“UAAL”) (or funding excess) over a period not to exceed thirty years. The following table shows the

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http://www.calstrs.com

http://www.calpers.ca.gov

components of the District's annual OPEB cost of the year, the amount actually contributed to the plan and changes in the District's net obligation to the Plan.

LIVE OAK UNIFIED SCHOOL DISTRICT Other Post Employment Benefit Cost - 2016-17


Annual required contribution $105,436Interest on net OPEB obligation 4,403Adjustment to annual required contribution (12.365)Annual OPEB cost 97,474Contributions Made (111.756)Decrease in Net OPEB Obligation (14,282)Net OPEB, Beg. of Year 97.847Net OPEB obligation, end of year $83,565

Trend information for the past three fiscal years follows:

Year Ended Annual OPEB Percentage Net OPEBJune 30 Cost Contributed______Obligation

2015 $97,561 113% $71,5772016 101,870 74 97,8472017 97,474 115 83,565

Source: Live Oak Unified School District Audit Reports.

2015 Actuarial Report An actuarial report dated October 1, 2015 (the “Actuarial Report”) was prepared to analyze liabilities associated with the District's retiree health program as of October 1, 2015 based on employees as of October 1, 2015. The Actuary identified an unfunded actuarial liability as of such date of $683,603. In addition, the Actuary identified an ARC (being the sum of the normal cost and amortization of the UAAL, in this case using an amortization period of thirty years) of $683,603. The Actuarial Report includes several assumptions which may or may not prove accurate over time. A copy of the Actuarial Report may be obtained from the District.

Insurance

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The District participates in joint ventures under joint powers agreements (“JPAs”) with California's Valued Trust (CVI), North Valley Schools Insurance Group, Northern California Schools Insurance Group and Schools Excess Liabilities Fund. The relationships between the District and the JPAs are such that none of the JPAs are component units of the District for financial reporting purposes.

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Long-Term Debt Obligations

The District currently has the following long-term debt outstanding:

GENERAL OBLIGATION BONDS Live Oak Unified School District

Dated Date Series5/20/2014 2014 General Obligation Refunding Bonds6/29/2016 2016 General Obligation Refunding Bonds4/04/2017 General Obligation Bonds, 2016 Election, Ser. A

Total

Amount of Outstanding as ofOriginal Issue April 1, 2018$3,695,000 $3,160,0006,195,000 6,095,0007,000,000 7,000,000

$16,890,000 $16,255,000

Source: Live Oak Unified School District Audit Reports; the Financial Advisor.

2014 Refunding Bonds. The District issued its 2014 General Obligation Refunding Bonds on May 20, 2014 (the “2014 Refunding Bonds") to refund the 2004 Series A Bonds. The 2014 Refunding Bonds are currently outstanding in the amount of $3,160,000.

2016 Refunding Bonds. The District issued its 2016 General Obligation Refunding Bonds on June 29, 2016 (the “2016 Refunding Bonds") to refund certain maturities the 2004 Series B Bonds and the 2008 Refunding Bonds. The 2016 Refunding Bonds are currently outstanding in the amount of $6,095,000.

General Obligation Bonds, Election of 2016, Series A. The District issued its General Obligation Bonds, Election of 2016, Series A in the amount of $7,000,000 on April 4, 2017 (the “2016 Series A Bonds"). The 2016 Series A Bonds are currently outstanding in the amount of $7,000,000.

Overlapping Debt Obligations

Set forth below is a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics, Inc. and dated May 1, 2018. The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith.

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

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Table No. 1LIVE OAK UNIFIED SCHOOL DISTRICT

Statement of Direct and Overlapping Bonded Debt Dated as of May 1,2018

2017-18 Assessed Valuation: $818,909,602

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: %Yuba Joint Community College District Live Oak Unified School District Sutter Butte Flood Control Agency Assessment District TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT

DIRECT AND OVERLAPPING GENERAL FUND DEBT:Sutter County Certificates of ParticipationSutter County Board of Education Certificates of ParticipationYuba Joint Community College District Certificates of ParticipationLive Oak Unified School District General Fund ObligationsTOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT

COMBINED TOTAL DEBT

Applicable Debt 5/1/182.719% $ 4,453,208

100.000 16,255,0004.550 3,971,468

$24,679,676

8.779% $ 57,5028.779 433,2442.719 354,930

100.000 1.191.175$2,036,851

$26,716,527

(1)

(2)

Ratios to 2017-18 Assessed Valuation:Direct Debt ($16,255,000)...................................................... 1.98%Total Direct and Overlapping Tax and Assessment Debt..........3.01%Combined Direct Debt ($17,446,175)....................................2.13%Combined Total Debt................................................................ 3.26%

(1) Excludes Certificates to be sold.(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.Source: California Municipal Statistics, Inc.


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Ad Valorem Property Taxation

Taxes are levied by the County for each fiscal year on taxable real and personal property which is situated in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.”

Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10 percent penalty attaches to any delinquent payment. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5 percent per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is subject to sale by the Treasurer.

Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10 percent penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1.5 percent attaches to them on the first day of each month until paid. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk and County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements, or possessory interests belonging or assessed to the assessee.

Assessed Valuations

The assessed valuation of property in the District is established by the Sutter County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the "full value" of the property, as defined in Article XIIIA of the California Constitution. The full 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, or to reflect declines in property value caused by substantial damage, destruction or other factors, including assessment appeals filed by property owners. For a discussion of how properties currently are assessed, see "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS."

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


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Assessed Valuation History. The table following shows a recent history of the District's assessed valuation.


Assessed Valuations Fiscal Years 2011-12 through 2017-18

Local Secured Utilitv Unsecured Total2011-12 $616,980,038 $471,568 $23,106,117 $640,557,7232012-13 611,350,914 2,004 25,967,105 637,320,0232013-14 625,001,071 2,004 24,156,840 649,159,9152014-15 676,488,917 2,004 29,292,402 705,783,3232015-16 709,570,287 2,004 31,464,031 741,050,3202016-17 745,610,940 2,439 31,513,195 777,126,5742017-18 788,960,521 2,439 29,946,642 818,909,602

Source: California Municipal Statistics, Inc.

Assessed Value by Jurisdiction. As shown in the table below, approximately 46% of the District's assessed valuation lies in the City of Live Oak, while approximately 54% lies in unincorporated Sutter County.


2017-18 Assessed Valuation by Jurisdiction

Jurisdiction:City of Live Oak Unincorporated Sutter County Total District

Assessed Valuation in School District

$374,879,041444,030,561

$818,909,602

% ofSchool District

45.78%54.22

100.00%

Assessed Valuation of Jurisdiction$374,879,0413,848,410,727

% of Jurisdiction in School District

100.00%

11.54

Sutter County $818,909,602 100.00% ,328,310,157 8.78%



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Assessed Valuation by Land Use. The following table shows the land use of parcels in the District as measured by assessed value and number of parcels, according to County records for fiscal year 2017-18. As shown, residential purposes account for a majority of the District's assessed value and parcels.


Assessed Valuation and Parcels by Land Use Fiscal Year 2017-18

2017-18 %of No. of %ofNon-Residential: Assessed Valuation d) Total Parcels TotalAgricultural/Rural $349,488,426 44.30% 1,165 27.27%Commercial/Office 29,003,477 3.68 66 1.54Vacant Commercial 1,344,532 0.17 26 0.61Industrial 27,715,631 3.51 37 0.87Vacant Industrial 186,475 0.02 3 0.07Recreational/Duck Clubs 26,989,285 3.42 58 1.36Government/Social/lnstitutional 1.031.302 0.13 141 3.30Subtotal Non-Residential $435,759,128 55.23% 1,496 35.02%

Residential:Single Family Residence $319,254,203 40.47% 2,212 51.78%Mobile Home 2,680,123 0.34 79 1.85Mobile Home Park 2,523,046 0.32 3 0.072 Residential Units/Duplex 4,437,404 0.56 28 0.663+ Residential Units/Apartments 12,342,039 1.56 80 1.87Vacant Residential 11.964.578 1.52 374 8.75

Subtotal Residential $353,201,393 44.77% 2,776 64.98%

Total $788,960,521 100.00% 4,272 100.00%

(1) Local secured assessed valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc.


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Assessed Valuation of Single Family Residential Parcels. The following table shows a breakdown of the assessed valuations of improved single-family residential parcels in the District, according to fiscal year 2017-18 assessed valuation.


Per Parcel 2017-18 Assessed Valuation of Single Family Homes

No. of 2017-18 Average MedianParcels Assessed Valuation Assessed Valuationi Assessed Valuation

Family Residential 2,212 $319,254,203 $144,328 $130,851

2017-18 No. of % of Cumulative Total % of CumulativeAssessed Valuation Parcels (1) Total % of Total Valuation Total % of Total

$0 - $24,999 41 1.854% 1.854% $ 731,390 0.229% 0.229%$25,000- $49,999 118 5.335 7.188 4,639,322 1.453 1.682$50,000- $74,999 194 8.770 15.958 12,194,979 3.820 5.502$75,000- $99,999 317 14.331 30.289 27,330,135 8.561 14.063

$100,000-$124,999 360 16.275 46.564 41,026,504 12.851 26.913$125,000-$149,999 246 11.121 57.685 33,580,990 10.519 37.432$150,000-$174,999 212 9.584 67.269 34,571,021 10.829 48.261$175,000-$199,999 237 10.714 77.984 44,352,349 13.892 62.153$200,000-$224,999 172 7.776 85.759 36,232,509 11.349 73.502$225,000-$249,999 178 8.047 93.807 42,312,738 13.254 86.756$250,000-$274,999 66 2.984 96.790 17,267,852 5.409 92.165$275,000-$299,999 28 1.266 98.056 8,043,569 2.519 94.684$300,000-$324,999 21 0.949 99.005 6,484,142 2.031 96.715$325,000-$349,999 4 0.181 99.186 1,333,671 0.418 97.133$350,000-$374,999 1 0.045 99.231 365,000 0.114 97.247$375,000-$399,999 4 0.181 99.412 1,577,393 0.494 97.741$400,000-$424,999 3 0.136 99.548 1,218,653 0.382 98.123$425,000-$449,999 2 0.090 99.638 895,575 0.281 98.404$450,000-$474,999 0 0.000 99.638 0 0.000 98.404$475,000-$499,999 2 0.090 99.729 986,363 0.309 98.713$500,000 and greater 6 0.271 100.000 4.110.048 1.287 100.000

Total 2,212 100.000% $319,254,203 100.000%

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


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Tax Rates. The table below summarizes the total ad valorem tax rates levied by all taxing entities in a representative tax rate area in the District during fiscal years 2013-14 through 2017- 18.


Percentage of Assessed Valuation Typical Tax Rates (All Tax Rate Areas) Fiscal Years 2013-14 through 2017-18

2013-14 2014-15 2015-16 2016-17 2017-18General Tax Rate $1.000000 $1.000000 $1.000000 $1.000000 $1.000000Live Oak Unified School District .082320 .073710 .072620 .064605 .131307Yuba Joint Community College District .027410 .025010 .024930 .026346 .025348

Total Tax Rate $1.109730 $1.098720 $1.097550 $1.090951 $1.156655


Alternative Method of Tax Apportionment - “Teeter Plan”

The Board of Supervisors of the County 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 et seq. of the California Revenue and Taxation Code. This alternative method is used for distribution of the ad valorem property tax revenues.

The County is responsible for determining the amount of the ad valorem tax levy on each parcel in the District, which is entered onto the secured real property tax roll. Upon completion of the secured real property tax roll, the County auditor determines the total amount of taxes (excluding levies for bonded debt and assessments) actually extended on the roll for each fund for which a tax levy has been included, and apportions 100 percent of the tax levies to that fund's credit. Such monies may thereafter be drawn against by the taxing agency in the same manner as if the amount credited had been collected.

Under the Teeter Plan, the County establishes the Tax Loss Reserve Fund. The County determines which monies in the County treasury (including those credited to the Tax Loss Reserve Fund) shall be available to be drawn on to the extent of the amount of uncollected taxes credited to each fund for which a levy has been included. When amounts are received on the secured tax roll for the current year, or for redemption of tax-defaulted property, Teeter Plan monies are distributed to the apportioned tax resources accounts. The tax losses reserve fund is used exclusively to cover lost income occurring as a result of tax-defaulted property. Monies in this fund are derived from several sources. While amounts collected as costs are distributed to the County's general fund, delinquent penalty collections are distributed to the tax losses reserve fund.

When tax-defaulted property is sold, the taxes and assessments which constitute the amount required to redeem the property are prorated between apportioned (Teeter) levies and unapportioned (or non-Teeter) levies. The pro rata share for apportioned levies is distributed to the tax losses reserve fund. The pro rata share for unapportioned levies is prorated between tax levies and assessment levies and then distributed to the applicable funds. If the tax losses reserve fund exceeds 1 percent of the total taxes and assessments levied on the secured roll for that year, the amounts coming in after it reaches 1 percent are credited to the County's general fund. Upon adoption of a resolution by the Board of Supervisors of the County by September 1 of any fiscal

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year, the 1 percent tax losses reserve fund threshold may be reduced to 25 percent of the total delinquent taxes and assessments for the previous year.

The Teeter Plan is to remain in effect unless the Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors shall receive a petition for its discontinuance joined in by resolutions adopted by two thirds of the participating revenue districts in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year.

So long as the Teeter Plan remains in effect, the District's receipt of revenues with respect to the levy of ad valorem property taxes on the secured roll will not be dependent upon actual collections of the ad valorem property taxes by the County. However, under the statute creating the Teeter Plan, the Board of Supervisors could under certain circumstances terminate the Teeter Plan in its entirety or terminate the Teeter Plan as to the District if the delinquency rate for all ad valorem property taxes levied within the District in any year exceeds 3 percent.

The table below shows the secured tax charge and delinquency rate for fiscal years 2011- 12 through 2016-17.


Secured Tax Charges and Delinquency Rates Fiscal Years 2011-12 through 2016-17

Secured Amt. Del. % Del.Tax Charae Ml June 30 June 30

2011-12 $460,430.44 $13,919.56 3.02%2012-13 487,041.68 10,375.90 2.132013-14 505,276.70 9,317.88 1.842014-15 490,454.88 6,047.86 1.232015-16 507,318.46 6,646.76 1.312016-17 474,676.20 7,245.91 1.53

(1) 1% General Fund apportionment. Excludes redevelopment agency impounds. Reflects county-wide delinquency rate. Source: California Municipal Statistics, Inc.


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Largest Secured Property Taxpayers in District

The following table shows the 20 largest secured property taxpayers in the District as determined by secured assessed valuation in fiscal year 2017-18.


Largest Secured Taxpayers Fiscal Year 2017-18

2017-18 %ofProperty Owner Primary Land Use Assessed Valuation Total m

1. Millennium Farms LLC Agricultural $ 14,752,862 1.87%2. Sukhraj S. Pamma Agricultural 11,059,794 1.403. Lomo Cold Storage Industrial 8,923,652 1.134. Elysian Farms Inc. Agricultural 7,538,343 0.965. Stephen Tarke Agricultural 7,463,981 0.956. Corrections Corp. of America Correctional Facility 7,131,572 0.907. Live Oak Gun Club Agricultural 5,759,736 0.738. Sun Valley R E Holdings LLC Agricultural 5,698,515 0.729. Melbay Farms LP Agricultural 4,410,068 0.56

10. Evans Farming LLC Agricultural 4,362,557 0.5511. 9000 Larkin Road LLC Rest Home 4,222,827 0.5412. D & K Estates LLC Residential Properties 4,198,000 0.5313. Micheli Trust Agricultural 3,868,470 0.4914. Lavy Brothers GP Agricultural 3,764,627 0.4815. Jaswant S. Sapri Service Station 3,419,285 0.4316. Flyway Associates LLC Agricultural 3,417,634 0.4317. Tower Energy Group Corp. Office Building 3,407,968 0.4318. Rilco-Edwards LLC Commercial 3,168,720 0.4019. Kamaljit Kalkat Agricultural 3,161,133 0.4020. JMT LP Agricultural 3.039.662 0.39

$112,769,406 14.29%

(1) 2017-18 local secured assessed valuation: $788,960,521. Source: California Municipal Statistics, Inc.


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STATE FUNDING OF EDUCATION AND RECENT STATE BUDGETS

State Funding of Education

General. The State requires that from all State revenues there first shall be set apart the moneys to be applied for support of the public school system and public institutions of higher education. Public school districts in California are dependent on revenues from the State for a large portion of their operating budgets. California school districts receive an average of about 55% of their operating revenues from various State sources. The primary source of funding for school districts is funding under the LCFF, which is a combination of State funds and local property taxes (see “DISTRICT FINANCIAL INFORMATION - Education Funding Generally” above). State funds typically make up the majority of a district's LCFF entitlement.

The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures (see “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” below), the condition of the State economy (which affects total revenue available to the State general fund), and the annual State budget process. Decreases in State revenues may significantly affect appropriations made by the legislature to school districts.

The following information concerning the State’s budgets for the current and most recent preceding years has been compiled from publicly-available information provided by the State. None of the District, the Corporation, or the Underwriter are responsible for the information relating to the State’s budgets provided in this section. Further information is available from the Public Finance Division of the State Treasurer’s Office.

The Budget Process. The State's fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the “Governor’s Budget”). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor's Budget, the Legislature takes up the proposal.

Under the State Constitution, money may be drawn from the State Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a majority vote of each house of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each house of the Legislature.

Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (including for K-14 education) must be approved by a majority vote in each house of the Legislature, unless such appropriations require tax increases, in which case they must be approved by a two-thirds vote of each house of the Legislature, and be signed by the Governor. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution.

Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt.

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Recent State Budgets

Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State's website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only, the information contained within the websites may not be current and has not been reviewed by the District or the Underwriter and is not incorporated herein by reference.

• The California Department of Finance's Internet home page atwww.dof.ca.gov, under the heading “California Budget”, includes the text of proposed and adopted State Budgets.

• The State Legislative Analyst's Office prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst's Internet home page at www.lao.ca.gov under the heading “Subject Area - Budget (State)”.

Prior Years’ Budgeting Techniques. Declining revenues and fiscal difficulties which arose in the State commencing in fiscal year 2008-09 led the State to undertake a number of budgeting strategies, which had subsequent impacts on local agencies within the State. These techniques included the issuance of lOUs in lieu of warrants (checks), the enactment of statutes deferring amounts owed to public schools, until a later date in the fiscal year, or even into the following fiscal year (known as statutory deferrals), trigger reductions, which were budget cutting measures which were implemented or could have been implemented if certain State budgeting goals were not met, among others, and the dissolution of local redevelopment agencies in part to make available additional funding for local agencies. Although the fiscal year 2016-17 State Budget is balanced and projects a balanced budget for the foreseeable future, largely attributable to the additional revenues generated due to the passage of Proposition 30 at the November 2, 2010 statewide election, there can be no certainty that budget-cutting strategies such as those used in recent years will not be used in the future should the State Budget again be stressed and if projections included in such budget do not materialize.

2013-14 State Budget: Significant Change in Education Funding. As described previously herein, the 2013-14 State Budget and its related implementing legislation enacted significant reforms to the State's system of K-12 education finance with the enactment of the LCFF. Significant reforms such as the LCFF and other changes in law may have significant impacts on the District's finances.

2017-18 Adopted State Budget

On June 27, 2017, the Governor signed the 2017-18 State budget (the “2017-18 State Budget”) into law. The 2017-18 State Budget calls for the spending of $125.1 billion from the general fund, $54.9 billion from special funds and $3.3 billion from bond funds. The 2017-18 State Budget includes a funding increase of $3.1 billion for K-14 education, an expanded tax credit for low-wage workers and puts an additional $1.8 billion into the State's budget stabilization reserve, bringing the rainy-day fund balance to $8.5 billion, or 66% of the constitutional target. Significant features of the 2017-18 Budget include:

• total funding of $92.5 billion for K-12 education programs, including an increase in funding of $1.4 billion to continue the State's transition to LCFF, bringing the formula to 97% of full implementation;

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http://www.dof.ca.gov

http://www.lao.ca.gov

• an increase of $877 million in one-time discretionary grants to provide school districts, charter schools and county offices of education with funds to be used for items such as deferred maintenance, professional development, induction for beginning teachers, instructional materials, technology, and the implementation of new educational standards;

• an increase in $7 million to support county offices of education, which funding requires county superintendents of schools to summarize how the county offices of education will support school districts and schools within the county;

• $1.8 billion to pay down past budgetary borrowing and State employee pension liabilities;

• a $6 billion supplemental payment to PERS, on top of the actuarially determined annual contribution of $5.2 billion, through a loan from the State's Surplus Money Investment Fund, which will reduce unfunded liabilities, stabilize the State's contribution rate and save $11 billion over the next twenty years;

• $2.8 billion dollars for STRS, which contribution is consistent with the funding strategy of putting STRS on a sustainable path forward and eliminating its current unfunded liability in approximately 30 years;

• new appropriations of $2.8 billion, distributed evenly between State and local transportation authorities, to implementthe Road Repairand Accountability Act of 2017;

• $84.9 million to address issues from the State's recent drought emergency, including $41.9 million to extend the fire season and expand the State's firefighting capabilities to reduce the fire risk from climate change, the recent drought and tree mortality; and

• an increase of $31.5 million to repair and maintain the aging infrastructure of the State's park system.

2018-19 Proposed State Budget

On January 10, 2018, the Governor released the proposed State budget for fiscal year 2018-19 (the “2018-19 Proposed Budget”). The 2018-19 Proposed Budget, despite projecting a one-time surplus and assuming continued expansion of the State economy, proposes a $3.5 billion deposit in order to fully fund the State's “Rainy Day Fund” in order to soften the magnitude of any future budget cuts. The 2018-19 Proposed Budget includes $131.7 billion in general fund spending and reserves of $1.2 billion. The 2018-19 Proposed Budget revises the Proposition 98 minimum funding guarantee for school districts, community college districts, and other state agencies that provide direct elementary and secondary instructional programs for kindergarten through grade 14 to $78.3 billion, reflecting a year-to-year increase of $3.1 billion from fiscal year 2017-18. This includes an approximately $3 billion investment to fully implement the LCFF two years earlier than originally projected. Ongoing Proposition 98 per-pupil expenditures in fiscal year 2018-19 are set at $11,614, an increase of $465 per-pupil over the revised level for fiscal

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year 2017-18. The Governor is required to release a May Revision to the proposed budget by May 14 of each year.

May Revision. On May 11,2018, the Governor released the May Revision to the 2018- 19 Proposed Budget (the “May Revision”). The May Revision projects $137.6 billion in revenue and $137.6 billion in general fund spending, and directs $3.2 billion into the State's traditional reserve fund. The May Revision maintains the January proposal to fully fund the Rainy Day Fund, which is projected to have a balance of $9.4 billion at the end of the 2017-18 fiscal year, and projected to grow to $13.8 billion at the end of the 2018-19 fiscal year. The Governor continues to focus on one-time spending initiatives, while focusing on the core priorities of increasing K-12 education funding, combating homelessness, investing in infrastructure, and fighting climate change.

The May Revision provides $74.8 billion of funding for education under Proposition 98, representing an increase of $68 million from the 2018-19 Proposed Budget. The May Revision also adjusts the proposed community college formula to provide additional funding to reward successful outcomes for economically disadvantaged students. The May Revision maintains the 3% increase in funding for higher education, and also provides each university system with $100 million in one-time funding for deferred maintenance purposes. The May Revision includes $359 million of new spending on homelessness programs, and a $312 million proposal to assist counties with mental health services. Two billion dollars is budgeted for infrastructure funding, including $1 billion for deferred maintenance, and $1 billion for improvements to flood control, courts, higher education, and other State facilities. Finally, the May Revision proposes $96 million to implement the “Forest Carbon Plan” and to take other actions to protect California's forests against the threat of wildfires. This $96 million is in addition to the $160 million proposed in the cap-and-trade expenditure plan to support forest improvements and fire protection.

LAO Commentary. On May 12, 2018, the LAO released its report on the May Revision entitled, “The 2018-19 Budget: The May Revision.” The LAO notes that compared to January 2018, estimated revenues and transfers have increased by a combined $7.6 billion across fiscal years 2016-17 through 2018-19, which the LAO notes are primarily driven by higher revenues from personal income taxes and, to a lesser extent, the corporate tax. However, the increased revenues are largely offset by formula-driven constitutional spending requirements for education, outstanding debt and Medi-Cal. As of the May Revision, the LAO estimates that the Governor had $4.1 billion in discretionary resources to allocate, which were allocated to reserves and largely one-time spending purposes.

The LAO's initial assessment of the May Revision suggests that there are reasons to believe the State's General Fund could be in a considerably better condition than suggested by the May Revision. The reasons provided by the LAO are that (1) the LAO predicts higher revenue and transfer estimates than the administration's predictions, by $2.6 billion between fiscal years 2016-17 and 2018-19, largely due to the LAO’s projections of high capital gains in 2017 and 2018, and high wages and salaries in 2019, and (2) constitutionally required education spending under Proposition 98 is likely to be lower than suggested by the May Revision due to ADA assumptions which are higher than the LAO predicts, and higher local property tax revenues. In addition, the LAO recommends that the Legislature scrutinize the Medi-Cal Budget and its underlying assumptions which likely result in high end estimates of the costs of deferred claims. Finally, the LAO comments that the total reserve balance shown in the May Revision ($17 billion) is slightly higher than proposed in January and that the Governor uses available discretionary revenues for spending on largely one-time purposes, both of which are tools used to plan for a recession. The LAO notes that a mild recession occurring after 2018-19 might not require many actions such as

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spending cuts or revenue increases to bring the budget into balance, but a moderate or severe recession would still require many billions of dollars in actions over many years to bring the budget back into balance.

Availability of State Budgets, The complete 2017-18 State Budget and the 2018-19 Proposed Budget (including the May Revision) are available from the California Department of Finance website at www.ebudget.ca.gov. An impartial analysis of the budget is published by the LAO, and is available at www.lao.ca.gov/budget The District can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted on these sites, and such information is not incorporated in this Official Statement by these references. The information referred to above should not be relied upon when making an investment decision with respect to the Certificates.

Uncertainty Regarding Future State Budgets. The District cannot predict what actions will be taken in future years by the State Legislature and the Governor to address the State's current or future revenues and expenditures. Future State budgets will be affected by national and state economic conditions and other factors over which the District has no control. The District cannot predict what impact any future budget proposals will have on the financial condition of the District. To the extent that the State budget process results in reduced revenues to the District, the District will be required to make adjustments to its budgets.

Disclaimer Regarding State Budgets. The State has not entered into any contractual commitment with the District, the County, or the Owners of the Certificates to provide State budget information to the District or the owners of the Certificates. Although they believe the State sources of information listed above are reliable, neither the District nor the Underwriter assumes any responsibility for the accuracy of the State budget information set forth or referred to in this Official Statement or incorporated herein.

Legal Challenges to State Funding of Education

The application of Proposition 98 and other statutory regulations has been the subject of various legal challenges in the past. The District cannot predict if or when there will be changes to education funding or legal challenges which may arise relating thereto.

COUNTY INVESTMENT POOL

The Education Code provides that the funds of school districts, except as otherwise set forth below, shall be deposited into the County Treasury to the credit of the proper fund of the school district. The Education Code provides that certain moneys not required for the immediate necessities of a school district may be invested in investments specified in Section 16430 or 53601 of the Government Code. Accordingly, all funds of school and community college districts not subject to the exception, including cash receipts and other moneys received by each district for deposit to the general fund of such district, are deposited with the County Treasury, to remain on deposit therein and generally available for the payment of current expenses and other obligations of such school district.

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http://www.ebudget.ca.gov

http://www.lao.ca.gov/budget

CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES ANDAPPROPRIATIONS

Article XIIIA of the California Constitution

Basic Property Tax Levy. 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) (as a result of an amendment to Article XIIIA approved by State voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-third 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 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 general obligation bonds issued pursuant to the District's 2004 Authorization and 2012 Authorization were approved 55% of the voters of the District). 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.

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

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 1979.

