$14,835,000 2011 CERTIFICATES OF PARTICIPATIONcdiacdocs.sto.ca.gov/2011-0447.pdf · 2021 175,000 4.500 4.500 2030 475,000 5.750 5.750 2022 200,000 ... forecasts or matters of opinion,

NEW ISSUE S&P Rating: “A-” DTC BOOK-ENTRY ONLY See “RATING” herein

In the opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel to the Madera County Board of Education (the “Board”), based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, (among other matters), the accuracy of certain representations and compliance with certain covenants, the portion of each Base Rental Payment (as defined herein) paid by the Board designated as and evidencing and representing interest and received by the Owners of the Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the opinion of Special Counsel, such interest is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, although Special Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. Special Counsel expresses no opinion regarding any other tax consequences relating to the accrual or receipt of the interest portion of the Base Rental Payments or the ownership or disposition of the Certificates. See “LEGAL MATTERS --Tax Matters.”

$14,835,000 2011 CERTIFICATES OF PARTICIPATION

(REFUNDING AND 2011 CAPITAL PROJECTS) Evidencing And Representing Fractional Undivided Interests Of The Owners Thereof

In The Base Rental Payments To Be Made By The

MADERA COUNTY BOARD OF EDUCATION As The Rental For Certain Property Pursuant To A Facilities Lease With The

MUNICIPAL ASSET FINANCE�CORPORATION

DATED: Date of Delivery DUE: October 1, as shown below

The 2011 Certificates of Participation (Refunding and 2011 Capital Projects) of the Madera County Board of Education (the “Certificates”) are being executed and delivered in the aggregate principal amount of $14,835,000 for the purpose of currently refunding certain outstanding obligations of the Board and implementing the Board’s 2011 Capital Projects (as defined herein).

The Certificates evidence and represent the fractional undivided interests of the Owners thereof in Base Rental Payments (as defined herein) to be made by the Board pursuant to a facilities lease dated as of June 1, 2011 (the “Facilities Lease”), by and between the Municipal Asset Finance Corporation, a California nonprofit public benefit corporation (the “Corporation”) and the Board. The Certificates are being delivered pursuant to a trust agreement dated as of June 1, 2011 (the “Trust Agreement”), by and between Bank of New York Mellon Trust Company, N.A. (the “Trustee”), the Corporation and the Board. Interest on the Certificates is payable semiannually on April 1 and October 1 of each year, commencing on October 1, 2011. The Certificates are subject to redemption prior to maturity as described herein. See “THE CERTIFICATES—Redemption Provisions” herein.

The Certificates will be executed and delivered in book-entry form only, and will be initially registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”). Purchasers of the Certificates (the “Beneficial Owners”) will not receive physical certificates representing their interest in the Certificates. The Certificates will be delivered in denominations of $5,000 and any integral multiple thereof. Payments of principal and interest with respect to the Certificates will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the Certificates. (See “THE CERTIFICATES—Book-Entry Only System” herein).

THE BOARD HAS COVENANTED IN THE FACILITIES LEASE TO TAKE SUCH ACTION AS MAY BE NECESSARY TO INCLUDE AND MAINTAIN ALL BASE RENTAL PAYMENTS AS AND WHEN DUE, SUBJECT TO ABATEMENT, AS FURTHER DESCRIBED HEREIN, IN ITS ANNUAL BUDGET AND TO MAKE THE NECESSARY ANNUAL APPROPRIATIONS FOR ALL SUCH RENTAL PAYMENTS. THE OBLIGATION OF THE BOARD TO MAKE BASE RENTAL PAYMENTS IS A SPECIAL OBLIGATION OF THE BOARD AND DOES NOT CONSTITUTE A DEBT OF THE BOARD OR THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE BOARD IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE BOARD HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE CORPORATION HAS NO OBLIGATION OR LIABILITY WHATSOEVER TO THE OWNERS OF THE CERTIFICATES.

THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT INTENDED TO BE A SUMMARY OF ALL FACTORS RELEVANT TO AN INVESTMENT IN THE CERTIFICATES. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. CAPITALIZED TERMS USED ON THIS COVER PAGE NOT OTHERWISE DEFINED WILL HAVE THE MEANING SET FORTH HEREIN.

MATURITY SCHEDULE

Maturity Date Principal Coupon Reoffering Maturity Date Principal Coupon Reoffering October 1 Amount Rate Yield October 1 Amount Rate Yield

2013 $ 150,000 3.000 % 2.100 % - - - -2014 150,000 3.000 2.500 2023 $ 225,000 4.875 % 4.875 % 2015 155,000 3.000 2.750 2024 250,000 5.000 5.050 2016 165,000 3.000 3.050 2025 280,000 5.250 5.250 2017 170,000 3.375 3.400 2026 315,000 5.375 5.375 2018 125,000 3.625 3.700 2027 350,000 5.500 5.500 2019 140,000 4.000 4.000 2028 390,000 5.500 5.550 2020 155,000 4.250 4.300 2029 430,000 5.600 5.625 2021 175,000 4.500 4.500 2030 475,000 5.750 5.750 2022 200,000 4.625 4.700 2031 525,000 5.875 5.875

$3,420,000 6.125% Term Certificate due October 1, 2036; Priced at Par $6,590,000 6.250% Term Certificate due October 1, 2041; Priced at Par

The Certificates are being purchased for re-offering by Southwest Securities, Inc. as Underwriter of the Certificates. The Certificates will be offered when, as and if executed and delivered and received by the Underwriter, subject to the approval as to their legality by Orrick, Herrington & Sutcliffe LLP, Special Counsel. It is anticipated that the Certificates, in definitive form, will be available for delivery through the facilities of DTC in New York, New York on or about June 2, 2011.

This Official Statement is dated May 12, 2011

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NO DEALER, BROKER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED BY THE BOARD OR THE UNDERWRITER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE BOARD OR THE UNDERWRITER. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL NOR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE CERTIFICATES BY A PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE AN OFFER, SOLICITATION OR SALE.

THIS OFFICIAL STATEMENT IS NOT TO BE CONSTRUED AS A CONTRACT WITH THE PURCHASERS OF THE CERTIFICATES. STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT WHICH INVOLVE ESTIMATES, PROJECTIONS, FORECASTS OR MATTERS OF OPINION, WHETHER OR NOT EXPRESSLY SO DESCRIBED HEREIN, ARE INTENDED SOLELY AS SUCH AND ARE NOT TO BE CONSTRUED AS REPRESENTATIONS OF FACT.

THE INFORMATION SET FORTH HEREIN HAS BEEN OBTAINED FROM SOURCES THAT ARE BELIEVED TO BE RELIABLE. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND 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. THE INFORMATION AND EXPRESSIONS OF OPINION HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE AND NEITHER DELIVERY OF THIS OFFICIAL STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE BOARD SINCE THE DATE HEREOF.

THIS OFFICIAL STATEMENT IS SUBMITTED WITH RESPECT TO THE SALE OF THE CERTIFICATES REFERRED TO HEREIN AND MAY NOT BE REPRODUCED OR USED, IN WHOLE OR IN PART, FOR ANY OTHER PURPOSE, UNLESS AUTHORIZED IN WRITING BY THE BOARD. ALL SUMMARIES OF THE DOCUMENTS AND LAWS ARE MADE SUBJECT TO THE PROVISIONS THEREOF AND DO NOT PURPORT TO BE COMPLETE STATEMENTS OF ANY OR ALL SUCH PROVISIONS.

IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE BOARD AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN MARKET PRICES OF THE CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS, INSTITUTIONAL INVESTORS, BANKS OR OTHERS AT PRICES LOWER OR YIELDS HIGHER THAN THE PUBLIC OFFERING PRICES OR YIELDS STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES OR YIELDS MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

CUSIP* Numbers

Maturity Date October 1

CUSIP Number

Maturity Date October 1

CUSIP Number

2013 55646DAA3 - - 2014 55646DAB1 2024 55646DAM7 2015 55646DAC9 2025 55646DAN5 2016 55646DAD7 2026 55646DAP0 2017 55646DAE5 2027 55646DAQ8 2018 55646DAF2 2028 55646DAR6 2019 55646DAG0 2029 55646DAS4 2020 55646DAH8 2030 55646DAT2 2021 55646DAJ4 2031 55646DAU9 2022 55646DAK1 2036 55646DAV7 2023 55646DAL9 2041 55646DAW5

* CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor's Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. The Board and the Underwriter make no representation as to the accuracy or completeness of such information.

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(REFUNDING AND 2011 CAPITAL PROJECTS) MADERA COUNTY BOARD OF EDUCATION

THE BOARD OF EDUCATION

Area 1 – Grant Sturm Area 2 – Sara Wilkins (President)

Area 3 – Leon Bass Area 4 – Maxine Yocum Area 5 – Cathie Bustos

Area 6 - Ronald Manfredo (Vice President) Area 7 – Bobby Thatcher

OFFICE ADMINISTRATION

Cecilia A. Massetti, Ed.D. – County Superintendent of Schools Geri Kendall Cox - Chief Business & Administrative Services Officer

28123 Avenue 14

Madera, California 93638 Phone (559) 673-6051

FINANCIAL ADVISOR

Government Financial Strategies inc. 1228 N Street, Suite 13

Sacramento, California 95814-5609 (916) 444-5100

SPECIAL COUNSEL

Orrick, Herrington & Sutcliffe LLP The Orrick Building 405 Howard Street

San Francisco, California 94105-2669 (415) 773-5438

TRUSTEE

The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500

Los Angeles, California 90017 (213) 630-6249

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$14,835,000

2011 CERTIFICATES OF PARTICIPATION (REFUNDING AND 2011 CAPITAL PROJECTS) MADERA COUNTY BOARD OF EDUCATION

TABLE OF CONTENTS

Page # INTRODUCTORY STATEMENT ..................................................................................................................................................... 1�

The Office.................................................................................................................................................................................... 1�General ........................................................................................................................................................................................ 2�The Corporation........................................................................................................................................................................... 2�The Certificates ........................................................................................................................................................................... 2�Authority for Leasing and Source of Repayment for the Certificates......................................................................................... 2�Tax Matters.................................................................................................................................................................................. 3�Continuing Disclosure ................................................................................................................................................................. 3�Professionals Involved................................................................................................................................................................. 3�Other Information........................................................................................................................................................................ 3�

THE CERTIFICATES ......................................................................................................................................................................... 4�General Provisions....................................................................................................................................................................... 4�Redemption Provisions................................................................................................................................................................ 4�DTC Book-Entry Only ................................................................................................................................................................ 6�Sources and Uses of Funds.......................................................................................................................................................... 7�Base Rental Payments ................................................................................................................................................................. 8�Source of Payment for the Certificates...................................................................................................................................... 10�Certificate Reserve Fund ........................................................................................................................................................... 10�Payment Plan for the Certificates .............................................................................................................................................. 10�

THE FACILITIES.............................................................................................................................................................................. 11�The Facilities Subject To Site Lease and Facilities Lease ........................................................................................................ 11�

THE 2011 CAPITAL PROJECTS..................................................................................................................................................... 11�The 2011 Capital Projects ......................................................................................................................................................... 11�

THE REFUNDING............................................................................................................................................................................ 11�Refunding of the Prior Financing .............................................................................................................................................. 11�

SPECIAL RISK FACTORS .............................................................................................................................................................. 12�Payments Not Board Debt ......................................................................................................................................................... 12�Eminent Domain and Abatement .............................................................................................................................................. 12�No Earthquake Insurance Coverage .......................................................................................................................................... 13�No Acceleration Upon Default .................................................................................................................................................. 13�Enforcement of Remedies ......................................................................................................................................................... 13�Loss of Tax Exemption ............................................................................................................................................................. 14�

THE BOARD AND THE OFFICE.................................................................................................................................................... 14�General Information .................................................................................................................................................................. 14�The Board of Education and Key Administrative Personnel .................................................................................................... 14�Average Daily Attendance ........................................................................................................................................................ 15�Employee Relations................................................................................................................................................................... 15�Pension Plans............................................................................................................................................................................. 15�Other Post-Employment Benefits.............................................................................................................................................. 16�

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BOARD FINANCIAL INFORMATION .......................................................................................................................................... 16�Accounting Practices ................................................................................................................................................................. 16�Budget and Financial Reporting Process................................................................................................................................... 17�Financial Statements.................................................................................................................................................................. 18�Revenues.................................................................................................................................................................................... 19�Expenditures .............................................................................................................................................................................. 20�Short-Term Borrowings............................................................................................................................................................. 20�Capitalized Lease Obligations ................................................................................................................................................... 20�Long-Term Bonded Debt .......................................................................................................................................................... 21�

TAXATION AND APPROPRIATIONS........................................................................................................................................... 21�Ad Valorem Property Taxation.................................................................................................................................................. 21�Taxation of State-Assessed Utility Property ............................................................................................................................. 21�Alternative Method of Tax Apportionment............................................................................................................................... 21�Historical Tax Collections and Delinquencies .......................................................................................................................... 22�Historical Assessed Valuation................................................................................................................................................... 22�Largest Taxpayers ..................................................................................................................................................................... 23�Direct and Overlapping Bonded Debt ....................................................................................................................................... 23�

COUNTY ECONOMIC PROFILE ................................................................................................................................................... 26�General Information .................................................................................................................................................................. 26�Major Employers ....................................................................................................................................................................... 27�County Unemployment ............................................................................................................................................................. 28�Taxable Sales............................................................................................................................................................................. 28�

STATE FUNDING OF PUBLIC EDUCATION............................................................................................................................... 29�Sources of Revenues for Public Education ............................................................................................................................... 29�Distribution of Revenues for Public Education......................................................................................................................... 30�The 2010-11 State Budget ......................................................................................................................................................... 30�The Proposed 2011-12 State Budget ......................................................................................................................................... 32�Future Budgets........................................................................................................................................................................... 35�

CONSTITUTIONAL & STATUTORY PROVISIONS AFFECTING REVENUES & EXPENDITURES.................................... 35�LEGAL MATTERS........................................................................................................................................................................... 37�

No Litigation ............................................................................................................................................................................. 37�Legal Opinion............................................................................................................................................................................ 37�Tax Matters................................................................................................................................................................................ 37�Legality for Investment ............................................................................................................................................................. 38�

RATING............................................................................................................................................................................................. 39�FINANCIAL ADVISOR ................................................................................................................................................................... 39�INDEPENDENT AUDITORS........................................................................................................................................................... 39�UNDERWRITING AND INITIAL OFFERING PRICES ................................................................................................................ 39�CONTINUING DISCLOSURE......................................................................................................................................................... 39�ADDITIONAL INFORMATION...................................................................................................................................................... 40�

APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX B THE ANNUAL FINANCIAL REPORT OF THE BOARD AS OF AND FOR THE YEAR ENDED JUNE 30, 2010 APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX D FORM OF OPINION OF SPECIAL COUNSEL

[THIS PAGE INTENTIONALLY LEFT BLANK]

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OFFICIAL STATEMENT


(REFUNDING AND 2011 CAPITAL PROJECTS) Evidencing And Representing Fractional Undivided Interests Of The Owners Thereof

In The Base Rental Payments To Be Made By The

MADERA COUNTY BOARD OF EDUCATION As The Rental For Certain Property Pursuant To A Facilities Lease With The

MUNICIPAL ASSET FINANCE CORPORATION

INTRODUCTORY STATEMENT The purpose of this Official Statement, which includes the cover page, table of contents and attached appendices (the “Official Statement”), is to provide certain information concerning the sale and delivery of the 2011 Certificates of Participation (Refunding and 2011 Capital Projects) of the Madera County Board of Education (the “Certificates”). The Certificates are being sold for the purpose of currently refunding certain outstanding obligations of the Madera County Board of Education (the “Board”), the governing board of the Madera County Office of Education (the “Office”) and implementing the Board’s 2011 Capital Projects (as defined herein). This Official Statement has been prepared under the direction of the Board in order to furnish information with respect to the sale and delivery of the Certificates. This “INTRODUCTORY STATEMENT” is not a summary of this Official Statement. It is only a brief description of and guide to this Official Statement. This “INTRODUCTORY STATEMENT” is qualified by more complete and detailed information contained in the entire Official Statement, including the cover page and attached appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement by prospective investors in the Certificates. The offering of the Certificates to potential investors is made only by means of the entire Official Statement. The Office The California Constitution sets forth a three-level public education system within the State of California (the “State”). This system includes the State Department of Education, county offices of education, and local school districts. The Office is one of 58 county offices of education which form the intermediate level of the State public education system. The Office serves as an essential resource, service and support agency for the nine local school districts, a variety of government agencies, and the communities of Madera County (the “County”). The Office is governed by the Board, which consists of seven members. Each Board member is elected by the public for a four-year term of office and elections for staggered positions on the Board are held every two years. The Board has the decision-making authority and is accountable for all fiscal matters relating to the Board and the Office. The Board also makes major policy decisions in the areas of budgeting, property acquisition and development, and specific student issues, such as expulsion and inter-district appeals. See “THE BOARD AND THE OFFICE” herein, for more information.

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General The Certificates are being executed and delivered in the aggregate principal amount of $14,835,000. The Certificates evidence and represent the fractional undivided interests of the registered owners thereof (the “Owners”) in base rental payments (the “Base Rental Payments”) to be made by the Board as the rental for the use and possession of: • the facilities located at Norman M. Gould Educational Centers, 117 W. Durham, Madera, California 93637, • the facilities located at Pioneer Technical Center, 1025 So. Madera Avenue, Madera, California 93637, and • two adjacent land parcels located at 1105 Madera Avenue and 101 East Gary Lane, and an instructional support center to be

constructed with the proceeds of the Certificates (the “2011 Capital Projects”).