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

Inflationary Adjustment of Assessed Valuation. As described above, the assessed value of a property may be increased at a rate not to exceed 2% per year to account for inflation. On December 27, 2001, the Orange County Superior Court, in County of Orange v. Orange County Assessment Appeals Board No. 3, held that where a home's taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the 2% inflation adjustment provision of Article XIIIA, when the assessor tried to "recapture" the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties, including the County, use a similar methodology in raising the taxable

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values of property beyond 2% in a single year. The State Board of Equalization has approved this methodology for increasing assessed values. On appeal, the Appellate Court held that the trial court erred in ruling that assessments are always limited to no more than 2% of the previous year's assessment. On May 10, 2004 a petition for review was filed with the California Supreme Court. The petition has been denied by the California Supreme Court. As a result of this litigation, the “recapture” provision described above may continue to be employed in determining the full cash value of property for property tax purposes.

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 monies 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 monies 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.

Unitary Property

AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization (“Unitary Property”), commencing with the 1988-89 fiscal year, will be allocated as follows: (1) each jurisdiction will receive up to 102 percent of its prior year State-assessed revenue; and (2) if county-wide revenues generated from Unitary Property are less than the previous year's revenues or greater than 102 percent of the previous year's revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas.

The provisions of AB 454 do not constitute an elimination of the assessment of any State- assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county.

Articles XIIIC and XIIID

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

According to the “Title and Summary” of Proposition 218 prepared by the California Attorney General, Proposition 218 limits “the authority of local governments to impose taxes and

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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, 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.

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

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.

While 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), the District does not believe that Proposition 218 will directly impact the revenues available to pay debt service on the Certificates.

Proposition 98

On November 8, 1988, California voters approved Proposition 98, a combined initiative constitutional amendment and statute called the “Classroom Instructional Improvement and Accountability Act” (the “Accountability Act”). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1,1990. The Accountability Act changes State funding of public education below the university level and the operation of the State's appropriations limit. The Accountability Act

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guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as “K-14 school districts”) at a level equal to the greater of (a) the same percentage of general fund revenues as the percentage appropriated to such districts in 1986-87, and (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the Legislature to suspend this formula for a one-year period.

The Accountability Act also changes how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 school districts. Any such transfer to K-14 school districts would be excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K 14 school districts for 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 K14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act.

Proposition 111

On June 5,1990, the voters approved Proposition 111 (Senate Constitutional Amendment No. 1) called the “Traffic Congestion Relief and Spending Limit Act of 1990” (“Proposition 111”) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation.

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

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

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

Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for “qualified capital outlay projects” as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above the 1990 level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle

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weight fees above the levels in effect on January 1, 1990. These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs.

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

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

Proposition 39

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

The 55% vote requirement authorized by Proposition 39 applies only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 places certain limitations on local school bonds to be approved by 55% of the voters. These

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provisions require that the tax rate levied as the result of any single election be no more than $60 (for a unified school district), $30 (for an elementary school district or high school district), or $25 (for a community college district), per $100,000 of taxable property value. These requirements are not part of this proposition and can be changed with a majority vote of both houses of the Legislature and approval by the Governor.

Proposition 30 and Proposition 55

Proposition 30 appeared on the November 6, 2012 statewide ballot as an initiated constitutional amendment (“Proposition 30”), and it was approved by State voters. Proposition 30 increased the State sales tax from 7.25 percent to 7.50 percent, increased personal income tax rates on higher income brackets for seven years, and temporarily imposed an additional tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, 2016. Proposition 30 also imposed an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1,2013 and before January 1,2017. This excise tax is levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending December 31, 2018, Proposition 30 increased the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $500,000 but less than $600,000 for joint filers and over, $340,000 but less than $408,000 for head-of-household filers), (ii) 2% for taxable income over $300,000 but less than $500,000 for single filers (over $600,000 but less than $1,000,000 for joint filers and over $408,000 but less than $680,000 for head-of-household filers), and (iii) 3% for taxable income over $500,000 for single filers (over $1,000,000 for joint filers and over $680,000 for head-of-household filers).

The revenues generated from the temporary tax increases are included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See “Proposition 98” and “Proposition 111” above. From an accounting perspective, the revenues generated from the temporary tax increases will be deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the “EPA”). Pursuant to Proposition 30, funds in the EPA will be allocated quarterly, with 89% of such funds provided to schools districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that, the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing boards are prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs.

The California Children's Education and Health Care Protection Act of 2016, also known as Proposition 55, his a proposed constitutional amendment initiative that has qualified for the November8, 2016 general election ballot in California. Proposition 55 would extend the increases to personal income tax rates for high-income taxpayers that were approved as part of Proposition 30 through 2030, instead of the scheduled expiration date of December 31, 2018. Tax revenue received under Proposition 55 would be allocated 89% to K-12 schools and 11% to community colleges. The District cannot predict whether Proposition 55 will be approved and become law.

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Proposition 1Aand Proposition 22

On November 2, 2004, California voters approved Proposition 1A, which amended the State constitution to significantly reduce the State's authority over major local government revenue sources. Under Proposition 1 A, the State cannot (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-thirds approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Under Proposition 1A, beginning, in 2008-09, the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including: (i) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (ii) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amended the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights.

Proposition 22, a constitutional initiative entitled the “Local Taxpayer, Public Safety, and Transportation Protection Act of 2010,” approved on November 2, 2010, superseded many of the provision of Proposition 1A. This initiative amends the State constitution to prohibit the legislature from diverting or shifting revenues that are dedicated to funding services provided by local government or funds dedicated to transportation improvement projects and services. Under this proposition, the State is not allowed to take revenue derived from locally imposed taxes, such as hotel taxes, parcel taxes, utility taxes and sales taxes, and local public transit and transportation funds. Further, in the event that a local governmental agency sues the State alleging a violation of these provisions and wins, then the State must automatically appropriate the funds needed to pay that local government. This Proposition was intended to, among other things, stabilize local government revenue sources by restricting the State's control over local property taxes. Proposition 22 did not prevent the California State Legislature from dissolving State redevelopment agencies pursuant to AB 1X26, as confirmed by the decision of the California Supreme Court decision in California Redevelopment Association v. Matosantos (2011).

Because Proposition 22 reduces the State's authority to use or reallocate certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget, such as reducing State spending or increasing State taxes, and school and college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State's general fund.

Future Initiatives

Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 98, 22, 26, 30 and 39 were each adopted as measures that qualified for the ballot under the State's initiative process. From time to time other initiative measures could be adopted further affecting District revenues or the District's ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District.

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RISK FACTORS

The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating purchase of the Certificates. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Certificates. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks.

General Considerations - Security for the Certificates

The obligation of the District to make the Lease Payments does not constitute a debt of the District or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the District or the State is obligated to levy or pledge any form of taxation or for which the District or the State has levied or pledged any form of taxation.

Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the District, the District is obligated under the Lease Agreement to pay the Lease Payments from any source of legally available funds and the District has covenanted in the Lease Agreement that it will take such action as may be necessary to include all Lease Payments in its annual budgets and to make necessary annual appropriations therefor. The District is currently liable for, and may become liable on, other obligations payable from general revenues, some of which may have a priority over the Lease Payments.

The District has the capacity to enter into other obligations which may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the District, the funds available to pay Lease Payments may be decreased. In the event the District's revenue sources are less than its total obligations, the District could choose to fund other activities before making Lease Payments and other payments due under the Lease Agreement.

Abatement

In the event of substantial interference with the District's right to use and possession of any portion of the Leased Property by reason of damage to, or destruction or condemnation of, the Leased Property, Lease Payments will be subject to abatement. See “SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES - Abatement”. In the event that such portion of the Leased Property, if damaged or destroyed by an insured casualty, could not be replaced during the period of time in which proceeds of the District's rental interruption insurance will be available in lieu of Lease Payments, plus the period for which funds are available from the Reserve Fund or other funds and accounts established under the Trust Agreement, or in the event that casualty insurance proceeds or condemnation proceeds are insufficient to provide for complete repair or replacement of such portion of the Leased Property or prepayment of the Certificates, there could be insufficient funds to make payments to Owners in full.

Limited Recourse on Default

If the District defaults on its obligations to pay Lease Payments, the Trustee, as assignee of the Corporation, may (subject to the restrictions described below) retain the Lease Agreement and hold the District liable for all Lease Payments on an annual basis and will have the right to re-enter and re-let the Leased Property. In the event such re-letting occurs, the District would be liable for any resulting deficiency in Lease Payments. Alternatively, the Trustee may terminate

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the Lease Agreement with respect to the Leased Property and proceed against the District to recover damages pursuant to the Lease Agreement.

Due to the specialized nature of the Leased Property, no assurance can be given that the Trustee will be able to re-let any portion of the Leased Property so as to provide rental income sufficient to make principal and interest payments with respect to the Certificates in a timely manner, and the Trustee is not empowered to sell the Leased Property for the benefit of the Owners of the Certificates. In addition, due to the governmental function of the Leased Property, it is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect thereto. Any suit for money damages would be subject to limitations on legal remedies against school districts in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Moreover, there can be no assurance that such reletting will not adversely affect the exclusion of any interest component of Lease Payments from federal or state income taxation.

No Acceleration Upon Default

In the event of a default, there is no available remedy of acceleration of the Lease Payments due over the term of the Lease Agreement. The District will only be liable for Lease Payments on an annual basis, and the Trustee would be required to seek a separate judgment in each fiscal year for that fiscal year's Lease Payments.

Loss of Tax Exemption

As discussed under the heading “TAX MATTERS,” certain acts or omissions of the District in violation of its covenants in the Trust Agreement and the Lease Agreement could result in the interest represented by the Certificates being includable in gross income for purposes of federal income taxation retroactive to the date of delivery of the Certificates. Should such an event of taxability occur, the Certificates would not be subject to a special prepayment and would remain outstanding.

No Liability of Corporation to the Owners

Except as expressly provided in the Trust Agreement, the Corporation will not have any obligation or liability to the Owners of the Certificates with respect to the payment when due of the Lease Payments by the District, or with respect to the performance by the District of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Trust Agreement, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Trust Agreement.

Absence of Earthquake and Flood Insurance

The District, like much of California, is subject to seismic activity that could result in interference with its right to use and possession of the Leased Property. If any portion of the Leased Property is destroyed or rendered useless by a natural hazard such as an earthquake or flood, an abatement could occur and result in the Trustee having inadequate funds to pay the principal and interest represented by the Certificates as and when due. The Lease Agreement does not require the District to obtain earthquake or flood insurance on the Leased Property.

All building components of the Leased Property were constructed under the standards of the “Field Act” (California State Building Code, Title 24). The Field Act requires substantially

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higher construction standards for public schools and hospitals than are required for other types of construction. The Field Act requires that building systems be capable of withstanding seismic forces from the “most credible” earthquake likely to occur in the vicinity of the building system being constructed.

Economic Conditions in California

The State of California, upon which the District relies for a substantial portion of its revenues, experienced budget shortfalls in recent fiscal years, although the economic outlook in the State has been much improved in the past two years due to increases in tax revenues from an improving economy and temporary revenues provided by the passage of Proposition 30 approved by State voters in November 2012. See “STATE FUNDING OF EDUCATION AND RECENT STATE BUDGETS.” Any future decreases in State revenues may significantly affect appropriations made by the State to school districts, and the timing of payment to school districts by the State may depend upon the ability of the State to access the credit markets with respect to its own cash flow borrowings. In the event that State monies are not available to meet obligations in a timely manner, school funding along with certain other services, are given priority under the State Constitution. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS”.

Limitations on Remedies; Bankruptcy

The rights of the owners of the Certificates are subject to the limitations on legal remedies against municipalities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the owners of the Certificates, and enforcement of the District's obligations under the Lease Agreement, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor's rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against cities in the State.

Bankruptcy proceedings under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bankruptcy proceedings for public agencies such as the District, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Certificates to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. See “- Limited Recourse on Default” above.

TAX MATTERS

Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel, subject, however to the qualifications set forth below, under existing law, the portion of lease payments designated as and comprising interest and received by the owners of the Certificates is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax, although, in the case of tax years beginning prior to January 1,2018, for the purpose

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of computing the alternative minimum tax imposed on certain corporations, such interest earned by a corporation prior to the end of its tax year in 2018 is taken into account in determining certain income and earnings. The Lease Agreement is a "qualified tax-exempt obligation" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the "Tax Code") such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Tax Code), a deduction for federal income tax purposes is allowed for 80% of that portion of such financial institution's interest expense allocable to interest payable with respect to the Certificates.

The opinions set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Tax Code relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Certificates. The District has made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of execution and delivery of the Certificates, or may cause the Lease Agreement to not be a “qualified tax-exempt obligation" within the meaning of Section 265(b)(3) of the Tax Code.

Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public (excluding bond houses and brokers) at which a Certificate is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding Certificate houses and brokers) at which each Certificate is sold is greater than the amount payable at maturity thereof, then such difference constitutes “original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium is disregarded.

Linder the Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Certificate on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Certificate to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Certificate. The Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Certificates who purchase the Certificates after the initial offering of a substantial amount of such maturity. Owners of such Certificates should consult their own tax advisors with respect to the tax consequences of ownership of Certificates with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Certificates under federal individual and corporate alternative minimum taxes.

Linder the Code, original issue premium is amortized on an annual basis over the term of the Certificate (said term being the shorter of the Certificate's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Certificate for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Certificate is amortized each year over the term to maturity of the Certificate on the basis of a constant interest rate compounded on each interest or principal

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payment date (with straight-line interpolations between compounding dates). Amortized Certificate premium is not deductible for federal income tax purposes. Owners of premium Certificates, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Certificates.

California Tax Status. In the further opinion of Special Counsel, interest payable with respect to the Certificates is exempt from California personal income taxes.

Other Tax Considerations. Owners of the Certificates should also be aware that the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates have federal or state tax consequences other than as described above. Special Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Lease Agreement and the Certificates other than as expressly described above.

Future legislation, if enacted into law, or clarification of the Tax Code may cause interest on the Certificates to be subject to, directly or indirectly, federal income taxation, or otherwise prevent owners of the Certificates from realizing the full current benefit of the tax status of such interest.

For example, various proposals have been made in Congress and by the President that, if enacted, would subject interest on certificates that is otherwise excludable from gross income for federal income tax purposes, including interest on the Certificates, to a tax payable by certain certificate holders that are individuals, estates or trusts with adjusted gross income in excess of certain specified thresholds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, such legislation would apply to certificates executed and delivered prior to enactment.

The introduction or enactment of any such future legislation or clarification of the Tax Code may also affect the market price for, or marketability of, the Certificates. Prospective purchasers of the Certificates should consult their own tax advisors regarding any pending or proposed federal tax legislation, as to which Special Counsel expresses no opinion. The opinions expressed by Special Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of such opinion, and Special Counsel has expressed no opinion with respect to any proposed legislation or as to the tax treatment of interest on the Certificates, or as to the consequences of owning or receiving interest on the Certificates, as of any future date.

A copy of the proposed form of opinion of Special Counsel is attached hereto as Appendix D.


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CERTAIN LEGAL MATTERS

Continuing Disclosure

The District has covenanted, for the benefit of holders and beneficial owners of the Certificates to provide certain financial information and operating data relating to the District to the Municipal Securities Rulemaking Board on an annual basis (an “Annual Report”) not later than nine months after the end of the District's fiscal year (which currently would be March 31), commencing March 31,2019, with the report for the 2017-18 Fiscal Year, and to provide notices of the occurrence of certain enumerated events. The Annual Report and other required notices will be filed by the District with the Municipal Securities Rulemaking Board (the “MSRB”) in the manner prescribed by the Securities Exchange Commission. The form of Continuing Disclosure Certificate is attached as APPENDIX E. These covenants have been made in order to assist the Underwriter in complying with SECURITIES AND EXCHANGE COMMISSION Rule 15c2-12(b)(5) (the “Rule”).

The District has existing disclosure undertakings that have been made pursuant to the Rule in connection with the issuance of other outstanding general obligation bonds and refunding general obligation bonds. For fiscal years ending June 30, 2012 through 2015, the District failed to timely file its annual reports, including audited financials and adopted budgets. Additionally, each of the District's continuing disclosure undertakings required the filing of material event notices with respect to ratings changes. The District failed to timely file notices of bond insurer rating changes. The District has since made remedial filings of annual reports and notices of ratings changes.

In order to assist it in complying with its disclosure undertakings for its outstanding bonds and the Certificates, the District has engaged Isom Advisors, A Division of Urban Futures, Inc. as dissemination agent with respect to each of its disclosure undertakings, including the Continuing Disclosure Certificate to be executed in connection with the Certificates.

Absence of Material Litigation

No litigation is pending or threatened, to the knowledge of the District, concerning the validity of the Certificates, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Certificates. The District is not aware of any litigation pending or threatened that (i) questions the political existence of the District, (ii) contests the District's ability to receive ad valorem taxes or to collect other revenues or (iii) contests the District's ability to execute and deliver the Certificates.


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RATINGS

S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC (“S&P”) is expected to assign a rating of “AA” to the Certificates, based on the understanding that MAC will deliver its Policy with respect to the Certificates upon delivery. See “BOND INSURANCE.”

In addition, S&P has assigned an underlying rating of “A” to the Certificates. Such ratings reflect only the views of S&P and an explanation of the significance of such ratings may be obtained from S&P. There is no assurance that such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by S&P, if in its judgment circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates.

UNDERWRITING

The Certificates are being purchased by Raymond James & Associates, Inc. (the “Underwriter”). The Underwriter has agreed to purchase the Certificates at a price of $3,001,278.70 (which price is equal to the aggregate principal amount of the Certificates, plus net original issue premium of $85,678.70 and less an Underwriter's discount of $44,400.00). The Purchase Contract pursuant to which the Underwriter has agreed to purchase the Certificates provides that the Underwriter will purchase all of the Certificates if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Purchase Contract, including the approval of certain legal matters by counsel and certain other conditions.

The Underwriter intends to offer the Certificates to the public at the offering prices set forth on the inside cover page of this Official Statement. The Underwriter may offer and sell to certain dealers and others at a price lower than the offering prices stated on the inside cover page hereof. The offering price may be changed from time to time by the Underwriter.

ADDITIONAL INFORMATION

The reference herein to the Trust Agreement, the Lease Agreement, the Site Lease and the Continuing Disclosure Certificate and other legal documents are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and for full and complete statements of such provisions reference is made to said documents. Copies of the documents are available from the Underwriter prior to initial sale of the Certificates and following delivery of the Certificates will be on file at the offices of the Trustee in San Francisco, California.

References are also made herein to certain documents and reports relating to the District; such references are brief summaries and do not purport to be complete or definitive. Copies of such documents are available from upon written request to the District.

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 Certificates.

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EXECUTION

The execution and delivery of this Official Statement have been duly authorized by theDistrict.

LIVE OAK UNIFIED SCHOOL DISTRICT


APPENDIX A

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

DEFINED TERMS

The following terms have the following meanings, notwithstanding that any such terms may be elsewhere defined in this Official Statement. Any terms not expressly defined in this Summary but previously defined in this Official Statement have the respective meanings previously given.

“Assignment Agreement” means the Assignment Agreement, dated as of June 1, 2018, by and between the Corporation as assignorand the Trustee as assignee, as originally executed or as thereafter amended pursuant to any duly authorized and executed amendments thereto.

“Business Day” means a day other than a Saturday, Sunday or legal holiday, on which banking institutions in the State of California, or in any state in which the Office of the Trustee is located, are not closed for corporate trust business.

“Certificates” means the 2018 Certificates of Participation, executed and delivered pursuant to the Trust Agreement.

“Certificate Year” means each period from August 2 to August 1 of the following calendar year except that the first certificate year will commencing on the Closing Date and the last certificate year will end on the date of payment of the Lease Payments in full.

“Closing Date” means the day when the Certificates, duly executed by the Trustee, are delivered to the Underwriter.

“Code” means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Certificates or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of execution and delivery of the Certificates, together with applicable temporary and final regulations promulgated, and applicable official public guidance published, under the Code.

“Continuing Disclosure Certificate” shall mean that certain Continuing Disclosure Certificate executed by the District and dated the date of execution and delivery of the Certificates, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

“Corporation” means the Local Facilities Finance Corporation, a nonprofit corporation duly organized and existing under the Nonprofit Public Benefit Corporation Law of the State of California.

“Corporation Representative” means the President, Vice President, Treasurer, Secretary, Executive Director, or Assistant Treasurer of the Corporation, or any other person authorized to act on behalf of the Corporation under or with respect to the Trust Agreement by resolution of the Board of Directors of the Corporation delivered to the Trustee.

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“Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the District or the Corporation relating to the execution and delivery of the Lease or the execution, sale and delivery of the Certificates, including but not limited to filing and recording costs, settlement costs, printing costs, reproduction and binding costs, initial fees and charges of the Trustee (which shall include legal fees and the first annual administration fee of the Trustee), financing discounts, legal fees and charges, insurance fees and charges, financial and other professional consultant fees, costs of rating agencies for credit ratings, fees for execution, transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing.

“Costs of Issuance Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Defeasance Obligations” means (a) cash, (b) non-callable direct obligations of the United States of America (“Treasuries”), (c) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated or (d) prerefunded municipal obligations rated “AAA” and “Aaa” by S&P and Moody's, respectively, or any combination thereof.

“District” means the Live Oak Unified School District, a school district duly organized and existing under the Constitution and laws of the State of California.

“District Representative” means the Superintendent of the District, or any other person authorized to act on behalf of the District under or with respect to the Trust Agreement by resolution of the Board of Trustees of the District delivered to the Trustee.

“Event of Default” means an event of default under the Lease, as defined in Section 8.1thereof.

“Facilities” means the buildings located on the real property described in Exhibit A to the Lease Agreement.

“Fair Market Value” means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term “Fair Market Value” means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security-State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the District and related parties do not own more than a ten percent (10%) beneficial interest therein if the return paid by the fund is without regard to the source of the investment.

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“Federal Securities” means: (1) non-callable direct obligations of the United States of America (“Treasuries”), (2) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated, (3) subject to the prior written consent of the Insurer, pre-refunded municipal obligations rated “AAA” and “Aaa” by S&P and Moody's, respectively, or (4) subject to the prior written consent of the Insurer, securities eligible for “AAA” defeasance under then existing criteria of S&P or any combination thereof.

“Fiscal Year” means the twelve-month period beginning on July 1 of any year and ending on June 30 of the next succeeding year, or any other twelve-month period by the District as its fiscal year pursuant to written notice filed with the Trustee.

“Hazardous Substances” means any chemical material or substance defined as a “hazardous substance” or by words of similar import under any environmental regulation or which is prohibited or regulated by any governmental authority.

“Insurance and Condemnation Fund” means the fund by that name to be established and held by the Trustee pursuant to the Trust Agreement.

“Insurance Policy” or “Municipal Bond Insurance Policy” means the insurance policy issued by the Insurer with respect to the Certificates guaranteeing the scheduled payment of principal of and interest with respect to the Certificates when due.

“Insurer” or “MAC” means Municipal Assurance Corp., or any successor thereto or assignee thereof.

“Interest Payment Date” means, with respect to any Certificate, September 1, 2018, and the first day of each March and September thereafter to and including the date of maturity or prepayment of such Certificate.

“Lease Agreement” means the Lease Agreement, dated as of June 1, 2018, by and between the Corporation as lessor and the District as lessee, as originally executed or as thereafter amended pursuant to any duly authorized and executed amendments thereto.

“Leased Property” means the land described as such in Exhibit A attached to the Lease Agreement, including all buildings, facilities and other real property situated thereon as of the Closing Date.

“Lease Payment Date” means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month immediately preceding such Interest Payment Date.

“Lease Payment Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Lease Payments” means all payments required to be paid by the District pursuant to Section 4.4(a) of the Lease Agreement, including any prepayment thereof pursuant to Article IX of the Lease Agreement.

“Moody’s” means Moody’s Investors Service, Inc., and its successors and assigns.

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“Net Proceeds” means an insurance proceeds or eminent domain award (including any proceeds of sale to a governmental entity under threat of the exercise of eminent domain powers), paid with respect to the Leased Property, to the extent remaining after payment therefrom of all expenses incurred in the collection thereof.

“Office” means the corporate trust office of the Trustee at which at any particular time its corporate trust business shall be principally administered, or such other office designated by the Trustee from time to time.

“Outstanding”, when used as of any particular time with respect to Certificates, means (subject to the provisions of Section 13.04 of the Trust Agreement) all Certificates theretofore executed and delivered by the Trustee hereunder except (a) Certificates theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Certificates for the payment or prepayment of which funds or Federal Securities in a sufficient amount shall have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates), provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (c) Certificates in lieu of or in exchange for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement.

Notwithstanding anything in the Trust Agreement to the contrary, in the event that the principal and/or interest due with respect to the Certificates shall be paid by the Insurer pursuant to the Insurance Policy, the Certificates shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the District, and the assignment and pledge of the trust estate and all covenants, agreements and other obligations of the District to the registered Owners shall continue to exist and shall run to the benefit of the Insurer, and the Insurer shall be subrogated to the rights of such registered Owners.

“Owner”, when used with respect to a Certificate, means the person in whose name the ownership of such Certificate shall be registered on the Registration Books.

“Participating Underwriter” shall have the meaning ascribed thereto in the Continuing Disclosure Certificate.

“Permitted Encumbrances” means, as of any time: (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the District may permit to remain unpaid pursuant to Article V; (b) the Site Lease, the Lease, the Assignment Agreement, and any other agreement or document contemplated hereunder to be recorded against the Leased Property; (c) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law; (d) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record and which the District certifies in writing will not materially impair the use of the Leased Property for its intended purposes, and (e) easements, rights of way, mineral rights, reservations, covenants, conditions or restriction established following the date of recordation of the Lease Agreement and to which the Corporation, the Insurer and the District agree in writing consent in writing do not reduce the value of the Leased Property.

“Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein (provided that the Trustee shall be entitled to rely upon any investment directions from the

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District as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State of California):

(a) any direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), for which the full faith and credit of the United States of America are pledged.

(b) obligations of any agency, department or instrumentality of the United States of America, the timely payment of principal and interest on which are directly or indirectly secured or guaranteed by the full faith and credit of the United States of America.

(c) Any direct or indirect obligations of an agency or department of the United States of America whose obligations represent the full faith and credit of the United States of America, or which are rated A or better by S&P.

(d) Interest-bearing deposit accounts (including certificates of deposit) in federal or State chartered savings and loan associations or in federal or State of California banks (including the Trustee and its affiliates), provided that: (i) the unsecured obligations of such commercial bank or savings and loan association are rated A or better by S&P; or (ii) such deposits are fully insured by the Federal Deposit Insurance Corporation.

(e) Commercial paper rated at the time of purchase “A-1 +” or better by S&P.

(f) Federal funds or bankers acceptances with a maximum term of one year of any bank which an unsecured, uninsured and unguaranteed obligation rating of “A-1+” or better by S&P.

(g) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of at least AAAm-G, AAAm or AAm, including such funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services or for which the Trustee or an affiliate of the Trustee serves as investment administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to the Trust Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Trust Agreement may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee.

(h) Obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code and which are either (a) rated A or better by S&P, or (b) fully secured as to the payment of principal and interest by Permitted Investments described in clauses (a) or (b).

(i) Bonds or notes issued by any state or municipality which are rated A or better by S&P.

(k) Any investment agreement, in form and substance acceptable to the Insurer, with, or guaranteed by, a financial institution the long-term unsecured obligations or the claims paying ability of which are rated “A-” or better by S&P and “A3” or better by

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Moody's at the time of initial investment and acceptable to the Insurer, by the terms of which all amounts invested thereunder are required to be withdrawn and paid to the Trustee without penalty or termination fee in the event either of such ratings at any time falls below “A-” by S&P or “A-3” by Moody's.

(I) The Local Agency Investment Fund of the State of California, created pursuant to Section 16429.1 of the California Government Code, to the extent the Trustee is authorized to register such investment in its name.

“Record Date” means the close of business on the fifteenth (15th) day of the month preceding each Interest Payment Date, whether or not such fifteenth (15th) day is a Business Day.

“Registration Books” means the records maintained by the Trustee for registration of the ownership and transfer of ownership of the Certificates.

“Reserve Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Reserve Policy” means the municipal bond debt service reserve insurance policy issued by the Insurer guaranteeing certain payments into the Reserve Fund with respect to the Certificates as provided therein and subject to the limitations set forth therein.

“Reserve Requirement” means, as of the date of calculation thereof by the District, an amount equal to the lesser of (a) 10% of the original principal amount of the Certificates, or (b) the maximum amount of Lease Payments (excluding Lease Payments with respect to which the District shall have posted a security deposit pursuant to Section 9.1 of the Lease) coming due in the current or any future Fiscal Year, or (c) 125% of average annual Lease Payments.

“S&P” means S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC, and its successors and assigns.

“Securities Depositories” means DTC; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the District designates in a written notice to the Trustee.

“Site Lease” means the Site Lease, dated as of June 1,2018, by and between the District as lessor and the Corporation as lessee of the Leased Property, as originally executed or as thereafter amended pursuant to any duly authorized and executed amendments thereto.

“Site Lease Payment” means the payment in the amount of $2,960,000 which is due and payable under Section 3 of the Site Lease as the rental for the Leased Property.

“Special Counsel” means (a) Jones Hall, A Professional Law Corporation, or (b) any other attorney or firm of attorneys of nationally recognized expertise with respect to legal matters relating to obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code.

“Trust Agreement” means the Trust Agreement dated as of June 1,2018, by and among the Trustee, the Corporation and the District, together with any duly authorized and executed amendments thereto.

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“Trustee” means U.S. Bank National Association, or any successor thereto acting as Trustee pursuant to the Trust Agreement.

“Underwriter” means Raymond James & Associates, as underwriter of the Certificates.

SITE LEASE

Under the Site Lease, the District leases the Leased Property to the Corporation, and the Corporation leases the Leased Property from the District, upon the terms and conditions set forth in the Site Lease. The term of the Site Lease commences on June 1,2018. The Site Lease shall end, and the right of the Corporation to possession of the Leased Property shall thereupon cease, on September 1,2038 or such earlier or later date on which the Lease Payments are paid in full or provisions made for such payment (except that the term hereof shall not extend beyond September 1,2048).

The Corporation agrees to pay to the District, as rental for the use and occupancy of the Leased Property during the term of the Site Lease, the sum of $2,960,000 which is due and payable upon execution and delivery of the Site Lease and which shall be deposited in the funds and accounts held under the Trust Agreement for the purposes provided in the Trust Agreement. No further amounts are due and payable by the District as rental for the Leased Property under the Site Lease.

LEASE AGREEMENT

Lease of Leased Property; Term

The Corporation subleases the Leased Property back to the District pursuant to the Lease Agreement. The Lease Agreement commences on June 1, 2018 and shall end September 1, 2038 or such earlier or later date on which the Trust Agreement shall be discharged pursuant to and in accordance with Section 13.01 thereof, but under any circumstances not later than September 1,2048.

Release of Excess Property

The District may at any time release a portion of the Leased Property (the “Released Property”), provided that the District shall satisfy all of the following requirements which are hereby declared to be conditions precedent to such release:

(a) The District shall certify to the Corporation, the Insurer and the Trustee that no Event of Default has occurred and is continuing;

(b) The District shall deliver to the Corporation, the Insurer and the Trustee, and cause to be recorded in the office of the Sutter County Recorder an amendment to this Lease Agreement, the Site Lease and the Assignment, which deletes the Released Property from the description of the Leased Property;

(c) The District shall deliver to the Corporation, the Insurer and the Trustee a written certificate of the District stating the District's determination that the estimated value

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of the real property which will remain leased under this Lease Agreement following such release is at least equal to the aggregate amount of outstanding principal components of the Lease Payments;

(d) The District has mailed written notice of such release of the Released Property to each rating agency which then maintains a rating on the Certificates;

(e) The District shall obtain an appropriate endorsement to the policy of title insurance reflecting the revised legal description; and

(f) The District shall certify in writing to the Corporation, the Insurer and the Trustee that the release of the Released Property shall not cause the District to violate any of its covenants, representations and warranties made in this Lease Agreement or in the Trust Agreement.

From and after the date on which all of the foregoing conditions precedent to such release are satisfied, the Term of this Lease shall cease with respect to the Released Property and shall continue with respect to the remainder of the Leased Property. The District shall not be entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such release.

Substitution of Leased Property

The District has the option at any time during the term of the Lease Agreement with written consent of the Insurer, to substitute other land, facilities, improvements or other property (a “Substitute Leased Property”) for the Leased Property or any portion thereof (a “Former Leased Property”), provided that the District satisfies all of the conditions precedent to such substitution as set forth in the Lease Agreement, including the following:

(a) No Event of Default has occurred and is continuing;

(b) The District shall take all actions and shall execute all documents required to subject such Substitute Leased Property to the terms and provisions of the Lease Agreement, including the filing with the Corporation and the Trustee an amended Exhibit A and an amended Exhibit B, which adds thereto a description of such Substitute Leased Property and deletes therefrom the description of such Former Leased Property;

(c) The District shall deliver to the Corporation and the Trustee an appraisal or other written documentation which establishes that the estimated value and the fair rental value of the Substitute Leased Property are at least equal to the estimated value and fair rental value, respectively, of the Former Leased Property, and that the useful life of the Substitute Leased Property at least equals the lesser of the (i) the useful life of the Former Leased Property, or (ii) the final Lease Payment Date of the Lease Payments;

(d) The District shall certify in writing to the Corporation and the Trustee that such Substitute Leased Property serves the educational purposes of the District and constitutes property which the District is permitted to lease under the laws of the State of California and has been determined to be essential to the proper, efficient and economic operation of the District and to serve an essential governmental function of the District;

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(e) The District has mailed written notice of such substitution to each rating agency which then maintains a rating on the Certificates;

(f) The District shall obtain a policy of title insurance meeting the requirements of the Lease Agreement with respect to such Substitute Leased Property; and

(g) The District shall certify in writing to the Corporation and the Trustee that the Substitute Leased Property shall not cause the District to violate any of its covenants, representations and warranties made in the Lease Agreement or in the Trust Agreement; and

From and after the date on which all of the foregoing conditions precedent to such substitution are satisfied, the Term of the Lease shall cease with respect to the Former Leased Property and shall be continued with respect to the Substitute Leased Property, and all references in the Lease Agreement to the Former Leased Property shall apply with full force and effect to the Substitute Leased Property. The District shall not be entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such substitution.

Lease Payments; Abatement

The District agrees to pay semiannual Lease Payments, subject to abatement as described below, as the rental for the use and occupancy of the Leased Property. On each Lease Payment Date, the District is obligated to deposit with the Trustee the full amount of the Lease Payments coming due and payable on the next Interest Payment Date, to the extent required to be paid by the District under the Lease Agreement. Any amount on deposit in the Lease Payment Fund on any Lease Payment Date is required to be credited towards the payment then required to be deposited by the District with the Trustee.

In the eventa Lease Payment is not paid when due, and the Trustee draws on the Reserve Policy to insure timely payment of the Lease Payments to the Owners of the Certificates, the District shall continue to be obligated to pay such Lease Payment, which shall be applied by the Trustee, when paid by the District and received by the Trustee, to reimburse the Insurer for the draw on the Reserve Policy, in accordance with the Trust Agreement.

The District agrees to take such actions as may be necessary to include all Lease Payments required to be paid by it under the Lease Agreement in its annual budgets and to appropriate such Lease Payments in each Fiscal Year during the term of the Lease Agreement.

The Lease Payments will be abated under the Lease Agreement during any period in which due to damage or destruction of the Leased Property in whole or in part, or due to taking in eminent domain proceedings of the Leased Property in whole or in part, there is substantial interference with the District's use and occupancy of all or any portion thereof. The parties to the Lease have agreed that the amount of Lease Payments under such circumstances shall not be less than the amount of the Lease Payments required to pay principal and interest with respect to the Certificates, as scheduled, unless such unpaid amounts are determined to be greater than the fair rental value of the portions of the Leased Property not damaged or destroyed, based on the opinion of an MAI appraiser with expertise in valuing such properties or other appropriate method of valuation, in which event the Lease Payments shall be abated such that they represent said fair rental value. Such abatement shall continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or

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reconstruction. In the event of any such damage or destruction, the Lease Agreement shall continue in full force and effect and the District waives any right to terminate the Lease Agreement by virtue of any such damage and destruction. There is to be no abatement of Lease Payments to the extent that the net proceeds of hazard insurance, rental interruption insurance and amounts in the Reserve Fund are available to pay Lease Payments. In the event of such abatement, the District will have no obligation to pay abated Lease Payments and there is no remedy available to Certificate owners arising from such abatement.

Additional Rental Payments

In addition to the Lease Payments, the District shall pay when due all costs and expenses incurred by the Corporation to comply with the provisions of the Trust Agreement, including without limitation all Costs of Issuance (to the extent not paid from amounts on deposit in the Costs of Issuance Fund), annual compensation due to the Trustee, all of its reasonable costs payable as a result of the performance of and compliance with its duties under the Trust Agreement and all other amounts due to the Trustee pursuant to the Trust Agreement, and all other amounts due to the Trustee or the Insurer pursuant to the Trust Agreement, the Insurance Policy or the Reserve Policy (other than the payment of Lease Payments) and all reasonable costs and expenses of attorneys, auditors, engineers and accountants engaged by the Corporation or the Trustee in connection with the Leased Property or the performance of their duties hereunder or under the Trust Agreement.

Title

At all times during the term of the Lease Agreement, the District will hold fee title to the Leased Property, subject to the provisions of the Site Lease and other Permitted Encumbrances. Upon the termination of the Lease Agreement, all right, title and interest of the Corporation in and to the Leased Property will be transferred to and vested in the District. Upon the payment in full of all Lease Payments, or upon the deposit by the District of security for such Lease Payments as provided in the Lease Agreement, all right, title and interest of the Corporation in and to the Leased Property will be transferred to and vested in the District.

Maintenance, Utilities, Taxes and Modifications

All improvement, repair and maintenance of the Leased Property is the responsibility of the District, and the District will pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property, and will pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the District or any assignee or sublessee. The District will also pay all taxes and assessments of any type or nature, if any, charged to the Corporation or the District affecting the Leased Property or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the District will be obligated to pay only such installments as are required to be paid during the Term of the Lease Agreement as and when the same become due.

Insurance

The Lease Agreement requires the District to maintain or cause to be maintained the following insurance against risk of physical damage to the Leased Property and other risks for the protection of the Certificate Owners, the Corporation and the Trustee:

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Public Liability and Property Damage Insurance. The District shall maintain or cause to be maintained throughout the Term of the Lease, a standard comprehensive general insurance policy or policies in protection of the Corporation, District, and their respective members, officers, agents, employees and assigns. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Facilities. Such policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event (subject to a deductible of not to exceed $250,000), and in a minimum amount of $150,000 (subject to a deductible of not to exceed $50,000) for damage to property resulting from each accident or event. Such insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks, subject to a deductible of not to exceed $250,000. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of the participation by the District in a joint powers agency or other program providing pooled insurance. The Net Proceeds of such liability insurance shall be applied by the District toward extinguishment or satisfaction of the liability with respect to which paid.

Fire and Extended Coverage Insurance. The District shall procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease, insurance against loss or damage to any Facilities leased hereunder by fire and lightning, with extended coverage and vandalism and malicious mischief insurance. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance shall be in an aggregate amount at least equal to the greatest of (a) one hundred percent (100%) of the replacement cost of the Facilities insured thereunder, or (b) the aggregate principal amount of the Outstanding Certificates. All policies of such insurance may be subject to deductible clauses of not to exceed $100,000 for any one loss. The Net Proceeds of such insurance shall be applied as provided in Section 6.1. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of self-insurance by the District, subject to the provisions of Section 5.7 of the Lease Agreement, or in the form of the participation by the District in a joint powers agency or other program providing pooled insurance.

Rental Interruption Insurance. The District must maintain, throughout the term of the Lease Agreement, rental interruption or use and occupancy insurance to cover loss, total or partial, in an amount at least equal to the maximum Lease Payments in any 24 month period during the term of the Lease. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the District, but shall not be maintained in the form of self-insurance. The Net Proceeds of such insurance shall be paid to the Trustee and deposited in the Lease Payment Fund, and shall be credited towards the payment of the Lease Payments as the same become due and payable, or to the extent there has been a draw on the Reserve Policy, to reimburse the Insurer for amounts due under the Trust Agreement as a result of a draw on the Reserve Policy.

Title Insurance. The District will obtain a title insurance policy insuring the District's leasehold estate in the Leased Property, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate principal amount of the Certificates. All Net Proceeds received under any such title insurance policy will be deposited with the Trustee in the Lease Payment

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Fund and will be credited towards the prepayment of the remaining Lease Payments pursuant to the Lease Agreement. A copy of such policy shall be delivered to the Insurer.

Each policy of insurance required by the Lease Agreement shall name the Trustee as loss payee so as to provide that all proceeds thereunder shall be payable to the Trustee. The District shall pay or cause to be paid when due the premiums for all insurance policies required by the Lease. All such policies shall provide that the Trustee shall be given thirty (30) days' notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. Unless waived by the Insurer, insurance must be provided by an insurer rated “A” or better by S&P. The Trustee shall not be responsible for the sufficiency of any insurance required under the Lease Agreement and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss.

In the event that any insurance shall be provided in the form of self-insurance, the District shall file with the Trustee and the Insurer annually, within 90 days following the close of each Fiscal Year, but no later than August 1 of each year, a statement of the risk manager of the District or an independent insurance adviser engaged by the District identifying the extent of such self- insurance and stating the determination that the District maintains sufficient reserves with respect thereto. In the event that any such insurance shall be provided in the form of self-insurance by the District, the District shall not be obligated to make any payment with respect to any insured event except from such reserves. Any self-insurance shall be acceptable to the Insurer.

Assignment; Subleases

The Corporation has assigned certain of its rights under the Lease Agreement to the Trustee pursuant to the Assignment Agreement. The District may not assign any of its rights in the Lease Agreement, and may sublease all or a portion of the Leased Property only with the prior written consent of the Insurer, and only under the conditions contained in the Lease Agreement, including the condition that such sublease not cause the interest component of the Lease Payments to become subject to federal or State of California personal income taxes.

Amendment of Lease

The Corporation and the District may at any time with prior written consent of the Insurer amend or modify any of the provisions of the Lease Agreement but only (a) with the prior written consent of the Insurer and the Owners of a majority in aggregate principal amount of the Outstanding Certificates; or (b) with the consent of the Insurer, but without the consent of the Trustee or any of the Certificate Owners, but only if such amendment or modification is for any one or more of the following purposes:

(i) to add to the covenants and agreements of the District contained in the Lease Agreement, other covenants and agreements to be observed, or to limit or surrender any rights or power reserved to or conferred upon the District, or

(ii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision, or in any other respect whatsoever as the Corporation and the District may deem necessary or desirable, provided that, in the opinion of Special Counsel, such modifications or amendments do not materially adversely affect the interests of the Owners of the Certificates;

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(iii) to amend any provision relating to the Tax Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest represented by the Certificates under the Tax Code, in the opinion of Special Counsel;

(iv) to amend the description of the Leased Property to reflect accurately the property originally intended to be included therein, or in connection with any substitution pursuant to the Lease Agreement; or

(v) to obligate the District to pay additional amounts of rental for the use and occupancy of the Leased Property, provided that (A) such additional amounts of rental do not cause the total rental payments made by the District to exceed the fair rental value of the Leased Property, (B) the District has obtained an appraisal of the Leased Property showing that the estimated fair market value thereof is not less than the aggregate unpaid principal components of the Lease Payments and the aggregate principal components of such additional amounts of rental, (C) to the extent the Leased Property will be expanded or remodeled with the proceeds of certificates of participation representing the right to receive such additional rental payments, such certificates shall be subordinate to the Certificates until the construction of such expansion or remodeling of the Leased Property is completed, and (D) such additional amounts of rental are pledged or assigned for the payment of any bonds, notes, leases or other obligations the proceeds of which shall be applied to finance the construction or acquisition of land, facilities or other improvements which are authorized pursuant to the Education Code of the State of California.

No amendment to the Lease shall modify any of the rights or obligations of the Trustee without its prior written consent.

Events of Default

Each of the following constitutes an event of default under the Lease Agreement:

(a) Failure by the District to pay any Lease Payment or other payment required to be paid under the Lease Agreement at the time specified in the Lease Agreement.

(b) Failure by the District to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in the preceding clause (a), for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the District by the Corporation, the Insurer or the Trustee; provided, however, that if in the reasonable opinion of the District the failure stated in the notice can be corrected, but not within such 30 day period, such failure will not constitute an Event of Default if the consent of the Insurer is obtained and the District commences to cure such failure within such 30 day period and thereafter diligently and in good faith cures such failure in a reasonable period of time.

(c) Certain events relating to the insolvency or bankruptcy of the District.

Remedies on Default

Whenever any Event of Default shall have happened and be continuing, it shall be lawful for the Corporation subject to the control of the Insurer to exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding

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anything in the Lease or in the Trust Agreement to the contrary, there shall be no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable or to re-lease the Leased Property to any party other than the District. The provisions of the Lease and the duties of the District and of its board, officers or employees shall be enforceable by the Corporation or its assignee by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction.

The Trustee has no right to accelerate Lease Payments and, due to the governmental nature of the Leased Property, it is uncertain whether a court would permit the exercise of the remedies of re-entry, repossession or re-letting.

TRUST AGREEMENT

Trustee

The Trustee is appointed pursuant to the Trust Agreement and is authorized to prepare, execute and deliver the Certificates thereunder, and to act as a depository of amounts held thereunder. The Trustee is required to make deposits into and withdrawals from funds, and invest amounts held under the Trust Agreement in accordance with the District's instructions.

Funds

The Trust Agreement creates the Lease Payment Fund, the Reserve Fund, the Project Fund and the Insurance and Condemnation Fund to be held in trust by the Trustee.

Lease Payment Fund. There will be deposited in the Lease Payment Fund, when received by the Trustee, all Lease Payments and prepayments thereof, and any other amounts required to be deposited therein pursuant to the Trust Agreement or the Lease Agreement. Moneys on deposit in the Lease Payment Fund will be used to pay principal and interest and premium (if any) represented by the Certificates. Any earnings on investment of moneys in the Lease Payment Fund will remain therein and will be credited towards payment of the next Lease Payments. Any surplus remaining in the Lease Payment Fund after the payment of all Certificates, or provision for their payment has been made, will be paid to the District.

Costs of Issuance Fund. The Trustee shall establish the Costs of Issuance Fund, into which shall be deposited amounts sufficient to pay Costs of Issuance. Funds will be disbursed from the Costs of Issuance upon receipt of a requisition of a District Representative meeting the requirements set forth in the Trust Agreement.

Project Fund. The Trustee shall establish the Project Fund on behalf of the District, into which shall be deposited amounts available to pay Project Costs. On the Completion Date, the Trustee shall withdraw all remaining monies in the Project Fund and deposit such moneys in the Lease Payment Fund to be applied by the Trustee as a credit against the next Lease Payment.

Unless otherwise directed by the Insurer, upon the occurrence of an Event of Default hereunder or upon receipt of notice provided to the District of failure to perform a covenant hereunder that if not cured by the District following such notice would constitute an Event of Default hereunder, amounts on deposit in the Project Fund at such time (if any) shall not be disbursed for additional Project Costs. If the District has failed to cure such failure and an Event of Default has occurred hereunder, at the direction of the Insurer, funds remaining on deposit in

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the Project Fund may be transferred to the Lease Payment Fund and applied to the payment of principal of and interest on the Certificates coming due, or to the prepayment of Certificates pursuant to Section 3.01(a) hereof. Transfers from the Project Fund to the Lease Payment Fund shall be made by the Trustee at such times and in such amounts as shall be directed in writing by a District Representative, acting at the written direction of the Insurer. The provisions of this paragraph shall be operative only in the event that an Event of Default has occurred hereunder and the Insurer has directed the transfers described herein.

Reserve Fund. The Trustee will establish a special fund designated as the “Reserve Fund” to be held by the Trustee in trust for the benefit of the District and the Owners of the Certificates, and applied solely as provided in the Trust Agreement. Moneys in the Reserve Fund shall be held in trust as a reserve for the payment when due of the Lease Payments on behalf of the District.

The Trustee will retain in the Reserve Fund all earnings on the investment of amounts therein to the extent required to maintain the full amount of the Reserve Requirement on deposit in the Reserve Fund. All amounts on deposit in the Reserve Fund in excess of the Reserve Requirement, and all amounts derived from the investment of amounts in the Reserve Fund which are not required to be retained therein to maintain the Reserve Requirement, shall be transferred by the Trustee to the Lease Payment Fund semiannually on or before each Lease Payment Date. Any recomputation of the Reserve Requirement shall be made by or on behalf of the District, and shall become effective upon the filing by the District with the Trustee of written notice thereof.

Initially, the Reserve Requirement shall be satisfied by the credit to the Reserve Fund of the Reserve Policy, the terms of which are set forth in the Trust Agreement. The deposit of any Reserve Policy to the Reserve Fund shall be subject to the prior written consent of the Insurer.

If five (5) Business Days prior to any Interest Payment Date the moneys available in the Lease Payment Fund do not equal the amount of the Lease Payment then coming due and payable, the Trustee shall apply the moneys available in the Reserve Fund to make such payments on behalf of the District by transferring the amount necessary for this purpose to the Lease Payment Fund. Upon receipt of any delinquent Lease Payment with respect to which moneys have been advanced from the Reserve Fund, such Lease Payment shall be applied to reimburse the Insurer for funds drawn on the Reserve Policy.

Payment Procedure Pursuant to the Reserve Policy. The agreements of the District, the Corporation and the Insurer with respect to the Reserve Policy shall be governed in accordance with the following provisions notwithstanding anything to the contrary in the Trust Agreement.

(i) The District and the Corporation shall repay any draws under the Reserve Policy and pay all related reasonable expenses incurred by the Insurer and shall pay interest thereon from the date of payment by the Insurer at the Late Payment Rate. “Late Payment Rate” means the lesser of (x) the greater of (i) the per annum rate of interest, publicly announced from time to time by JPMorgan Chase Bank at its principal office in the City of New York, as its prime or base lending rate (“Prime Rate”) (any change in such Prime Rate to be effective on the date such change is announced by JPMorgan Chase Bank) plus 3%, and (ii) the then applicable highest rate of interest with respect to the Certificates and (y) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. In the event JPMorgan Chase Bank ceases to announce its Prime Rate publicly, Prime Rate shall be the publicly

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announced prime or base lending rate of such national bank as the Insurer shall specify. If the interest provisions of this subparagraph (i) shall result in an effective rate of interest which, for any period, exceeds the limit of the usury or any other laws applicable to the indebtedness created herein, then all sums in excess of those lawfully collectible as interest for the period in question shall, without further agreement or notice between or by any party hereto, be applied as additional interest for any later periods of time when amounts are outstanding hereunder to the extent that interest otherwise due hereunder for such periods plus such additional interest would not exceed the limit of the usury or such other laws, and any excess shall be applied upon principal immediately upon receipt of such moneys by the Insurer, with the same force and effect as if the District or the Corporation had specifically designated such extra sums to be so applied and the Insurer had agreed to accept such extra payment(s) as additional interest for such later periods. In no event shall any agreed-to or actual exaction as consideration for the indebtedness created herein exceed the limits imposed or provided by the law applicable to this transaction for the use or detention of money or for forbearance in seeking its collection.

Repayment of draws and payment of expenses and accrued interest thereon at the Late Payment Rate (collectively, “Policy Costs”) shall commence in the first month following each draw, and each such monthly payment shall be in an amount at least equal to 1/12 of the aggregate of Policy Costs related to such draw.

Amounts in respect of Policy Costs paid to the Insurer shall be credited first to interest due, then to the expenses due and then to principal due. As and to the extent that payments are made to the Insurer on account of principal due, the coverage under the Reserve Policy will be increased by a like amount, subject to the terms of the Reserve Policy. The obligation to pay Policy Costs shall be secured by a valid lien on all revenues and other collateral pledged as security for the Certificates (subject only to the priority of payment provisions set forth under the Trust Agreement).

All cash and investments in the Reserve Fund shall be transferred to the Lease Payment Fund and applied to the payment of principal of and interest with respect to the Certificates coming due before any drawing may be made on the Reserve Policy or any other credit facility credited to the Reserve Fund in lieu of cash (“Credit Facility”). Payment of any Policy Costs shall be made prior to replenishment of any such cash amounts. Draws on all Credit Facilities (including the Reserve Policy) on which there is available coverage shall be made on a pro-rata basis (calculated by reference to the coverage then available thereunder) after applying all available cash and investments in the Reserve Fund. Payment of Policy Costs and reimbursement of amounts with respect to other Credit Facilities shall be made on a pro-rata basis prior to replenishment of any cash drawn from the Reserve Fund. For the avoidance of doubt, “available coverage” means the coverage then available for disbursement pursuant to the terms of the applicable alternative credit instrument without regard to the legal or financial ability or willingness of the provider of such instrument to honor a claim or draw thereon or the failure of such provider to honor any such claim or draw.

(ii) If the District and the Corporation shall fail to pay any Policy Costs in accordance with the requirements of subparagraph (a) hereof, the Insurer shall be entitled to exercise any and all legal and equitable remedies available to it, including those provided under the Trust Agreement other than remedies which would adversely affect owners of the Certificates.

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(iii) The Trust Agreement shall not be discharged until all Policy Costs owing to the Insurer shall have been paid in full. The District's obligation to pay such amounts shall expressly survive payment in full of the Certificates.

(iv) The District shall include any Policy Costs then due and owing the Insurer in the calculation of the additional bonds test and the rate covenant in the Trust Agreement.

(v) The Trustee shall ascertain the necessity for a claim upon the Reserve Policy in accordance with the provisions of subparagraph (i) hereof and to provide notice to the Insurer in accordance with the terms of the Reserve Policy at least five business days prior to each date upon which interest or principal is due on the Certificates. Where deposits are required to be made by the District with the Trustee to the debt service fund for the Certificates more often than semi-annually, the Trustee shall be instructed to give notice to the Insurer of any failure of the District to make timely payment in full of such deposits within two Business Days of the date due.

If there is no Reserve Policy, then the Trustee shall apply the moneys available in the Reserve Fund to make such payments on behalf of the District by transferring the amount necessary for this purpose to the Lease Payment Fund. Upon receipt of any delinquent Lease Payment with respect to which moneys have been advanced from the Reserve Fund, such Lease Payment shall be deposited in the Reserve Fund to the extent of such advance.

If on any Interest Payment Date the moneys on deposit in the Reserve Fund and the Lease Payment Fund (excluding amounts required for payment of principal, interest and prepayment premium, if any, represented by any Certificates theretofore having come due but not presented for payment) are sufficient to pay or prepay all Outstanding Certificates, including all principal, interest and prepayment premiums (if any) represented thereby, the Trustee shall, upon the written request of the District, transfer all amounts then on deposit in the Reserve Fund to the Lease Payment Fund to be applied for such purpose to the payment of the Lease Payments on behalf of the District. Any amounts remaining in the Reserve Fund on the date of payment in full, or provision for such payment as provided in Section 13.01, of all obligations represented by the Outstanding Certificates and upon all amounts then due and owing to the Trustee, shall be withdrawn by the Trustee and at the written request of the District applied towards such payment or paid to the District.

Insurance and Condemnation Fund; Application of Net Proceeds of Insurance andEminent Domain. Any Net Proceeds of insurance or condemnation awards with respect to the Site will be deposited in the Insurance and Condemnation Fund. In the event of an insurance award, the net proceeds on deposit in the Insurance and Condemnation Fund will be used, as directed by the District, either (a) to replace, repair, restore, modify or improve the Leased Property if the District determines and notifies the Trustee and the Insurer that such is economically feasible or in the best interests of the District, or (b) to the extent not so used, to prepay the Lease Payments allocable to the Leased Property and thereby prepay Certificates. In the event of an eminent domain award with respect to the Leased Property, the net proceeds on deposit in the Insurance and Condemnation Fund will be used as directed by the District, as follows: (a) if the District determines that such eminent domain proceedings have not materially affected the interest of the District in the Leased Property or its ability to make payments under the Lease Agreement, such proceeds will be used either for repair, replacement or rehabilitation of the Leased Property, or credited towards the allocable Lease Payments next coming due and payable; or (b) if the District determines otherwise, and in any event if all of the Leased Property

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is taken in eminent domain proceedings, such proceeds will be used to prepay the Lease Payments and Certificates.