The aforementioned facilities are collectively referred to herein as the “Facilities.” The Facilities are to be leased from the Municipal Asset Financing Corporation (the “Corporation”) pursuant to a facilities lease dated June 1, 2011 (the “Facilities Lease”). See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—FACILITIES LEASE” herein. Proceeds from the sale and delivery of the Certificates will be deposited into the funds and accounts as established under a trust agreement dated June 1, 2011 (the “Trust Agreement”) by and among the Board, the Corporation and Bank of New York Mellon Trust Company, N.A. (the “Trustee”). See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—TRUST AGREEMENT” herein. Proceeds from the sale and delivery of the Certificates will be used by the Board for the purpose of implementing the 2011 Capital Projects, currently refunding the Board’s outstanding 2002 lease purchase financing (the “Prior Financing”) and paying the costs of issuing the Certificates. The Corporation The Corporation is a nonprofit public benefit corporation duly organized in December 2007 for the purpose of providing financial assistance to State governmental agencies, including but not limited to, public school districts, by financing, refinancing, acquiring, constructing, improving, leasing, selling or otherwise conveying real and personal property to such governmental agencies. The Corporation has no liability to the Owners of the Certificates. The Certificates Interest on the Certificates is payable semiannually on April 1 and October 1 of each year, commencing on October 1, 2011. The Certificates will be executed and delivered in fully registered form, without coupons, in denominations of $5,000 principal amount or any integral multiple thereof. See “THE CERTIFICATES” herein. The Certificates are executed and delivered in book-entry form only, and will be initially registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (referred to herein as “DTC”). Purchasers of the Certificates (the “Beneficial Owners” or “Owners”) will not receive physical certificates representing their interest in the Certificates. Payments of principal and interest with respect to the Certificates will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants (as defined herein) who will remit such payments to the Beneficial Owners of the Certificates. See “THE CERTIFICATES—DTC Book-Entry Only” herein. In the event that the book-entry-only system described below is no longer used with respect to the Certificates, the Certificates will be registered in accordance with the Trust Agreement. Authority for Leasing and Source of Repayment for the Certificates The Board is authorized under provisions of the State Constitution and laws of the State to enter into lease or lease purchase agreements relating to real property and buildings, facilities and equipment. The Board approved the form of the Facilities Lease, Trust Agreement and related legal documents by adopting a resolution on April 12, 2011 (the “Resolution”) that authorizes and directs the execution of the documents relating to the sale and delivery of the Certificates. Under the terms of a site lease dated June 1, 2011 (the “Site Lease”), between the Board and the Corporation, the Board will lease the Facilities to the Corporation for the proceeds of the Certificates. See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—SITE LEASE” herein.

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Under the terms of the Facilities Lease, the Board will lease back the Facilities from the Corporation and is required to pay Base Rental Payments from any source of legally available funds for the use and possession of the Facilities, which amounts are sufficient in both time and aggregate amount to pay the principal and interest payable with respect to the Certificates. The Board is also required to pay additional payments as necessary to pay all fees, costs and expenses of the Trustee and other professionals (the “Additional Payments”) in performance of the Facilities Lease and Trust Agreement. Pursuant to the Trust Agreement, the Corporation has assigned to the Trustee, for the benefit of the Owners of the Certificates, its rights under the Facilities Lease, including (i) all its rights to receive Base Rental Payments from the Board under the Facilities Lease, and (ii) all its other rights under the Site Lease and the Facilities Lease as may be necessary to enforce payment of Base Rental Payments when due or otherwise to protect the interests of the Owners of the Certificates. The Board, pursuant to the Facilities Lease, will take such action as may be necessary to include all Base Rental Payments with respect to the Facilities in its annual budget and to make the necessary annual appropriation therefor. The amount of Base Rental Payments will be abated during any period in which, by reason of damage, destruction, condemnation or material title defect, there is substantial interference with the Board's use and possession of any portion of the Facilities, except to the extent the moneys on deposit in the reserve fund (the “Certificate Reserve Fund”) established under the Trust Agreement are used, or to the extent moneys are received from rental interruption insurance, if any, with respect to the Facilities. See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—FACILITIES LEASE—Base Rental Payments; Additional Payments” and “SPECIAL RISK FACTORS” herein, for a further discussion of the abatement provisions. Tax Matters In the opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel, based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, (among other matters), the accuracy of certain representations and compliance with certain covenants, the portion of each Base Rental Payment paid by the Board designated as and evidencing and representing interest and received by the Owners of the Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State personal income taxes. In the opinion of Special Counsel, such interest is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, although Special Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. Special Counsel expresses no opinion regarding any other tax consequences relating to the accrual or receipt of the interest portion of the Base Rental Payments or the ownership or disposition of the Certificates. See “LEGAL MATTERS- Tax Matters” herein. A complete copy of the proposed opinion of Special Counsel is attached hereto as “APPENDIX D – FORM OF OPINION OF SPECIAL COUNSEL”. Continuing Disclosure The Board will covenant for the benefit of Beneficial Owners to make available certain financial information and operating data relating to the Board and to provide notices of the occurrence of certain significant events in compliance with S.E.C. Rule 15c2-12(b)(5). The specific nature of the information to be made available and of the notices of significant events are set forth in “APPENDIX C–FORM OF CONTINUING DISCLOSURE CERTIFICATE.” See also "CONTINUING DISCLOSURE" herein. Professionals Involved Government Financial Strategies inc., Sacramento, California, has acted as a financial advisor (the “Financial Advisor”) to the Board with respect to the sale and delivery of the Certificates. See “FINANCIAL ADVISOR” herein. All proceedings in connection with the sale and delivery of the Certificates are subject to the approving legal opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel to the Board with respect to the Certificates. Other Information This Official Statement may be considered current only as of its dated date affixed to the cover page hereof, and the information contained herein is subject to change. Brief descriptions of the Certificates, the security for the Certificates and the Board are included in this Official Statement, together with summaries of certain provisions relating to the Trust Agreement, the Facilities Lease, and the Site Lease (collectively, the “Legal Documents”). Such descriptions do not purport to be comprehensive or

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definitive, and all references made herein to the Legal Documents approved by the Board are qualified in their entirety by reference to such document, and all references herein to the Certificates are qualified in their entirety by reference to the form thereof included in the Legal Documents. Information concerning this Official Statement, the Certificates, the Board, the Legal Documents or any other information relating to the sale and delivery of the Certificates is available for public inspection and may be obtained by contacting the Board or by contacting the Board’s Financial Advisor, Government Financial Strategies inc., 1228 N Street, Suite 13, Sacramento, California 95814-5609, telephone (916) 444-5100, facsimile telephone (916) 444-5109.

THE CERTIFICATES General Provisions The Certificates will be executed and delivered in the aggregate principal amount of $14,835,000. The Certificates will be dated their date of delivery. The Certificates will be executed and delivered in fully registered form, without coupons, in denominations of $5,000 principal amount or any integral multiple thereof. The Certificates will mature on the dates (each a “Certificate Payment Date”), in the principal amounts, and interest with respect thereto will be computed at the rates as set forth on the cover page hereof. Interest with respect to each Certificate will accrue from its dated date and is first payable on October 1, 2011, and semiannually thereafter on April 1 and October 1 in each year (each an “Interest Payment Date”) to the Owner hereof. Interest with respect to Certificates will be computed using a year of 360 days comprised of twelve 30-day months. The Certificates will be registered initially in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry only form, and no physical certificates will be made available to the Owners to represent their ownership interests in the Certificates. So long as Cede & Co. is the registered owner of the Certificates, principal and interest will be payable to Cede & Co., as nominee for DTC, which is obligated to remit such payments to the DTC Participants, as defined by DTC, for subsequent disbursement to the Beneficial Owners of the Certificates. See “THE CERTIFICATES—DTC Book-Entry Only” herein. Redemption Provisions Optional Prepayment. The Certificates are subject to redemption prior to their respective stated maturities, at the option of the Board, from any source of available funds, as a whole or in part (with such maturities as may be specified by the Board and by lot within a maturity), on any date on or after October 1, 2021, at the principal amount represented by the Certificates called for prepayment plus accrued interest to the date fixed for prepayment, without premium (the “Prepayment Price”). Mandatory Sinking Account Prepayment. The Certificates maturing by their terms on October 1, 2036 and October 1, 2041, are subject to Mandatory Sinking Account prepayment (the “Term Certificates”) by the Board prior to their respective maturities at a prepayment price equal to the principal amount thereof to be prepaid, together with accrued interest to the date fixed for prepayment, if any, without premium, solely from Mandatory Sinking Account Payments as specified in the table below, but which amounts will be reduced proportionately by the principal amount of all such Term Certificates optionally prepaid.

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Mandatory Sinking Account Payments 2011 Certificates of Participation

October 1 Sinking Account Payments October 1 Sinking Fund Amount

2032 $575,000 - - 2033 625,000 2035 $740,000 2034 680,000 2036* 800,000

*Indicates maturity date of the $3,420,000 Term Certificate due October 1, 2036.

October 1 Sinking Account Payments October 1 Sinking Fund Amount

2037 $870,000 - - 2038 945,000 2040 $1,105,000 2039 1,020,000 2041* 2,650,000

*Indicates maturity date of the $6,590,000 Term Certificate due October 1, 2041. Extraordinary Prepayment. The Certificates are subject to prepayment prior to maturity as a whole or in part [(pro rata among maturities and by lot within a maturity)] on any date, from prepaid Base Rental Payments made by the Board from funds received by the Board due to a casualty loss, material title defect or governmental taking by eminent domain proceedings, under the circumstances and upon the conditions and terms prescribed herein and in the Facilities Lease, at a prepayment price equal to the sum of the principal amount represented thereby plus accrued interest represented thereby to the date fixed for prepayment, without premium. Selection of Certificates for Prepayment. Whenever less than all of the outstanding Certificates payable on any one maturity date are to be prepaid on any one date, the Trustee will select the Certificates within each maturity by lot in any manner that the Trustee deems fair, and the Trustee will promptly notify the Board in writing of the numbers of the Certificates so selected for prepayment on such date. Notice of Prepayment. Notice of prepayment will be mailed, first class postage prepaid, to the respective Owners of any Certificates designated for prepayment at their addresses appearing on the books required to be kept by the Trustee pursuant to the provisions of the Trust Agreement not less than 30 nor more than 60 days prior to the prepayment date. Each notice of prepayment will state: • the prepayment date, • the prepayment place, • the prepayment price and • the serial numbers or CUSIP numbers of the Certificates to be prepaid (unless all of the outstanding Certificates or all of the

outstanding Certificates of any one Certificate Payment Date are 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,

The notice of prepayment will require that such Certificates be then surrendered for prepayment and state that the interest represented by the Certificates designated for prepayment will cease to accrue from and after such prepayment date, and that on such prepayment date there will become due and payable on each of the Certificates designated for prepayment the Prepayment Price represented thereby. Such notice will also, in the case of each Certificate called for prepayment in part only, state the principal amount of the Certificate which is to be prepaid. Any notice mailed as provided herein will be conclusively presumed to have been given, whether or not such Owner receives the notice. At least 30 days before each prepayment date, the Trustee will also give notice of prepayment containing the aforementioned information to the Electronic Municipal Market Access (“EMMA”) system operated by the Municipal Securities Rulemaking Board (“MSRB”). Effect of Prepayment. If a notice of prepayment has been duly given as aforesaid and if moneys sufficient for the payment of the Prepayment Price on the Certificates to be prepaid are on deposit either with the Trustee or an outside escrow agent, then on the prepayment date designated in such notice the Certificates so called for prepayment will become payable at the Prepayment Price specified in such notice; and from and after the date so designated interest represented by the Certificates so called for prepayment will cease to accrue, such Certificates shall cease to be entitled to any benefit or security hereunder and the Owners of such

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Certificates will have no rights in respect thereof except to receive payment of the prepayment price represented thereby. The Trustee will, upon surrender for payment of any of the Certificates to be prepaid, pay such Certificates at the Prepayment Price. Rescission of Notice of Prepayment. The Board may rescind any notice of prepayment for any reason on any date prior to the date fixed for prepayment by causing written notice of the rescission to be given to the Owners of the Certificates so called for prepayment. Any prepayment and notice thereof will be rescinded if for any reason on the date fixed for prepayment funds are not available for such purpose in an amount sufficient to pay in full on said date the Prepayment Price due on the Certificates called for prepayment. Notice of rescission of prepayment will be given in the same manner in which notice of prepayment was originally given. The actual receipt by the Owner of any Certificate of notice of such rescission will not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice will not affect the validity of the rescission. DTC Book-Entry Only The following information concerning DTC and DTC’s book-entry-only system has been provided by DTC for use in securities disclosure documents. There can be no assurance that DTC will abide by its procedures or that such procedures will not be changed from time to time. The following description includes the procedures and record-keeping with respect to beneficial ownership interests in the Certificates, payment of principal and interest, other payments with respect to the Certificates to Direct Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in such Certificates, notices to beneficial owners and other related transactions by and between DTC, the Participants, and the Beneficial Owners. However, DTC, the Participants, and the Beneficial Owners should not rely on the following information with respect to such matters, but should instead confirm the same with DTC or the Direct Participants, as the case may be. DTC will act as securities depository for the Notes. The Notes will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Note certificate will be issued for the Notes in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). 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. Purchases of the 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 the Certificates, except in the event that use of the book-entry system for the Certificates is discontinued. To facilitate subsequent transfers, all the 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

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deposit of the Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 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. 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 the Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, defaults and proposed amendments to the Certificate documents. For example, Beneficial Owners of the 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 notices be provided directly to them. 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. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Board 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). Redemption proceeds, distributions, and dividend 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 the Board or Trustee, 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, Trustee, or the Board, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Board or Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the Board or Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. The Board may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Board believes to be reliable, the Board takes no responsibility for the accuracy thereof. Sources and Uses of Funds The proceeds from the sale of the Certificates will be 1) used to currently refund the Prior Financing and 2) transferred to the Trustee who will transfer or deposit such proceeds:

• into the Certificate Reserve Fund an amount equal to the certificate reserve requirement; • into a fund established with the Trustee to pay interest on the Certificates through and including the October 1, 2012

Interest Payment Date (the “Capitalized Interest Account”); • into a fund established with the treasurer-tax collector of the County to implement the 2011 Capital Projects (the

“Acquisition and Construction Fund”); and, • into a fund established with the Trustee to pay or reimburse the Board for the costs of issuance of the Certificates (the

“Costs of Issuance Fund”).

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Moneys in the funds will be invested in any one or more investments generally permitted to county offices of education under the laws of the State and will be applied solely as described above. Interest earned on the investment of the moneys in the aforementioned funds will be retained within the respective funds. The sources and uses of funds in connection with the sale and delivery of the Certificates are set forth in the following schedule.

Sources and Uses of Funds Schedule 2011 Certificates of Participation

SOURCES OF FUNDS Par Amount $14,835,000.00 Original Issue Discount (847.15) Funds on Hand 31,002.84 TOTAL SOURCES OF FUNDS $14,865,155.69 USES OF FUNDS Refunding of Prior Financing $349,504.38 Certificate Reserve Fund 1,448,555.01 Capitalized Interest Account 1,141,041.20 Acquisition and Construction Fund 11,483,000.00 Costs of Issuance Fund1 147,523.15 Underwriter’s Discount 295,531.95 TOTAL USES OF FUNDS $14,865,155.69 1 This figure includes the fees and expenses of special counsel, financial advisor, rating agency and other costs.

Base Rental Payments Base Rental Payments are required to be made by the Board under the Facilities Lease on or before March 15 and September 15 of each year the Certificates are outstanding, commencing on September 15, 2011, for the use and possession of the Facilities. The Facilities Lease requires that Base Rental Payments be deposited in the Base Rental Payment Fund maintained by the Trustee. On each payment date, the Trustee will withdraw from the Base Rental Payment Fund the aggregate amount necessary to make annual principal and semiannual interest payments with respect to the Certificates, as shown in the following table of the Base Rental Payments Schedule. The $1,141,041.20 deposited in the Capitalized Interest Account is sufficient to pay interest to and including October 1, 2012. Any interest earned in the Capitalized Interest Account will be applied towards interest payments.


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Base Rental Payments Schedule

1 Indicates mandatory sinking account payments of the $3,420,000 Term Certificate due October 1, 2036. 2 Indicates mandatory sinking account payments of the $6,590,000 Term Certificate due October 1, 2041.

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Source of Payment for the Certificates Each Certificate represents a fractional undivided interest in the Base Rental Payments to be made by the Board to the Corporation. The Corporation, pursuant to the Trust Agreement, will assign its rights under the Facilities Lease to the Trustee for the benefit of the Owners, including its right to receive Base Rental Payments thereunder and its right to exercise such rights and remedies as may be necessary to enforce Base Rental Payments when due or otherwise to protect its interests if an Event of Default (as defined in the Facilities Lease) occurs. Principal and interest with respect to the Certificates when due will be made from Base Rental Payments payable by the Board for the use and occupancy of the Facilities, rental interruption insurance proceeds, if any, insurance net proceeds pertaining to the Facilities to the extent that such net proceeds are not used for repair or replacement, and from money in the Certificate Reserve Fund. The Board has covenanted under the Facilities Lease to take action as may be necessary to include all Base Rental Payments and Additional Payments due in its annual budgets, to make necessary annual appropriations for all Base Rental Payments and Additional Payments and to take such action annually as required to provide funds for the Base Rental Payments and Additional Payments. The Board will deliver to the Trustee on or before September 30 of each year a certificate of the Board stating that the Board budget for the year provides for the Base Rental Payments and Additional Payments due hereunder in that year. Except to the extent of (i) amounts held by the Trustee in the Base Rental Payment Fund or in the Certificate Reserve Fund, (ii) amounts received in respect of rental interuption insurance, and (iii) amounts, if any, otherwise legally available to the Trustee for payments in respect of the Certificates, during any period in which, by reason of material damage, destruction, title defect or condemnation, there is substantial interference with the use and possession by the Board of all or any portion of the Facilities, rental payments due hereunder with respect to the Facilities will be abated in the proportion in which the cost of that portion of the Facilities rendered unusable bears to the cost of the whole of the Facilities. See “SPECIAL RISK FACTORS – Abatement” and “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—FACILITIES LEASE—Abatement of Rental” herein. If the Base Rental Payments remain abated and the rental interruption insurance is exhausted and the Certificate Reserve Fund is depleted, the diminished Base Rental Payments, if any, may not be sufficient to pay the principal and interest with respect to the Certificates when due. See “SPECIAL RISK FACTORS” herein. The failure to make such payments of principal and interest with respect to the Certificates due to such abatement does not constitute an Event of Default under the Trust Agreement, the Facilities Lease or the Certificates. The obligation of the Board to make Base Rental Payments does not constitute an obligation for which the Board is obligated to pledge any tax revenues. Neither the Certificates nor the obligation of the Board to make Base Rental Payments constitutes an indebtedness of the Board, the Corporation, the State or any of its political subdivisions within the meaning of the Constitution of the State or otherwise or a pledge of the full faith and credit of the Board. Certificate Reserve Fund The Trust Agreement provides that a Certificate Reserve Fund be funded in an amount equal to the least of (i) maximum annual Lease Payments, (ii) 125% of average annual Lease Payments or (iii) 10% of the principal amount of the Certificates (the “Reserve Requirement”) from proceeds of the sale of the Certificates or cash deposited by the Board. Upon the issuance of the Certificates, the Certificate Reserve Fund will be funded with cash. In lieu of a cash-funded reserve, the Board may purchase a surety bond in the amount required thereunder in favor of the Trustee. In the event of insufficient funds in the Lease Payment Fund from which to make principal and/or interest payments to the Owners of the Certificates due on an Interest Payment Date, the Trustee will draw first on the surety bond or Certificate Reserve Fund to the extent available to obtain sufficient funds to pay principal and/or interest due to the Owners of the Certificates. Payment Plan for the Certificates The Base Rental Payments are payable from the Capitalized Interest Account for interest payment due through October 1, 2012 and from any source of legally available funds of the Board (see “SPECIAL RISK FACTORS—Payments Not Board Debt” herein), including but not limited to unrestricted revenues in the County School Service Fund of the Board. The Board is currently making lease and rental payments for space to accommodate meeting, training, administration and other activities from legally available funds; upon completion of the 2011 Capital Projects, the Board will redirect these budget expenses (totaling approximately $576,000 annually) to make Base Rental Payment on the Certificates.

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In addition, pursuant to the Trust Agreement, the Board pledges to the Trustee, as assignee of the Corporation’s rights, all of the tax increment revenues to be paid to the Board by the City of Madera Redevelopment Agency and City of Chowchilla Redevelopment Agency (the “Redevelopment Revenues”) in order to secure the payment of the Base Rental Payments and Additional Payments. Such pledge constitutes a first lien on and security interest in the Redevelopment Revenues for the payment of the Base Rental Payments and Additional Payments on the Certificates.

THE FACILITIES The Facilities Subject To Site Lease and Facilities Lease The Facilities to be leased to the Corporation from the Board by way of the Site Lease and leased back to the Board from the Corporation by way of the Facilities Lease consist of: • the facilities located at Norman M. Gould Educational Centers, 117 W. Durham, Madera, California 93637, with an insured

value in fiscal year 2010-11 of $2,446,636, • the facilities located at Pioneer Technical Center, 1025 So. Madera Avenue, Madera, California 93637, with an insured value

in fiscal year 2010-11 of $2,164,280, and • two adjacent land parcels located at 1105 Madera Avenue and 101 East Gary Lane, and the 2011 Capital Projects to be

constructed thereon with the proceeds of the Certificates, which will have an insured value of approximately $10,800,000 upon completion of the project.

Upon completion of the 2011 Capital Projects, the Facilities will have an insured value, exclusive of the value of the land, of approximately $15.4 million. The Board is the owner in fee of the real property on which the Facilities are located. During the period the Certificates are outstanding, the Board will retain title to the Facilities and all structural additions thereto and the Corporation will have a leasehold estate in the Facilities.

THE 2011 CAPITAL PROJECTS

The 2011 Capital Projects A portion of the proceeds from the sale of Certificates will be used by the Board to implement the 2011 Capital Projects. The 2011 Capital Projects consist of the construction, furnishing, equipping and landscaping of an instructional support center, worth approximately $10,800,000, which would serve several functions, including providing space for teacher and administrator training, conference rooms, educational resource center, hospitality academy for Pioneer Technical Center and the Office’s administration.

THE REFUNDING Refunding of the Prior Financing A portion of the proceeds from the sale of the Certificates in the amount of $318,501.54 (an amount equal to the “purchase option price,” as defined in the lease purchase agreement in connection with the Prior Financing) will be used to currently refund the Prior Financing on the issuance date of the Certificates.

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SPECIAL RISK FACTORS The following factors, which represent major risk factors that have been identified at this time, should be considered along with all other information in this Official Statement by potential investors in evaluating the credit quality of the Certificates. There can be no assurance that other major risk factors do not exist or will not become evident at any future time regarding the credit quality of the Certificates. Furthermore, no representations are made as to the future financial condition of the Board. Payment of the Base Rental Payments is a County School Service Fund obligation of the Board and the ability of the Board to make Base Rental Payments may be adversely affected by its financial condition as of any particular time. Payments Not Board Debt The full faith and credit of the Board, the State and other political subdivisions thereof have not been pledged to the payment of the Base Rental Payments or any other payments due under the Facilities Lease. Neither Base Rental Payments nor the Certificates constitute a debt of the Board, the State or any other political subdivision thereof. The Board is obligated under the Facilities Lease to pay Base Rental Payments from any source of legally available funds (subject to the exceptions under which the Base Rental Payments may be abated; see “SPECIAL RISK FACTORS—Abatement” below), including but not limited to unrestricted revenues in the general fund of the Board. In addition, pursuant to the Trust Agreement, the Board pledges to the Trustee the Redevelopment Revenues and money on deposit in the Capitalized Interest Account. The County School Service Fund finances the legally authorized activities of the Board not provided for by other funds of the Board that are restricted to the specific purposes for which those moneys were received. The Board has covenanted in the Facilities Lease that, for as long as the Facilities are available for its use, it will make the necessary annual appropriations within its budget for all Base Rental Payments. A significant source of unrestricted revenue for the Board consists of revenues it receives from the State. This State revenue is utilized by the Board in its normal course of operation, including the discharging of obligations, such as will be the case for the payment of Base Rental Payments. As a result of the Board’s dependence upon the State for the majority of its funding, Board revenues in any and all future years during which the Certificates will be outstanding may be adversely affected by the financial condition of the State. For a discussion of the State’s financial condition and the funding of education see “STATE FUNDING OF PUBLIC EDUCATION” herein. Eminent Domain and Abatement If the whole of the Facilities or so much thereof as to render the remainder unusable for the purposes for which it was used by the Board shall be taken under the power of eminent domain, the term of the Facility Lease will cease as of the day such appropriation (for the portion of the Facilities so appropriated). If less than the whole of the Facilities shall be taken under the power of eminent domain and the remainder is usable for the purposes for which it was used by the Board at the time of such taking, there will be a partial abatement of the rental due in an amount equivalent to the amount by which the Base Rental Payments represented by Certificates then outstanding will be reduced by the application of the award in eminent domain to the prepayment of outstanding Certificates. So long as any of the Certificates are outstanding, any award made in eminent domain proceedings for taking the Facilities or any portion thereof will be paid to the Trustee and applied to the prepayment of the Base Rental Payments. Any such award made after all of the Base Rental Payments and Additional Payments have been fully paid, or provision therefor made, will be paid to the Board. Except to the extent of (i) amounts held by the Trustee in the Base Rental Payment Fund or in the Certificate Reserve Fund, (ii) amounts received in respect of rental interruption insurance, and (ii) amounts, if any, otherwise legally available to the Trustee for payments in respect of the Certificates, during any period in which, by reason of material damage, destruction, title defect or condemnation, there is substantial interference with the use and possession by the Board of all or any portion of the Facilities, rental payments due hereunder with respect to the Facilities will be abated in the proportion in which the cost of that portion of the Facilities rendered unusable bears to the cost of the whole of the Facilities. Any abatement of rental payments will not be considered an event of default as defined in the Facilities Lease. The abatement will continue for the period commencing with the date of the damage, destruction, title defect or condemnation and ending with the substantial completion of the work of repair or replacement of the portions of the Facilities so damaged, destroyed, defective or condemned. See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—FACILITIES LEASE—Insurance” herein. If such amounts are insufficient to make all payments of principal and interest due with respect to the Certificates during the period that the Facilities are being replaced, repaired or reconstructed, then such payments of principal and interest due with respect to the

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Certificates may not be made and no remedy is available to the Trustee or the Owners under the Facilities Lease or Trust Agreement for nonpayment under such circumstances. The Board will have in place at the time of closing of the sale of the Certificates a policy of rental abatement insurance that will cover up to two years of Base Rental Payments. If reconstruction or replacement of the Facilities takes longer than two years and the Certificate Reserve Fund is depleted, then the Certificate Owners would not receive payments on their Certificates as scheduled. However, if rental is abated, the term of the Facilities Lease will be extended for a period equal to the period of the abatement, up to 10 years, or until all payments on the Certificates are made. No Earthquake Insurance Coverage The Board is not obligated under the Facilities Lease to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Facilities for the duration of the Facilities Lease term. Should an earthquake cause damage to the Facilities such that there results substantial interference with the use and occupancy of the Facilities, Base Rental Payments would be abated but the policy of rental interruption insurance would not cover the abatement. See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—FACILITIES LEASE” herein and “SPECIAL RISK FACTORS” above for a discussion of the abatement provisions. The Board would, however, promptly apply for Federal disaster aid or State disaster aid, as applicable, in the event that the Facilities are damaged or destroyed as a result of an earthquake. Any proceeds received as a result of such disaster aid shall be used to repair, reconstruct, restore or replace the damaged or destroyed portions of the Facilities, or, at the option of the Board, to prepay outstanding Certificates if such use of such disaster aid is permitted. See “THE CERTIFICATES—Prepayment Provisions” herein. No Acceleration Upon Default In the event of a Default, as defined in the Facilities Lease (see “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—FACILITIES LEASE” herein), there is no available remedy of acceleration of the total Base Rental Payments due over the term of the Facilities Lease. Any such suit for money damages would be subject to limitations on legal remedies against county offices of education in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Enforcement of Remedies The enforcement of any remedies provided in the Facilities Lease (see “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—FACILITIES LEASE” herein) and the Trust Agreement (see “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—TRUST AGREEMENT” herein) could prove both expensive and time consuming. In addition to the limitation on remedies contained in the Facilities Lease and the Trust Agreement, the rights and remedies provided in the Facilities Lease and the Trust Agreement may be limited by and are subject to provisions of federal bankruptcy laws, as now or hereafter enacted, and to other laws or equitable principles that may affect the enforcement of creditors’ rights. The legal opinion to be delivered concurrently with the delivery of the Certificates will be qualified, as to the enforceability of the Trust Agreement, the Facilities Lease and other related documents, by bankruptcy, reorganization, moratorium, insolvency or other similar laws affecting the enforcement of creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitation on legal remedies against public agencies in the State. The Board is a unit of State government and therefore is not subject to the involuntary procedures of the United States Bankruptcy Code (the “Bankruptcy Code”). However, pursuant to Chapter 9 of the Bankruptcy Code, the Board may seek voluntary protection from its creditors for purposes of adjusting its debts. In the event the Board were to become a debtor under the Bankruptcy Code, the Board would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding and an Owner would be treated as a creditor in a municipal bankruptcy. Among the adverse effects of such a bankruptcy would be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Board or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Board; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the incurrence of unsecured or court-approved secured debt which may have a priority of payment superior to that of Owners; and (iv) the possibility of the adoption of a plan for the adjustment of the Board's debt (a “Plan”) without the consent of all of the Owners, which Plan may restructure, delay, compromise or reduce the amount of the claim of the Owners if the Bankruptcy Court finds that

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the Plan is fair and equitable. In addition, the Bankruptcy Code would invalidate any provision of the Certificates which makes the bankruptcy or insolvency of the Board an Event of Default. With the exception of the provisions contained in the Plan, a Bankruptcy Court could not impose restrictions on the Board‘s power or its property without the consent of the Board. Loss of Tax Exemption The Board has covenanted to comply with restrictions under the Internal Revenue Code of 1986, as amended, (the "Code") (relating to use of Certificate proceeds, Certificate Reserve Fund funding requirements, investment yield limitations, rebate requirements, federal guarantee prohibitions and registration requirements) so that interest paid with respect to the Certificates is excludable from gross income for federal income tax purposes. However, in the event the Board fails to comply with any of these covenants, interest paid with respect to the Certificates would be includable in gross income for federal income tax purposes, possibly retroactive to the date of Certificate delivery.

THE BOARD AND THE OFFICE General Information The State Constitution sets forth a three-level public education system. This system includes the State Department of Education, county offices of education and local school districts. The Office is one of 58 county offices of education which form the intermediate level of the State public education system. The Office serves as an essential resource, service and support agency for the nine local school districts, a variety of government agencies and communities in the County. The Office enhances school district functions and purposes with its fiscal, human resources, administrative and curricular support services, including special education, career and alternative education. The Board of Education and Key Administrative Personnel The Office is governed by the Board, which consists of seven members. Each Board member is elected by the public for a four-year term of office and elections for staggered positions on the Board are held every two years. The Board has the decision-making authority and is accountable for all fiscal matters relating to the Board and the Office. The Board also makes major policy decisions in the areas of budgeting, property acquisition and development, and specific student issues, such as expulsion and inter-district appeals. The current members of the Board and their positions are set forth below.

Madera County Board of Education

Member Title Term Expiration

Grant Sturm Trustee – Area 1 November 2012 Sara Wilkins Trustee – Area 2 November 2014

Leon Bass Trustee – Area 3 November 2014 Maxine Yocum Trustee – Area 4 November 2012 Cathie Bustos Trustee – Area 5 November 2012

Ronald Manfredo Trustee – Area 6 November 2014 Bobby Thatcher Trustee – Area 7 November 2012

The management and policies of the Office are administered by the County Superintendent of Schools, an elected official who is responsible for day-to-day operations as well as the supervision of the Office’s other key personnel. The County Superintendent of Schools is also responsible for examining and approving school district budgets, registering teacher credentials, supporting districts in meeting accountability measures and certifying student attendance data. Key administrative personnel are set forth on page “iii” of this Official Statement.

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Average Daily Attendance Student enrollment of State public school districts and county offices of education determines, to a large extent in most cases, what each agency will receive in terms of funding for program, facilities and staff needs. Average daily attendance (“ADA”) is a measurement of the number of students attending class. 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 and county offices of education. Set forth in the following table are the Board’s historical actual ADA, and the current budget year’s projected ADA.

Average Daily Attendance Madera County Board of Education

2006-07 2007-08 2008-09 2009-10 2010-11*

P-2 ADA 612 624 694 745 799

*Budgeted figures. Employee Relations State law provides that employees of the Office are to be divided into appropriate bargaining units that then are to be represented by an exclusive bargaining agent. The Office has two recognized bargaining agents for its employees. The Madera County Office of Education Teachers Association CTA/NEA (the “MCOETA”) is the exclusive bargaining unit for all certificated employees. The California School Employee Association, Chapter 713 (the “CSEA”) is the exclusive bargaining agent for instructional, custodial and bus driver classified employees. Management, internal classified and confidential employees do not have a bargaining unit. Set forth in the following table are the Office’s bargaining units, number of full-time equivalent employees (“FTEs”) budgeted for the Fiscal Year, and contract status.

Bargaining Units, Number of Employees and Contract Status Madera County Office of Education

CERTIFICATED FTEs STATUS

MCOETA 113 Settled for the 2010-11 fiscal year.

CLASSIFIED FTEs STATUS

CSEA

226

Settled for the 2010-11 fiscal year.