Investment of Funds

The Trustee is required to invest and reinvest all moneys held under the Trust Agreement, in Permitted Investments maturing not later than the date moneys are expected to be required for expenditure. All income or profit on any investments of funds held by the Trustee under the Trust Agreement will be deposited in the respective funds from which such investments were made, except that all amounts derived from the investment of amounts in the Reserve Fund will be transferred to the Lease Payment Fund to the extent not required to be retained in the Reserve Fund to maintain the Reserve Requirement.

Remedies Upon Event of Default

Upon the occurrence of an event of default by the District under the Lease Agreement the Trustee, with the prior written consent of the Insurer may, and at the written direction of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding the Trustee shall, exercise any and all remedies available at law or pursuant to the Lease Agreement. The Trustee subject to the control of the Insurer is granted the power to control the proceedings in the event of a default, for the equal benefit of the Certificate Owners, and no Certificate Owner has the right to institute any suit, action or proceeding at law or in equity, unless (a) such Owner has previously notified the Trustee of the occurrence of an event of default, (b) the Owners of a majority in aggregate principal amount of the outstanding Certificates have requested the Trustee in writing to exercise its powers, (c) said Owners have tendered the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in complying with such request, and (d) the Trustee has failed to comply with such request for 60 days after receipt of such request and tender of such indemnity.

Any amounts collected by the Trustee in an event of default are required to be applied first to the payment of the fees and expenses of the Trustee incurred in connection with such event of default and second to the payment of principal and interest represented by the Certificates (including interest on overdue installments of interest at the net effective rate of interest per annum then represented by the outstanding Certificates, but only to the extent funds are available for such purpose after payment of all other overdue amounts), ratably if necessary. Upon an event of default, the Trustee has a first lien on the amounts held under the Trust Agreement for its fees, charges and expenses.

Amendment of Trust Agreement

The Trust Agreement may be amended by agreement among the parties thereto without the consent of the Owners of the Certificates, but only:

(a) to add to the covenants and agreements of any party, other covenants to be observed, or to surrender any right or power reserved to the Corporation or the District, provided, however that written consent of the Insurer is required with respect to an amendment to the provisions recognizing or granting rights in or to the Insurer,

(b) to cure, correct or supplement any ambiguous or defective provision in accordance with the original intention of the Corporation and the District,

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(c) in regard to questions arising thereunder, as the District and the Corporation may deem necessary or desirable and which do not, in the opinion of Special Counsel, materially adversely affect the interests of the Owners of the Certificates,

(d) to facilitate any amendment to the Lease Agreement which is permitted to be made thereto as described above, or

(e) if and to the extent permitted in the opinion of Special Counsel filed with the Trustee, the Insurer, the District and the Corporation, to delete or modify any of the provisions thereof relating to the exclusion from gross income for federal income tax purposes of interest represented by the Certificates.

Any other amendment requires the approval of the Owners of a majority in aggregate principal amount of the Certificates then outstanding, provided that no such amendment may (a) extend the maturity or time of interest payment, or reduce the interest rate, amount of principal or premium payable on, any Certificate without such Owner's consent; (b) reduce the percentage of Owners of Certificates required to consent to any amendment or modification; or (c) modify any of the Trustee's rights or obligations without its consent, or (d) modify any of the rights and interests of the Insurer without its written assent thereto.

Discharge of Trust Agreement

If and when the obligations represented by any or all Outstanding Certificates shall be paid and discharged in any one or more of the following ways:

(a) by well and truly paying or causing to be paid the principal of and interest and prepayment premiums (if any) represented by such Certificates Outstanding selected for prepayment as and when the same become due and payable;

(b) by depositing with the Trustee or an escrow agent, under an escrow deposit and trust agreement, security for the payment of Lease Payments relating to such Certificates selected for prepayment as more particularly described in Section 9.1 of the Lease, said security to be held by the Trustee on behalf of the District to be applied by the Trustee or by an escrow agent to pay or prepay such Lease Payments as the same become due, pursuant to Section 9.1 of the Lease; or

(c) by paying all other amounts due and owing the Insurer with respect to the Insurance Policy and the Reserve Policy -

and if such Certificates selected for prepayment are to be prepaid prior to the maturity thereof notice of such prepayment shall have been mailed or provision satisfactory to the Trustee shall have been made for the mailing of such notice, then, notwithstanding that such Certificates shall not have been surrendered for payment, all rights hereunder of the Owners of such Certificates and all obligations of the Corporation, the Trustee and the District with respect to such Certificates shall cease and terminate, except only certain of the obligations of the Trustee under the Trust Agreement, and the obligation of the Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the District from funds deposited pursuant to paragraph (b) above, to the Owners of such Certificates not so surrendered and paid all sums represented thereby when due and in the event of deposits pursuant to paragraph (b), such Certificates shall continue to represent direct, undivided fractional interests of the Owners thereof in the Lease Payments.

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To accomplish discharge under the Trust Agreement, the District shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants or such other accountant as shall be acceptable to the Insurer (“Accountant”) verifying the sufficiency of the escrow established to pay the Certificates in full on the maturity or prepayment date (“Verification”), (ii) an Escrow Deposit Agreement (which shall be acceptable in form and substance to the Insurer), (iii) an opinion of Special Counsel to the effect that the Certificates are no longer Outstanding under the Trust Agreement and (iv) a certificate of discharge of the Trustee with respect to the Certificates but only if item (iii) has not been provided by Special Counsel. The Verification and defeasance opinion shall be acceptable in form and substance, and addressed, to the District, the Trustee and the Insurer. The Insurer shall be provided with final drafts of the above-referenced documentation not less than five business days prior to the funding of the escrow.

Any funds held by the Trustee, at the time of discharge of the obligations represented by all Outstanding Certificates as a result of one of the events described in paragraphs (a) or (b) of this Section, which are not required for the payment to be made to Owners, shall, upon payment in full of all fees and expenses of the Trustee (including attorneys' fees) then due, be paid over to the District.

Provisions Relating to Bond Insurance

The following provisions relating to the Insurer and the Insurance Policy shall govern, notwithstanding anything to the contrary set forth in the Trust Agreement:

(a) The prior written consent of the Insurer shall be a condition precedent to the deposit of any credit instrument provided in lieu of a cash deposit into the Reserve Fund. Notwithstanding anything to the contrary set forth in the Trust Agreement, amounts on deposit in the Reserve Fund shall be applied solely to the payment of debt service due on the Certificates.

(b) The Insurer shall be deemed to be the sole holder of the Certificates for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the Certificates insured by it are entitled to take pursuant to the Trust Agreement pertaining to (i) defaults and remedies and (ii) the duties and obligations of the Trustee. In furtherance thereof and as a term of the Trust Agreement and each Certificate, the Trustee and each Certificate Owner appoint the Insurer as their agent and attorney-in-fact and agree that the Insurer may at any time during the continuation of any proceeding by or against the District under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an “Insolvency Proceeding”) direct all matters relating to such Insolvency Proceeding, including without limitation, (A) all matters relating to any claim or enforcement proceeding in connection with an Insolvency Proceeding (a “Claim”), (B) the direction of any appeal of any order relating to any Claim, (C) the posting of any surety, supersedeas or performance bond pending any such appeal, and (D) the right to vote to accept or reject any plan of adjustment. In addition, the Trustee and each Certificate Owner delegate and assign to the Insurer, to the fullest extent permitted by law, the rights of the Trustee and each Certificate Owner in the conduct of any Insolvency Proceeding, including, without limitation, all rights of any party to an adversary proceeding or action with respect to any court order issued in connection with any such Insolvency Proceeding. Remedies granted to the Certificate Owners shall expressly include mandamus.

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(c) No grace period for a covenant default shall exceed 30 days or be extended for more than 60 days, without the prior written consent of the Insurer. No grace period shall be permitted for payment defaults.

(d) The Insurer is a third party beneficiary to the Trust Agreement.

(e) Upon the occurrence of an extraordinary optional, special or extraordinary mandatory prepayment in part, the selection of Certificates to be redeemed shall be subject to the approval of the Insurer. The exercise of any provision of the Trust Agreement which permits the purchase of Certificates in lieu of prepayment shall require the prior written approval of the Insurer if any Certificate so purchased is not cancelled upon purchase.

(f) Any amendment, supplement, modification to, or waiver of, the Trust Agreement or any other transaction document, including any underlying security agreement (each a “Related Document”), that requires the consent of Certificate Owners or adversely affects the rights and interests of the Insurer shall be subject to the prior written consent of the Insurer.

(g) The rights granted to the Insurer under the Trust Agreement or any other Related Document to request, consent to or direct any action are rights granted to the Insurer in consideration of its issuance of the Insurance Policy. Any exercise by the Insurer of such rights is merely an exercise of the Insurer's contractual rights and shall not be construed or deemed to be taken for the benefit, or on behalf, of the Certificate Owners and such action does not evidence any position of the Insurer, affirmative or negative, as to whether the consent of the Certificate Owners or any other person is required in addition to the consent of the Insurer.

(h) Only (1) cash, (2) non-callable direct obligations of the United States of America (“Treasuries”), (3) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated, (4) subject to the prior written consent of the Insurer, pre-refunded municipal obligations rated “AAA” and “Aaa” by S&P and Moody's, respectively, or (5) subject to the prior written consent of the Insurer, securities eligible for “AAA” defeasance under then existing criteria of S&P or any combination thereof, shall be used to effect defeasance of the Certificates unless the Insurer otherwise approves.

To accomplish defeasance, the District shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants or such other accountant as shall be acceptable to the Insurer (“Accountant”) verifying the sufficiency of the escrow established to pay the Certificates in full on the maturity or prepayment date (“Verification”), (ii) an Escrow Deposit Agreement (which shall be acceptable in form and substance to the Insurer), (iii) an opinion of nationally recognized Certificate counsel to the effect that the Certificates are no longer “Outstanding” under the Trust Agreement and (iv) a certificate of discharge of the Trustee with respect to the Certificates; each Verification and defeasance opinion shall be acceptable in form and substance, and addressed, to the District, Trustee and Insurer. The Insurer shall be provided with final drafts of the above-referenced documentation not less than five Business Days prior to the funding of the escrow.

Certificates shall be deemed “Outstanding” under the Trust Agreement unless and until they are in fact paid and retired or the above criteria are met.

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(i) Amounts paid by the Insurer under the Insurance Policy shall not be deemed paid for purposes of the Trust Agreement and the Certificates relating to such payments shall remain Outstanding and continue to be due and owing until paid by the District in accordance with the Trust Agreement. The Trust Agreement shall not be discharged unless all amounts due or to become due to the Insurer have been paid in full or duly provided for.

(j) Each of the District and Trustee covenant and agree to take such action (including, as applicable, filing of UCC financing statements and continuations thereof) as is necessary from time to time to preserve the priority of the pledge of the Lease Payments under applicable law.

(k) Claims Upon the Insurance Policy and Payments by and to the Insurer.

If, on the third Business Day prior to the related scheduled interest payment date or principal payment date (“Payment Date”) there is not on deposit with the Trustee, after making all transfers and deposits required under the Trust Agreement, moneys sufficient to pay the principal of and interest with respect to the Certificates due on such Payment Date, the Trustee shall give notice to the Insurer and to its designated agent (if any) (the “Insurer's Fiscal Agent”) by telephone or telecopy of the amount of such deficiency by 12:00 noon, New York City time, on such Business Day. If, on the second Business Day prior to the related Payment Date, there continues to be a deficiency in the amount available to pay the principal of and interest with respect to the Certificates due on such Payment Date, the Trustee shall make a claim under the Insurance Policy and give notice to the Insurer and the Insurer's Fiscal Agent (if any) by telephone of the amount of such deficiency, and the allocation of such deficiency between the amount required to pay interest with respect to the Certificates and the amount required to pay principal of the Certificates, confirmed in writing to the Insurer and the Insurer's Fiscal Agent by 12:00 noon, New York City time, on such second Business Day by filling in the form of Notice of Claim and Certificate delivered with the Insurance Policy.

The Trustee shall designate any portion of payment of principal on Certificates paid by the Insurer, whether by virtue of mandatory sinking fund prepayment, maturity or other advancement of maturity, on its books as a reduction in the principal amount of Certificates registered to the then current Certificate Owner, whether DTC or its nominee or otherwise, and shall issue a replacement Certificate to the Insurer, registered in the name of Municipal Assurance Corp., in a principal amount equal to the amount of principal so paid (without regard to authorized denominations); provided that the Trustee's failure to so designate any payment or issue any replacement Certificate shall have no effect on the amount of principal or interest payable by the District on any Certificate or the subrogation rights of the Insurer.

The Trustee shall keep a complete and accurate record of all funds deposited by the Insurer into the Policy Payments Account (defined below) and the allocation of such funds to payment of interest on and principal of any Certificate. The Insurer shall have the right to inspect such records at reasonable times upon reasonable notice to the Trustee.

Upon payment of a claim under the Insurance Policy, the Trustee shall establish a separate special purpose trust account for the benefit of Certificate Owners referred to herein as the “Policy Payments Account” and over which the Trustee shall have exclusive control and sole right of withdrawal. The Trustee shall receive any amount paid under the Insurance Policy in trust on behalf of Certificate Owners and shall deposit any such amount in the Policy Payments Account and distribute such amount only for purposes of making the payments for which a claim was made. Such amounts shall be disbursed by the Trustee to Certificate Owners in the same manner as principal and interest payments are to be made with respect to the Certificates under

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the sections hereof regarding payment of Certificates. It shall not be necessary for such payments to be made by checks or wire transfers separate from the check or wire transfer used to pay debt service with other funds available to make such payments. Notwithstanding anything herein to the contrary, the District agrees to pay to the Insurer (i) a sum equal to the total of all amounts paid by the Insurer under the Insurance Policy (the “Insurer Advances”); and (ii) interest on such Insurer Advances from the date paid by the Insurer until payment thereof in full, payable to the Insurer at the Late Payment Rate per annum (collectively, the “Insurer Reimbursement Amounts”). “Late Payment Rate” means the lesser of (a) the greater of (i) the per annum rate of interest, publicly announced from time to time by JPMorgan Chase Bank at its principal office in The City of New York, as its prime or base lending rate (any change in such rate of interest to be effective on the date such change is announced by JPMorgan Chase Bank) plus 3%, and (ii) the then applicable highest rate of interest with respect to the Certificates and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. The District hereby covenants and agrees that the Insurer Reimbursement Amounts are secured by a lien on and pledge of the Lease Payments and payable from such Lease Payments on a parity with debt service due on the Certificates.

Funds held in the Policy Payments Account shall not be invested by the Trustee and may not be applied to satisfy any costs, expenses or liabilities of the Trustee. Any funds remaining in the Policy Payments Account following a Certificate payment date shall promptly be remitted to the Insurer.

(l) The Insurer shall, to the extent it makes any payment of principal of or interest with respect to the Certificates, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Insurance Policy (which subrogation rights shall also include the rights of any such recipients in connection with any Insolvency Proceeding). Each obligation of the District to the Insurer under the Related Documents shall survive discharge or termination of such Related Documents.

(m) The District shall pay or reimburse the Insurer any and all charges, fees, costs and expenses that the Insurer may reasonably pay or incur in connection with (i) the administration, enforcement, defense or preservation of any rights or security in any Related Document; (ii) the pursuit of any remedies under the Trust Agreement or any other Related Document or otherwise afforded by law or equity, (iii) any amendment, waiver or other action with respect to, or related to, the Trust Agreement or any other Related Document whether or not executed or completed, or (iv) any litigation or other dispute in connection with the Trust Agreement or any other Related Document or the transactions contemplated thereby, other than costs resulting from the failure of the Insurer to honor its obligations under the Insurance Policy. The Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of the Trust Agreement or any other Related Document.

(n) After payment of reasonable expenses of the Trustee, the application of funds realized upon default shall be applied to the payment of expenses of the District or rebate only after the payment of past due and current debt service on the Certificates and amounts required to restore the Reserve Fund to the Reserve Requirement.

(o) The Insurer shall be entitled to pay principal or interest with respect to the Certificates that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the District (as such terms are defined in the Insurance Policy), whether or not the Insurer has

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received a Notice of Nonpayment (as such terms are defined in the Insurance Policy) or a claim upon the Insurance Policy.

(p) The notice address of the Insurer is: Municipal Assurance Corp., 1633 Broadway, New York, New York 10019, Attention: Managing Director - Surveillance, Re: Policy No. 700761-N, Telephone: (212) 974-0100; Telecopier: (212) 339-3556. In each case in which notice or other communication refers to an Event of Default, then a copy of such notice or other communication shall also be sent to the attention of the General Counsel and shall be marked to indicate “URGENT MATERIAL ENCLOSED.”

(q) The Insurer shall be provided with the following information by the District, the Corporation or Trustee, as the case may be:

(i) Annual audited financial statements within 270 days after the end of the District's fiscal year (together with a certification of the District that it is not aware of any default or Event of Default under the Trust Agreement or the Lease), and the District's annual budget within 30 days after the approval thereof together with such other information, data or reports as the Insurer shall reasonably request from time to time;

(ii) Notice of any draw upon the Reserve Fund within two Business Days after knowledge thereof other than (i) withdrawals of amounts in excess of the Reserve Requirement and (ii) withdrawals in connection with a refunding of Certificates;

(iii) Notice of any default known to the Trustee, the Corporation or District within five Business Days after knowledge thereof;

(iv) Prior notice of the advance refunding or prepayment of any of the Certificates, including the principal amount, maturities and CUSIP numbers thereof;

(v) Notice of the resignation or removal of the Trustee and Certificate Registrar and the appointment of, and acceptance of duties by, any successor thereto;

(vi) Notice of the commencement of any proceeding by or against the District commenced under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an “Insolvency Proceeding”);

(vii) Notice of the making of any claim in connection with any Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment of principal of, or interest on, the Certificates;

(viii) A full original transcript of all proceedings relating to the execution of any amendment, supplement, or waiver to the Related Documents; and

(ix) All reports, notices and correspondence to be delivered to Certificate Owners under the terms of the Related Documents.

In addition, to the extent that the District has entered into a continuing disclosure agreement, covenant or undertaking with respect to the Certificates, all information furnished pursuant to such agreements shall also be provided to the Insurer, simultaneously with the furnishing of such information.

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(r) The Insurer shall have the right to receive such additional information as it may reasonably request.

(s) The District will permit the Insurer to discuss the affairs, finances and accounts of the District or any information the Insurer may reasonably request regarding the security for the Certificates with appropriate officers of the District and will use commercially reasonable efforts to enable the Insurer to have access to the facilities, books and records of the District on any Business Day upon reasonable prior notice.

(t) The Trustee shall notify the Insurer of any failure of the District to provide notices, certificates and other information under the transaction documents.

(u) Notwithstanding satisfaction of the other conditions to the issuance of Additional Certificates set forth in the Trust Agreement, no such issuance may occur (1) if an Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) exists unless such default shall be cured upon such issuance and (2) unless the Reserve Fund is fully funded at the Reserve Requirement (including the proposed issue) upon the issuance of such Additional Certificates, in either case unless otherwise permitted by the Insurer.

(v) In determining whether any amendment, consent, waiver or other action to be taken, or any failure to take action, under the Trust Agreement would adversely affect the security for the Certificates or the rights of the Certificate Owners, the Trustee shall consider the effect of any such amendment, consent, waiver, action or inaction as if there were no Insurance Policy.

(w) No contract shall be entered into or any action taken by which the rights of the Insurer or security for or sources of payment of the Certificates may be impaired or prejudiced in any material respect except upon obtaining the prior written consent of the Insurer.

(y) Any interest rate exchange agreement (“Swap Agreement”) entered into by the District shall meet the following conditions: (i) the Swap Agreement must be entered into to manage interest costs related to, or a hedge against (a) assets then held, or (b) debt then outstanding, or (iii) debt reasonably expected to be issued within the next twelve (12) months, and (ii) the Swap Agreement shall not contain any leverage element or multiplier component greater than 1.0x unless there is a matching hedge arrangement which effectively off-sets the exposure from any such element or component. Unless otherwise consented to in writing by the Insurer, any uninsured net settlement, breakage or other termination amount then in effect shall be subordinate to debt service on the Certificates and on any debt on parity with the Certificates. The District shall not terminate a Swap Agreement unless it demonstrates to the satisfaction of the Insurer prior to the payment of any such termination amount that such payment will not cause the District to be in default under the Related Documents, including but not limited to, any monetary obligations thereunder. All counterparties or guarantors to any Swap Agreement must have a rating of at least “A-” and “A3” by Standard & Poor's (“S&P”) and Moody's Investors Service (“Moody's”). If the counterparty or guarantor's rating falls below “A-” or “A3” by either S&P or Moody's, the counterparty or guarantor shall execute a credit support annex to the Swap Agreement, which credit support annex shall be acceptable to the Insurer. If the counterparty or the guarantor's long term unsecured rating falls below “Baal” or “BBB+” by either Moody's or S&P, a replacement counterparty or guarantor, acceptable to the Insurer, shall be required.

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ASSIGNMENT AGREEMENT

The Corporation and the Trustee will enter into the Assignment Agreement under which the Corporation assigns and sets over to the Trustee, for the benefit of the Owners of the Certificates, all of the Corporation's rights under the Lease Agreement (subject to certain exceptions), including the right of the Corporation to receive and collect Lease Payments, its right to receive and collect proceeds of condemnation and insurance awards and the right to exercise rights and remedies of the Corporation in the Lease Agreement to enforce payments of amounts thereunder. The Trustee accepts such assignment for the purpose of securing such payments due to and rights of the Owners of the Certificates, subject to the provisions of the Trust Agreement.

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APPENDIX B

AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2017

B-1


LIVE OAK UNIFIED SCHOOL DISTRICT

County of Sutter Live Oak, California

FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION WITH

INDEPENDENT AUDITORS' REPORTS

Year Ended June 30, 2017

LIVE OAK UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS Year Ended June 30, 2017

PageNumber

FINANCIAL SECTION

Independent Auditors' Report 1

Required Supplementary InformationManagement's Discussion and Analysis 4

Basic Financial StatementsGovernment-wide Financial Statements

Statement of Net Position 13Statement of Activities 14

Fund Financial StatementsBalance Sheet - Governmental Funds 15Reconciliation of the Governmental Funds Balance Sheet to the Statement of

Net Position 16Statement of Revenues, Expenditures, and Changes in Fund Balances -

Governmental Funds 17Reconciliation of the Governmental Funds Statement of Revenues, Expenditures,

and Changes in Fund Balance to the Statement of Activities 18Statement of Fiduciary Net Position - Fiduciary Funds 20Notes to the Financial Statements 21

REQUIRED SUPPLEMENTARY INFORMATION

Budgetary Comparison Schedule - General Fund 45Schedule of Funding Progress for Other Postemployment Benefits 46Schedule of the District's Proportionate Share of the Net Pension Liability - CalSTRS 47Schedule of District Contributions - CalSTRS 48Schedule of the District's Proportionate Share of the Net Pension Liability - CalPERS 49Schedule of District Contributions - CalPERS 50Notes to the Required Supplementary Information 51

LIVE OAK UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS Year Ended June 30, 2017

PageNumber

SUPPLEMENTARY INFORMATION

Local Educational Agency Organization Structure 52Schedule of Average Daily Attendance 53Schedule of Instructional Time 54Schedule of Expenditures of Federal Awards 55Schedule of Financial Trends and Analysis 56Reconciliation of Annual Financial and Budget Report

With Audited Financial Statements 57Schedule of Charter Schools 58Notes to the Supplementary Information 59

OTHER INDEPENDENT AUDITORS' REPORTS

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordancewith Government Auditing Standards 60

Report on Compliance for Each Major Program and on Internal Control OverCompliance Required by the Uniform Guidance 62

Report on State Compliance 64

SCHEDULE OF FINDINGS AND QUESTIONED COSTS

Summary of Auditors' Results 67Financial Statement Findings 68Federal Award Findings and Questioned Costs 70State Award Findings and Questioned Costs 71Summary Schedule of Prior Audit Findings 72

FINANCIAL SECTION

>" ' 1TIMOTHY A. TITTLE, CW HEIDI M, COPPJEi CPA CHAMDE5E D.MEGHDADJ, CPA

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees Live Oak Unified School District Live Oak, California

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Live Oak Unified School District (the District) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements as listed in the table of contents.

Management's Responsibility for the Financial Statemmts

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

Auditors' Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform die audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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

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

13 263 Esplanade, Chico, California 95973 Voice 530.098.0647 ‘ Fax 530.893.0302

Opinions

In our opinion, the financial statements referred to above present fairly, in ail material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining hind information of the Live Oak Unified School District, as of June 30, 2017, and the respective changes in financial position, for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplemental!/ Information

Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, budgetary comparison Information, schedule of funding progress for OPEB benefits, schedules of proportionate share of net pension liability, and schedules of District pension contributions be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide an}' assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Live Oak Unified School District's basic financial statements. The supplementary information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CTR) Fart 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of She basic financial statements.

The supplementary information listed in the table of contents and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, Including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information and the schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

In accordance with Government Auditing Standards, we have also issued our report dated December 5, 2017, cn our consideration of Live Oak Unified School District's interna! control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal con no! over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Live Oak Unified School District's internal control over financial reporting and compliance.

Tuttle. f>

Chico, California December 5,2017

3

LIVE OAK UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS Year Ended June 30, 2017

This section of the Live Oak Unified School District's annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, 2017. Please read it in conjunction with the Independent Auditors' Report presented on pages 1 through 3, and the District's financial statements, which immediately follow this section.

Using This Annual Report

This annual report consists of a series of financial statements. The Statement of Net Position and the Statement of Activities provide information about the activities of the District as a whole and present a longer-term view of the District's finances. The fund financial statements for governmental activities provide information about how District services were financed in the short-term, and how much remains for future spending. Fund financial statements also report the District's operations in more detail than the government-wide statements by providing information about the District's most significant funds.

Financial Highlights

• Total net position was $14,768,781, at June 30, 2017. This was an increase of $4,913,660.

• Overall revenues were $26,073,537 and were higher than expenditures of $23,303,032 by $2,770,505.

• Capital assets, net of depreciation, increased by $4,010,497 primarily due to the completion of current year projects netted against depreciation expense.

• Long-term debt increased by $10,822,461 due to issuance of new general obligation bonds in the amount of $7,000,000 approved by voters in Measure X in addition to increase in net pension liability.

• The District maintains sufficient reserves for a district of its size. It meets the state required minimum reserve for economic uncertainty of 3% of General Fund expenditures, transfer out, and other uses (total outgo). During the fiscal year, General Fund expenditures and other financing uses totaled $20,289,509. At June 30, 2017, the District had available reserves of $3,162,020 in the General Fund, which represents a reserve of 15.58%.

The Financial Report

The full annual financial report consists of three separate parts, including the basic financial statements, supplementary information, and Management's Discussion and Analysis. The three sections together provide a comprehensive overview of the District. The basic financial statements are comprised of two kinds of statements that present financial information from different perspectives, district-wide and funds.

• District-wide financial statements, which comprise the first two statements, provide both short-term and long-term information about the District's overall financial position.

• The remaining statements are fund financial statements that focus on individual parts of the District, reporting the District's operations in more detail than the district-wide statements. They are comprised of the remaining statements.

4


o Basic services funding is described in the governmental funds statements. These statements include short-term financing and identify the balance remaining for future spending.

o Proprietary funds statements offer short- and long-term financial information about the activities the District operates like a business.

o Financial relationships, for which the District acts as an agent or trustee for the benefit of others to whom the resources belong, are presented in the fiduciary funds statements.

Notes to the financials, which are included in the financial statements, provide more detailed data and explain some of the information in the statements. The required supplementary information provides further explanations and provides additional support for the financial statements. A comparison of the District's budget for the year is included.

Reporting the District as a Whole

The District as a whole is reported in the District-wide statements and uses accounting methods similar to those used by companies in the private sector. All of the District's assets and liabilities are included in the Statement of Net Position. The Statement of Activities reports all of the current year's revenues and expenses regardless of when cash is received or paid.

The District's financial health or position can be measured by the difference between the District's assets and liabilities.

• Increases or decreases in the net assets of the District over time are indicators of whether its financial position is improving or deteriorating, respectively.