Pension Plans All full-time employees of the Office are eligible to participate under defined benefit retirement plans maintained by agencies of the State. Certificated employees are eligible to participate in the cost-sharing multiple-employer State Teachers’ Retirement System (“STRS”). Classified employees are eligible to participate in the agent multiple-employer Public Employees’ Retirement Fund of the Public Employees’ Retirement System (“PERS”), which acts as a common investment and administrative agent for participating public entities within the State. STRS operates under the State Education Code sections commonly known as the “State Teachers’ Retirement Law.” Membership is mandatory for all certificated employees of State public schools meeting the eligibility requirements. STRS provides retirement, disability and death benefits based on an employee’s years of service, age and final compensation. Employees vest after five years

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of service and may receive retirement benefits at age fifty-five. Active plan members are required to contribute 8.0% of their salary and the Office is required to contribute an actuarially determined rate (8.25% in 2009-10). The Office’s contribution to STRS for fiscal year 2008-09 was $871,822, for fiscal year 2009-10 was $891,917, and for fiscal year 2010-11 is budgeted to be $897,738. All full-time classified employees of the Office participate in PERS, which provides retirement, disability and death benefits based on an employee’s years of service, age and final compensation. An employee’s rights vest after five years of service and may receive retirement benefits at age fifty. Active plan members are required to contribute 7.0% of their salary and the Office is required to contribute an actuarially determined rate (approximately 9.7% in fiscal year 2009-10). The Office’s contribution to PERS for fiscal year 2008-09 was $1,050,036, for fiscal year 2009-10 was $1,080,798, and for fiscal year 2010-11 is budgeted to be $1,160,905. These benefit provisions and all other requirements are established by State statute and Board resolution. For a more complete description of the Office’s pension plan and annual contribution requirements, see “APPENDIX B – THE ANNUAL FINANCIAL REPORT OF THE BOARD AS OF AND FOR THE YEAR ENDED JUNE 30, 2010” herein. Other Post-Employment Benefits In June 2004, the Governmental Accounting Standards Board (“GASB”) pronounced Statement No. 45, Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pensions. GASB 45 provides that agencies should establish a reserve fund and annually transfer sufficient funds to this reserve in order to pay for retiree employment benefits other than pensions (“OPEB”). Employees who are eligible to receive OPEB while in retirement must meet specific criteria, i.e., age and years with the Office. The Office provides OPEB benefits, as established by Board policy, to eligible employees who retire from the Office on or after attaining the minimum age of 50 under the PERS or age 55 with at least 20 years of service under STRS. Employees hired prior to fiscal year 1979-80 are not subject to the 20-year service requirement. Employees hired on or after April 15, 1990 are not eligible to receive health care benefits. On June 30, 2010, 48 retirees met these eligibility requirements. For fiscal year 2009-10, the funding was on a “pay-as-you-go" basis. In fiscal year 2009-10, the Office paid $433,301 in "pay-as-you-go" cost (approximately 98.3% of total premiums). Plan members receiving benefits contributed $7,315, or approximately 1.7% of the total premiums, through their required contribution. An actuarial study assessing the Office’s OPEB liability as of July 1, 2008, calculated the OPEB actuarial accrued liability (“AAL”) to be $13,486,677, all of which was unfunded at the time of the study. The Office’s annual required contribution (“ARC”) is calculated to be $1,198,238. The Board has set aside approximately $689,000 in a Special Reserve Fund for Postemployment Benefits, though it is not in an irrevocable trust.

BOARD FINANCIAL INFORMATION Accounting Practices The Board accounts for its financial transactions in accordance with the policies and procedures of the State Department of Education’s California School Accounting Manual. The accounting policies of the Board conform to accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board and the American Institute of Certified Public Accountants. The Board’s basic financial statements consist of government-wide statements and fund-based financial statements. Government-wide statements, consisting of a statement of net assets and a statement of activities, report all the assets, liabilities, revenues and expenses of the Board and are accounted for using the economic resources measurement focus and accrual basis of accounting. The fund-based financial statements consist of a series of statements that provide information about the Board’s major and non-major funds. Governmental funds, including the County School Service Fund, special revenue funds and debt service funds are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become measurable and available, while expenditures are recognized in the period in which the liability is incurred, if measurable. Proprietary funds and fiduciary funds are accounted for using the economic

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resources measurement focus and accrual basis of accounting. See “NOTE 1” in “APPENDIX B” herein for a further discussion of applicable accounting policies. The independent auditor for the Board is Borschardt, Corona & Faeth, Fresno, California. The financial statements of the Board as of and for the year ending June 30, 2010, are set forth in “APPENDIX B” attached hereto. The auditor has not performed any subsequent events review or other procedures relative to these audited financial statements since the date of its letter. Budget and Financial Reporting Process The Board’s County School Service Fund finances the legally authorized activities of the Board for which restricted funds are not provided. County School Service Fund revenues are derived from such sources as federal and State school apportionments, taxes, use of money and property, and aid from other governmental agencies. The Board is required by provisions of the Education Code to maintain a balanced budget each year, where the sum of expenditures plus the ending fund balance cannot exceed revenues plus the carry-over fund balance from the previous year. The State Department of Education imposes a uniform budgeting format for school districts and county offices of education. The fiscal year for all county offices of education is July 1 to June 30. The State budget is an extremely important input in the budget preparation process, as county offices of education depend on State funding for a significant portion of their revenue. There is a very close timing in the summer between final approval of the State budget, school finance legislation, and the adoption of county office of education budgets. In some years, the State budget is not approved by the July 1st deadline, which forces county offices of education to begin the new fiscal year with only estimates of the amount of money they will actually receive. The county office of education budgeting process involves continuous planning and evaluation. Within the deadlines, county offices of education work out their own schedules for considering whether or not to hire or replace staff, negotiating contracts with all employees, reviewing programs, and assessing the need to repair existing or acquire new facilities. Decisions depend on the critical estimates of enrollment, fixed costs, commitments in contracts with employees as well as best guesses about how much money will be available for elementary and secondary education. The timing of some decisions is forced by legal deadlines. For example, preliminary layoff notices to teachers must be delivered in March, with final notices in May. This necessitates projecting enrollments and determining staffing needs long before a county office of education will know either its final financial positions for the current year or its income for the next one. The governing board must submit a budget by July 1, and a publicized opportunity for public participation in the budget process is required by law. There are two options for budget adoption. County offices of education may adopt their budgets by July 1 and then revise and readopt them by September 8 after a public hearing. Alternatively, county offices of education may decide, by the previous October 31, to hold public hearings before adopting their budgets by July 1. Those choosing this latter option revise their revenues and expenditures after the State budget act is adopted without a second public hearing. Legislation requires criteria and standards for stringent review of their finances, focusing primarily on predictions of average daily attendance, operating deficit, and reserves. All county offices of education must perform a criteria and standards review before budget adoption. In addition, those county offices of education on the alternative schedule for adoption must repeat the criteria and standards review before their revision only if their July 1 budget was disapproved. The legislation also dictates when and how outside committees, or an appointed paying agent in emergency situations, must work with school districts. This oversight is part of an effort to reduce the number of districts in financial trouble and to increase the responsible use of tax dollars. The county superintendents monitor all school districts' budgets, ongoing financial obligations and multi-year contracts. They have specific powers for recommending actions to revise budgets. They are not, however, authorized to abrogate existing collective bargaining agreements. School districts and county offices of education must review their financial position for the periods ending October 31 and January 31 in order to certify their abilities to meet commitments through the rest of the school year. Each school district and county office of education is required by the State Education Code to file these two interim reports each year by not later than December 15 and March 15. Each interim report shows fiscal year to date financial operations and the current budget, with any budget amendments made in light of operations and conditions to that point. The county office of education must then, within 30 days, evaluate the interim reports and forward their comments to the State Department of Education and the State Controller's Office. Included in the report of the office of education is a certification by the county superintendent of schools that classifies the county office of education according to its ability to meet its financial obligations. The certifications are grouped into three categories: positive certification, which designates that the Board will be able to meet its financial obligations

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for the remainder of the fiscal year and the following two years; a qualified certification, which means that the Board may not be able to meet its financial obligations for the remainder of the fiscal year and following two years if certain events occur; and a negative certification, which signifies that the Board will not be able to meet its financial obligations for the remainder of the fiscal year or of the following year. A certification by the governing board may be overridden by the State Superintendent of Public Instruction. If either the first or second interim report is not positive, the State superintendent may require the board to provide a third interim report by June 1 covering the period ending April 30. If not required, a third interim report is generally not prepared. The filing status of the Board’s interim reports for the past five years appears in the following table.

Certifications of Interim Financial Reports Madera County Board of Education

Fiscal Year First Interim Second Interim

2006-07 Positive Positive 2007-08 Positive Positive 2008-09 Positive Positive 2009-10 Positive Positive 2010-11 Positive Positive

Financial Statements Figures presented in summarized form herein have been gathered from the Board’s basic financial statements. The audited financial statements of the Board for the fiscal year ending June 30, 2010, have been included in the appendix to this Official Statement. See “APPENDIX B” herein. Audited basic financial statements for all prior fiscal years are on file with the Board and available for public inspection during normal business hours. Copies of basic financial statements relating to any year are available to prospective investors and or their representatives upon request by contacting the Board at the address and telephone number set forth on page “iii” of this Official Statement, or by contacting the Board’s financial advisor, Government Financial Strategies inc., 1228 N Street, Suite 13, Sacramento, California, 95814-5609, Tel. (916) 444-5100.


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County School Service Fund Activity for the Four Most Recent Fiscal Years Madera County Board of Education

2007-08 2008-09 2009-10 2010-11 Audited Audited Audited Second Interim FUND BALANCE, JULY 1 $3,754,135 $2,436,677 $1,918,811 $3,868,418 REVENUES Revenue Limit Sources $10,301,244 $10,251,449 $9,202,148 $8,782,829 Federal Revenue 12,681,572 14,782,115 19,853,873 19,397,679 Other State Revenues 19,023,482 14,627,138 18,655,379 16,034,430

Other Local Revenues 11,014,282 13,904,584 10,662,327 9,981,792 TOTAL REVENUES $53,020,580 $53,565,286 $58,373,727 $54,196,730 EXPENDITURES Certificated Salaries $9,382,096 $10,099,357 $10,312,469 $10,172,068 Classified Salaries 11,745,887 13,445,234 12,916,075 12,389,073 Employee Benefits 6,291,485 6,377,299 6,266,152 6,019,386 Books and Supplies 3,418,663 1,904,248 1,283,923 1,554,196 Services / Other Operating Expenditures 6,070,335 5,319,208 5,905,711 6,414,590 Other Outgo 16,398,975 17,645,242 19,265,211 18,414,170 Capital Outlay 421,813 212,180 22,166 197,160

Debt Service 531,463 131,838 131,837 - TOTAL EXPENDITURES $54,260,717 $55,134,606 $56,103,544 $55,160,643 EXCESS OF REVENUES OVER/(UNDER) EXPENDITURES ($1,240,137) ($1,569,320) $2,270,183 ($963,914) TOTAL OTHER FINANCING SOURCES (USES) ($77,321) $1,051,454 ($320,576) $11,235 NET CHANGE IN FUND BALANCE ($1,317,458) ($517,866) $1,949,607 ($952,679) FUND BALANCE, JUNE 30 $2,436,677 $1,918,811 $3,868,418 $2,915,739

Note: Copies of historical audited financial statements of the Board are available upon request. Revenues Most of the Board’s funding comes in three forms: revenue limit funding from State and local sources, State and federal grants and appropriations by program or purpose, and revenues derived from services provided to other local agencies. Programs primarily funded through revenue limit apportionment and property tax revenues include the Board’s special education, alternative schools (including juvenile court and community schools), and regional occupation programs. These programs receive the majority of their funding through State entitlements and State revenue limit funding. Federal and State grant funded programs include a variety of other categorical aid programs. The Board categorizes its County School Service Fund revenues into four primary sources: revenue limit sources, federal revenues, other state revenues and other local revenues. Revenue Limit Sources. Revenue limit sources accounted for approximately 15.8% of County School Service Fund revenues for fiscal year 2009-10, and are budgeted to be approximately 16.2% of County School Service Fund revenues in fiscal year 2010-11. State apportionments comprised approximately 26.3% of revenue limit sources revenues in fiscal year 2009-10, and are budgeted

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to be 29.9% of revenue limit sources revenues in fiscal year 2010-11. Local property taxes comprised approximately 73.7% of revenue limit sources revenues in fiscal year 2009-10, and are budgeted to be 70.1% of revenue limit sources revenues in fiscal year 2010-11. Federal Sources. The federal government provides funding for several Board programs. These federal revenues, most of which are restricted, were 34.0% of County School Service Fund revenues in fiscal year 2009-10, and are budgeted to be 35.8% of County School Service Fund revenues in fiscal year 2010-11. Federal revenues include the revenues received pursuant to the American Recovery and Reinvestment Act signed into federal law on February 17, 2009. Other State Sources. In addition to apportionment revenues, the State provides funding for several Board programs. These Other State revenues, most of which are restricted, were 32.0% of County School Service Fund revenues in fiscal year 2009-10, and are budgeted to be 29.6% of revenues in fiscal year 2010-11. Included in Other State Sources are proceeds received from the State from the California State Lottery. Other Local Sources. In addition to property taxes, the Board receives additional local revenues. These local revenues consist in large part of revenues derived from services provided to other local agencies. Revenues from Other Local Sources were 18.3% of County School Service Fund revenues in fiscal year 2009-10, and are budgeted to be 18.4% of County School Service Fund revenues in fiscal year 2010-11. Expenditures The largest components of a county office of education’s general fund expenditures are certificated and classified salaries and employee benefits. Changes in salary and benefit expenditures from year to year are generally based on changes in staffing levels, negotiated salary increases, and the overall cost of employee benefits. Even with no negotiated cost of living increases or changes in staffing levels, normal “step and column” advancements on the salary schedule result in increased salary expenditures. Employee salaries and benefits were 52.6% of County School Service Fund expenditures in fiscal year 2009-10, and are budgeted to be 51.8% of general fund expenditures in fiscal year 2010-11. Short-Term Borrowings The Board has in the past issued short-term tax and revenue anticipation notes. Proceeds from the issuance of notes by the Board during previous fiscal years have been used to reduce inter-fund dependency and to provide the Board with greater overall efficiency in the management of its funds. The Board has never defaulted on any of its short-term borrowings. Set forth in the following table is the recent history of short-term borrowings issued by the Board.

Recent History of Short Term Cash-Flow Financing Program Madera County Board of Education

Capitalized Lease Obligations The Board has made use of various capital lease arrangements in the past under agreements that provide for title of items and equipment being leased to pass to the Board upon expiration of the lease period. The Board’s capital lease agreements have been used for such purposes as the purchase of buildings and equipment. The Board has covenanted to appropriate annually the

Date of Issuance Amount of Notes

July 2003 $4,500,000 July 2004 3,000,000 July 2005 2,000,000 July 2009 5,000,000 July 2010 4,600,000

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amounts necessary to make all future lease payments from available revenues. As of June 30, 2010, the Board’s capital lease liability (present value of net minimum lease payments) was $424,154. All capitalized lease obligations of the Board as of June 30, 2010, are set forth in “APPENDIX B” attached hereto. After the issuance of the Certificates, the Board will have no capitalized lease remaining. Long-Term Bonded Debt The Board has no outstanding long-term bonded debt.

TAXATION AND APPROPRIATIONS Ad Valorem Property Taxation The Board utilizes the services of the County for the assessment and collection of taxes for Board purposes, except for public utility property which is assessed by the State Board of Equalization. For a description of how properties are presently assessed, see “CONSTITUTIONAL & STATUTORY PROVISIONS AFFECTING REVENUES & EXPENDITURES.” The State Constitution and sections of various State statutes provide exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, nonprofit hospitals, charitable institutions and for severely handicapped individuals. The State Constitution exempts from ad valorem property taxation $7,000 of full value of owner-occupied dwellings, and requires the Legislature to reimburse each local government for revenues lost as a result of the exemption. Taxation of State-Assessed Utility Property A portion of property tax revenues of the Board is derived from utility property subject to assessment by the State Board of Equalization (“SBE”). State-assessed property, or “unitary property,” is property of a utility system with components located in many taxing jurisdictions assessed as part of a “going concern” rather than as individual parcels of real or personal property. Unitary and certain other state-assessed property is allocated to the counties by the SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions according to statutory formulae generally based on the distribution of taxes in the prior year. Recent changes in the California electric utility industry structure and in the way in which components of the industry are regulated, including the sale of electric generation assets to largely unregulated, nonutility companies, may affect how utility assets are assessed in the future, and which local agencies are to receive the property taxes. The Board cannot predict the impact of these changes on its utility property tax revenues, or whether future legislation or litigation may affect the State’s methods of assessing utility property and allocating tax revenues to local taxing agencies, including such Board. Because the Board is not a basic aid issuer, any taxes lost due to a reduction in, or transfer to another jurisdiction of, utility property assessed valuation will be compensated by the State under the State’s school financing formula. See “STATE FUNDING OF PUBLIC EDUCATION” herein. Alternative Method of Tax Apportionment The Board of Supervisors of the County (the “County Board”) approved implementation of the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), pursuant to sections 4701 through 4717 of the State’s Revenue & Taxation Code in fiscal year 1993-94. This action of the County Board came pursuant to the endorsement of the Teeter Plan by the taxing districts of the County. The Teeter Plan guarantees distribution of 100% of the general taxes levied to the taxing entities within the County, with the County retaining all penalties and interest affixed upon delinquent properties and redemptions of subsequent collections. The purpose of utilizing the Teeter Plan is to simplify the tax-levying and tax-apportioning process and to provide increased flexibility in the use of available cash resources. The Treasurer's cash position is protected by a special fund, known as the “Tax Loss Reserve Fund,” which accumulates moneys from tax and penalty collections. In each fiscal year, the Tax Loss Reserve Fund is funded in the amount of either 1% of the previous fiscal year’s net secured tax roll or 25% of the previous fiscal year’s net Teeter delinquencies, whichever formula the

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County chooses to use. Amounts exceeding the amount required to be maintained in the Tax Loss Reserve Fund may be credited to the County's general fund. Amounts required to be maintained in the tax loss reserve fund may be drawn on to the extent of the amount of uncollected taxes credited to each agency in advance of receipt. A county electing to utilize the Teeter Plan may elect to discontinue its use for any tax levying agency if the rate of secured tax delinquencies in any fiscal year exceeds 3% of the total of all taxes levied on the secured roll of that agency. Otherwise, the Teeter Plan is to remain in effect unless the County Board orders its discontinuance or unless, prior to the commencement of any fiscal year, the County Board receives a petition for its discontinuance joined in by resolutions adopted by at least two-thirds of the participating revenue districts in the County, in which event the County Board is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. If the Teeter Plan is discontinued subsequent to its implementation, only those secured property taxes actually collected would be allocated to political subdivisions, including the Board. Further, the Board’s tax revenues would be subject to taxpayer delinquencies, and the Board would realize the benefit of interest and penalties collected from delinquent taxpayers, pursuant to law. The Board is unaware of any steps the County may be taking to disestablish the Teeter Plan. Historical Tax Collections and Delinquencies The following table shows a recent history of real property secured taxes charged, taxes collected by the end of the fiscal year and secured taxes collected as a percentage of total secured taxes charged. So long as the Teeter Plan remains in effect, the Board’s receipt of revenues with respect to the levy of ad valorem property taxes will not be dependent upon actual collections of such taxes.

Historical Secured Tax Collections Madera County

Fiscal Secured Taxes Collected Delinquency % Delinquency Year Taxes Charged As of June 30 As of June 30 As of June 30

2005 - 06 $96,962,712 $89,090,107 $7,872,605 8.1% 2006 - 07 107,717,279 102,186,419 5,530,860 5.1 2007 - 08 125,808,474 116,847,899 8,960,575 7.1 2008 - 09 130,830,054 121,731,875 9,098,179 7.0 2009 - 10 124,167,199 117,840,809 6,326,390 5.1

Source: County of Madera, Office of the Treasurer-Tax Collector Historical Assessed Valuation Set forth in the following table is the total secured and unsecured historical assessed valuation for the Board, which contains the assessed values of all school districts operating within the jurisdiction of the Board. Total Secured Assessed Value for the Board includes net local secured, homeowner’s exemption and utility values. Total Unsecured Assessed Values for the Board includes net local unsecured and aircraft values.


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Historical Total Secured And Unsecured Assessed Valuation Madera County Board of Education

Fiscal Total Secured Total Unsecured Total Rate of Year Assessed Values Assessed Values Assessed Values Change

2006-07 $9,981,337,137 $352,417,418 $10,333,754,555 - 2007-08 10,966,893,045 381,295,435 11,348,188,480 9.8% 2008-09 11,712,270,104 431,714,243 12,143,984,347 7.0 2009-10 10,657,723,896 490,971,077 11,148,694,973 -8.2 2010-11 9,877,793,563 465,511,664 10,343,305,227 -7.2

Source: County of Madera, Office of the Treasurer. Largest Taxpayers The County Treasurer/Tax Collector mailed approximately $116 million in tax bills for fiscal year 2010-2011 and, of this total, $18.3 million or 15.8% is collected from taxpayers who pay $100,000 or more. The top 20 taxpayers are shown in the following table.

Largest Taxpayers Madera County

Taxpayer Net Assessed Valuation Total Tax % of Total Taxes Pacific Gas and Electric Company $ 211,995,875 $2,440,941 2.1% Canandaigua West Inc. 136,459,325 1,480,657 1.3 Madera Glass Company 106,107,353 1,151,322 1.0 Southern California Edison Co. 78,536,977 902,859 0.8 Pacific Ethanol Madera LLC 58,725,398 637,202 0.6 Certainteed Corporation 56,350,784 583,791 0.5 San Joaquin River Ranch LLC 39,590,677 462,431 0.4 Rancho Calera LLC 5,236,198 429,378 0.4 Paramount Orchards Partners VI LLC 33,380,348 406,091 0.4 Sierra Telephone Company Inc. 31,298,081 368,387 0.3 Wine Group LLC 35,020,281 362,808 0.3 Georgia-Pacific Corrigated LLC 27,899,810 302,728 0.3 KB Home Central Valley Inc. 7,051,788 275,145 0.2 Lion Jeffrey A Etal 23,434,380 272,822 0.2 Costa View Farms #2 24,412,199 253,104 0.2 Pacific Bell & Subsidiaries 21,699,312 249,514 0.2 Azteca Milling LP 22,075,191 239,528 0.2 Advanced Drainage Systems Inc. 22,071,764 239,491 0.2 Taylor Creek Farms 21,267,032 228,685 0.2 Creekside Land Company LLC 21,195,350 222,605 0.2

Source: County of Madera, Office of the Treasurer. Direct and Overlapping Bonded Debt The Office’s statement of direct and overlapping bonded debt, which is set forth below, was prepared by California Municipal Statistics, Inc. It has been included for general information purposes only. The Office has not reviewed the statement for completeness or accuracy and makes no representations in connection with the statement.

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Contained within the Office’s boundaries are numerous overlapping local entities providing public services. These local entities may have outstanding bonds issued in the form of general obligation, lease revenue and special assessment bonds. The first column in the table below names the public agencies, which have outstanding debt as of the date of the report and whose boundaries overlap the Office. The second column in the table shows the assessed value of the area of overlap as a percentage of the total assessed value of the overlapping entity identified in the first column. The third column shows the corresponding portion of each overlapping entity’s existing debt allocable to property within the Office. The total amount of debt for each overlapping entity is not shown in the table. In addition, property owners within the Office may be subject to other special taxes and assessments levied by other taxing authorities which provide services within the District. Such special taxes and assessments are not represented in the statement of direct and overlapping bonded debt.


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Statement of Direct and Overlapping Bonded Debt (As of May 1, 2011) Madera County Office of Education

2010-11 Assessed Valuation: $10,667,778,854 (includes unitary utility) Redevelopment Incremental Valuation: 818,427,974 Adjusted Assessed Valuation: $ 9,849,350,880 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 5/1/11 State Center Community College District 13.5% $ 14,914,851 Other Community College Districts Various 5,139,727 Golden Valley Unified School District 100.0 45,497,890 Madera Unified School District 100.0 65,957,702 Yosemite Unified School District 100.0 7,751,460 Chowchilla Union High School District 100.0 7,714,982 Bass Lake Joint School District 91.6 13,014,209 Other School Districts Various 9,628,682 City of Chowchilla Community Facilities District No. 2006-1, I.A. No. 1 100.0 8,310,000 City of Madera Community Facilities District No. 2006-1 100.0 2,845,000 City and County 1915 Act Bonds 100.0 15,170,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $195,944,503 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Madera County Certificates of Participation 100.0% $18,575,000 Madera County Office of Education 100.0 - (1) West Hills Community College District General Fund Obligations 2.8 1,962,090 Chawanakee Unified School District Certificates of Participation 100.0 12,025,000 Madera Unified School District Certificates of Participation 100.0 17,095,000 Chowchilla Union High School District Certificates of Participation 100.0 3,635,000 Other School District Certificates of Participation Various 294,789 City of Chowchilla General Fund Obligations 100.0 8,371,395 City of Madera General Fund Obligations 100.0 3,585,000 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $65,543,274 Less: City of Chowchilla General Fund Obligations supported by revenue funds 2,675,641 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $62,867,633 GROSS COMBINED TOTAL DEBT $261,487,777 (2) NET COMBINED TOTAL DEBT $258,812,136 (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded

capital lease obligations. Ratios to 2010-11 Assessed Valuation: Total Overlapping Tax and Assessment Debt..................1.8% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ................................................ - % Gross Combined Total Debt ............................................2.6% Net Combined Total Debt ................................................2.6% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/10: $817,032

Source: California Municipal Statistics, Inc. 1Excludes certificates of participation to be sold. 2Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations.

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COUNTY ECONOMIC PROFILE

The Board, the Corporation and the Underwriter make no representation as to the accuracy of such information as set forth or incorporated by reference herein, although they believe that the information provided by the listed sources is reliable. General Information The County is located in the center of the State, in the heart of the Central Valley and the Central Sierras. It is one of the fastest growing counties in the State. Fresno County borders on the south, Mariposa and Merced counties on the north, and Mono County to the east. There are two main cities located within the County: Madera and Chowchilla. The City of Madera is located in the San Joaquin Valley and serves as the County seat. The City of Madera covers approximately 12.3 square miles. Based on data from the MDA DataQuick Information Systems, the median resale value of single family residences and condos as well as new homes in the County was approximately $126,000 in January 2011, an increase of approximately 0.4% from $125,500 in January 2010. The median resale value of single family residences and condos as well as new homes in the City of Madera was approximately $115,500 in January 2011, an increase of approximately 2.7% from $112,500 in January 2010. Population Since 2006, the population of the County has grown at an average of approximately 1.7% annually. The following table displays estimated population data as of January 1st for the previous five years for the City of Madera and the County.

Historical Population City of Madera and Madera County

2006 2007 2008 2009 2010 City of Madera 52,376 55,254 56,468 57,227 58,243 Annual Change for City 5.5% 2.2% 1.3% 1.8% Madera County 143,830 147,361 150,254 152,104 153,655 Annual Change for County 2.5% 2.0% 1.2% 1.0%

Source: California Department of Finance


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Major Employers The following table provides a listing of 25 major employers in the County, in alphabetical order.

Major Employers Madera County

Employer Name Location Industry Baltimore Aircoil Co Madera Refrigeration Equipment-Truck (Mfrs) Brake Parts Inc Chowchilla Automobile Parts & Supplies (Mfrs) Certain Teed Corp Chowchilla Insulation Materials-Cold & Heat Children's Hospital Central CA Madera Hospitals Chukchansi Hotel Coarsegold Casinos Country Villa Healthcare Ctr Madera Senior Citizens Service Frank Zepeda Labor Svc Madera Farming Service Georgia Pacific Corp Madera Madera Paper-Manufacturers Hines Nurseries Inc Chowchilla Florists-Retail Home Depot Madera Home Centers Lamanuzzi & Pantaleo Cold Stge Madera Fruits & Vegetables-Growers & Shippers Lion Brothers Farm-Newstone Madera Farming Service Madera Community Hospital Madera Hospitals Madera County RMA-Admin Madera Government Offices-County Madera Glass Co Madera Bottles (Mfrs) Madera High School Madera Schools Madera South High School Madera Schools Millview Elementary School Madera Schools Mission Bell Winery Madera Wineries (Mfrs) Panella Trucking LLC Madera Trucking Pines Resort Bass Lake Resorts Sierra Telephone Oakhurst Telephone Companies Span Construction Madera Buildings-Metal Valley State Prison For Women Chowchilla State Govt-Correctional Institutions Walmart Madera Department Stores

Source: California Employment Development Department, America’s Labor Market Information System Employer Database, 2011 1st Edition.


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County Unemployment The following table contains a summary of the County’s unemployment data seasonally unadjusted.

Historical Unemployment Madera County

Annual Annual January 2005 2010 2011

Total Labor Force 62,000 66,900 66,600 # Employed 57,100 56,500 55,500 # Unemployed 4,900 10,400 11,100 Unemployment Rate 7.9% 15.6% 16.6%

Source: California Employment Development Department. Taxable Sales The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the City of Madera is presented in the following table.

Taxable Retail Sales City of Madera

2005 2006 2007 2008 2009 Sales Tax Permits 904 910 929 970 952 Taxable Sales $519,954,000 $572,007,000 $547,335,000 $523,759,000 $446,465,000 Change in Taxable Sales 10.0% -4.3% -4.3% -14.8%

Source: State Board of Equalization The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the County is presented in the following table.

Taxable Retail Sales Madera County

2005 2006 2007 2008 2009 Sales Tax Permits 2,978 2,998 3,064 3,030 2,832 Taxable Sales $1,311,282,000 $1,432,644,000 $1,437,499,000 $1,326,564,000 $1,101,301,000 Change in Taxable Sales 9.3% 0.3% -7.7% -17.0%

Source: State Board of Equalization

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STATE FUNDING OF PUBLIC EDUCATION Sources of Revenues for Public Education Sources of Revenues. The State’s K-12 education system is supported primarily from State revenues, mostly sales and income taxes. The availability of State funds for public education is a function of constitutional provisions affecting local education agencies’ revenues and expenditures (see “CONSTITUTIONAL & STATUTORY PROVISIONS AFFECTING REVENUES & EXPENDITURES”). As a result, changes in State revenues may affect appropriations made by the State to school districts. State revenue sources for local education agencies are supplemented with local property taxes, federal aid, local miscellaneous funds, and the California lottery. In recent years, approximately 58% of all funds for California K-12 public education came from the State budget, which is required to be proposed by the Governor by January 10 and adopted by June 15 of each year (although the State often is late adopting the budget). Approximately 21% of funding for K-12 education comes from local property taxes. The California Constitution limits property taxes to one percent of the value of property; property taxes may only exceed this limit to repay voter-approved debt. Statewide, approximately 13% of school districts’ revenues come from the federal government, and about 6% come from local miscellaneous sources. The latter category includes items such as food sales, money for debt repayment, interest on reserves and, in some cases, more significant sources such as developer fees and parcel taxes. Developer fees are fees that school districts can levy on new residential or commercial development within their boundaries to finance the construction or renovation of school facilities. Many school districts also seek grants or contributions, sometimes channeled through private foundations established to solicit donations from local families and businesses. School districts that still have unused school buildings or sites can lease or sell them for miscellaneous income as well. A significant number of school districts have secured the required two-thirds approval from local voters to levy special taxes on parcels or residences and/or have won voter approval, with either a two-thirds vote or a 55% majority, to sell general obligation bonds or to establish special taxing districts for the construction of schools. Use of such taxes is restricted by law. The final revenue source for school districts is the California State Lottery. Approved by voters in late 1984, the lottery generates about 1% of total school revenues. Every three months the Lottery Commission calculates 34% of lottery proceeds for all public education institutions, the minimum according to the lottery law. Every K-14 school district receives the same amount of lottery funds per pupil from the State, which may be spent for any instructional purpose, excluding capital projects. No other source of general purpose revenues is currently permitted for schools. Proposition 13 eliminated the possibility of raising additional ad valorem property taxes for general school support, and the courts have declared that fees may not be charged for school-related activities other than for busing services. The State Revenue Limit. The State Revenue Limit establishes a mechanism to calculate the amount of revenue a school district, community college district or county board of education is entitled to receive from State and local sources. Each school district has its own target amount of funding from State funds and local property taxes per Average Daily Attendance (the “ADA”). The ADA is the average number of pupils attending school over the year. This target is known as revenue limit, and the funding from this calculation forms the bulk of all school districts' income. The State Legislature usually grants annual cost-of-living adjustments (COLAs) to revenue limits. The exact amount depends on whether the school district is an elementary, high school or a unified school district. Apportionments for revenue limits are calculated three times a year for each school district, community college district and county board of education. The first calculation is performed for the February 20th First Principal Apportionment, the second calculation for the June 25th Second Principal Apportionment, and the final calculation for the end of the year Annual Apportionment. Calculations are reviewed by the county and submitted to the State Department of Education with respect to school districts and to the Chancellor of the California Community Colleges with respect to community college districts, which, respectively, reviews the calculations for accuracy, calculates the amount of state aid owed to such school district or community college district, as the case may be, and notifies the State Controller of the amount, who then distributes the state aid. School districts that receive their revenue limit income entirely from property taxes are called “basic aid” school districts. They are permitted to keep all their property tax money (even if it exceeds their revenue limit). As guaranteed in the California Constitution, the State must apportion $120 per pupil. However, the categorical aid (see below) that school districts receive counts toward this requirement.

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Distribution of Revenues for Public Education General Purpose. The largest part of each school district's revenue funds general operating expenses associated with providing education, including salaries, benefits, supplies, textbooks and regular maintenance. As previously mentioned, the Revenue Limit governs the amount each school district receives. Each school district also receives some State and federal money for special programs, special costs, or categories of children with particular educational needs, called “categorical aid.” Categorical Aid. This special support goes into a school district's County School Service Fund, but its expenditure is restricted to the purpose for which it is granted. About seventy-five percent (75%) of the total money generated for education is for general purposes, and about twenty-five percent (25%) is for categorical aid. The complex allocation system is adjusted somewhat by the State Legislature almost every year, with unpredictable effects on individual school districts. There are a number of major federal and State categorical aid programs. Some allocations come automatically to school districts, while others require an application. Some programs are based on the characteristics of the children or families in a particular school district, such as gifted and talented, non-English speaking, migrant, low income or handicapped students. Other programs are for specific activities or expenses, such as transportation, textbooks or childcare. Each year a large amount of aid is allocated directly to the State Teachers' Retirement System (STRS) fund. For the past several years, supplemental grants have been directed to equalizing school districts' income from revenue limits plus specific categoricals. Most of the federal funds flow through the California Department of Education, which retains a certain percentage for administration. In terms of dollars and the number of children served, the largest categorical aid program is Special Education for the Handicapped. According to court decisions and federal and California law, school districts are responsible for the appropriate education of each handicapped child from age 3 to 21 who lives within their boundaries. The allocations do not cover the cost of educating them. School districts are required to contribute a certain amount of general purpose funds for Special Education, and many spend much more. This is known as “encroachment.” School Facilities. Growing enrollments and/or aging facilities require school districts to build or make major renovations to school buildings. The income from developer fees on residential or commercial property is insufficient to fund all facilities costs. General obligation bond moneys issued by a two-thirds voter approval may only be used for purchase or improvement of real property; general obligation bond moneys issued by 55% voter approval (pursuant to Proposition 39) can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities. See “CONSTITUTIONAL & STATUTORY PROVISIONS AFFECTING REVENUES & EXPENDITURES” herein. Mello-Roos taxes can be used for this as well as for ongoing maintenance or purchase of needed equipment. A majority of voters has regularly approved state bond measures for the construction or reconstruction of schools. The 2010-11 State Budget The information in this section has been compiled from publicly available information through the State Department of Finance and the State Legislative Analyst’s Office. Neither the Board nor the UNDERWRITER assume any responsibility for the accuracy of such information as set forth or incorporated by reference herein, although they believe that the information provided by the above-listed sources is reliable. Overview. On January 8, 2010, the Governor released his proposed 2010-11 State budget. With billions of dollars of temporary budget solutions implemented in 2009-10 set to expire and the State economy recovering slowly, the Governor projected, at that time, a general fund deficit of $18.9 billion at the end of fiscal year 2010-11 without corrective action. The Governor declared a state of fiscal emergency on January 8, 2010, calling the State Legislature into special session to begin taking action on his proposed solutions. The solutions adopted in the special session, combined with additional federal funds and administrative actions, slightly reduced the size of the projected deficit. In March 2010, additional payment deferrals from the State to K-12 school districts for fiscal year 2010-11 were enacted in a series of bills as part of legislation to provide additional cash management flexibility to the State (the “Cash Management Bills”). The Cash Management Bills authorized deferral of certain payments during fiscal year 2010-11 for school districts not to exceed $2.5 billion in aggregate at any one time. Deferrals of payments to K-12 schools could be made in July 2010, October 2010 and March 2011, for not to exceed 60, 90 and 30 days, respectively, but depending on actual cash flow conditions at the time, the State Controller, State Treasurer and State Director of Finance could either accelerate or delay the deferrals up to 30 days, or reduce the amounts deferred. In August 2010, the State elected to accelerate the October 2010 deferral by 30 days. These deferrals replaced the $1.0 billion July 2009, $1.5 billion August 2009 and $1.0 billion November 2009 deferrals in place in fiscal year 2009-10.