• Additional non-financial factors such as the condition of school buildings and other facilities, and changes in the property tax base of the District need to be considered in assessing the overall health of the District.

In the Statement of Net Position and the Statement of Activities, we divide the District into two kinds of activities:

Governmental Activities

The basic services provided by the District, such as regular and special education, adult education, administration, and transportation are included here, and are primarily financed by property taxes and state formula aid. Non-basic services, such as child nutrition is also included here, but is financed by a combination of state and federal contracts and grants, as well as local revenues.

Business-Type Activities

The District does not provide any services that should be included in this category.

Reporting the District's Most Significant Funds

The District's fund based financial statements provide detailed information about the District's most significant funds. Some funds are required to be established by State law and bond covenants. However, the District establishes many other funds as needed to control and manage money for specific purposes.

5


Governmental Funds

The major governmental funds of the Live Oak Unified School District are the General Fund, the Building Fund and the Special Reserve Fund for Capital Outlay Projects. Governmental fund reporting focuses on how money flows into and out of the funds and the balances that remain at the end of the year. A modified accrual basis of accounting measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed shortterm view of the District's operations and services. Governmental fund information helps to determine the level of financial resources available in the near future to finance the District's programs.

Proprietary Funds

Services for which the District charges a fee are generally reported in the proprietary funds on a full accrual basis. These include both Enterprise funds and Internal Service funds. Enterprise funds are considered business-type activities and are also reported under a full accrual method. This is the same basis as the government-wide financial statements; therefore no reconciling entries are required. Internal service funds are reported with the Governmental Funds. The District has no funds of this type.

Fiduciary Funds

The District is the trustee, or fiduciary, for its student activity funds. All of the District's fiduciary activities are reported in separate Fiduciary Statements. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purpose.

Financial Analysis of the District as a Whole

Net Position

The District's net position was $14,768,781 for the fiscal year ended June 30, 2017. Of this amount, ($15,399,700) was unrestricted. The restricted net position is reported separately if it is not available for day-to-day operations or its use is constrained to a particular purpose by statutes, rules or other entities with authority over the district.

The District's net position increased by $4,913,660 during the fiscal year 2016-17.

6


Table 1: Statement of Net Position - Governmental Activities

TotalGovernmental Activities Percentage20l6 20l7 Change

ASSETSCash and Investments $ 9,595,079 $ 11,957,108 24.6%Receivables 942,341 856,814 -9.1%Inventories 8,931 6,710 -24.9%Prepaid Expenditures - 1,100 100.0%Capital Assets, Net 30,315,515 34,326,012 13.2%

Total Assets 40,861,866 47,147,744 15.4%

Deferred Outflows of Resources 2,124,512 4,944,386 132.7%

LIABILITIESOverdraft in County Treasury 103,131 - -100.0%Accounts Payable and Other Liabilities 1,306,363 1,402,560 7.4%Unearned Revenue 4,020,561 145,272 -96.4%Long-term Debt Outstanding 24,526,564 35,349,025 44.1%

Total Liabilities 29,956,619 36,896,857 23.2%

Deferred Inflows of Resources 3,174,638 426,492 -86.6%

NET POSITIONNet Investment in Capital Assets 19,319,530 22,353,409 15.7%Restricted 1,280,645 7,815,072 510.2%Unrestricted (10,745,054) (15,399,700) 43.3%

Total Net Position $ 9,855,121 $ 14,768,781 49.9%

7

LIVE OAK UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSISYear Ended June 30, 2017

Table 2: Changes in Net Position from Operating Results-Governmental ActivitiesTotal

Governmental Activities Percentage20l6 20l7 Change

REVENUESProgram and General Revenues: Program Revenues

Charges for Services $ 208,015 $ 236,804 13.8%Operating Grants and Contributions 6,030,580 6,854,081 13.7%

General RevenuesUnrestricted Federal & State Sources 14,679,112 14,710,954 0.2%Interest & Investment Earnings 124,326 79,043 -36.4%Property Taxes 3,524,699 3,741,986 6.2%Other 882,788 450,669 -48.9%

Total Revenues 25,449,520 26,073,537 2.5%

EXPENSESInstruction 12,969,728 13,280,663 2.4%Instruction-related Services 2,016,711 2,034,911 0.9%Pupil Services 3,033,489 3,090,338 1.9%General Administration 1,492,433 1,457,778 -2.3%Plant Services 1,962,207 1,955,398 -0.3%Ancillary Services 167,631 170,072 1.5%Community Services 118,967 132,018 11.0%Interest on Long-Term Debt 493,113 328,681 -33.3%Other Outgo 828,426 853,173 3.0%

Total Expenses 23,082,705 23,303,032 1.0%

Change in Net Position $ 2,366,815 $ 2,770,505 17.1%



• The cost of the District's governmental activities for the year was $23,303,032.

• Some of the cost was financed by the users of the District's programs ($236,804).

• The federal and state governments subsidized certain programs with grants and contributions ($6,854,081).

• Interest and investment income totaled $79,043.

• Most of the District's costs were financed by District ($3,741,986) and Federal and State ($14,710,954) taxpayers, and other local and miscellaneous earnings ($450,669).

Table 3 presents the cost of major District activities. The table also shows each activity's net cost (total cost less fees generated by the activities and intergovernmental aid provided for specific programs). The net cost shows the financial burden that is placed on the District's general revenues.

Table 3: Net Cost of Governmental Activities

Total Cost of Services Percentage Net Cost of Services Percentage

Change2016 2017 Change 2016 2017

Instruction $ 12,969,728 $ 13,280,663 2.4% $ 11,652,856 $ 11,634,631 -0.2%

Instruction-related Services 2,016,711 2,034,911 0.9% 1,722,775 1,752,878 1.7%

Pupil Services 3,033,489 3,090,338 1.9% 1,976,406 1,962,532 -0.7%

General Administration 1,492,433 1,457,778 -2.3% 1,392,499 1,328,007 -4.6%

Plant Services 1,962,207 1,955,398 -0.3% (1,502,063) (1,933,238) 28.7%

Ancillary Services 167,631 170,072 1.5% 161,192 161,770 0.4%

Community Services 118,967 132,018 11.0% 118,906 131,966 11.0%

Interest on Long-Term Debt 493,113 328,681 -33.3% 493,113 328,681 -33.3%

Other Outgo 828,426 853,173 3.0% 828,426 844,920 2.0%Totals $ 23,082,705 $ 23,303,032 1.0% $ 16,844,110 $ 16,212,147 -3.8%

Governmental Funds

As the District com pleted the year, its governmental funds report combined fund balances of$11,103,900; a 125% increase over last year's ending fund balances of $4,936,296.

Table 4: Governmental Fund Balances

Increase2016 2017 (Decrease)

General $ 3,390,046 $ 3,508,962 $ 118,916Building - 6,710,256 6,710,256Cafeteria 11,998 13,494 1,496Capital Facilities 500,200 225,145 (275,055)Special Reserve Capital Projects 540,629 120,708 (419,921)Bond Interest and Redemption 493,423 525,335 31,912

Total $ 4,936,296 $ 11,103,900 $ 6,167,604

9


The increase in the General Fund was due to increasing revenues and conservative District spending during the year.

The increase in the Building Fund was due to the District issuing and selling $7,000,000 in General Obligation Bonds, Election of 2016, Series A.

The decrease in the Capital Facilities Fund was due to facilities projects at Luther Elementary School and Live Oak Middle School.

The decrease in the Special Reserve Capital Projects Fund was due to facilities projects at Luther Elementary School and Live Oak Middle School.

General Fund Budgetary Highlights

Over the course of the year, the District revises its budget based on updated financial information. The original budget, approved at the end of June for July 1, is based on the Governor's May Revise. Not later than 45 days after the State Budget is adopted, school districts are required to make available for public review any revisions in revenues and expenditures that it makes to its budget to reflect the funding made available by the State Budget. In addition, the District revises its budget at the First and Second Interim reporting periods. The budget amendments for the year typically fell into the following categories:

• Adjustment of beginning fund balances.

• Adjustment of revenue to actual enrollment and ADA values.

• Actual state and federal revenues varied from budgeted amounts as a result of prior-year adjustments.

• Restricted programs are fully budgeted to be spent even if they end up having carryover.

The District's original and final budgets compared with actual operations are provided in the budgetary comparison schedule for the General Fund.

The District's final budget for the General Fund anticipated that expenditures exceed revenues by $836,634. The actual results for the year show an increase in fund balance of $118,916.

This increase is a result of:

• LCFF funding was greater than anticipated.

• Site allocations were not fully spent by June 30.

• State and federal allocations were not fully spent by June 30.

Capital Asset and Debt Administration

The notes to the financial statements are an integral part of the financial presentation and contain more detailed information regarding capital assets and long-term debt.

Capital Assets

By June 30, 2017, the District had invested $34,326,012 in a broad range of capital assets including land, buildings and improvements, and equipment and vehicles (See Table 5). This amount represents an increase of $4,010,497, or 13.2%, from last year. This increase is due primarily to depreciation expense netted against capital asset additions, which consists of various building

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projects, site improvements, site renovations, and vehicle and equipment purchases. On June 30, work was still in progress on a number of projects.

Table 5: Capital Assets - Governmental Funds

TotalGovernmental Activities Percentage2016 2017 Change

Land $ 396,475 $ 462,665 16.7%Site Improvements 2,122,545 3,947,565 86.0%Buildings 37,681,736 44,096,021 17.0%Equipment and Vehicles 2,212,860 2,505,208 13.2%Work in Progress 3,648,496 395,858 -89.2%

Subtotal 46,062,112 51,407,317 11.6%Less: Accumulated Depreciation (15,746,597) (17,081,305) 8.5%

Total $ 30,315,515 $ 34,326,012 13.2%

Long-Term Debt

General obligation bonds were issued to fund voter-approved facilities projects.

The net pension liability represents the District's prorated share of the unfunded pension liability that exists within the CalSTRS and CalPERS retirement plans.

The Net OPEB Obligation is the difference between the annual required contribution that the district needs to make to fund future retiree health benefits for current employees and what is actually paid for health premiums for the retiree group. The annual required contribution, as determined by the actuary, was $97,474. The district paid $111,756 for retiree health premiums.

The District made normally scheduled payments on the previously issued general obligation bonds and notes payable.

Table 6: Long-Term Debt - Governmental FundsTotal

Governmental Activities Percentage2016 2017 Change

Compensated Absences $ 71,212 $ 64,800 -9.0%General Obligation Bonds 9,895,001 16,495,000 66.7%Bond Issue Premiums 622,888 930,274 49.3%Notes Payable 1,330,933 1,238,777 100.0%Early Retirement Incentives 76,343 59,445 -22.1%Net OPEB Obligation 97,847 83,565 -14.6%Net Pension Liability 12,432,340 16,477,164 32.5%

Total $ 24,526,564 $ 35,349,025 44.1%

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Factors Bearing on the District's Future

At the time these financial statements were prepared and audited, the District was aware of the following circumstances that could significantly affect its financial health in the future:

• Employer rates for PERS and STRS continue to increase each year.

• Health benefits, workers' compensation rates, and fuel and energy costs continue to escalate.

• Minimum wage is scheduled to increase $1 per year until it reaches $15.00 per hour in 2022.

• ROP funding is reduced to 10% for 2017-18 and goes away completely starting 2018-19.

Contacting the District's Financial Management

This financial report is designed to provide our citizens, taxpayer, parents, investors, and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. For questions regarding this report or for additional financial information, contact:

Christopher Peters, Chief Financial Officer Live Oak Unified School District

2201 Pennington Road Live Oak, CA 95953

(530) 695-5400 ext. 110 [email protected]

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mailto:[email protected]

LIVE OAK UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION June 30, 2017

ASSETSCash and investmentsAccounts receivableInventoriesPrepaid expensesCapital assets, not depreciatedCapital assets, net of accumulated depreciation

Total Assets

DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions Deferred loss on refunding

Total Deferred Outflows of Resources

LIABILITIESAccounts payable and other current liabilities Unearned revenue Long-term liabilities:Due within one year Due in more than one year

Total Liabilities

DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions

NET POSITIONNet investment in capital assetsRestricted for:Capital projects Debt service Educational programs

Unrestricted

Total Net Position

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

GovernmentalActivities

$ 11,957,108856,814

6,710 1,100

858,523 33,467,489

47,147,744

4,141,716802,670

4,944,386

1,402,560145,272

405,36834,943,657

36,896,857

426,492

22,353,409

6,935,401525.335354.336

(15,399,700)

$ 14,768,781

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LIVE OAK UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES Year Ended June 30, 2017

Program Revenues

Operating

Charges for Grants andExpenses Services Contributions

Net (Expense) Revenue and

Changes in Net

Position

GovernmentalActivities


Instruction $ 13,280,663 $ 137,446 $ 1,508,586 $ (11,634,631)

Instruction-related services:

Instructional supervision and administration 336,018 214,913 (121,105)

Instructional library, media and technology 197,910 16,237 (181,673)

School site administration 1,500,983 50,883 (1,450,100)

Pupil services:

Home-to-school transportation 620,640 1,607 (619,033)

Food services 1,160,848 94,699 893,277 (172,872)

All other pupil services 1,308,850 138,223 (1,170,627)

General administration:

Centralized data processing services 130,541 469 (130,072)

All other general administration 1,327,237 4,659 124,643 (1,197,935)

Plant services 1,955,398 3,888,636 1,933,238

Ancillary services 170,072 8,302 (161,770)

Community services 132,018 52 (131,966)

Interest on long-term debt 328,681 - (328,681)

Other outgo 853,173 8,253 (844,920)

Total Governmental Activities $ 23,303,032 $ 236,804 $ 6,854,081 (16,212,147)

General RevenuesProperty taxes, levied for general purposes 3,202,855

Property taxes, levied for debt service 539,131

Federal and state aid not restricted to specific purposes 14,710,954

Interest and investment earnings 79,043

Interagency revenues 6,433

Miscellaneous 444,236

Total General Revenues 18,982,652

Change in Net Position 2,770,505

Net Position - Beginning, as Previously Reported 9,855,121

Prior Period Adjustment 2,143,155

Net Position - Beginning, as Restated 11,998,276

Net Position - Ending $ 14,768,781

The accompanying notes are an integrd part of these financid statements.

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LIVE OAK UNIFIED SCHOOL DISTRICT BALANCE SHEET - GOVERNMENTAL FUNDS June 30, 2017

General Fund Building Fund

Special Reserve Fund tor Capital Outlay Projects

Non-MajorGovernmental

Funds

TotalGovernmental

Funds

ASSETSCash and investments $ 3,896,121 $ 7,026,169 $ 335,512 $ 699,306 $ 11,957,108

Accounts receivable 655,943 18,809 1,525 10,537 686,814

Due from other funds 56,057 - 157,867 109,505 323,429

Invento nes - - - 6,710 6,710

Prepaid expenditures 1,100 - - - 1,100

Total Assets $ 4,609,221 $ 7,044,978 $ 494,904 $ 826,058 $ 12,975,161

LIABILITIES AND FUND BALANCES

LIABILITIES

Accounts payable $ 797,120 $ 225,217 $ 374,196 $ 6,027 $ 1,402,560

Due to other funds 157,867 109,505 - 56,057 323,429

Unearned revenue 145,272 - - - 145,272

Total Liabilities 1,100,259 334,722 374,196 62,084 1,871,261

FUND BALANCESNonspendable 6,100 - - 6,710 12,810

Restricted 340,842 6,710,256 - 757,264 7,808,362

Assigned - - 120,708 - 120,708

Unas signed 3,162,020 - - - 3,162,020

Total Fund Balances 3,508,962 6,710,256 120,708 763,974 11,103,900

Total Liabilities and Fund Balances $ 4,609,221 $ 7,044,978 $ 494,904 $ 826,058 $ 12,975,161

The accompanying notes are cvi integralpart of these financial statements.

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LIVE OAK UNIFIED SCHOOL DISTRICTRECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION June 30, 2017

Total Fund Balance - Governmental Funds $ 11,103,900

Amounts reported for assets, deferred outflows of resources, liabilities, and deferred inflows of resources for governmental activities in the statement of net position are different from amounts reported in governmental funds because:

Capital assets:In governmental funds, only current assets are reported. In the statement of net position, all assets are reported, including capital assets and accumulated depreciation:

Capital assets $ 51,407,317Accumulated depreciation (17,081,305) 34,326,012

Deferred recognition of earned but unavailable revenues:In governmental funds, revenue is recognized only to the extent that it is "available," meaning it will be collected soon enough after the end of the period to finance expenditures of that period. Receivables for revenues that are earned but unavailable are deferred until the period in which the revenues become available.In the government-wide statements, revenue is recognized when earned, regardless of availability. The amount of unavailable revenues that were deferred in governmental funds, but are recognized in the government-wide statements, is: 170,000

Deferred amount on refunding:In governmental funds, the net effect of refunding bonds is recognized when debt is issued, whereas this amount is deferred and amortized in the government-wide financial statements: 802,670

Long-term liabilities:In governmental funds, only current liabilities are reported. In the statement of net position, all liabilities, including long-term liabilities, are reported. Long-term liabilities relating to governmental activities consist of:

General obligation bonds 16,495,000Bond issuance premium 930,274Early retirement incentives 59,445Compensated absences 64,800Net OPEB obligation 83,565

Net pension liability 16,477,164Note payable 1,238,777 (35,349,025)

Deferred outflows and inflows of resources relating to pensions:In governmental funds, deferred outflows and inflows of resources relating to pensions are not reported because they are applicable to future periods. In the statement of net position, deferred outflows and inflows of resources relating to pensions are reported.

Deferred outflows of resources related to pensions 4,141,716Deferred inflows of resources related to pensions (426,492) 3,715,224

Total Net Position - Governmental Activities $ 14,768,781


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LIVE OAK UNIFIED SCHOOL DISTRICTSTATEMENT OF REVENUE, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS Year Ended June 30, 2017

Special Reserve Non-Major TotalFund tor Capital Governmental Governmental

General Fund Building Fund Outlay Projects Funds Funds

REVENUESLCFF sources

Federal revenue

Other state revenue

Other local revenue

$ 17,251,364 $

1,0026951,608,729

545,637

$

18,809

$

3,884,598

(468)

$861,607

71,407

782933

17,251,364

1,864,302

5,564,734

1,346,911

Total Revenues 20,408,425 18,809 3,884,130 1,715,947 26,027,311

EXPENDITURESCurrent:

Instruction 11,733,399 11,733,399

Instruction-related services 1,958,512 - - - 1,958,512

Pupil services 1,809,955 - - 1,139,376 2 949,331

Ancillary services 164,345 - - - 164,345

Community services 131,436 - - - 131,436

General administration 1,360,047 - - 56,057 1,416,104

Plant services 1,786,099 133,261 503,251 24,120 2446,731

Other outgo 667,652 - - 185,521 853,173

Capital outlay 292349 175,292 3,958,667 317,084 4,743,392

Debt service:

Principal 46,078 . . 350,510 396,588

Interest 19,667 - - 391,055 410,722

Total Expenditures 19,969,539 308,553 4,461,918 2,463,723 27,203,733

Excess (Deficiency) of RevenuesOver Expenditures 438,886 (289,744) (577,788) (747,776) (1,176,422)

Other Financing Sources (Uses)Interfund transfers in - - 157,867 162103 319,970

Interfund transfers out (319,970) - - - (319,970)

Proceeds from sale of bonds - 7,000,000 - 344,026 7,344,026

Total Other Financing Sources (Uses) (319,970) 7,000,000 157,867 506,129 7,344,026

Net Change in Fund Balance 118,916 6,710,256 (419,921) (241,647) 6,167,604

Fund Balance - Beginning 3,390,046 - 540,629 1,005,621 4,936,296

Fund Balance - Ending $ 3,508,962 $ 6,710,256 $ 120,708 $ 763,974 $ 11,103,900

The accompanying notes are m integraLpcs't of these financid stctements.

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LIVE OAK UNIFIED SCHOOL DISTRICTRECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES Year Ended June 30, 2017

Net Change in Fund Balances - Governmental Funds $

Amounts reported for governmental activities in the statement of activities are different from amounts reported in governmental funds because:

Capital outlay:In governmental funds, the costs of capital assets are reported as expenditures in the period when the assets are acquired. In the statement of activities, costs of capital assets are allocated over their estimated useful lives as depreciation expense. The difference between capital outlay expenditures and depreciation expense for the period is:

Expenditures for capital outlay $

Depreciation expense

Debt service:In governmental funds, repayments of long-term debt are reported as expenditures.In the government-wide statements, repayments of long-term debt are reported as reductions of liabilities. Expenditures for repayment of the principal portion of longterm debt were:

Debt proceeds:In governmental funds, proceeds from debt are recognized as Other Financing Sources. In the government-wide statements, proceeds from debt are reported as increases to liabilities. Amounts recognized in governmental funds as proceeds from debt, net of issue premium or discount, were:

Earned but unavailable revenues:In governmental funds, revenues are recognized only to the extent that they are "available," meaning they will be collected soon enough after the end of the period to finance expenditures of that period. In the government-wide statements, revenue is recognized when earned, regardless of availability. The amount of earned but unavailable revenues relating to the current period, less revenues that became available in the current period but related to a prior period, is:

Unmatured interest on long-term debt:In governmental funds, interest on long-term debt is recognized in the period that it becomes due. In the government-wide statement of activities, it is recognized in the period it is incurred. Unmatured interest owing at the end of the period, less matured interest paid during the period but owing from the prior period, was:

Compensated absences:In governmental funds, compensated absences are measured by the amounts paid during the period. In the statement of activities, compensated absences are measured by the amount earned. The difference between compensated absences paid and compensated absences earned was:

Pensions:In governmental funds, pension costs are recognized when employer contributions are made. In the statement of activities, pension costs are recognized on the accrual basis. This year, the difference between accrual-basis pension costs and employer contributions was: $

5,345,206

(1,334,708)


6,167,604

4,010,498

396,588

(7,344,026)

(10,000)

95,568

6,412

(569,792)

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LIVE OAK UNIFIED SCHOOL DISTRICTRECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES (Continued)Year Ended June 30,2017

Postemployment benefits other than pensions (OPEB):In governmental funds, OPEB costs are recognized when employer contributions are made. In the statement of activities, OPEB costs are recognized on the accrual basis. This year, the difference between OPEB costs and actual employer contributions was: $ 14,282

Other liabilities not normally liquidated with current financial resources:In the government-wide statements, expenses must be accrued in connection with any liabilities incurred during the period that are not expected to be liquidated with current financial resources, in addition to compensated absences and long-term debt. Examples include special termination benefits such as retirement incentives financed over time, and structured legal settlements. This year expenses incurred for such obligations were: 16,898

Amortization of debt issue premium or discount or deferred gain or loss from debt refunding:In governmental funds, if debt is issued at a premium or at a discount, the premium or discount is recognized as an Other Financing Source or an Other Financing Use in the period it is incurred. In the government-wide statements, the premium or discount, plus any deferred gain or loss from debt refunding, is amortized as interest over the life of the debt. Amortization of debt issue premium or discount, or deferred gain or loss from debt refunding, for the period is:

Change in Net Position - Governmental Activities

(13,527)

$ 2,770,505


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LIVE OAK UNIFIED SCHOOL DISTRICTSTATEMENT OF FIDUCIARY NET POSITION - FIDUCIARY FUND June 30, 2017

Agency FundStudent Body Fund

ASSETSCash and investments $ 106,289

Total Assets $ 106,289

LIABILITIESDue to student groups $ 106,289

Total Liabilities $ 106,289


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LIVE OAK UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS Year Ended June 30, 2017

1. SIGNIFICANT ACCOUNTING POLICIES

Financial Reporting Entity

The District is governed by an elected five member board. The District operates two elementary schools, one intermediate school, one high school, one continuation school, and one opportunity school in Live Oak, California. The District does not operate or sponsor any charter schools. The District has no component units.

The District accounts for its financial transactions in accordance with the policies and procedures of the Department of Education's California School Accounting Manual. The accounting policies of the District conform to accounting principles generally accepted in the United States of America (GAAP) as presented by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA).

Basis of Presentation

Government-wide Financial Statements: The statement of net position and the statement of activities include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double-counting of internal activities. Government activities are generally financed through taxes, intergovernmental revenues, and other nonexchange revenues.

The statement of activities presents a comparison between direct expenses and program revenues for each function of the District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include charges paid by recipients of goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.

Fund Financial Statements: The Fund financial statements provide information about the District's funds, with separate statements presented for each fund category. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds.

Major Governmental Funds

General Fund is the primary operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund.

Building Fund is used to account for the construction and acquisition of major capital improvements.

Special Reserve Fund for Capital Outlay Projects is used to account for resources designated for capital outlay projects.

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Non-Mai or Governmental Funds

Special Revenue Funds are used to account for the proceeds of specific revenue sources that are restricted or committed for purposes other than debt service or capital outlay, and that compose a substantial portion of the fund's resources. The District maintains the following special revenue fund:

1. Cafeteria Fund is used to account for revenues received and expenditures made to operate the District's food service program.

Debt Service Funds are used to account for the accumulation of resources for the payment of the principal and interest on general long-term debt. The District maintains the following debt service fund:

1. Bond Interest and Redemption Fund is used to account for general obligation bond interest and redemption of bond principal.

Capital Projects Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities and other capital outlay acquisitions. The District maintains the following capital project fund:

1. Capital Facilities Fund is used to account for resources received from developer impact fees assessed.

Fiduciary Funds

Agency Funds are used to account for assets of others for whom the District acts as an agent. The District maintains agency funds for student body accounts, which are used to account for the raising and expending of money to promote the general welfare, morale, and educational experience of the student body.

Basis of Accounting/Measurement Focus

Government-wide and Fiduciary Fund Financial Statements: These financial statements are reported using the economic resources measurement focus. The government-wide, proprietary fund and fiduciary fund financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the released cash flows take place.

Non-exchange transactions, in which the District's gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Agency Funds utilize the accrual basis of accounting but do not have a measurement focus as they report only assets and liabilities.

Governmental Fund Financial Statements: Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting.

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This basis of accounting recognizes revenues in the accounting period in which they become available and measurable. The District considers revenues as available if they are collected within 60 days after year end. Revenues susceptible to accrual are property taxes, fiscal year state funding, and interest revenues. All other revenue items are considered to be measurable and available only when cash is received by the government. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources.

When the District incurs an expenditure or expense for which both restricted and unrestricted resources may be used, it is the District's policy to use restricted resources first, then unrestricted resources. When an expenditure is incurred for which committed, assigned, or unassigned fund balance are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds.

Deferred inflows of resources are reported in the governmental funds when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period. Unearned revenues arise when resources are received by the government before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria is met, or when the government has a legal claim to the resources, the revenue is recognized.

Cash and Investments

The District's cash and cash equivalents consist of cash on hand, demand deposits, and shortterm investments with original maturities of three months or less from the date of acquisition. Highly liquid market investments with maturities of one year or less at time of purchase are stated at amortized cost. All other investments are stated at fair value.

Accounts Receivable

Accounts receivable represent amounts due from private persons, firms, or corporations based on contractual agreements or amounts billed but not received as of June 30, 2017, and amounts due from other governments including entitlements and grants from federal, state, and local governments that the District has earned or been allocated but has not received as of June 30, 2017. At June 30, 2017, no allowance for doubtful accounts was deemed necessary.

Interfund Transactions

Interfund transactions result from loans, services provided, reimbursements, or transfers between funds. Interfund receivables and payables between funds within governmental activities are eliminated in the statement of net position. Permanent reallocation of resources between funds of the reporting entity are classified as interfund transfers. For the purposes of the statement of activities, all interfund transfers between individual governmental funds have been eliminated.

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Inventories

Inventories are valued at average cost for purchased supplies and materials. Expenses are recorded as the supplies and materials are consumed. Donated commodities inventories are valued at its fair value at the time of donation.

Capital Assets

Capital assets, which include property, buildings, furniture, and equipment, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated capital assets are recorded at their estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the assets' life is not capitalized. A capitalization threshold of $5,000 is used for District assets, except for Food Services, which uses a capitalization threshold of $500 for Food Services equipment.

Capital assets are being depreciated using the straight-line method over the following estimated useful lives:

Depreciable Lives of Assets YearsBuildings 50Building improvements 20Vehicles 8Equipment 5-15Portable classrooms 25

In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition.