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Certain school districts demonstrating hardship in procedures specified in the Cash Management Bills are not subject to these deferrals. On May 14, 2010, the Governor released his revision to the proposed 2010-11 State budget (the “2010-11 May Revision”). The 2010-11 May Revision included $19.1 billion in budget solutions for fiscal years 2009-10 and 2010-11 to create a $1.2 billion reserve. Approximately 66% of the Governor’s budget solutions relied on program spending reductions, approximately 18% relied on funding or flexibility to be provided by actions of the federal government, approximately 11% consisted of various fund shifts, some of which required voter approval, and less than 5% consisted of new revenues. The 2010-11 State Budget. On October 8, 2010, more than three months after the beginning of the fiscal year, the Governor signed into law the budget for fiscal year 2010-11 (the “2010-11 State Budget”). The 2010-11 State Budget includes approximately $8.4 billion in expenditure reductions, an assumed $5.4 billion increase in federal funding, and $5.5 billion in other budget solutions, resulting in total budget solutions of approximately $19.3 billion to create a $1.3 billion general fund reserve. State general fund expenditures are budgeted to be essentially flat at $86.6 billion in 2010-11, as compared to a revised $86.3 billion figure for 2009-10. State general fund revenues (including transfers) are budgeted to be approximately $94.2 billion in 2010-11, an increase of 8.4% from a revised fiscal year 2009-10 State general fund revenues and transfers of $86.9 billion. The following table identifies historical and budgeted State general fund revenues and expenditures.

State General Fund under the 2010-11 State Budget

2009-10 2010-11

Revised Budgeted

(Millions) (Millions)

Prior-year Fund Balance ($5,375) ($4,804) Revenues and Transfers 86,920 94,230

Total Resources Available $81,545 $89,426

Expenditures 86,349 86,552 Ending Fund Balances ($4,804) $2,874

Encumbrances 1,537 1,537

Reserve ($6,341) $1,337

Source: The California Department of Finance Other key features of the 2010-11 State Budget include: • More than $1 billion in revenue from postponing a corporate tax break • Approximately $3 billion from transfers from State funds • A measure in 2012 ballot to strengthen a rainy-day fund with more stringent deposit requirements • Roll back of public pension increases for new State employees approved in 1999 • The sale of 11 State office buildings In addition to the $19.3 billion in enacted budget solutions, the 2010-11 State Budget includes additional measures to manage the State’s cash flow. The cash management legislation included as part of the budget package provides for a short�term payment deferral for pension contribution for schools. Funding for Education. In order to balance the 2010-11 State Budget, the Proposition 98 minimum funding requirement was suspended, with Proposition 98 funding budgeted to be $49.7 billion, approximately $4.1 billion less than minimum without suspension. In addition, the State ended fiscal year 2009-10 with a “settle-up-obligation,” as the State appropriated less in fiscal year 2009-10 than the revised estimate of the minimum guarantee for that year. The State Legislative Analyst’s Office estimated the 2009-10 settle-up obligation to be $1.8 billion. The 2010-11 State Budget provides $300 million as a payment to begin to meet the State’s outstanding 2009-10 Proposition 98 settle-up obligation.

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An overview of the State’s Proposition 98 funding under the 2010-11 State Budget appears in the following table.

Proposition 98 Funding under the 2010-11 State Budget

FY 2008-09 FY 2009-10 FY 2010-11 Final Revised Budgeted (Millions) (Millions) (Millions)

K-12 Education $43,044 $43,767 $43,778

Community Colleges 5,947 5,683 5,792 Other Agencies 105 93 89

Total $49,096 $49,543 $49,658

General Fund $34,098 $35,477 $36,223 Local Property Taxes $14,997 $14,066 $13,435

Source: The California Legislative Analyst’s Office While the State is providing slightly more Proposition 98 funding in fiscal year 2010-11 than fiscal year 2009-10, the large reliance on one-time solutions in fiscal year 2009-10 resulted in the need for reductions in 2010-11. However, these reductions largely are treated as deferrals of payments rather than cuts. Specifically, the package defers $1.9 billion in additional K-14 payments ($1.7 billion for K-12 education and $189 million for community colleges). Rather than being paid in the spring of 2011, these payments will be made in July 2011. Virtually all other K-12 reductions are technical adjustments designed to align appropriations with anticipated program costs, such as for the K-3 class size reduction program. The package also makes reductions in childcare funding. In addition to Proposition 98 funding, related budget bills provide K-12 education with $1.5 billion in special one-time federal funding. Of this amount, $1.2 billion is from recent federal grants provided specifically to help retain K-12 jobs, and $272 million is from the last round of federal stabilization funding from the American Recovery and Reinvestment Act of 2009. The full text of the 2010-11 State Budget may be found at the State Department of Finance website, www.dof.ca.gov, and the Legislative Analyst’s Office overview of the 2010-11 State Budget may be found at www.lao.ca.gov. The Proposed 2011-12 State Budget The information in this section has been compiled from publicly available information through the State Department of Finance and the State Legislative Analyst’s Office. Neither the Board nor the Underwriter assume any responsibility for the accuracy of such information as set forth or incorporated by reference herein, although they believe that the information provided by the above-listed sources is reliable. Overview. On January 10, 2011, the Governor released his proposed 2011-12 State budget (the “Proposed 2011-12 Budget). The proposal identifies a $25.4 billion deficit (which includes a $1 billion reserve). This consists of an $8.2 billion deficit that would remain at the end of fiscal year 2010-11 (absent additional budgetary action), plus an estimated $17.2 billion shortfall between current-law revenues and expenditures in fiscal year 2011-12. The Proposed 2011-12 State Budget proposes significant reforms to State and local programs, substantial reductions to state operations, and spending cuts across all service areas in order to address the deficit problem. Specifically, the Proposed 2011-12 State Budget identifies $12.5 billion in expenditure cuts over the next two fiscal years, particularly ongoing program reductions; also $14 billion increased revenues over the next two fiscal years, predominantly from extending the four temporary tax increases adopted in February 2009 over the next five years, which voters will be asked to approve in a June 2011 special election. Should voters not approve the proposed tax extensions, budgetary cuts could potentially double.

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Other key features of the Proposed 2011-12 State Budget include: • The restructure of State-local relationship in the delivery of services by shifting funding and responsibility to local

governments for those services, subject to voter approval at the June 2011 special election • Overhaul of redevelopment through elimination of redevelopment agencies and transfer of agencies’ revenues to local

successor agencies The State General Fund. State General Fund expenditures are proposed to be $84.6 billion in fiscal year 2011-12, a decrease of 8.2% from a revised Fiscal Year State General Fund expenditures estimate of $92.2 billion. State General Fund revenues and transfers are proposed to be $89.7 billion, a decrease of 4.8% from a revised Fiscal Year State General Fund revenues of $94.2 billion. 2010-11 fiscal year-end reserve is proposed to be $1.0 billion. It is projected that the Proposed 2011-12 Budget’s solutions would eliminate the State’s budget deficits for the next three years. The following table identifies historical and proposed State General Fund revenues and expenditures.

State General Fund under the Proposed 2011-12 State Budget

Source: The California Legislative Analyst’s Office Key features of expenditure-related budget solutions (totaling $12.5 billion between fiscal year 2010-11 and fiscal year 2011-12) include: • Shift of redevelopment funds to Medi-Cal and trial courts ($1.7 billion) • Reduction of benefits and provider payments and charge copayments in Medi-Cal ($1.7 billion) • Imposition of time limits, grant reductions, and service cuts for CalWORKs ($1.5 billion) • Reduction of University of California and California State University budgets ($1.0 billion) • Use of reserves and some ongoing revenues for children’s programs ($1.0 billion) • Funding of transportation debt costs primarily using weight fees ($1.0 billion) Key features of revenue-related budget solutions (totaling $14.0 billion between fiscal year 2010-11 and fiscal year 2011-12) include: • Extension of the 0.25% personal income tax surcharge for five years ($3.3 billion) • Extension of the reduction in dependent exemption credit for five years ($2.0 billion) • Make single sales factor mandatory for multistate firms • Extension of the 0.5% vehicle license fee increase for five years ($1.4 billion), which would be dedicated to funding the

realignment of programs from the state to local entities • Extension of the 1.0% State sales tax increase for five years ($4.5 billion), which would be dedicated to funding the

realignment of programs from the state to local entities

2009-10 2010-11 2011-12 Actual Proposed Proposed (Millions) (Millions) (Millions)

Prior-year Fund Balance $5,147 -$5,343 -$3,357 Revenues and Transfers 87,041 94,194 89,696

Total Resources Available $81,894 $88,851 $86,339

Expenditures $87,237 $92,208 $84,614 Ending Fund Balances -$5,343 -$3,357 $1,725

Encumbrances $700 $770 $770

Reserve -$6,113 -$4,127 $955

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Funding for Education. The proposed $14 billion in new revenues, of which $3 billion is attributed to 2010-11, would result in a $2 billion increase in the Proposition 98 minimum funding guarantee for schools and community colleges. An overview of the State’s Proposition 98 funding under the Proposed 2011-12 State Budget appears in the following table. However, the Proposed 2011-12 State Budget assumed that voters would approve an extension of more than $12 billion in temporary tax increases at a June 2011 special election, which is no longer a possibility. Hence, expenditure cuts and/or additional deferrals for education may be implemented in the future. An overview of the State’s Proposition 98 funding under the Proposed 2011-12 State Budget appears in the following table.

Proposition 98 Funding under the Proposed 2011-12 Budget

2009-10 2010-11 2011-12 Final Revised Budgeted (Millions) (Millions) (Millions)

K-12 Education $44,060 $43,796 $43,807

Community Colleges 5,721 5,777 5,415 Other Agencies 93 85 78

Total $49,874 $49,658 $49,300

General Fund $35,546 $36,209 $36,021 Local Property Taxes $14,327 $13,449 $13,279

Source: The California Legislative Analyst’s Office Other key items in the Proposed 2011-12 State Budget for K-12 education include: • Cost-of-living adjustments – the Proposed 2011-12 State Budget does not provide a cost-of-living adjustment (COLA), which,

if funded, would have provided an increase in funding of $964.5 million. However, a deficit factor will be established to ensure that funding in future years is used to restore this adjustment.

• ADA increase – an increase of $81.4 million in fiscal year 2010-11 and an increase of $357.5 million in fiscal year 2011-12 for school districts and county office of education revenue limits as a result of projected ADA growth

• Decline of programmatic funding per student from $7,820 to $7,708, or 1.4% • Extension of flexibility options for school districts for two additional years • Elimination of the Office of the Secretary of Education, which would result in an overall State general fund expenditure

decrease of $400,000 in fiscal year 2010-11 and $1.6 million in fiscal year 2011-12 • Child Care – the Governor proposes to achieve $750 million in Proposition 98 child care savings by making four major policy

changes: (1) reducing child care subsidies by about 35%; (2) reducing income eligibility for subsidized child care from 75% to 60% of State median income (SMI), (3) eliminating subsidized child care for 11-and 12-year olds, and (4) reducing California Work Opportunity and Responsibility to Kids (CalWORKs) Stage 2 caseload based on CalWORKs reform proposals. The savings resulting from these proposals would be offset by a $256 million increase to the CalWORKs Stage 3 program.

Other key items in the Proposed 2011-12 State Budget for higher education include: • $500 million general fund reduction for the University of California (UC) and the California State University (CSU) • Community college fees increase from $26 per unit to $36 per unit, generating about $110 million in additional revenue • Decrease of $400 million in fiscal year 2011‑12 to apportionments is proposed along with reforms to census accounting

practices • Decrease of $129 million in fiscal year 2011‑12 as a result of deferring another $129 million of community college

apportionment payments to fiscal year 2012‑13, bringing total year‑to‑year deferrals to $961 million. The full text of the 2010-11 State Budget may be found at the State Department of Finance website, www.dof.ca.gov, and the Legislative Analyst’s Office overview of the 2010-11 State Budget may be found at www.lao.ca.gov.

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Future Budgets The Board cannot predict what actions will be taken in the future by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors over which the Board will have no control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State's ability to fund schools as budgeted. Continued State budget shortfalls in the current and future fiscal years could have an adverse financial impact on the Board.

CONSTITUTIONAL & STATUTORY PROVISIONS AFFECTING REVENUES & EXPENDITURES Limitations on Revenues Article XIIIA of the California Constitution. Article XIIIA of the State Constitution, adopted and known as Proposition 13, was approved by the voters in June 1978. Section 1(a) of Article XIIIA limits the maximum ad valorem tax on real property to one percent of “full cash value,” and provides that such tax shall be collected by the counties and apportioned according to State law. Section 1(b) of Article XIIIA provides that the one-percent limitation does not apply to ad valorem taxes levied to pay interest and redemption charges on: (i) indebtedness approved by the voters prior to July 1, 1978, or (ii) bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast on the proposition, or (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 bond proposition. Section 2 of Article XIIIA defines “full cash value” to mean the county assessor’s valuation of real property as shown on the fiscal year 1975-76 tax bill, or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction or other factors. The Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently “recapture” such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor’s measure of the restored value of the damaged property. The California courts have upheld the constitutionality of this procedure. Legislation enacted by the State Legislature to implement Article XIIIA provides that, notwithstanding any other law, local agencies may not levy any ad valorem property tax except the 1% base tax levied by each County and taxes to pay debt service on indebtedness approved by the voters as described above. Since its adoption, Article XIIIA has been amended a number of times. These amendments have created a number of exceptions to the requirement that property be reassessed when purchased, newly constructed or a change in ownership has occurred. These exceptions include certain transfers of real property between family members, certain purchases of replacement dwellings for persons over age 55 and by property owners whose original property has been destroyed in a declared disaster, and certain improvements to accommodate disabled persons and for seismic upgrades to property. These amendments have resulted in marginal reductions in the property tax revenues of the District. Both the California State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA. Article XIIIC and Article XIIID of the California Constitution. On November 5, 1996, the voters of the State approved Proposition 218, the so-called “Right to Vote on Taxes Act.” Proposition 218 added Articles XIIIC and XIIID to the State Constitution, 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. 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. Article XIIIC also 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.

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Article XIIIC also provides that the initiative power shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. The State Constitution and the laws of the State impose a duty on the county treasurer-tax collector to levy a property tax sufficient to pay debt service on school bonds coming due in each year. The initiative power cannot be used to reduce or repeal the authority and obligation to levy such taxes which are pledged as security for payment of the Bonds or to otherwise interfere with performance of the duty of the District and the County and Solano County with respect to such taxes. Legislation adopted in 1997 provides that Article XIIIC shall not be construed to mean that any owner or beneficial owner of a municipal security assumes the risk of or consents to any initiative measure which would constitute an impairment of contractual rights under the contracts clause of the U.S. Constitution. Article XIIID deals with assessments and property-related fees and charges. Article XIIID explicitly provides that nothing in Article XIIIC or XIIID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the District. Developer fees imposed by the District are restricted as to use and are neither pledged nor available to pay the Bonds. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. Expenditures and Appropriations Article XIIIB of the California Constitution. In addition to the limits Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and local governments are subject to an annual “appropriations limit” or “Gann Limit” imposed by Article XIIIB of the State Constitution, which effectively limits the amount of such revenues that government entities are permitted to spend. Article XIIIB, approved by the voters in June 1979, was modified substantially by Proposition 111 in 1990. The appropriations limit of each government entity applies to “proceeds of taxes,” which consist of tax revenues, state subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed “the cost reasonably borne by such entity in providing the regulation, product or service.” “Proceeds of taxes” excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds which are not “proceeds of taxes,” such as reasonable user charges or fees, and certain other non-tax funds. Article XIIIB also does not limit appropriation of local revenues to pay debt service on bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990, levels. The appropriations limit may also be exceeded in cases of emergency; however, the appropriations limit for the three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two-thirds of the legislative body of the local government. The State, and each local government entity, has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services. Each school district is required to establish an appropriations limit each year. In the event that a school district’s revenues exceed its spending limit, the district may increase its appropriations limit to equal its spending by taking appropriations limit from the State. Proposition 111 requires that each agency’s actual appropriations be tested against its limit every two years. If the aggregate “proceeds of taxes” for the preceding two-year period exceeds the aggregate limit, the excess must be returned to the agency’s taxpayers through tax rate or fee reductions over the following two years. If the State’s aggregate “proceeds of taxes” for the preceding two-year period exceeds the aggregate limit, 50% of the excess is transferred to fund the State’s contribution to school and college districts. Proposition 1A. On November 2, 2004, California voters approved Proposition 1A amending the State Constitution to significantly reduce the State’s authority over major local government revenue sources. Under Proposition 1A, the State may not reduce any local sales tax rates or alter the method of allocation, shift property taxes from local governments to schools or community colleges, make changes in how property taxes revenues are shared among local governments without two-thirds approval of both house of the State Legislature, and decrease vehicle license fees without providing local governments with equal replacement funding.

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Under Proposition 1A, beginning in fiscal year 2008-09, the State may divert no more than eight percent of local property tax revenues for State purposes (including but not limited to funding K-12 education) only if: (i) the Governor declares such action to be necessary due to a State fiscal emergency, (ii) two-thirds approval of both houses of the State Legislature, (iii) the amount diverted is required to be repaid within three years, and (iv) certain other conditions are met. Future Initiatives. Articles XIIIA, XIIIB, XIIIC, and XIIID, and Propositions 98, 111, 218 and 1A were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting K-14 school districts' or county offices’ revenues, or such agencies’ ability to expend revenues. There is no assurance that the California electorate or Legislature will not at some future time approve additional limitations, which could reduce property or other tax revenues and adversely affect the revenues of school districts or require additional expenditures.

LEGAL MATTERS No Litigation There is no action, suit or proceeding known to be pending or threatened that seeks to restrain or enjoin the execution or delivery of the Certificates, the Facilities Lease or the Trust Agreement or in any way contesting or affecting the validity of the foregoing or any proceeding of the Board taken with respect to the foregoing. There are no lawsuits or claims pending against the Board that would impair the ability of the Board to make Base Rental Payments or otherwise meet its outstanding lease or debt obligations. Legal Opinion Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Special Counsel, will render its opinion with respect to the validity and enforceability of the Facilities Lease, Trust Agreement, and Site Lease. Copies of such approving opinion will be available at the time of delivery of the Certificates. The form of the legal opinion to be delivered by Special Counsel is included as “APPENDIX D—FORM OF OPINION OF SPECIAL COUNSEL” to this Official Statement. The opinion is based on existing laws, regulations, rulings and court decisions. Orrick, Herrington & Sutcliffe LLP, has not undertaken a review of this Official Statement on behalf of Certificate owners and makes no representation as to the accuracy or completeness hereof. Tax Matters In the opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, the portion of each Base Rental Payment paid by the Board designated as and evidencing and representing interest and received by the Owners of the Certificates (“interest evidenced by the Certificates”) is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State personal income taxes. Special Counsel is of the further opinion that interest evidenced by the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Special Counsel observes that such interest evidenced by the Certificates is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Special Counsel is set forth in “APPENDIX D– FORM OF OPINION OF SPECIAL COUNSEL” hereto. To the extent the issue price of any maturity of the Certificates is less than the amount to be paid at maturity of such Certificates (excluding amounts stated to be interest and payable at least annually over the term of such Certificates), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Owner thereof, is treated as interest evidenced by the Certificates which is excluded from gross income for federal income tax purposes and State personal income taxes. For this purpose, the issue price of a particular maturity of the Certificates is the first price at which a substantial amount of such maturity of the Certificates is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of Underwriter, placement agents or wholesalers). The original issue discount with respect to any maturity of the Certificates accrues daily over the term to maturity of such Certificates on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Certificates to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Certificates. Owners of the 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 Owners who do not purchase

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such Certificates in the original offering to the public at the first price at which a substantial amount of such Certificates is sold to the public. Certificates purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Certificates”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of Certificates, like the Premium Certificates, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Owner’s basis in a Premium Certificate, will be reduced by the amount of amortizable bond premium properly allocable to such Owner. Owners of Premium Certificates should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest evidenced by obligations such as the Certificates. The Board has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest evidenced by the Certificates will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest evidenced by the Certificates being included in gross income for federal income tax purposes, possibly from the date of original execution and delivery of the Certificates. The opinion of Special Counsel assumes the accuracy of these representations and compliance with these covenants. Special Counsel has not undertaken to determine (or to inform any person), whether any actions taken (or not taken) or events occurring (or not occurring) after the date of execution and delivery of the Certificates may adversely affect the value of, or the tax status of interest evidenced by, the Certificates. Accordingly, the opinion of Special Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Special Counsel is of the opinion that interest evidenced by the Certificates is excluded from gross income for federal income tax purposes and is exempt from State personal income taxes, the ownership or disposition of, or the accrual or receipt of interest evidenced by, the Certificates may otherwise affect a Certificate holder’s federal, state or local tax liability. The nature and extent of these other tax consequences depend upon the particular tax status of the Owner or the Owner’s other items of income or deduction. Special Counsel expresses no opinion regarding any such other tax consequences. Future legislation, if enacted into law, or clarification of the Code may cause interest evidenced by the Certificates to be subject, directly or indirectly, to federal income taxation, or otherwise prevent Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Code may also affect the market price for, or marketability of, the Certificates. Prospective purchasers of the Certificates should consult their own tax advisers regarding any pending or proposed federal tax legislation, as to which Special Counsel expresses no opinion. The opinion of Special Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Special Counsel’s judgment as to the proper treatment of the Certificates for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Special Counsel cannot give and has not given any opinion or assurance about the future activities of the Board, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Board has covenanted, however, to comply with the requirements of the Code. Special Counsel’s engagement with respect to the Certificates ends with the execution and delivery of the Certificates, and, unless separately engaged, Special Counsel is not obligated to defend the Board or the Owners regarding the tax-exempt status of the Certificates in the event of an audit examination by the IRS. Under current procedures, parties other than the Board and its appointed counsel, including the Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Board legitimately disagrees may not be practicable. Any action of the IRS, including but not limited to selection of the Certificates for audit, or the course or result of such audit, or an audit of obligations presenting similar tax issues may affect the market price for, or the marketability of, the Certificates, and may cause the Board or the Owners to incur significant expense. Legality for Investment Under provisions of the State Financial Code, the Certificates are legal investments for commercial banks in California to the extent that the Certificates, in the informed opinion of the investing bank, are prudent for the investment of funds of depositors. Under provisions of the California Government Code, the Certificates are eligible security deposits of public moneys in California.

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RATING Standard & Poor's Financial Services LLC, a division of The McGraw-Hill Companies, Inc. (“Standard & Poor’s”) has assigned the Certificates a rating of “A-.” Such rating reflects only the views of such organization and an explanation of the significance of such rating may be obtained from Standard & Poor’s at the following address: Standard & Poor's, 55 Water Street, New York, New York 10041. There is no assurance that any such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Certificates.

FINANCIAL ADVISOR Government Financial Strategies inc. has been employed by the Board to perform financial advisory services in relation to the sale and delivery of the Certificates. Government Financial Strategies inc., in its capacity as Financial Advisor, has read and participated in drafting certain portions of this Official Statement. Government Financial Strategies inc. has not, however, independently verified nor confirmed all of the information contained within this Official Statement. Government Financial Strategies inc. will not participate in the underwriting of the Certificates. Fees charged by Government Financial Strategies inc. are not contingent upon the sale of the Certificates.

INDEPENDENT AUDITORS The basic financial statements of the Board as of and for the year ending June 30, 2010, have been audited by Borschardt, Corona & Faeth, Fresno, California. The financial statements of the Board as of and for the year ended June 30, 2010, are set forth in “APPENDIX B” attached hereto. The Board has not requested nor did the Board obtain permission from Borschardt, Corona & Faeth to include the audited financial statements as an appendix to this Official Statement. Borschardt, Corona & Faeth has not performed any subsequent events review or other procedures relative to these audited financial statements since the date of its letter. Complete copies of all past and current financial statements may be obtained from the Board. See “BOARD FINANCIAL INFORMATION—Financial Statements” herein.

UNDERWRITING AND INITIAL OFFERING PRICES The Certificates were sold to Southwest Securities, Inc. (the “Underwriter”), pursuant to a certificate purchase agreement, for an amount equal to the principal amount of the Certificates of $14,835,000.00, less an original issue discount to the Board of $847.15, less an underwriter’s discount of $295,531.95, for a total purchase price of $14,538,620.90, at a True Interest Cost (TIC) to the Board of 6.131728%. The Underwriter has certified to the Board and to Special Counsel that the initial reoffering prices of the Certificates to the general public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of Underwriter or wholesalers) are as set forth on the cover page hereof. The initial offering prices or yields stated on the cover page to this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Certificates to certain dealers (including dealers depositing Certificates into investment trusts), dealer banks, banks acting as agents and others at prices lower or yields higher than said public offering prices or yields.

CONTINUING DISCLOSURE The Board has covenanted for the benefit of the holders and the Beneficial Owners of the Notes to provide notice of the occurrence of certain enumerated events, if material. See “APPENDIX C—FORM OF CONTINUING DISCLOSURE CERTIFICATE”

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herein. Notices of material events will be filed by the Board with the MSRB. This covenant of the Board has been made to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”). The Board has never issued debt that was subject to the Rule.

ADDITIONAL INFORMATION Additional information concerning the Board, the Certificates or any other matters concerning the sale and delivery of the Certificates may be obtained from the Board by contacting the Board or by contacting the Board’s Financial Advisor, Government Financial Strategies inc., at the address and telephone number set forth on page “iii” of this Official Statement. All of the preceding summaries of the Legal Documents and other documents are made subject to the provisions of such documents respectively, and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Board for further information in connection therewith. Further, this Official Statement does not constitute a contract with the purchasers of the Certificates, and any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The execution and delivery of this Official Statement by the Board has been duly authorized by its Board. MADERA COUNTY BOARD OF EDUCATION By: /s/ Cecilia A. Massetti, Ed.D._____________ County Superintendent of Schools

APPENDIX A

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

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APPENDIX A

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following summary discussion of selected features of the Site Lease, the Facilities Lease, theAssignment Agreement and the Trust Agreement, all dated as of June 1, 2011, is intended to be read inconjunction with the discussion of such documents contained elsewhere in this Official Statement. Thissummary discussion does not purport to be a complete statement of the provisions and prospectivepurchasers of the Certificates are referred to the complete texts of the documents, copies of which areavailable upon request by contacting the Chief Business and Administrative Services Officer of the MaderaCounty Board of Education, 28123 Avenue 14, Madera, California 93638.

CERTAIN DEFINITIONS

Capitalized terms used in this Official Statement and not elsewhere defined are defined in thisAppendix, as excerpted from the Facilities Lease or the Trust Agreement, to which reference is made,unless the context otherwise requires. The following definitions are equally applicable to both the singularand plural forms.

“Acquisition and Construction Fund” means the fund by that name established in the TrustAgreement.

“Additional Payments” means the additional payments payable by the Board under and pursuantthe Facilities Lease.

“Applicable Environmental Laws” means and shall include, but shall not be limited to, CERCLA,RCRA, the Federal Water Pollution Control Act, 33 USC §§ 1251 et seq., the Clean Air Act, 42 USC §7401 et seq., HWCL, HSAA, the Porter-Cologne Act, the Air Resources Act, Cal. Health & Safety Code §§3900 et seq., the Safe Drinking Water & Toxic Enforcement Act, Cal. Health & Safety Code §§ 25249.5,and the regulations thereunder, and any other local, state and/or federal laws or regulations, whethercurrently in existence or hereafter enacted, that govern

(i) the existence, cleanup and/or remedy of contamination on property;

(ii) the protection of the environment from spilled, deposited or otherwise emplacedcontamination;

(iii) the control of hazardous wastes; or

(iv) the use, generation, transport, treatment, removal or recovery of HazardousSubstances, including building materials.

“Assignment Agreement” means that certain Assignment Agreement by and between theCorporation and the Trustee, dated as of June 1, 2011, and recorded in the office of the County Recorder ofthe County of Madera on or prior to the date of delivery of the Certificates.

“Authorized Board Representative” means the Madera County Superintendent of Schools or theChief Business and Administrative Services Officer of the Board, or any delegate of any of theaforementioned officers duly appointed in writing, or any other officer of the Board duly authorized by theBoard in writing to the Trustee for that purpose.

“Authorized Corporation Representative” means the President, Vice President, orSecretary/Treasurer or Executive Director of the Corporation and any other person authorized to act on

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behalf of the Corporation under or with respect to the Trust Agreement, the Site Lease, or the FacilitiesLease.

“Authorized Denominations” means $5,000 principal amount or any integral multiple thereof.

“Base Rental Payment Fund” means the fund by that name established in the Trust Agreement.

“Base Rental Payments” mean the base rental payments with interest components and principalcomponents payable by the Board under and pursuant to the Facilities Lease.

“Base Rental Payment Schedule” means the schedule of Base Rental Payments payable to theCorporation from the Board pursuant to the Facilities Lease.

“Board” means the Madera County Board of Education, a county board of education dulyorganized and existing under and by virtue of the laws of the State of California.

“Business Day” means any day other than a Saturday or Sunday or day when the PrincipalCorporate Trust Office of the Trustee is required or authorized by applicable law to be closed.

“Certificate” means any of the 2011 Certificates of Participation executed and delivered by theTrustee pursuant to the Trust Agreement and then Outstanding.

“Certificate Payment Date” means, with respect to the Certificates, a date on which the principalevidenced and represented thereby becomes due and payable.

“Certificate Reserve Fund” means the Facilities Lease Certificate Reserve Fund establishedpursuant to the Facilities Lease.

“Certificate Reserve Fund Requirement” shall have the meaning ascribed to such term in theFacilities Lease.

“Code” means the Internal Revenue Code of 1986, as amended.

“Continuing Disclosure Certificate” shall have the meaning ascribed to such term in the TrustAgreement.

“Corporation” means the Municipal Asset Finance Corp., a nonprofit public benefit corporationduly organized and existing under and by virtue of the laws of the State of California.

“Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable tothe Board or the Corporation and related to the authorization, execution and delivery of the Facilities Lease,the Site Lease, the Assignment Agreement and the Trust Agreement and the related sale of the Certificates,including, but not limited to, costs of preparation and reproduction of documents, costs of rating agenciesand costs to provide information required by rating agencies, filing and recording fees, initial fees, legalfees and charges of the Trustee, legal fees and charges, fees and disbursements of consultants andprofessionals, premiums, fees and expenses of municipal bond insurers, surety bond providers and letter ofcredit banks, fees and charges for preparation, execution and safekeeping of the Certificates and any othercost, charge or fee in connection with the original execution and delivery of the Certificates.

“Costs of Issuance Fund” means the fund by that name established pursuant to the TrustAgreement.

“Defeasance Securities” includes the following:

(a) Cash

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(b) U.S. Treasury Certificates, Notes and Bonds (including State and Local GovernmentSeries -- “ SLGs”)

(c) Direct obligations of the Treasury which have been stripped by the Treasury itself

(d) Resolution Funding Corp. (REFCORP). Only the interest component of REFCORPstrips which have been stripped by request to the Federal Reserve Bank of New York inbook entry form are acceptable.

(e) Pre-refunded municipal bonds rated “Aaa” by Moody’s and “AAA” by S&P. If however,the issue is only rated by S&P (i.e., there is no Moody’s rating), then the pre-refundedbonds must have been pre-refunded with cash, direct U.S. or U.S. guaranteed obligations,or AAA rated pre-refunded municipals to satisfy this condition.

(f) Obligations issued by the following agencies which are backed by the full faith and creditof the U.S.:

(i) U.S. Export-Import Bank (Eximbank) - Direct obligations or fullyguaranteed certificates of beneficial ownership

(ii) Farmers Home Administration (FmHA) - Certificates of beneficialownership

(iii) Federal Financing Bank

(iv) General Services Administration - Participation certificates

(v) U.S. Maritime Administration - Guaranteed Title XI financing

(vi) U.S. Department of Housing and Urban Development (HUD) - ProjectNotes; Local Authority Bonds; New Communities Debentures - U.S.government guaranteed debentures; U.S. Public Housing Notes and Bonds -U.S. government guaranteed public housing notes and bonds.

“Delivery Date” means the date of the Certificates.

“Event of Default” shall have the meaning specified in the Trust Agreement.

“Facilities Lease” means that certain lease, entitled “Facilities Lease,” by and between theCorporation and the Board, dated as of June 1, 2011, which lease or a memorandum thereof was recordedin the office of the County Recorder of the County of Madera on or prior to the date of delivery of theCertificates, as originally executed and recorded or as it may from time to time be supplemented, modifiedor amended pursuant to the provisions of the Trust Agreement and thereof.

“Facilities” means the Leased Premises and those certain Board facilities and improvements whichare or will be located on the Leased Premises as described in the Facilities Lease, as the same may beamended and supplemented pursuant to the terms thereof and of the Trust Agreement.

“Field Act” means Sections 17280 et. seq. of the Education Code.

“Financial Newspaper” means The Wall Street Journal or The Bond Buyer, or any other newspaperor journal publishing financial news and selected by the Trustee that is printed in the English language, iscustomarily published on each Business Day and is circulated in San Francisco, California.