Deferred Outflows of Resources and Deferred Inflows of Resources

Certain defined transactions that do not qualify for treatment as either assets or liabilities are required to be accounted for and reported as either deferred outflows of resources (a separate subheading following assets but before liabilities) or deferred inflows of resources (a separate subheading following liabilities but before equity).

Deferred outflows of resources—a consumption of net assets by the government that is applicable to a future reporting period. It has a positive effect on net position, similar to assets.

Deferred inflows of resources—an acquisition of net assets by the government that is applicable to a future reporting period. It has a negative effect on net position, similar to liabilities.

Deferred Outflows of Resources: In the government-wide financial statements, insurance costs arising from the issuance of debt are reported as deferred outflows and amortized over the term of the related debt. Deferred amounts from a refunding of debt (debits) are reported as deferred outflows of resources and are amortized over the lesser life of the refunded bonds or refunding debt.

24


Deferred outflows of resources for pensions are reported in the government-wide financial statements of net position. Deferred outflows result from pension plan contributions made after the measurement date of the net pension liability. Deferred outflows also include the District's proportionate share of the deferred outflows of resources of the CalSTRS and CalPERS pension plans. These deferred outflows include the differences between expected and actual economic experience and changes in actuarial assumptions. The deferred outflows of resources related to the District's contributions which are subsequent to the measurement date will be recognized as a reduction of the net pension liability in the next fiscal year. The other pension related deferred outflows will be amortized over the expected remaining service lives of all employees (active and inactive employees) that are provided with pensions through the pension plan.

Deferred Inflows of Resources: Deferred amounts from refunding debt (credits) are reported as deferred inflows of resources and are amortized over the lesser life of the refunded bonds or refunding debt.

Deferred inflows of resources for pensions are reported in the government-wide financial statement of net position and result primarily from differences between projected and actual earnings on pension plan investments. These amounts will be amortized over a closed five year period.

Compensated Absences

Accumulated unpaid employee vacation benefits are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide financial statements. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year-end that have not yet been paid with expandable available financial resources. These amounts are recorded in the fund from which the employees who have accumulated leave are paid.

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

Long-Term Obligations

All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements.

In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources, are reported as obligations of the funds.

25


Bond Premiums, Discounts, and Issuance Costs

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums and discounts on debt issuances are reported as other financing sources and uses respectively. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

Pensions

For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the CalPERS Schools Pool Cost-Sharing Multiple-Employer Plan (CalPERS Plan) and CalSTRS Schools Pool Cost-Sharing Multiple Employer Plan (CalSTRS Plan) and additions to/deductions from the CalPERS Plan and CalSTRS Plan's fiduciary net positions have been determined on the same basis as they are reported by the CalPERS Financial Office and CalSTRS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

Government-Wide Net Position

Net position represents the difference between assets and liabilities. The District's net position is composed of the following:

Net investment in capital assets consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, leases, notes, or other borrowings attributable to the acquisition, construction, or improvement of those assets.

Restricted net assets consists of net assets with constraints placed on the use either by external groups, such as creditors, grantors, contributors, or laws or regulations of other governments, or law through constitutional provisions or enabling legislation.

Unrestricted net assets consists of all other net assets that do not meet the definition of "restricted" or "net investment in capital assets".

Fund Balance

Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. There are two major categories of fund balances, which are nonspendable and spendable.

Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact.

The spendable portion of the fund balance comprises the remaining four classifications: restricted, committed, assigned, and unassigned.

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Restricted fund balance reflects the constraints imposed on resources either (a) externally by creditors, grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation.

Committed fund balance can only be used for specific purposes pursuant to constraints imposed by formal resolutions of the board of trustees-the government's highest level of decision making authority. Those committed amounts cannot be used for any other purpose unless the board of trustees removes the specified use by taking some type of action imposing the commitment.

Assigned fund balance reflects the amounts constrained by the District's own "intent" to be used for specific purposes, but are neither restricted nor committed. The board of trustees and designee of the board of trustees have the authority to assign amounts to be used for specific purposes. Assigned fund balances include all remaining amounts (except negative balances) that are reported in governmental funds, other than the General Fund, that are not classified as nonspendable and are neither restricted nor committed.

Unassigned fund balance is the residual classification for the General Fund. It is also used to report negative fund balances in other governmental funds.

When both restricted and unrestricted resources are available for use, it is the District's policy to use externally restricted resources first, and then unrestricted resources-committed, assigned, and unassigned-in order as needed.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

Budgets and Budgetary Accounting

The budgetary process is described by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account.

The original and final revised budgets are presented for the General Fund and each major special revenue fund as required supplementary information. The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for.

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LIVE OAK UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTSYear Ended June 30, 2017

Property Taxes

Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County Auditor-Controller bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received.

2. CASH AND INVESTMENTS

Cash and investments at June 30,2017, consisted of the following:

GovernmentalFunds Fiduciary Funds

Cash in county treasury investment pool $ 11,948,262 $ -Cash on hand and in banks 3,846 106,289Cash in revolving fund 5,000 -

Total Cash and Investments $ 11,957,108 $ 106,289

Policies and Practices

The District is authorized under California Government Code to make direct investments in local agency bonds, notes or warrants within the state; U.S. Treasury instruments; registered state warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers' acceptance; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations of first priority security; and collateralized mortgage obligations.

In accordance with California Education Code Section 41001, the District maintains substantially all of its cash in the County Treasury as part of the common investment pool. The fair value of the District's investment in the pool is based upon the District's pro rata share of the fair value provided by the County Treasurer for the entire portfolio (in related to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis.

Custodial Credit Risk - Deposits

Custodial credit risk is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a deposit policy for custodial credit risk. As of June 30, 2017, all of the District's deposits were insured.

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Credit Risk - Investments

Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment- This is measured by the assignment of a rating by a nationally recognized statistical rating organization. California Government Code Section 53601 limits investments in commercial paper to "prime" quality of the highest ranking or of the highest letter and numerical rating as provided by nationally recognized statistical rating organizations (NRSRO), and limits investments in medium-term notes to a rating of A or better. The District has no investment policy that would further limit its investment choices. The District's investment in the county investment pool is unrated-

interest Rate Risk - Investments

Interest rate risk the risk that changes in market interest rates will adversely affect the fair value of an investment- Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the County Treasury. California Government Code Section 53601 limits the District's investments to maturities of five years. The County Treasurer's investment pool has an average maturity of three years.

3. ACCOUNTS RECEIVABLE

Accounts receivable at June 30,2017, consisted of the following:


Special Reserve Fund for Capital Outlay Projects


Funds

TotalGovernmental

Activities

Federal GovernmentCategorical programs $ 137,959 $ $ $ 3,288 $ 141,247

State GovernmentCategorical programs 20,953 - - 240 21,193Lottery 156,932 - - - 156,932

Local Sources 3401)99 18,809 1,525 7,009 367,442

Total $ 655,943 $ 18,809 $ 1,525 $ 10,537 $ 686,814

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4. INTERFUND TRANSACTIONS

Interfund Receivables/Payables (Due From/Due To)

Interfund receivable and payable balances at June 30, 2017, were as follows:

Due From OtherFunds

Due to OtherFunds

General Fund $ 56,057 $ 157,867Building Fund - 109,505Special Reserve Fund for Capital Outlay Projects 157,867 -Non-Major Governmental Funds 109,505 56,057

Total $ 323,429 $ 323,429

Balances resulted from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made.

Interfund Transfers

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

Interfund transfers for the year ended June 30,2017, were as follows:

Transfers In Transfers Out

General Fund $ - $ 319,970Special Reserve Fund for Capital Outlay Projects 157,867 -Non-Major Governmental Funds 162,103 -

Total $ 319,970 $ 319,970

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5. CAPITAL ASSETS

Capital asset activity for the year ended June 30,2017, was as follows:

6.

Balance BalanceJuly 1,2016 Additions Deductions June 30,2017

Capital assets not being depreciated:Land $ 396,475 $ 66,190 $ $ 462,665

Construction in progress 3,648,495 395,858 3,648,495 395,858Total capital assets not being depreciated 4,044,970 462,048 3,648,495 858,523

Capital assets being depreciated:Buildings 37,681,736 6,414,285 - 44,096,021Improvements of sites 2,122,545 1,825,020 - 3,947,565Equipment and vehicles 2,212,860 292,348 - 2,505,208

Total capital assets being depreciated 42,017,141 8,531,653 - 50,548,794

Less accumulated depreciation for:Buildings 12,879,399 1,058,699 - 13,938,098Improvements of sites 1,101,410 168,532 - 1,269,942Equipment and vehicles 1,765,788 107,477 - 1,873,265

Total accumulated depreciation 15,746,597 1,334,708 - 17,081,305Total capital assets being depreciated, net 26,270,544 7,196,945 - 33,467,489

Governmental activities capital assets, net $ 30,315,514 $ 7,658,993 $ 3,648,495 $ 34,326,012

Depreciation expense was charged to governmental activities as 1follows:


Instruction $ 1,208,721

Instruction-related services 4,477

Pupil services 53,905

General administration 2,077

Plant services 65,528

Total Depreciation Expense $ 1,334,708

ACCOUNTS PAYABLE

Accounts payable at June 30, 2017, consisted of the: following:

Special Reserve Non-Major TotalFund for Capital Governmental Governmental

General Fund Building Fund Outlay Projects Funds Activities

Vendor payables $ 122,006 $ 225,217 $ 372,800 $ 6,027 $ 726,050Payroll and benefits 128,987 - - - 128,987Due to other governments 546,127 - 1,396 - 547,523

Total $ 797,120 $ 225,217 $ 374,196 $ 6,027 $ 1,402,560

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7. LONG-TERM OBLIGATIONS

Long-term obligations include debt and other long-term liabilities. A schedule of changes in long-term obligations for the year ended June 30, 2017, is shown below:

BalanceJuly 1,2016 Additions Deductions

Bid sinceJune 30,2017

Due Within OneYear

Compensated absences $ 71,212 $ $ 6,412

OO$'O

$ -

General obligation bonds 9799,433 7300300 304,433 16,495300 240,000Bond issue premiums 622,888 344326 36,640 930374 48,503Capitalized interest 95768 - 95,568 - -Note payable 1330,933 - 92,156 1338777 95,204Early retirement incentives 76,343 - 16,898 59,445 21,661Net OPEB obligation 97,847 - 14,282 83365 -Net pension liability 12,432,340 4344324 - 16,477,164 -

Total $ 24326364 $ 11388350 $ 566,389 $ 35349325 $ 405,368

The compensated absences will be paid by the fund for which the employee worked.

8. GENERAL OBLIGATION BONDS

In November 2016, voters approved Measure X, a $14,000,000 general obligation bond authorization for the District. The proceeds will be used to improve the quality of education with funding that cannot be taken by the state, upgrade P.E./Sports fields and facilities for school and community use, construct multi-use facilities at school sites that meet health, safety, and handicapped accessibility requirements, and modernize outdated classrooms. In April 2017, Series A of these bonds were issued for $7,000,000. The bonds are general obligations of the District, and the county is obligated to annually levy ad valorem taxes for the payment of the interest on, and the principal of bonds.

The outstanding general obligation bond debt of the District is:

Issue Date Interest RateMaturity

DateAmount of

Original IssueOutstandingJuly 1, 2016

IssuedCurrent Year

RedeemedCurrent Year

Outstanding June 30, 2017

2004 4.90-11.76% 2033 $ 4,099,786 $ 44,433 $ $ 44,433 $2008 3.375-4.20% 2032 3,165,000 65,000 65,000

2014 2.95% 2029 3,695,000 3,495,000 160,000 3,335,000

2016 2.00-4.00% 2032 6,195,000 6,195,000 35,000 6,160,000

2017 3.00-5.00% 2046 7,000,000 7,000,000 7,000,000

Total $ 24,154,786 $ 9,799,433 $ 7,000,000 $ 304,433 $ 16,495,000

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The annual requirements to amortize the general obligation bonds payable are as follows:

Year Ending June 30 Principal Interest Total2018 $ 240,000 $ 387,878 $ 627,8782019 435,000 595,570 1,030,5702020 495,000 583,215 1,078,2152021 355,000 564,940 919,9402022 400,000 554,025 954,0252023-2027 2,790,000 2,556,507 5,346,5072028-2032 4,880,000 1,928,580 6,808,5802033-2037 1,825,000 1,250,000 3,075,0002038-2042 1,920,000 937,750 2,857,7502043-2047 3,155,000 400,600 3,555,600

Totals $ 16,495,000 $ 9,759,065 $ 26,254,065

NOTE PAYABLE

In November 2013, the District Corporation of California at 3.28$1,238,777.

borrowed $1,550,000 from the Public Property Financing %. On June 30, 2017, the principal balance outstanding was

The principal and interest payments of the loan are as follows:

Year Ending June 30 Principal Interest Total2018 $ 95,204 $ 39,851 $ 135,0552019 98,352 36,703 135,0552020 101,605 33,450 135,0552021 104,965 30,090 135,0552022 108,436 26,619 135,0552023-2027 598,403 76,870 675,2732028 131,812 3,243 135,055

Total $ 1,238,777 $ 246,826 $ 1,485,603

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10. FUND BALANCES

Fund balances were categorized as follows at June 30, 2017:


Special Reserve Fund tor Capital Outlay Projects


Funds

TotalGovernmental

Funds

Nonspendable:

Revolving cash $ 5,000 $ $ $ $ 5,000

Stores inventories - - - 6,710 6,710

Prepaid expenditures 1,100 - - - 1,100Total Nonspendable 6,100 - - 6,710 12810

Restricted:

Educational programs 340,842 - - - 340,842

Food services - - - 6,784 6,784

Debt service - - - 525,335 525,335

Capital projects - 6,710,256 - 225,145 6,935,401

Total Restricted 340,842 6,710,256 - 757,264 7,808,362

Assi gned:

Capital projects - - 120,708 - 120,708

Total Assigned - - 120,708 - 120,708

Unassigned:

Economic uncertainties 2,951,706 - - - 2,951,706

Other unassigned 210,314 - - - 210,314

Total Unassigned 3,162,020 - - - 3,162020

Total $ 3,508,962 $ 6,710,256 $ 120,708 $ 763,974 $ 11,103,900

11. POSTEMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (OPEB)

Plan Description

The District provides postemployment health care benefits to qualifying employees through a single-employer defined benefit health care plan administered by the District. The District provides postemployment health care benefits to all certificated employees who retire from the District on or after attaining the age of 55 with at least 20 years of service in the District or on or after attaining ago 60 with at least 17 years of service in the District and was employed in the District prior to July 1,1994. The benefits are paid until the retiree reaches the age of 65.

The District also provides postemployment health care benefits to all classified employees and their dependents who retire from the District on or after attaining age 55 with 20 years of service or after 15 years of service if retired prior to June 30, 2008, with at least 17 years of service in the District and was employed in the District prior to July 1, 1994. The classified retirees shall be included in the program until age 65.

The District provides postemployment health care benefits to all management employees who retire from the District on or after attaining the age of 55 with at least 20 years of service in the District and was employed in the District prior to July 1, 1994. The benefits are paid until the retiree reaches the age of 65.

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At June 30, 2017,13 retirees met these eligibility requirements.

Funding Policy

The District contributes an amount equal to the amount paid by the District for the retirees' health benefits in the last month of employment to a maximum of $600 per month.

Annual OPEB Cost and Net OPEB Obligation

The District's annual OPEB cost (expense) is calculated based on the annual required contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and the changes in the District's net OPEB obligation:

Annual required contribution $ 105,436Interest on net OPEB obligation 4,403Adjustment to annual required contribution (12,365)

Annual OPEB cost (expense) 97,474Contributions made (111,756)

Decrease in net OPEB obligation (14,282)

Net OPEB obligation, beginning of the year 97,847

Net OPEB obligation, end of the year $ 83,565

The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the year ended June 30, 2017, and the preceding two years were as follows:

ActualFiscal Year

EndedAnnual

OPEB CostEmployer

ContributionsPercentage

ContributedNet OPEB Obligation

6/30/15 $ 97,561 $ 109,913 112.66% $ 71,577

6/30/16 $ 101,870 $ 75,600 74.21% $ 97,8476/30/17 $ 97,474 $ 111,756 114.65% $ 83,565

Funding Status and Funding Progress

The funded status of the plan as of October 1, 2015, the date of the most recent actuarial valuation, is as follows:

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Actuarial accrued liability (AAL) $ 683,603Actuarial value of assets -

Unfunded AAL (UAAL) $ 683,603

Funded ratio 0%

Covered payroll $ 11,806,418

UAAL as % of covered payroll 6%

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the basic financial statements, will present multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Actuarial Methods and Assumptions

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

In the October 1, 2015 actuarial valuation, the projected unit credit using full accrual at full eligibility age actuarial method was used. The actuarial assumptions included 4.50% investment rate of return (net of administrative expenses) and an annual healthcare cost trend rate of 4.00%. The actuarial method used for valuing assets is market. The plan's unfunded actuarial accrued liability is being amortized over 15 years in level dollar amounts on a closed basis. Demographic and other assumptions include (1) mortality rates; (2) public education retirement rates; (3) termination rates by age, gender, and years of service; and (4) district salary schedules.

12. PENSION PLANS

Plan Descriptions

Qualified employees are covered under cost-sharing multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers Retirement System (CalSTRS) and classified

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employees are members of the School Employer Pool California Public Employees' Retirement System (CalPERS). Benefit provisions are established by state statute, as legislatively amended, within the State Teachers' Retirement Law and the Public Employees' Retirement Law. Support by the state for the CalSTRS plan is such that the plan has a special funding situation as defined by GASB Statement No 68. CalSTRS and CalPERS issue publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on their respective websites at www-calstrs.com and www.calpers.ca.gov.

Benefits Provided

The plans provide retirement and disability benefits, annual cost of living adjustments and death benefits to plan members and beneficiaries. Benefits are based on years of credited service, equal to one year of full-time employment- Members with five years of total service are eligible to retire at age 62 for normal benefits or at age 55 with statutorily reduced benefits. Employees hired prior to January 1, 2013 are eligible to retire with five years of total service at age 60, or with 30 years of total service at age 50, for normal benefits or at age 55 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. All members are eligible for death benefits after one year of total service.

The plans' provisions and benefits in effect at June 30, 2017 are summarized as follows:

CalSTRS CalPERS

Before On or After Before On or AfterHire Date Jan. 1,2013 Jan. 1,2013 Jan. 1,2013 Jan. 1,2013Benefit Formula 2% at 60 2% at 62 2% at 55 2% at 62Benefit Vesting Schedule 5 Years 5 Years 5 Years 5 YearsBenefit Payments Monthly for Life Monthly for Life Monthly for Life Monthly for LifeRetirement Age 50-62 55-67 50-62 52-67Monthly benefits, as a % of eligible compensation 1.1-2.4% 1.0-2.4% 1.1-2.5% 1.0-2.5%

Contributions - CalPERS

Active plan members who entered into the plan prior to January 1, 2013 are required to contribute 7.0% of their salary. The California Public Employees' Pension Reform Act (PEPRA) specifies that new members entering into the plan on or after January 1, 2013, shall pay the higher of fifty percent of normal costs or 6.0% of their salary. Additionally, for new members entering the plan on or after January 1, 2013, the employer is prohibited from paying any of the employee contributions to CalPERS unless the employer payment of the member's contribution is specified in an employment agreement or collective bargaining agreement that expires after January 1, 2013.

The District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration- The required employer contribution rate for fiscal year 2017 was 13.888% of annual payroll. Contributions to the plan from the District were $396,712 for the year ended June 30, 2017.

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http://www.calpers.ca.gov


Contributions - CalSTRS

Active plan members are required to contribute either 10.250% (2% at 60) or 9.205% (2% at 62) of their salary for fiscal year 2017 and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by CalSTRS Teachers' Retirement Board. The required employer contribution rate for fiscal year 2017 was 12.58% of annual payroll. The contribution requirements of the plan members are established by state statute. Contributions to the plan from the District were $1,011,374 for the year ended June 30,2017.

On Behalf Payments

The District was the recipient of on-behalf payments made by the State of California to CalSTRS for K-12 education. These payments consist of state general fund contributions of approximately $611,466 to CalSTRS.

Pension Liabilities, Pension Expense and Deferred Outflows/Inflows of Resources Related to Pensions

As of June 30, 2017, the District reported net pension liabilities for its proportionate shares of the net pension liability of each plan as follows:

CalSTRS CalPERS

District's proportionate share of the net pension liability $ 12,132,150 $ 4,345,014

State's proportionate share of the net pension liability 6,907,633

Total $ 19,039,783 $ 4,345,014

The net pension liability of each of the plans was measured as of June 30, 2016, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2015 rolled forward to June 30, 2016 using standard update procedures. The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined.

The District's proportionate share of the net pension liability for each plan was as follows:

CalSTRS CalPERS

Proportion - June 30,2015 0.0140% 0.0204%Proportion - June 30,2016 0.0150% 0.0220%

Change - Increase (Decrease) 0.0010% 0.0016%

For the year ended June 30, 2017, the District recognized pension expense of $2,645,574. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

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DeferredOutflows ofResources

DeferredInflows ofResources

District contributions subsequent to the measurement date $ 1,408,087 $Differences between actual and expected experience 186,877 295,950

Differences between projected and actual earnings on plan investments 1,638,706 -Changes in assumptions - 130,542

Changes in employer's proportion and differences between employer's

contributions and employer's proportionate share of contributions 908,046 -Total $ 4,141,716 $ 426,492

$1,408,087 reported as deferred outflows of resources related to District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Year Ending June 30

DeferredOutflows ofResources

DeferredInflows ofResources

2018 $ 878,415 $ 122,7192019 872,024 115,8482020 487,171 54,0132021 496,019 54,0132022 - 54,0132023 - 25,886

Total $ 2,733,629 $ 426,492

Actuarial Assumptions

The total pension liabilities in the June 30, 2015, actuarial valuations were determined using the following actuarial assumptions, applied to all periods included in the measurement:

Valuation Date Measurement Date Actuarial Cost Method Actuarial Assumptions

Inflation Wage Growth Investment Rate of Return Interest on Member Accounts

CalSTRSJune 30, 2015 June 30, 2016

Entry Age Normal

CalPERSJune 30, 2015 June 30, 2016

Entry Age Normal

3.00% 2.75%3.75% 3.00%7.50% (1) 7.50% (1)4.50%

(1) Net of pension plan investment and administrative expenses

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CalSTRS uses custom mortality tables to best fit the patterns of mortality among its members. These custom tables are based on RP2000 series table adjusted to fit CalSTRS experience. RP2000 series tables are an industry standard set of mortality rates published by the Society of Actuaries.

The actuarial assumptions used in the CalSTRS June 30, 2015 valuation were based on the results of an actuarial experience study for the period July 1,2006, through June 30, 2010.

CalPERS uses custom mortality tables to best fit the patterns of mortality among its members. These custom tables are derived using CalPERS membership data for all funds. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB.

The actuarial assumptions used in the CalPERS June 30, 2015 valuation were based on the January 2014 CalPERS Experience Study.

The long-term expected rate of return on CalPERS pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, both shortterm and long-term market return expectations as well as the expected pension fund cash flows were taken into account. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds' asset classes, expected compound returns were calculated over the short-term (first 10 years) and long-term (11-60 years) using a building- block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest quarter of one percent.

The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses.

Asset ClassStrategic

AllocationReal ReturnYears 1-10*

Real ReturnYears 11+**

Global Equity 51% 5.25% 5.71%

Global Fixed Income 20% 0.99% 2.43%Inflation Sensitive 6% 0.45% 3.36%Private Equity 10% 6.83% 6.95%Real Estate 12% 4.50% 5.13%Liquidity 1% -0.55% -1.05%

* An expected inflation of 2.5% used for this period. ** An expected inflation of 3.0% used for this period.

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The long-term expected rate of return on CalSTRS pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. The best-estimate ranges were developed using capital market assumptions from CalSTRS general investment consultant (Pension Consulting Alliance - PCA) as an input to the process. The actuarial investments rate of return assumption was adopted by the board in 2012 in conjunction with the most recent experience study. For each future valuation, CalSTRS consulting actuary (Milliman) reviews the return assumption for reasonableness based on the most current capital market assumptions. Best estimates of 20- year geometric real rates of return and the assumed allocation for each major asset class for the year ending June 30, 2016 are summarized in the following table:

Asset ClassAssumed Asset

Allocation

Long-Term * Expected Real Rate of Return

Global Equity 47% 6.30%Private Equity 13% 9.30%Real Estate 13% 5.20%Inflation Sensitive 4% 3.80%Fixed Income 12% 0.30%Absolute Return/Rate Mitigating Strategies 9% 2.90%Cash/Liquidity 2% -1.00%

*20-year geometric average

Discount Rate

The discount rate used to measure the total pension liability was 7.60% for CalSTRS and 7.65% for CalPERS. To determine whether the District bond rate should be used in the calculation of a discount rate for each plan, CalSTRS and CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current discount rates are adequate and the use of the District bond rate calculation is not necessary for either plan. The stress test results are presented in a detailed report that can be obtained from the CalPERS and CalSTRS websites.

Sensitivity to the District's Proportionate Share of the Net Pension Liability to Changes in the Discount Rate

The following presents the District's proportionate share of the net pension liability for each plan, calculated using the discount rate for each plan, as well as the District's proportionate share of the net pension liability if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate:

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CalSTRS CalPERS

1% Decrease 6.60% 6.65%Net Pension Liability $ 17,460,900 $ 6,482,784

Current Discount Rate 7.60% 7.65%Net Pension Liability $ 12,132,150 $ 4,345,014

1% Increase 8.60% 8.65%Net Pension Liability $ 7,706,400 $ 2,564,899

Pension Plan Fiduciary Net Position

Detailed information about each pension plan's fiduciary net position is available in the separately issued CalSTRS and CalPERS financial reports.

13. PARTICIPATION IN JOINT POWERS AUTHORITIES

The District participates in joint ventures under joint powers agreements with the following joint powers authorities (JPAs): California's Valued Trust (CVT), North Valley Schools Insurance Group (NVSIG), Northern California Schools Insurance Group (NCSIG), and Schools Excess Liabilities Fund (SELF). 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 JPAs arrange for and provide property and liability, workers' compensation, health care, and excess liability coverage for their members. Each JPA is governed by a board consisting of a representative from each member district. The Boards control the operations of the JPAs including selection of management and approval of operating budgets, independent of any influence by the member districts beyond their representation on the board. Each member district pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionate to their participation in the JPA. The District's share of year-end assets, liabilities, or fund equity is not calculated by the JPAs. Separately issued financial statements can be requested from each JPA.

14. RISK MANAGEMENT

The District is exposed to various risks including loss or damage to property, general liability, and injuries to employees. Settled claims resulting from these risks have not exceeded insurance coverage in the past three years. No significant reductions in insurance coverage from the prior year have been made. As described above, the District participates in risk pools under JPAs for property and liability, health care, and workers' compensation coverage.

42


15. COMMITMENTS AND CONTINGENCIES

Federal and State Grants

The District receives financial assistance from federal and state government agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the applicable fund. However, in the opinion of management, any such disallowed claims will not have a material effect on any of the financial statements of the individual funds or the overall financial position of the District at June 30, 2017.

Construction Project Commitments

Construction project commitments as of June 30, 2017 are as follows:

Construction Project Contract Amount

LessDisbursement asof June 30,2017

EqualsRemaining

ConstructionCommitment

Live Oak Middle School Cafeteria and Kitchen Modernization $ 565,457 $ 175,292 $ 390,165

Total $ 565,457 $ 175,292 $ 390,165

16. PRIOR PERIOD ADJUSTMENT

In the government-wide financial statements, net position at June 30, 2016 has been increased by $2,143,155 for the effect on the change in net position to correct deferred inflows and deferred outflows related to the District's pension liability.

17. NEW ACCOUNTING PRONOUNCEMENTS

In June 2015, GASB issued Statement No. 75, Accounting and. Financial Reporting for Postemployment Benefits Other Than Pensions. This standard's primary objective is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions. The statement is effective for periods beginning after June 15, 2017. The District has not yet determined the impact on the financial statements.

In January 2017, GASB issued Statement No. 84, Fiduciary Activities. This standard's objective is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. The statement is effective for periods beginning after December 15, 2018. The District has not yet determined the impact on the financial statements.

In March 2017, GASB issued Statement No. 85, Omnibus 2017. This statement's objective is to address practice issues that have been identified during implementation and application of certain GASB statements. This statement addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and postemployment benefits (pensions and other postemployment benefits). The statement is

43


effective for periods beginning after June 15, 2017. The District has not yet determined the impact on the financial statements.

In May 2017, GASB issued Statement No. 86, Certain Debt Extinguishment Issues. This statement's primary objective is to improve consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources - resources other than the proceeds of refunding debt - are placed in an irrevocable trust for the sole purpose of extinguishing debt. This statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to financial statements for debt that is defeased in substance. The statement is effective for periods beginning after June 15, 2017. The District has not yet determined the impact on the financial statements.

In June 2017, GASB issued Statement No. 87, Leases. This standard's objective is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This statement is effective for reporting periods beginning after December 15, 2019. The District has not yet determined the impact on the financial statements.

44

REQUIRED SUPPLEMENTARY INFORMATION

LIVE OAK UNIFIED SCHOOL DISTRICTBUDGETARY COMPARISON SCHEDULE - GENERAL FUNDYear Ended June 30, 2017

Variance With Final Budget

Budgeted AmountsOriginal Final Actual

Positive(Negative)

REVENUESLCFF sources $ 17,304,232 $ 17,251,364 $ 17,251,364 $Federal revenue 984,872 1,057,861 1,002,695 (55,166)Other state revenue 856,328 1,117,636 1,608,729 491,093Other local revenue 308,708 502,488 545,637 43,149

Total Revenues 19,454,140 19,929,349 20,408,425 479,076

EXPENDITURESCertificated salaries 7,993,233 8,290,191 8,350,510 (60,319)Classified salaries 2,866,411 3,064,842 3,039,662 25,180Employee benefits 3,890,821 3,992,059 4,597,481 (605,422)Books and supplies 1,364,775 1,828,764 1,382,017 446,747Services and other operating 1,679,068 2,108,948 1,630,180 478,768Other outgo 757,835 667,652 667,652 -

Direct support/indirect costs (47,826) (47,826) (56,057) 8,231Capital outlayDebt service:

378,271 475,638 292,349 183,289

Principal 43,336 46,078 46,078 -Interest 25,545 19,667 19,667 -

Total Expenditures 18,951,469 20,446,013 19,969,539 476,474

Excess (Deficiency) of RevenuesOver Expenditures 502,671 (516,664) 438,886 955,550

Other Financing Sources (Uses)Interfund transfers out (78,925) (319,970) (319,970) -

Total Other Financing Sources (Uses) (78,925) (319,970) (319,970) .

Net Change in Fund Balance 423,746 (836,634) 118,916 955,550

Fund Balance - Beginning 3,390,046 3,390,046 3,390,046 -

Fund Balance - Ending $ 3,813,792 $ 2,553,412 $ 3,508,962 $ 955,550

See the accompanying notes to the required supplementary information.

45

LIVE OAK UNIFIED SCHOOL DISTRICT SCHEDULE OF FUNDING PROGRESS FOR OTHER POSTEMPLOYMENT BENEFITS Year Ended June 30, 2017

UAAL as aActuarial Percentage of

ActuarialValuation Date

Actuarial Valueof Assets

Accrued Liability (AAL)

Unfunded AAL(UAAL) Funded Ratio

CoveredPayroll

CoveredPayroll

October 1, 2015 $ $ 683,603 $ 683,603 0% $ 1,137,152 60.1%

September 1,2011 $ $ 896,731 $ 896,731 0% $ 1,199,976 74.7%September 1,2008 $ $ 1,206,822 $ 1,321,687 0% $ 1,657,737 72.8%


46

LIVE OAK UNIFIED SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY - CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM Last Three Fiscal Years *

Year Ended June 30

2017 2016 2015

District's proportion of the net pension liability 0.0150% 0.0140% 0.0140%

District's proportionate share of the net pension liability

State's proportionate share of the net pension liability$ 12,132,150

6,907,633$ 9,425,360

4,984,963$ 8,181,180

4,940,199

Total $ 19,039,783 $ 14,410,323 $ 13,121,379

District's covered-employee payroll $ 8,350,518 $ 7,939,968 $ 7,108,102


as a percentage of its covered employee payroll 145.29% 118.71% 115.10%

Plan fiduciary net position as a percentage of total pension liability 70.04% 74.02% 76.52%

’’This schedule will eventually present 10 years of information. However, it currently only provides the information for those

years inwhich the information is available.


47

LIVE OAK UNIFIED SCHOOL DISTRICT SCHEDULE OF DISTRICT CONTRIBUTIONS - CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM Last Three Fiscal Years*

Year EndedJune 30

2017 2016 2015

Contractually required contribution $ 1,011,374 $ 822,119 $ 612,477

Contributions in relation to the contractually required contribution (1,011,374) (822,119) (612,477)

Contribution deficiency (excess) $ - $ - $ -


Contributions as a percentage of covered employee payroll 12.11% 10.35% 8.62%

’'This schedule will eventually present 10 years of information. However, it currently only provides the information for those years in which the information is available.


48

LIVE OAK UNIFIED SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY - CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM Last Three Fiscal Years*

Year Ended June 30

2017 2016 2015

District's proportion of the net pension liability 0.0220% 0.0204% 0.0192%

District's proportionate share of the net pension liability $ 4,345,014 $ 3,006,980 $ 2,179,667



as a percentage of its covered employee payroll 125.73% 96.83% 83.82%

Plan fiduciary net position as a percentage of total

pension liability 73.90% 79.43% 83.38%

’’This schedule will eventually present 10 years of information. However, it currently only provides the information for those years in which the information is available.


49

LIVE OAK UNIFIED SCHOOL DISTRICT SCHEDULE OF DISTRICT CONTRIBUTIONS - CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM Last Three Fiscal Years*

2017

Year Ended June 30

2016 2015

Contractually required contribution

Contributions in relation to the contractually required contribution$ 396,712

(396,712)$ 312,528 $

(312,528)

265,503

(265,503)

Contribution deficiency (excess) $ - $ $ -

District's covered-employee payroll

Contributions as a percentage of covered employee payroll

$ 3,455,900

11.48%

$ 3,105,418 $

10.06%

2,600,378

10.21%

This schedule will eventually present 10 years of information. However, it currently only provides the information for those years in which the information is available.


50

LIVE OAK UNIFIED SCHOOL DISTRICTNOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION Year Ended June 30, 2017

1. BUDGETS

The District's Governing Board annually adopts a budget for the General Fund and each major Special Revenue Fund of the District- The budget is presented on the modified accrual basis of accounting- Accordingly, the accompanying budgetary comparison schedule presents actual expenditures in accordance with the accounting principles generally accepted in the United States on a basis consistent with the legally adopted budget as amended. Unexpended appropriations on the annual budget lapse at the end of each fiscal year.

2. PENSION - CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM

Benefit Changes

There were no changes in benefits terms that affected measurement of the total pension liability during the measurement period.

Changes in Assumptions

There were no changes in major assumptions from the June 30,2015, actuarial valuation.

3. PENSION - CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM

Benefit Changes

There were no changes in benefits terms that affected measurement of the total pension liability during the measurement period.

Changes in Assumptions

There were no changes in major assumptions from the June 30,2015, actuarial valuation.

51

SUPPLEMENTARY INFORMATION

LIVE OAK UNIFIED SCHOOL DISTRICTLOCAL EDUCATIONAL AGENCY ORGANIZATIONJune 30, 2017

The Live Oak Unified School District (the District) is located in Sutter County. There were no changes in the boundaries of the District during the current year. The District is currently operating two elementary schools, one intermediate school, one high school, one continuation school, and one opportunity school. The District does not operate or sponsor any charter schools.

GOVERNING BOARD

Member Office Term Expires

Kathy Walker President 2020Roger Christianson Member 2018Ernie Rodriguez Member 2018Scott Davis Member 2020Talwinder Chetra Member 2020

ADMINISTRATION

Mathew Gulbrandsen, Superintendent Christopher Peters, Chief Financial Officer

52

LIVE OAK UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE Year Ended June 30, 2017

Second Period

ReportAnnual

Report

TK/K through grade 3Regular ADA 530 533

Total TK/K through grade 3 530 533

Grades 4 through 6Regular ADA 398 398

Total grades 4 through 6 398 398

Grades 7 and 8Regular ADA 254 254

Total grades 7 and 8 254 254

Grades 9 through 12Regular ADA 540 537

Total grades 9 through 12 540 537

ADA Totals 1,722 1,722

See the accompanying notes to the supplementary information.

53

LIVE OAK UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME Year Ended June 30, 2017

Grade LevelMinutes

Requirement

2016-17Actual

MinutesNumber of Days Status

Kindergarten 36,000 36,930 180 CompliedGrade 1 50,400 52,780 180 CompliedGrade 2 50,400 52,780 180 CompliedGrade 3 50,400 55,287 180 CompliedGrade 4 54,000 55,287 180 CompliedGrade 5 54,000 55,287 180 CompliedGrade 6 54,000 55,450 180 CompliedGrade 7 54,000 55,450 180 CompliedGrade 8 54,000 55,450 180 CompliedGrade 9 64,800 65,243 180 CompliedGrade 10 64,800 65,243 180 CompliedGrade 11 64,800 65,243 180 CompliedGrade 12 64,800 65,243 180 Complied


54

LIVE OAK UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2017

Federal Pass-Through Total

CFDA Entity Identifying Federal

Federal Grantor/Pass-Through Grantor/Program or Cluster Title Number Number Expenditures

U.S. DEPARTMENT OF EDUCATION

Passed Through California Department of Education

NCLB - Title I, Part A, Basic Grants 84.010 14329 $ 554,341Vocational Programs - Secondary, Carl D. Perkins Act 84.048 14894 15,920

NCLB - Title IE Limited English Proficient 84.365 14346 45,813NCLB - Title IITeacher Quality

Passed Through Sutter County Office of Education

84.367 14341 76,523

Special Ed - Basic Local Assistance Entitlement 84.027 13379 284,514

Total U.S. Department of Education 977,111

U.S. DEPARTMENT OF AGRICULTURE

Passed Through California Department of Education

Child Nutrition Cluster

School Breakfast 10.553 13390 204,877National School Lunch 10.555 13391 598,403

USDA Commodities 10.550 Not applicable 58,327

Total Child Nutrition Cluster 861,607

Passed Through Sutter County Office of Education

Forest Reserve 10.665 Not applicable 3,078

Total U.S. Department of Agriculture 864,685

U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Passed Through State of California

Medi-Cal Billing Option

Passed Through Glenn County Office of Education

93.778 10013 7,460

Medi-Cal Administrative Activities 93.778 10060 15,046

Total U.S. Department of Health and Human Services 22,506

Total Expenditures of Federal Awards $ 1,864,302


55

LIVE OAK UNIFIED SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS Year Ended June 30, 2017

Year Ended June 30 (Budget) 2018 2017 2016 2015

General FundRevenues and Other Financing Sources

Expenditures and Other Financing Uses

$ 19,434,659

19,160,002

$ 20,408,425

20,289,509

$ 19,521,708

18,824,650

$ 15,515,711

16,079,958

Net Change in Fund Balance $ 274,657 $ 118,916 $ 697,058 $ (564,247)

Ending Fund Balance $ 3,783,619 $ 3,508,962 $ 3,390,046 $ 2,692,988

Available Reserves $ 3,437,777 $ 3,162,020 $ 3,110,022 $ 2,528,247

Available Reserves as a Percentage ofTotal Outgo 17.94% 15.58% 16.52% 15.72%

Total Long-TermDebt $ 34,943,657 $ 35,349,025 $ 24,526,564 $ 21,938,985

Average Daily Attendance at P-2 1,734 1,722 1,722 1,683

The General Fund ending fund balance has increased by $815,974 over the past two years. The fiscal year 2017-18 budget projects an increase of $274,657 (7.83%). For a district this size, the State recommends available reserves of at least three percent of total General Fund expenditures, transfers out, and other uses (total outgo).

The District has incurred an operating deficit in one of the past three years, and anticipates incurring an operating surplus during the 2017-18 fiscal year. Total long-term debt has increased by $13,410,040 over the past two years.

Average daily attendance has increased by 39 over the past two years. An increase of 12 ADA is anticipated during fiscal year 2017-18.

‘‘'Available reserves consists of all unassigned fund balance within the General Fund.


56

LIVE OAK UNIFIED SCHOOL DISTRICTRECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS Year Ended June 30, 2017

Building FundBond Interest &

Redemption Fund

June 30, 2017, Annual Financial and Budget

Report (SACS) Fund Balances $ 6,819,761 $ 415,830

ADJUSTMENTS INCREASING (DECREASING)THE FUND BALANCESUnderstatement of due to other fundsUnderstatement of due from other funds

(109,505)109,505

Net Adjustments (109,505) 109,505

June 30, 2017, Audited Financial Statement

Fund Balances $ 6,710,256 $ 525,335


57

LIVE OAK UNIFIED SCHOOL DISTRICT SCHEDULE OF CHARTER SCHOOLS Year Ended June 30, 2017

The District is not the sponsoring local educational agency for any charter schools.


58

LIVE OAK UNIFIED SCHOOL DISTRICTNOTES TO THE SUPPLEMENTARY INFORMATIONYear Ended June 30, 2017

1. PURPOSE OF SCHEDULES

Schedule of Average Daily Attendance

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

Schedule of Instructional Time

The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections 46201 through 46206. The District did not meet or exceed its local control funding formula target.

Schedule of Expenditures of Federal Awards

The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of the District under programs of the federal government for the year ended June 30, 2017. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the District, it is not intended to and does not present the financial position or changes in net position of the District .

Expenditures reported on the Schedule are reported on the modified accrual basis of accounting- Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement- The District has elected not to use the 10 percent de minimum indirect cost rate allowed under the Uniform Guidance-

Schedule of Financial Trends and Analysis

This schedule discloses the District's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time.

Reconciliation of Annual Financial and Budget Report with Audited Financial Statements

This schedule provides the information necessary to reconcile the fund balance of each fund, as reported in the annual financial and budget report, to the audited financial statements.

Schedule of Charter Schools

This schedule lists all charter schools sponsored by the District and indicates whether or not the charter school is included in the audit of the District-

59

OTHER INDEPENDENT AUDITORS' REPORTS

V-

TIMOTHYA.TITTLE, CPA "• HEIDI M. GOPPIN, CPA ' CHANOESE D. MEGH0AD1. GPA

INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIALREPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS


We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Live Oak Unified School District {the District), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District's basic financial statements, and have issued our report thereon dated December 5,2017.

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered the District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, hut not for the purpose of expressing an opinion on the effectiveness of the District's internal control- Accordingly, we do not express an opinion on the effectiveness of the District's internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, In internal control, such that them is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of {his section and was not designed to identify ail deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We did identify certain deficiencies in internal control, described in the accompanying schedule of findings and questioned costs as items 2017-001 and 2017-002, that we consider to be significant deficiencies.

603263 Esplanade. CiitcO, California 90973 V Voice 530.898.864? ‘ Fax 530.893.0302

Compliance and Other Matters

A*? pari of obtaining reasonable assurance about whether the District's financial statements are free from material misstatement, we performed test* of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompijarn.r with which couid have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of cur audit, and. accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Cjovarnnumt Auditing Standards.

Live Oak Unified School District's Response to Findings

live Oak Unified School District's response to the findings identified in our audit is described in the accom pam-ing schedule of findings and questioned costs- The District's response was not subjected to tlie auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.

Purpose of this Report

Tlie purpose of this report is solely to describe the scope of our testing of internal control and compliant e and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Tclitf. 1Chico, California December 5, 2017

TIMOTHY A.TfTTUE, CPA - HEIDI M. COPPiN, CRft - CHAMDESE D. MEGHDApI, OPA

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE POR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIREDBY THE UNIFORM GUIDANCE


Report on Compliance for Each Major Federal Program

We have audited Live Oak Unified School District's (the District) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the District's major federal programs for the year ended June 30, 2017. The District's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs.

Management's Responsibility

Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs.


Our responsibility is to express an opinion on compliance for each of the District's major federal programs based on our audit of the types of compliance requirements referred to above. Wc conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code, of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for federal Awards (Uniform Guidance). TFio.se standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the District's compliance.

Opinion on Each Major Federal Program

In our opinion, Live Oak Unified School District, complied, in all material respects, with die types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30,2017.

623263 Esplanade, Chico, California 95973 ' Voice 530.898.894? - Fax 536.89S.0302

Management of the District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the District's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate m the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to lest and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District's Internal control over compliance.

A deficiency in internal cmitrol over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Chico, California December 5,2017

TIMOTHY A. TSTTlg, CPA HEIN M. CGPPSN. GPA CHAMDESE D. MEGHDADI, CPA

INDEPENDENT AUDITORS' REPORT ON STATE COMPLIANCE

To tiie Board of Trustees Live Oak Unified School District Live Oak, California

We have audited the District's compiiance with the types of compliance requirements described in the 2016-17 Guide for Annual Audits of K-J2 !.ncal Education Agencies and State Compliance Reporting, issued by the California Education Audit Appeals Panel that could have a direct and material effect on each of the District's state programs for the fiscal year ended June 30,2017, as identified below.

Management's Responsibility

Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its state programs.


Our responsibility is to express an opinion on compliance for each of the District's stale programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; and the 2016-17 Guide for Annual Audits ofK- 12 Local Education Agencies and State Compliance Reporting, issued by the Education Audit Appeals Panel. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a direct and material effect on the state programs noted below occurred. An audit includes examining, on a test basis, evidence about the District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the District's compliance with those requirements.

In connection with the audit referred to above, we selected and tested transactions and records to determine the Districf s compliance with the state laws and regulations applicable to the following items:

3 2 6 3 Esplanade. Chico, California 95973

64

Voice 530.89S.S64? Fax 530.893.0302

ProceduresProgram Name Performed

LOCAL EDUCATION AGENCIESOTHER THAN CHARTER SCHOOLS;Attendance YesTeacher Certification and Misassignments YesKindergarten Continuance NoIndependent Study NoContinuation Education NoInstructional Time YesInstructional Materials YesRatio of Administrative Employees to Teachers YesClassroom Teacher Salaries YesEarly Retirement Incentive Not applicableGann Limit Calculation YesSchool Accountability Report Card Yesjuvenile Court Schools Not applicableMiddle or Early College High Schools Not applicableK-3 Grade Span Adjustment YesTransportation Maintenance of Effort YesMental Health Expenditures No

SCHOOL DISTRICTS, COUNTY OFFICES OFEDUCATION, AND CHARTER SCHOOLS;Educator Effectiveness YesCalifornia Clean Energy Jobs Act NoAfter School Education and Safety Program Not applicableProper Expenditure of Education Protection Account Funds YesUnduplicated Local Control Funding Formula Pupil Counts YesLocal Control and AccountabxlHy Plan YesIndependent Study-Course BasedImmunizations

Not applicable Yes

CHARTER SCHOOLS:Attendance Not applicableMode of Instruction Not applicableNonclassroom-Based Instruction/Independent Study Not applicableDetermination of Funding for Nonclassroom-Based Instruction Not applicableAnnual Instructional Minutes - Classroom Based Not applicableCharter School Facility Grant Program Not applicable

Kindergarten continuance step 2(b) was not performed because the District did not retain any pupils in Kindergarten during 2016-17 who had already completed one school year in Kindergarten,

Testing was nut performed lot independent study because the ADA for this program was below the level which requires testing.

Testing was not performed for continuation education because the ADA for this program was below the level which requires testing.

Testing was not performed for California Clean Energy Jobs Act as there were no expenditures made during the year ended June 30,2017.

Testing was riot pesformed lor Mental Health Expenditures as there were no expenditures made during the year ended j u i se 30, 2017.

Opinion on State Compliance

In our opinion, Live Gale Unified School District complied, in all material respects, with the types of compliance requirements referred to above that are applicable to the state programs listed in the schedule above for the year ended June 30,2017.

Other Matters

The results of our auditing procedures disclosed an instance of noncompliance, which is described in the accompanying Schedule of Findings and Responses as item 2017-003. Our opinion on state compliance is not modified with respect to these matters.

Live Oak Unified School District s Response to Findings

I ,ive Oak Unified School District's response to the fir-dings identified in our audit is desaibed in the accompanying schedule of findings and questioned costs. Live Oak Uniiied School District's response was not subjected to the auditing procedures applied in 1lie audit of the financial statements and, accordingly, we express no opinion on it.

T litib. £* Cen^Wf -u. , UTChico, California December 5,2017

SCHEDULE OF FINDINGS AND QUESTIONED COSTS

LIVE OAK UNIFIED SCHOOL DISTRICT SUMMARY OF AUDITORS' RESULTS Year Ended June 30, 2017

FINANCIAL STATEMENTS

Type of auditors' report issued: Unmodified

Internal control over financial reporting:Material weakness(es) identified? NoSignificant deficiency(ies) identified? Yes

Noncompliance material to financial statements noted? No

FEDERAL AWARDS

Internal control over major programs:Material weakness(es) identified? NoSignificant deficiency(ies) identified? None reported

Type of auditors' report issued on compliance for major programs: Unmodified

Any audit findings disclosed that are required to be reportedin accordance with 2 CFR 200.516(a)? No

Identification of major programs:

CFDA Number(s) Name of Federal Program or Cluster

10.553,10555 Child Nutrition Cluster

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

Auditee qualified as low-risk auditee?

$750,000

No

STATE AWARDS

Internal control over state programs: Material weakness(es) identified? Significant deficiency(ies) identified

NoYes

Type of auditors' report issued on compliance for state programs: Unmodified

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LIVE OAK UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS FINDINGS Year Ended June 30, 2017

INTERNAL CONTROL (Student Body - live Oak High School)30000 (2017-001)

Significant Deficiency

Condition

During our test of internal controls over student body cash disbursements at Live Oak High School, we noted that expenditures were not approved by a student representative-

criteria

Internal controls should be in place to provide that all student body expenditures have proper documentation and approval prior to payment including approval by each of the following: student body officer, student body advisor and District official.

Effect

Without strengthening internal controls over student body assets, funds may not be properly safeguarded and expended for valid student body activities.

Recommendation

All disbursements should have proper documentation and authorization prior to payment.

Response

The District's administration will implement procedures during the 2017-18 fiscal year to comply with the recommendation-

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LIVE OAK UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS FINDINGS Year Ended June 30, 2017

INTERNAL CONTROL (Student Body - Luther Elementary)30000 (2017-002)


Condition

Our test of internal controls over student body cash disbursements resulted in the one of the ten disbursements tested not containing proper supporting documentation and two of the ten disbursements tested having checks written out to "Cash."

Criteria

Internal controls should be in place to provide that all student body expenditures have proper documentation and approval prior to payment.

Effect

Without strengthening internal controls over student body assets, funds may not be properly safeguarded and expended for valid student body activities.

Recommendation

All disbursements should have proper documentation, payee and authorization prior to payment.

Response

The District's administration will implement procedures during the 2017-18 fiscal year to comply with the recommendation.

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LIVE OAK UNIFIED SCHOOL DISTRICTFEDERAL AWARD FINDINGS AND QUESTIONED COSTSYear Ended June 30, 2017

None.

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LIVE OAK UNIFIED SCHOOL DISTRICTSTATE AWARD FINDINGS AND QUESTIONED COSTSYear Ended June 30, 2017

ATTENDANCE10000 (2017-003)


Condition

The District's approved attendance procedures require teachers to sign attendance reports on a weekly basis. We noted that teachers at Live Oak Middle School were not signing the weekly attendance reports on a timely basis.

Criteria

Pursuant to California Education Code, Section 44809 and California Code of Regulations, Title 5, Sections 400-401, schools must maintain records of pupil attendance. These written attendance records should be prepared daily and signed weekly by the teacher who instructed the students in accordance with the District's attendance procedures approved by the California Department of Education.

Effect

Without strengthening internal controls over attendance reporting, average daily attendance may not be accurately reported to the California Department of Education. There is no financial impact to the current fiscal year as average daily attendance is properly stated.

Recommendation

We recommend that the District follow their approved attendance procedures which require that the teachers maintain records of attendance that are prepared daily and signed weekly by the teacher who instructed the students.

Response

The District's administration will adopt procedures to implement the recommendation during the fiscal year 2017-18.

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LIVE OAK UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGSYear Ended June 30, 2017

INTERNAL CONTROL (Agency Funds - Student Body Funds)30000 (2016-001)


Condition

During our test of internal controls over student body funds we noted the following items:

• 4 out of 5 expenditures tested at the Live Oak High School were made prior to the purchaseorder being issued for the expenditure

• 1 out of 5 expenditures tested at the Live Oak High School were made to purchase gift cards, anun-allowable expenditure for agency funds

• 5 out of 5 deposits tested at Luther Elementary School were not made on a timely basis

• 4 out of 5 deposits tested at Luther Elementary School did not contain complete documentationto provide information regarding the exact date when the funds were received.

Criteria

Internal controls should be put in place to provide for timely deposits, complete records of funds received, and to ensure expenditures are only made to allowable items.

Effect

Without strengthening internal controls over cash receipts and expenditures, student body assets may not be properly safeguarded.

Recommendation

The District should implement procedures to strengthen internal controls over student body cash receipts, deposits, and expenditures.

Current Status

See current year findings at 2017-001 and 2017-002.

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LIVE OAK UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGSYear Ended June 30, 2017

INTERNAL CONTROL (Attendance Records - Valley Oak High School)30000 (2016-002)


Condition

During our test of attendance records for the continuation school it was determined that the certificated teacher who provides the direct instruction for the student did not sign the records on a regular basis. Alternative procedures were performed to determine that the records were signed by the certificated teaching administrator on a regular basis who had direct knowledge regarding the attendance of each student and the attendance records are properly stated.

Criteria

Internal controls should be put in place to ensure that attendance records are signed on a regular basis by the certificated teacher who provides direct instruction for the students.

Effect

Without strengthening internal controls over attendance records, the attendance records should be misstated in future years.

Recommendation

The District should implement procedures to strengthen internal controls attendance records for the continuation school.

Current Status

Fully implemented.

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APPENDIX C

GENERAL INFORMATION ABOUT THE CITY OF LIVE OAK AND SUTTER COUNTY

The District is located in the City of Live Oak (the “City”), Sutter County (the “County”), California. The following information concerning the City and the County is included only for the purpose of supplying general information regarding the area in and surrounding the District. The Certificates are not a debt of the City, the County, the State or any of its political subdivisions, and none of the City, the County, the State or any of its political subdivisions is liable therefor, except the District, as described in the Official Statement.

General Information

Bordered by the Sacramento River to the west and the Feather River to the east, the County of Sutter has a total area of 608 square miles, of which 6.1 square miles is water. Approximately 86% of the County was considered important farmland and agricultural land in 2016. Major transportation systems in the County include the Sutter County Airport and State Routes 20, 70, 99, and 113, linking the County to Interstate 80 and Interstate 5. The county seat is Yuba City.

Population

As of January 2018, the County population was 97,238 according to the California Department of Finance.

COUNTY OF SUTTER Population Estimates

Area 2014 2015 2016 2017 2018Live Oak 8,454 8,422 8,416 8,685 8,781Yuba City 65,848 66,923 67,129 67,160 67,280Unincorporated 21,734 21,045 21,069 21,074 21,177Total County (1) 96,036 96,390 96,614 96,919 97,238

(1) Totals may not add due to rounding.Source: U.S. Census and State of California, Department of Finance.


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Employment and Industry

The County is included in the Yuba City Metropolitan Statistical Area (“MSA”). The unemployment rate in the Yuba City MSA was 7.3 percent in April 2018, down from a revised 8.6 percent in March 2018, and below the year-ago estimate of 9.2 percent. This compares with an unadjusted unemployment rate of 3.8 percent for California and 3.7 percent for the nation during the same period. The unemployment rate was 8.0 percent in Sutter County, and 6.3 percent in Yuba County.

The table below provides information about employment by industry type for the Yuba City MSA for calendar years 2013 through 2017.

YUBA CITY METROPOLITAN STATISTICAL AREA (COUNTIES OF SUTTER AND YUBA )Annual Average Civilian Labor Force,

Unemployment and Employment by Industry (March 2017 Benchmark)

2013 2014 2015 2016 2017Civilian Labor Force (1) 73,000 72,400 72,600 72,700 73,600Employment 62,800 63,600 65,200 65,900 67,600Unemployment 10,300 8,800 7,400 6,800 6,100Unemployment Rate 14.1% 12.1% 10.2% 9.4% 8.2%Waae and Salary Employment:(2)Agriculture 4,600 4,400 4,800 5,100 5,200Mining, Logging, Construction 1,600 1,700 2,000 2,300 2,400Manufacturing 2,200 2,100 2,200 2,200 2,200Wholesale Trade 1,200 1,300 1,400 1,500 1,600Retail Trade 5,500 5,500 5,700 5,900 6,200Transportation, Warehousing and Utilities 1,400 1,400 1,500 1,500 1,600Information 400 400 300 300 300Financial Activities 1,400 1,400 1,400 1,400 1,400Professional and Business Services 2,900 3,000 3,100 3,100 3,100Educational and Health Services 7,000 7,100 7,500 7,800 8,200Leisure and Hospitality 4,300 4,300 4,300 4,300 4,400Other Services 1,000 1,100 1,100 1,200 1,200Federal Government 1,400 1,500 1,600 1,600 1,600State Government 900 900 900 900 900Local Government 7,700 8,000 8,200 8,400 8,600Total all Industries (3) 43,300 44,200 45,800 47,400 48,800

(1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike.

(2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike.

(3) Totals may not add due to rounding.Source: California Employment Development Department.

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Principal Employers

The following table shows the major employers in the City as of June 30, 2017.

CITY OF LIVE OAK Major Employers

As of June 30, 2017

Employer NameNumber of Employees

Percentage of Total City Employment

Live Oak Unified School District 236 6.56%River Valley Care Center 120 3.33City of Live Oak 30 0.83Gold County Bank 4 0.11E-Center Head Start 24 0.67Tower Supermarket 11 0.31United States Post Office 8 0.22Live Oak Pharmacy 6 0.17Sunset Moulding Co. Confidential N/ASunsweet Dryers 2 0.06

Total 441 12.25%

Source: City’s Comprehensive Annual Financial Report for Year Ended June 30, 2017.


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Largest Employers

The following table lists the largest employers within the County as of May 2018, listed alphabetically.

COUNTY OF SUTTER Major Employers As of May 2018

Employer Name Location IndustryBel Air Markets Yuba City Grocers-RetailFountains Skilled Nrsng-Rehab Yuba City Convalescent HomesGeweke Ford Yuba City Automobile Dealers-New CarsHolt of California Pleasant Grove Contractors-Equip/Supls-Dlrs/S (Whls)Home Depot Yuba City Home CentersHomeward Bound Golden Elverta Animal SheltersLegend Transportation Yuba City Trucking-Liquid & Dry BulkLowe's Home Improvement Yuba City Home CentersRiver Valley High School Yuba City SchoolsSam's Club Yuba City Wholesale ClubsSierra Central Credit Union Yuba City Credit UnionsSierra Gold Nurseries Yuba City NurserymenSiller Bros Aviation Div Yuba City Helicopter-Charter & Rental ServiceSunset Moulding Co Live Oak Mouldings-lnjection (Mfrs)Sunsweet Growers Inc Yuba City Fruits-Dried (Whls)Sutter County Jail Yuba City Government Offices-CountySutter County Sheriff Yuba City Government Offices-CountySutter Yuba Mental Health Yuba City Mental Health ServicesSysco Sacramento Inc Pleasant Grove Food Products (Whls)Trees Inc Yuba City Tree ServiceValley Truck & Tractor Co Yuba City Tractor-Dealers (Whls)Walmart Supercenter Yuba City Department StoresWinco Foods Yuba City Grocers-RetailYuba City Unified School District Yuba City School DistrictYuba Skilled Nursing Ctr Yuba City Convalescent Homes

Source: California Employment Development Department, extracted from The America’s Labor Market Information System (ALMIS) Employer Database, 2018 1st Edition.


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Commercial Activity

A summary of historic taxable sales within the City and County for calendar years 2012 through 2016 is shown in the following tables. Figures are not available for calendar year 2017.

Total taxable sales during calendaryear2016 in the City were reported to be $26,936,857 million, a 5.45% decrease over total taxable sales of $28,490,145 million reported during the calendaryear 2015.

CITY OF LIVE OAK Taxable Transactions

Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)

Retail Stores Total All Outlets

Number of Permits

TaxableTransactions

Number of Permits

TaxableTransactions

2012 63 $22,517 83 $27,6552013 63 23,579 78 27,7162014 69 25,080 80 29,7502015(1) 62 24,106 79 28,4902016 66 26,347 87 26,937

(1) Permit figures for calendar year 2015 are not comparable to that of prior years due to outlet counts in these reports including the number of outlets that were active during the reporting period. Retailers that operate part-time are now tabulated with store retailers.Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).

The total taxable sales during the first quarter of the calendar year 2016 in the County were reported to be $1,622,910,688 a 0.21% increase over the total taxable sales of $1,626,324,133 reported during the calendar year 2015.

SUTTER COUNTY Taxable Retail Sales

Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)

Retail Stores Total All Outlets

Number of Permits

TaxableTransactions

Number of Permits

TaxableTransactions

2012 1,256 $954,784 1,869 $1,366,6402013 1,308 1,007,599 1,908 1,468,0382014 1,364 1,049,624 1,968 1,518,3152015(1) 750 1,128,345 2,132 1,622,9112016 1,395 1,173,846 2,167 1,626,324

(1) Permit figures for calendaryear 2015 are not comparable to that of prior years due to outlet counts in these reports including the number of outlets that were active during the reporting period. Retailers that operate part-time are now tabulated with store retailers.Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).

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Construction Activity

Provided below are the building permits and valuations for the City and County for calendaryears 2013 through 2017.

CITY OF LIVE OAK Total Building Permit Valuations

(Valuations in Thousands)

Permit Valuation2013 2014 2015 2016 2017

New Single-family $0.0 $305.6 $485.9 $210.7 $401.5New Multi-family 0.0 0.0 9,807.3 0.0 0.0Res. Alterations/Additions 246.7 870.5 305.4 469.7 398.0Total Residential(1) 246.7 1,176.1 10,598.6 680.4 799.5

New Commercial 1,616.8 11.3 103.6 103.9 2,344.0New Industrial 0.0 0.0 0.0 0.0 0.0New Other 220.8 197.5 891.2 207.6 281.6Com. Alterations/Additions 151.4 7.014.5 283.4 118.5 50.6Total Nonresidential(1) 1,989.0 7,223.3 1,278.2 430.0 2,676.2

New Dwelling UnitsSingle Family 0 1 2 1 2Multiple Family 0 o 91 0 0

TOTAL 0 1 93

(1) Totals may not add due to rounding.Source: Construction Industry Research Board, Building Permit Summary.

SUTTER COUNTYTotal Building Permit Valuations

(Valuations in Thousands)

1 2

Permit Valuation2013 2014 2015 2016 2017

New Single-family $15,848.0 $21,843.0 $20,769.4 $15,372.0 $15,575.4New Multi-family 0.0 1,316.8 10,481.9 0.0 0.0Res. Alterations/Additions 7.010.9 6.276.6 6.488.6 5.794.5 9.122.3Total Residential(1) 22,858.9 29,436.4 37,739.9 21,166.5 24,697.7

New Commercial 31,028.0 9,904.7 11,614.0 11,520.6 6,313.3New Industrial 685.0 570.0 0.0 0.0 1,010.2New Other 4,127.5 11,839.4 6,908.8 8,891.2 14,388.1Com. Alterations/Additions 23.391.4 12.810.8 8.428.7 11.712.0 18.476.3Total Nonresidential(1) 59,231.9 35,124.9 26,951.5 32,123.8 40,187.9

New Dwelling UnitsSingle Family 61 74 70 58 46Multiple Family 0 10 95 0 0

TOTAL 61 84 165 58 46

(1) Totals may not add due to rounding.Source: Construction Industry Research Board, Building Permit Summary.

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Effective Buying Income

“Effective Buying Income” is defined as personal income less personal tax and nontax payments, a number often referred to as “disposable” or “after-tax” income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as “disposable personal income.”

The following table summarizes the total effective buying income for the City of Live Oak, the County of Sutter, the State and the United States for the years 2013 through 2017. Information as of January 1,2018 is not yet available.

CITY OF LIVE OAK; SUTTER COUNTY; STATE OF CALIFORNIA; UNITED STATESEffective Buying Income

As of January 1,2013 through 2017

MedianTotal Effective Household Buying Income Effective Buying

Year Area (000’s Omitted) Income

2013 City of Live OakSutter County CaliforniaUnited States

$106,4551,695,695

858,676,6366,982,757,379

$37,40143,71848,34043,715


$113,7351,803,813

901,189,6997,357,153,421

$36,51044,46250,07245,448


$120,1701,809,813

981,231,6667,757,960,399

$39,09545,23253,58946,738


$134,5431,968,844

1,036,142,7238,132,748,136

$43,03548,54648,04348,043


Source: The Nielsen Company (US), Inc.

$131,0361,895,537

1,113,648,1818,640,770,229

$40,21547,80059,64650,735

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APPENDIX D

FORM OF OPINION OF SPECIAL COUNSEL

June 28,2018

Board of Trustees Live Oak Unified School District 2201 Pennington Road Live Oak, California 94953

OPINION: $2,960,000 2018 Certificates of Participation Evidencing the Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the Live Oak Unified School District (Bank Qualified)

Members of the Board of Trustees:

We have acted as special counsel to Live Oak Unified School District (the “District”) in connection with the delivery by District of the Lease Agreement dated as of June 1, 2018 (the “Lease Agreement”) between the Local Facilities Finance Corporation (the “Corporation”), as lessor, and the District, as lessee. Under the Trust Agreement dated as of June 1, 2018 (the “Trust Agreement”) between the District, the Corporation and U.S. Bank National Association, as trustee (the “Trustee”), the Trustee has executed and delivered the above-captioned certificates of participation dated June 28, 2018 (the “Certificates”). In such capacity, we have examined the law and such certified proceedings and other papers as we deemed necessary to render this opinion.

The Certificates evidence the direct, undivided fractional interests of the owners thereof in lease payments to be made by the District under the Lease Agreement (the “Lease Payments”) which have been assigned by the Corporation to the Trustee. The District authorized execution and delivery of the Lease Agreement, the Trust Agreement and the Certificates pursuant to a resolution of the Board of Trustees of the District adopted on May 17, 2018 (the “Resolution”).

Based upon the foregoing, we are of the opinion, under existing law:

1. The District is a duly created and validly existing school district with the power to adopt the Resolution, enter into the Lease Agreement and the Trust Agreement and to perform the agreements on its part contained therein.

2. The Lease Agreement and the Trust Agreement have been duly authorized, executed and delivered by the District, and constitute the valid and binding obligations of the District, enforceable against the District.

3. The Certificates have been validly executed and delivered by the Trustee under the Trust Agreement and, by virtue of the assignment made by the Corporation, the owners of the Certificates are entitled to the benefits of the Lease Agreement.

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4. The portion of the Lease Payments designated as and comprising interest and received by the owners of the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax, although, in the case of tax years beginning prior to January 1,2018, for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest earned by a corporation prior to the end of its tax year in 2018 is taken into account in determining certain income and earnings. The Lease Agreement is a "qualified tax-exempt obligation" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the "Tax Code"), and, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Tax Code), a deduction is allowed for 80 percent of that portion of such financial institutions' interest expense allocable to interest payable with respect to the Certificates.

The opinions set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Tax Code relating to the exclusion from gross income for federal income tax purposes of interest with respect to obligations such as the Certificates and that the Lease Agreement is, or continues to be, a “qualified tax-exempt obligation" within the meaning of Section 265(b)(3) of the Tax Code. The District has made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of delivery of the Lease Agreement, or may cause the Lease Agreement not to be a “qualified tax-exempt obligation" within the meaning of Section 265(b)(3) of the Tax Code.

5. The portion of the Lease Payments designated as and comprising interest and received by the owners of the Certificates is exempt from personal income taxation imposed by the State of California.

We express no opinion regarding any other tax consequences arising with respect to the ownership, sale or disposition of, or the amount, accrual or receipt of interest on, the Lease Agreement or the Certificates.

The rights of the owners of the Certificates and the enforceability of the Lease Agreement and the Trust Agreement are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally, and by equitable principles, whether considered at law or in equity.

This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Our engagement with respect to this matter has terminated as of the date hereof.

Respectfully submitted,

Jones Hall,A Professional Law Corporation

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APPENDIX E

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This CONTINUING DISCLOSURE CERTIFICATE (the “Disclosure Certificate”) is executed and delivered by the Live Oak Unified School District (the “District”) in connection with the execution and delivery of $2,960,000 2018 Certificates of Participation (the “Certificates”). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of June 1, 2018 (the “Trust Agreement”), among U.S. Bank National Association, as trustee, the District and the Local Facilities Finance Corporation. 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 Certificates and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

Section 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, 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.

“Annual Report Date” means the date not later than nine months (currently March 31) after the end of each fiscal year of the District (currently June 30th).

“Dissemination Agent' shall mean Isom Advisors, a Division of Urban Futures, Inc., or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.

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

“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule.

“Official Statement' means the final official statement executed by the District in connection with the delivery of the Certificates.

“Participating Underwriter3' shall mean Raymond James & Associates, Inc., the original underwriter of the Certificates required to comply with the Rule in connection with offering of the Certificates.

“Repository' shall mean each National Repository and each State Repository.

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

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Section 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 31, 2019 with the report for the 2017-18 fiscal year, provide to the MSRB in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by 15 Business Days priorto the Annual Report Date the Dissemination Agent (if other than the District) has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the District hereunder.

(b) If the District does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the District in a timely manner shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A, with a copy to the Paying Agent and Participating Underwriter.

(c) With respect to each Annual Report, the Dissemination Agent shall:

(i) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and

(ii) if the Dissemination Agent is other than the District, file a report with the District, with a copy to the Paying Agent and the Participating Underwriter, certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.

Section 4. Content of Annual Reports. The District's Annual Report shall contain or incorporate by reference the following:

(a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District's audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, the following information:

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(i) assessed valuation of taxable properties in the District for the current fiscal year;

(ii) assessed valuation of properties of the top twenty taxpayers for the current fiscal year;

(iii) property tax collection delinquencies for the District for the most recently completed fiscal year, if available at the time of filing the Annual Report; and

(iv) the District's most recently adopted Budget or approved interim report with budgeted figures, which is available at the time of filing the Annual Report.

(c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

(d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB's Internet web site or filed with the Securities and Exchange Commission.

Section 5. Reporting of Significant Events.

(а) The District shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Certificates:

(1) Principal and interest payment delinquencies.

(2) Non-payment related defaults, if material.

(3) Unscheduled draws on debt service reserves reflecting financial difficulties.

(4) Unscheduled draws on credit enhancements reflecting financial difficulties.

(5) Substitution of credit or liquidity providers, or their failure to perform.

(б) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax-exempt status of the security.

(7) Modifications to rights of security holders, if material.

(8) Bond calls, if material, and tender offers.

(9) Defeasances.

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(10) Release, substitution, or sale of property securing repayment of the securities, if material.

(11) Rating changes.

(12) Bankruptcy, insolvency, receivership or similar event of the obligated person.

(13) 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, if material.

(14) Appointment of a successor or additional trustee or the change of name of a trustee, if material.

(b) Whenever the District obtains knowledge of the occurrence of a Listed Event, and, if the Listed Event is described in sections (a)(2), (a)(6), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13) or (a)(14) above, the District determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the District shall, or shall cause the Dissemination Agent (if not the District) to file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates under the governing legal documents.

(c) The District acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 5 contain the qualifier “if material.” The District shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the District determines the event's occurrence is material for purposes of U.S. federal securities law.

(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District.

Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.

Section 7. 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 Certificates. If such termination occurs prior to the final maturity of the Certificates,

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the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

Section 8. 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 Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Isom Advisors, a Division of Urban Futures, Inc. Any Dissemination Agent may resign by providing 30 days' written notice to the District and the Paying Agent.

Section 9. 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 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Certificates, or type of business conducted;

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

(c) the proposed amendment or waiver either (i) is approved by holders of the Certificates in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Certificates.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(c).

Section 10. 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

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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 Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.

Section 12. Duties, Immunities and Liabilities of Dissemination Agent.

(a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys' fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent will have no duty or obligation to review any information provided to it by the District hereunder, and shall not be deemed to be acting in any fiduciary capacity for the District, the Certificate holders or any other party. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates.

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(b) The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.

Dated: June 28, 2018 LIVE OAK UNIFIED SCHOOL DISTRICT

AGREED AND ACCEPTED:

BySuperintendent

Isom Advisors, a Division of Urban Futures, Inc.as Dissemination Agent

By: __________________________________Name: _______________________________Title:

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EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: LIVE OAK UNIFIED SCHOOL DISTRICT

Name of Issue: $2,960,000 2018 Certificates of Participation Evidencing Direct, UndividedFractional Interests of the Owners Thereof in Lease Payments to be made by the Live Oak Unified School District as the Rental for Certain Property Pursuant to a Lease Agreement with the Local Facilities Finance Corporation

Date of Issuance: June 28, 2018

NOTICE IS HEREBY GIVEN NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Certificates as required by Section 10.06 of the Trust Agreement, dated as of June 1, 2018, by and among U.S. Bank National Association, as trustee, the District and the Local Facilities Finance Corporation and the Continuing Disclosure Certificate, dated June 28,2018 executed by the District and countersigned by Isom Advisors, a Division of Urban Futures, Inc., as dissemination agent. The District anticipates that the Annual Report will be filed by______________.

Dated:

[DISSEMINATION AGENT]

By_Title:

cc: Trustee

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APPENDIX F

BOOK-ENTRY ONLY SYSTEM

The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Certificates, payment of principal, interest and other payments on the Certificates to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Certificates and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

Neither the issuer of the Certificates (the “Issuer”) nor the trustee, fiscal agent or paying agent appointed with respect to the Certificates (the “Agent”) take any responsibility for the information contained in this Appendix.

No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Certificates, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Certificates, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Certificates, 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 Appendix. 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.

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the securities (the “Certificates”). The Certificates 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 certificate will be issued for the Certificates, in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue.

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 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument 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

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corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and 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 Standard & Poor's highest rating: AAA. 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 Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate (“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 Certificates 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 Certificates, except in the event that use of the book-entry system for the Certificates is discontinued.

4. To facilitate subsequent transfers, all Certificates 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 Certificates with DTC and their registration in the name of Cede & Co. or such other nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates 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. Beneficial Owners of Certificates may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.

6. Redemption notices shall be sent to DTC. If less than all of the Certificates within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

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http://www.dtcc.com

http://www.dtc.org

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

8. Redemption proceeds, distributions, and interest payments on the Certificates 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 Issuer or 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 nor its nominee, Agent, or 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 Issuer or 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 securities depository with respect to the Certificates at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor securities depository is not obtained, security certificates are required to be printed and delivered.

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

11. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.

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APPENDIX G

SPECIMEN MUNICIPAL BOND INSURANCE POLICY

G-1


MunicipalAssuranceCoke

MUNICIPAL BOND INSURANCE POLICY

AN ASSURED

ISSUER: Policy No: -N

MUNICIPAL ASSURANCE CORP. ("MAC"), foi UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the tru "Paying Agent") (as set forth in the documentation providing for the the Bonds, for the benefit of the Owners or, at the election of MAC

BONDS: $ in aggregate principal amount of

the terms of this Policy (which includes each endorsement hereto), that d&rtion of Jb principal of andinterest on the Bonds that shall become Due for Payment but shal be the Issuer.

On the later of the day on which such princpal and interestBusiness Day next following the Business Day on which MAC shall have received Notice of Nonpayment, MAC will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and interest on the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by MAC, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of the principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment; that all of the Owner's rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in MAC. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be (teemed received on the next Business Day. If any Notice of Nonpayment received by MAC is incomplete, it shaUrbe deemed not to have been received by MAC for purposes of the preceding sentence a : II promptly so advise the Trustee, Paying Agent orOwner, as appropriate, wno may submit an JWended Notice of Nonpayment. Upon disbursement in respect of a Bond, MAC s me the*wner of the Bond, any appurtenant coupon to the Bond or rightto receipt of payn ' ‘ rinclpal of or interest on the Bond and shall be fully subrogated to the rights of the Owner, includiryj Ts receive payments under the Bond, to the extent of any payment byMAC hereunder. Payment by MAC to the Trustee or Paying Agent for the benefit of the Owners shall, to the < urge the obligation of MAC under this Policy.

Ifcent expressly modified by an endorsement hereto, the following terms shall have the purposes of this Policy. "Business Day" means any day other than (a) aSat (bJPa day on which banking institutions in the State of New York or the Insurer'sFisc rized or required by law or executive order to remain closed. "Due for Payment"mea lg to the principal of a Bond, payable on the stated maturity date thereof or the date

iall have been duly called for mandatory sinking fund redemption and does not refer toon wiany earlier dateSUn which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity unless MAC shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant to the

Page 2 of 2 Policy No. -N

United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee or the Paying Agent to MAC which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (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 the terms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.

MAC may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposjAof this Policy by giving written notice to the Trustee and the Paying Agent specifying the name and notlcf^address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee the Paying Agent, (a) copies of all notices required to be delivered to MAC pursu js PoTIBk. shall besimultaneously delivered to the Insurer's Fiscal Agent and to MAC and shall »**• ■ ■ ■■■■*(': . I untilreceived by both and (b) all payments required to be made by MAC under this Policy may be made thtectly by MAC or by the Insurer's Fiscal Agent on behalf of MAC. The Insurer's Fiscal Agent is the agent of MAC only and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of MAC to deposit or cause to be deposited sufficient funds to make payments due under this Policy.

To the fullest extent permitted by applicable law, MAC ^yees 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 or otherwise, to the extent that such rights and defer jC's ■* • jy.be available to MAC to avoid payment of its obligations under this Policy in accordance with the exp isions of this Policy.

This Policy sets forth in full the undertaking of MAC, and shall not be modified, altered or affected by any other agreement or instrurrpit including any modification or amendment thereto. Except tothe extent expressly modified by an nonrefundable for any reason whats Bonds prior to maturity and (b) thi COVERED BY THE PROPERTY/C. OF THE NEW YORK INSU

In witness wits behalf by its

ement hereto, (a) any premium paid in respect of this Policy is , including paywkrUor provision being made for payment, of the

may not be'IBceled or revoked. THIS POLICY IS NOT LTY INSUR4mC^SECURITY FUND SPECIFIED IN ARTICLE 76

MCE CORP. has caused this Policy to be executed on

MUNICIPAL ASSURANCE CORP.

ByAuthorized Officer

A subsidiary of Assured Guaranty Ltd. 1633 Broadway, New York, N.Y. 10019 (212)974-0100

Form 500NY (5/13) (MAC)

41667-07 JH:WJK:JAW:SB 6/28/18

$2,960,0002018 CERTIFICATES OF PARTICIPATION


LIVE OAK UNIFIED SCHOOL DISTRICTto Local Facilities Finance Corporation

(Bank Qualified)

CERTIFICATE REGARDING RESOLUTION

The undersigned hereby states and certifies that:

(i) I am the duly appointed, qualified and acting President of the Local Facilities Finance Corporation, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation"), and as such, I am familiar with the facts herein certified and am authorized to certify the same; and

(ii) attached is a true, correct and complete copy of Resolution No, 5242018, entitled “Resolution of the Board of Directors of the Local Facilities Finance Corporation Approving the Delivery of 2018 Certificates of Participation of the Live Oak Unified School District and Approving Related Documents and Matters,” adopted by the Board of Directors of the Corporation on May 29, 2018, which resolution was duly adopted and has not been amended,modified, supplemented, rescinded or revoked and remains in full force and effect as of the datehereof.

Dated: June 28, 2018 LOCAL FACILITIES FINANCE CORPORATION

Robert D. Gardner President

RESOLUTION NO. 5242018

RESOLUTION OF THE BOARD OF DIRECTORS OF THE LOCAL FACILITIES FINANCE CORPORATION APPROVING

THE DELIVERY OF 2018 CERTIFICATES OF PARTICIPATION OF THE LIVE OAK UNIFIED SCHOOL DISTRICT AND APPROVING

RELATED DOCUMENTS AND MATTERS

WHEREAS, the Local Facilities Finance Corporation (the “Corporation”), a non-profit public benefit corporation organized and existing under and by virtue of the laws of the State of California, is authorized under its Articles of Incorporation to assist the Live Oak Unified School District (the “District”) to finance capital improvements to its school facilities;

WHEREAS, the District has determined that it is in its best financial interests at this time to provide financing for school facilities improvements (the “Projecf); and

WHEREAS, for the purpose of obtaining money to finance the Project, the District has requested the Corporation to enter into various financing documents relating to the execution and delivery of 2018 Certificates of Participation (the “Certificates”); and

WHEREAS, for the purpose of obtaining money for financing the Project, the Corporation will assign to U.S. Bank National Association, as trustee (the “Trustee”) certain of its rights under a Lease Agreement, between the District and the Corporation (the "Lease Agreement”), and in consideration of such assignment and the execution of that certain Trust Agreement (the “Trust Agreement”), by and among the Corporation, the District, and the Trustee, the Trustee will execute the Certificates, each evidencing a direct, undivided fractional interest in the lease payments to be made by the District under the Lease Agreement (the “Lease Payments"); and

WHEREAS, for the purpose of obtaining such moneys, the Corporation is willing to convey to certain persons direct, undivided fractional interests in the Lease Payments, such interests to be evidenced by the aggregate principal amount of the Certificates; and

WHEREAS, in order to make such interests marketable on terms acceptable to the Corporation, the Corporation is willing to assign and transfer its rights under the Lease Agreement to the Trustee for the benefit of the owners pursuant to an Assignment Agreement (the “Assignment Agreement”), between the Corporation and the Trustee; and

WHEREAS, under the Trust Agreement, the Trustee will execute and deliver the Certificates to the original purchasers thereof and the proceeds of sale of the Certificates shall be used by the District to finance the Project; and

WHEREAS, the Board of Directors wishes at this time to authorize all proceedings relating to the execution and delivery by the Trustee of the Certificates, as described herein, and the execution and delivery of all agreements and documents relating thereto;

NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Local Facilities Finance Corporation as follows:

Section 1. All of the recitals herein contained are true and correct and the Board sofinds.

Section 2. The form of the Site Lease, on file with the Secretary of the Corporation, is hereby approved, and the President of the Corporation, the Vice President of the Corporation, and the Treasurer of the Corporation (the “Authorized Officers") are each hereby authorized and directed, for and in the name and on behalf of the Corporation, to execute and deliver the Site Lease in substantially said form, with such changes therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof.

Section 3. The form of the Lease Agreement, on file with the Secretary of the Corporation, is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the Corporation, to execute and deliver the Lease Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof; provided, however, that the aggregate amount of principal components of the Lease Payments payable under the Lease Agreement shall not exceed $3,$00,000,

Section 4. The form of Trust Agreement, on file with the Secretary of the Corporation, is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the Corporation, to execute and deliver the Trust Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof.

Section 5. The form of Assignment Agreement, on file with the Secretary of the Corporation, is hereby approved, and the Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the Corporation, to execute and deliver the Assignment Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof.

Section 6. The execution and delivery of Certificates evidencing principal in an amount not to exceed $3,500,000, payable in the years and in the amounts, and evidencing interest as specified in the Trust Agreement as finally executed, are hereby authorized and approved.

Section 7, The officers of the Corporation are hereby authorized and directed, jointly and severally, to do any and all things and execute such documents which they may deem necessary or advisable in order to consummate the transactions herein authorized and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution.

Section 6. Effective Date. This resolution shall take effect from and after the date of its passage and adoption.

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The undersigned hereby certify that the foregoing is a full, true and correct copy of a resolution duly passed and adopted by the Board of Directors of the Local Facilities Finance Corporation at a special meeting thereof duly held on the 29 day of May. 2018, by the following vote of the Directors thereof:

AYES, and in favor thereof, Directors: 4

NOES, Directors: 0

ABSENT, Directors: 0

PresidentLocal Facilities Finance Corporation

SecretaryLocal Facilities Finance Corporation