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“Hazardous Substance” means any substance which shall, at any time, be listed as “hazardous” or“toxic” or in the regulations implementing the Comprehensive Environmental Response, Compensationand Liability Act (“CERCLA”), 42 USC §§ 9601 et seq., the Resource Conservation and Recovery Act(“RCRA”), 42 USC §§ 6901 et seq., the California Hazardous Waste Control Law (“HWCL”), Cal. Healthand Safety Code §§ 25100 et seq., Hazardous Substance Account Act (“HSAA”), Cal. Health & SafetyCode §§ 25300 et seq., or the Porter-Cologne Water Quality Control Act (the “Porter-Cologne Act”), Cal.Water Code §§ 13000 et seq., or which has been or shall be determined at any time by any agency or courtto be a hazardous or toxic substance regulated under Applicable Environmental Laws. The term“Hazardous Substance” shall also include, without limitation, raw materials, building components, theproducts of any manufacturing or other activities on the subject property, wastes, petroleum, and source,special nuclear or by-product material as defined by the Atomic Energy Act of 1954, as amended (42 USC§§ 3011, et seq., as amended) and any hazardous, toxic or regulated substances or related materials asdefined in the Emergency Planning and Community Right-to-Know Act, as amended (42 U.S.C. Section110001, et seq.) (“Title III”), the Clean Water Act, as amended (33 U.S.C. Section 1321, et seq.) (“CWA”),the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.) (the “CAA”), and the Toxic SubstancesControl Act, as amended (15 U.S.C. Section 2601 et seq.) (“TSCA”).

“Information Services” means information services of national recognition which disseminateredemption information with respect to municipal securities.

“Interest Fund” means the fund by that name established in the Trust Agreement.

“Interest Payment Date” means a date on which interest evidenced and represented by theCertificates becomes due and payable, being April 1 and October 1 of each year to which reference ismade, commencing with October 1, 2011.

“Leased Premises” means that certain real property situated in the County of Madera, State ofCalifornia, as described in Exhibit A to the Facilities Lease, together with any additional real propertysubstituted by any supplement or amendment thereto; subject, however, to any conditions, reservations, andeasements of record or known to the Board.

“Letter of Credit” means an irrevocable and unconditional letter of credit, a standby purchaseagreement, a line of credit or other similar credit arrangement issued by a Qualified Bank to provide all or aportion of the Certificate Reserve Fund Requirement and submitted to and reviewed and approved byMoody’s Investors Service or Standard & Poor’s.

“Mandatory Sinking Account Payment” means the principal amount of Certificates required to bepaid or prepaid on each Mandatory Sinking Account Payment Date pursuant to the Trust Agreement.

“Moody’s Investors Service” or “Moody’s” means Moody’s Investors Service, Inc., a corporationduly organized and existing under and by virtue of the laws of the State of Delaware, and its successors andassigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform thefunctions of a securities rating agency, then the term “Moody’s Investors Service” shall be deemed to referto any other nationally recognized securities rating agency selected by the Board.

“Opinion of Counsel” means a written opinion of counsel of recognized national standing in thefield of law relating to municipal bonds, appointed and paid by the Board.

“Outstanding,” when used as of any particular time with reference to Certificates, means (subject tothe provisions for Disqualified Certificates as set forth in the Trust Agreement) all Certificates except --

(1) Certificates cancelled by the Trustee or delivered to the Trustee for cancellation;

(2) Certificates paid or deemed to have been paid with respect to the discharge ofthe Certificates as provided in the Trust Agreement; and

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(3) Certificates in lieu of or in substitution for which other Certificates shall havebeen executed and delivered by the Trustee pursuant to the Trust Agreement.

“Owner” means any person who shall be the registered owner of any Outstanding Certificate.

“Permitted Encumbrances” means (1) liens for general ad valorem taxes and assessments, if any,not then delinquent, or which the Board may, pursuant to the Facilities Lease, permit to remain unpaid; (2)easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditionsor restrictions which exist of record as of the date of recordation of the Facilities Lease in the office of theCounty Recorder of the County of Madera and which the Board certifies in writing will not materiallyimpair the use of the Facilities; (3) the Site Lease, as it may be amended from time to time; (4) theFacilities Lease, as it may be amended from time to time; (5) the Assignment Agreement, as it may beamended from time to time; (6) any right or claim of any mechanic, laborer, materialman, supplier orvendor whether or not filed or perfected in the manner prescribed by law; (7) easements, rights of way,mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions establishedfollowing the date of recordation of the Facilities Lease and to which the Corporation and the Boardconsent in writing; (8) liens relating to special assessments levied with respect to the Facilities; (9) liensexisting under any school facilities funding programs of the State of California; and (10) the Site Lease,Sublease Agreement and Lease-Leaseback Agreement expected to be entered into between the Board andDavid A. Bush, Inc. in furtherance of the construction of the Facilities.

“Permitted Investments” means any of the following to the extent then permitted by the generallaws of the State of California applicable to investments by county boards of education including, withoutlimitation, the provisions of California Government Code Section 5922(d) (provided that the Trustee has noobligation to verify the legality of any Permitted Investment):

(1) Direct obligations of the United States of America (including obligations issuedor held in book-entry form on the books of the Department of the Treasury) or obligations theprincipal of and interest on which are unconditionally guaranteed by the United States of America.

(2) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteedby any of the following federal agencies and provided such obligations are backed by the full faithand credit of the United States of America (stripped securities are only permitted if they have beenstripped by the agency itself):

a. Farmers Home Administration (FmHA)Certificates of beneficial ownership

b. Federal Housing Administration Debentures (FHA)

c. General Services AdministrationParticipation certificates

d. Government National Mortgage Association (GNMA or “Ginnie Mae”)GNMA - guaranteed mortgage-backed bondsGNMA - guaranteed pass-through obligations (participationcertificates)(not acceptable for certain cash-flow sensitive issues.)

e. U.S. Maritime AdministrationGuaranteed Title XI financing

f. U.S. Department of Housing and Urban Development (HUD)Project NotesLocal Authority Bonds

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(3) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteedby any of the following non-full faith and credit U.S. government agencies (stripped securities areonly permitted if they have been stripped by the agency itself):

a. Federal Home Loan Bank System - Senior debt obligations(Consolidated debt obligations)

b. Federal Home Loan Mortgage Corporation (FHLMC or “FreddieMac”) - Participation Certificates (Mortgage-backed securities); Seniordebt obligations

c. Federal National Mortgage Association (FNMA or “Fannie Mae”) -Mortgage-backed securities and senior debt obligations (excluded arestripped mortgage securities which are valued greater than par on theportion of unpaid principal.)

d. Student Loan Marketing Association (SLMA or “Sallie Mae”) - Seniordebt obligations

e. Resolution Funding Corp. (REFCORP) - Only the interest componentof REFCORP strips which have been stripped by request to the FederalReserve Bank of New York in book entry form are acceptable.

f. Farm Credit System - Consolidated system-wide bonds and notes

(4) Money market funds registered under the Federal Investment Company Act of1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating byS&P of “AAAm-G”; “AAAm”; or “AA-m” or a rating by Moody’s of “Aaa”, “Aa1” or “Aa2,”including such funds for which the Trustee or an affiliate provides investment advice or otherservices.

(5) Certificates of deposit secured at all times by collateral described in (1) and/or(2) above. CD’s must have a maturity of one year or less. Such certificates must be issued bycommercial banks, savings and loan associations or mutual savings banks whose short termobligations are rated “A-1+” by S&P and “Prime-1” by Moody’s.

The collateral must be held by a third party and the bondholders must have aperfected first security interest in the collateral.

(6) Certificates of deposit, savings accounts, deposit accounts or money marketdeposits which are fully insured by FDIC, including BIF and SAIF.

(7) Investment Agreements, including GIC’s.

(8) Commercial paper rated “Prime-1” by Moody’s and “A-1+” by S&P.

(9) Bonds or notes issued by any state or municipality which are rated by Moody’sand S&P in one of the two highest long-term rating categories assigned by such agencies.

(10) Federal funds or bankers acceptances with a maximum term of one year of anybank which has an unsecured, uninsured and non-guaranteed obligation rating of “Prime-1” or“A3” or better by Moody’s and “A-1+” or “A-” or better by S&P.

(11) Repurchase agreements that provide for the transfer of securities from a dealerbank or securities firm (seller/borrower) to the trustee (buyer/lender), and the transfer of cash from

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the trustee to the dealer bank or securities firm with an agreement that the dealer bank or securitiesfirm will repay the cash plus a yield to the trustee in exchange for the securities at a specified date.Repurchase agreements must satisfy the following criteria:

a. Repurchase agreements must be between the municipal entity and adealer bank or securities firm which includes:

(i) Primary dealers on the Federal Reserve reporting dealer listwhich fall under the jurisdiction of the SIPC and which arerated “A” or better by S&P and “A2” or better by Moody’s, or

(ii) Banks rated “A” or above by S&P and rated “A2” or better byMoody’s.

b. The written repurchase contract must include the following provisions:

(i) Securities which are acceptable for transfer are:

(a) Direct U.S. government securities

(b) Federal agencies backed by the full faith and credit ofthe U.S. government (and FNMA & FHLMC)

(ii) The term of the repurchase agreement may be up to 30 days

(iii) The collateral must be delivered to the municipal entity,trustee (if trustee is not supplying the collateral) or third partyacting as agent for the trustee (if the trustee is supplying thecollateral) before/simultaneous with payment (perfection bypossession of certificated securities).

(iv) The trustee has a perfected first priority security interest in thecollateral.

(v) Collateral is free and clear of third-party liens, and in the caseof SIPC broker, was not acquired pursuant to a repurchaseagreement or reverse repurchase agreement.

(vi) Failure to maintain the requisite collateral percentage, after atwo day restoration period, will require the trustee to liquidatecollateral.

(vii) Valuation of Collateral

(a) The securities must be valued weekly, marked-to-market at current market price plus accrued interest

(b) The value of collateral must be equal to 104% of theamount of cash transferred by the municipal entity tothe dealer bank or security firm under the repurchaseagreement plus accrued interest. If the value ofsecurities held as collateral slips below l04% of thevalue of the cash transferred by municipality, thenadditional cash and/or acceptable securities must betransferred. If, however, the securities used as

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collateral are FNMA or FHLMC, then the value ofcollateral must equal 105%.

c. A legal opinion must be delivered from the governmental entity whichattests that the repurchase agreement meets guidelines under state lawfor legal investment of public funds.

(12) Pre-refunded municipal bonds rated “#Aaa” by Moody’s and “AAA” by S&P.If, however, the issue is only rated by S&P (i.e., there is no Moody’s rating), then the pre-refundedbonds must have been pre-refunded with cash, direct U.S. or U.S. guaranteed obligations, or“AAA” rated pre-refunded municipals to satisfy this condition.

(13) Any state-administered pool investment fund in which the Board is statutorilypermitted or required to invest.

(14) Local Agency Investment Fund (“LAIF”) of the California State Treasurer.

(15) Pooled Investment Fund of the Treasurer-Tax Collector of Placer County.

“Prepayment Fund” means the fund by that name established in the Trust Agreement.

“Prepayment Price” means the sum of the principal amount represented thereby plus accruedinterest represented thereby to the date fixed for prepayment, without premium.

“Principal Corporate Trust Office” means the corporate trust office designated by the Trustee forpurposes of payment, prepayment, transfer, exchange, surrender and cancellation of Certificates or if nooffice is so designated for a particular purpose, such functions shall be conducted at the office of theTrustee in Los Angeles, California, or the principal corporate trust office as designated by any successorTrustee.

“Principal Fund” means the fund by that name established in the Trust Agreement.

“Prior Financing” means the lease financing embodied in: (1) the Ground Lease entered intobetween the Board and Tatonka Capital Corporation, a Colorado corporation (the “Corporation”), dated asof June 10, 2002 and recorded on June 28, 2002 in the Office of the County Recorder of Madera Countyunder Recorder’s Serial No. 2002021326; (2) the Lease-Purchase Agreement dated as of June 10, 2002entered into between the Board and the Corporation and recorded on June 28, 2002 in the Office of theCounty Recorder of Madera County under Recorder’s Serial No. 2002021328; and (3) the Notice ofAssignment executed by the Corporation and Acknowledged by the Board evidencing the assignment ofthe Corporation’s rights under the Ground Lease and the Lease-Purchase Agreement to WestAmericaBank, which Notice was dated as of June 10, 2002 and recorded on June 28, 2002 in the Office of theCounty Recorder of Madera County under Recorder’s Serial No. 2002021327 .

“Project” means the refunding of the Prior Financing and the acquisition, construction andfurnishing of the Board’s 2011 Capital Projects.

“Project Costs” means all costs of acquisition, construction, improvement, expansion andfurnishing of the Project and of expenses incident thereto (or for making reimbursements to the Corporationor the Board or any other person, firm or corporation for such costs theretofore paid by him or it),including, but not limited to, architectural and engineering fees and expenses, applicable construction orfacilities consultants’ fees and expenses, applicable construction-related legal fees and expenses, interestduring construction, furnishings and equipment, tests and inspection, surveys, land acquisition, insurancepremiums, losses during construction not insured against because of deductible amounts, costs ofaccounting, feasibility, environmental and other reports, inspection costs, permit fees, and charges and feesin connection with the foregoing.

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“Qualified Bank” means a state or national bank (which may include the Trustee and its affiliates)or trust company or savings and loan association or a foreign bank with a domestic branch or agency whichis organized and in good standing under the laws of the United States or any state thereof, which (togetherwith its parent corporation) has a capital and surplus of $50,000,000 or more and which has anuncollateralized unsecured long term debt rating by Moody’s Investors Service of at least “A1” or byStandard & Poor’s of at least “A-1.”

“Qualified Surety Bond” means a surety bond issued by an insurance company rated AA or higherby S&P’s and Aa2 or higher by Moody’s.

“Rebate Fund” means the Rebate Fund established pursuant to the Trust Agreement.

“Record Date” means, with respect to any Interest Payment Date, the close of business on the 15thday of the month preceding that in which the applicable Interest Payment Date occurs.

“Rental Payment Period” means the twelve-month periods commencing on October 2 and endingon October 1 during the term of the Facilities Lease.

“Representations Letter” means the blanket issuer letter of representations from the Board to TheDepository Trust Company, New York, NY, and the Operational Arrangements of The Depository TrustCompany then in effect, as context shall require.

“Responsible Officer” means any officer of the Trustee expressly assigned to administer theTrustee’s duties under the Trust Agreement.

“Site Lease” means that certain lease, entitled “Site Lease,” by and between the Board and theCorporation, dated as of June 1, 2011, which lease or a memorandum thereof was recorded in the office ofthe County Recorder of the County of Madera on or prior to the date of delivery of the Certificates, asoriginally executed and recorded or as it may from time to time be supplemented, modified or amendedpursuant to the provisions of the Trust Agreement and thereof.

“Standard & Poor’s” or “S&P” means Standard & Poor’s Ratings Services, a division of TheMcGraw-Hill Companies, Inc., and its successors and assigns, except that if such entity shall be dissolvedor liquidated or shall no longer perform the functions of a securities rating agency, then the term Standard& Poor’s shall be deemed to refer to any other nationally recognized securities rating agency selected bythe Board.

“Tax Certificate” means the certificate relating to Section 103 of the Code, executed by the Boardon the date of delivery of the Certificates, as originally delivered and as it may be amended from time totime.

“Trust Administration Fund” means the fund by that name established in the Trust Agreement.

“Trust Agreement” means the Trust Agreement by and among the Trustee, the Corporation and theBoard, dated as of June 1, 2011, as originally executed and as it may from time to time be amended orsupplemented in accordance with the Trust Agreement.

“Trustee” means The Bank of New York Mellon Trust Company, N.A., a national bankingassociation duly organized and existing under and by virtue of the laws of the United States of America, astrustee under the Trust Agreement, or any other bank or trust company which may at any time besubstituted in its place as provided in the Trust Agreement.

“Written Request of the Board” means an instrument in writing signed by an Authorized BoardRepresentative.

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“Written Requisition of the Board” means an instrument in writing addressed to the Trusteerequesting payment from funds held by the Trustee under the Trust Agreement, signed by an AuthorizedBoard Representative.

Each such Written Requisition shall be sufficient evidence to the Trustee if it states the following:

(a) that obligations in the stated amounts have been incurred by the Board and that each itemthereof is a proper charge against the funds named therein; and

(b) that there has not been filed with or served upon the Board notice of any lien, right to lienor attachment upon, or claim affecting the right to receive payment of, any of the moneys payable to any ofthe persons named in such Written Requisition, which has not been released or will not be releasedsimultaneously with the payment of such obligation, other than materialman’s or mechanics’ liens accruingby mere operation of law.

CERTAIN PROVISIONS OF THE SITE LEASE

Pursuant to the Site Lease, the Board has leased the Facilities to the Corporation for a term endingon October 1, 2041, unless extended or sooner terminated. If on October 1, 2041 the Certificates have notbeen fully paid, or if rental payable under the Facilities Lease has been abated at any time and for anyreason, then the term of the Site Lease will be extended until 10 days after all Certificates have been fullypaid, but in no event beyond October 1, 2051. If prior to October 1, 2051, the Certificates have been fullypaid, the term of Site Lease will end ten days after such payment or ten days after written notice by theBoard to the Corporation, whichever is earlier.

The Board covenants that it is the owner in fee of the Leased Premises described in the Site Leaseand has sufficient right, title and interest to lease the Leased Premises to the Corporation thereunder. TheBoard further covenants and agrees that if for any reason this covenant proves to be incorrect, the Boardwill either institute eminent domain proceedings to condemn the property or institute a quiet title action toclarify the Board’s title, and will diligently pursue such action to completion. The Board further covenantsand agrees that it will hold the Corporation harmless from any loss, cost or damages resulting from anybreach by the Board of these covenants.

CERTAIN PROVISIONS OF THE FACILITIES LEASE

The Board and the Corporation have entered into the Facilities Lease providing for the lease to theBoard from the Corporation of the Facilities. The Facilities Lease, dated as of June 1, 2011, will beexecuted prior to the delivery of the Certificates.

Term; Lease of Facilities

The term of the Facilities Lease shall commence on the date of recordation thereof, or on June 1,2011, whichever is earlier, and shall end on October 1, 2041, unless such term is extended or soonerterminated as provided in the Facilities Lease.

It is contemplated that the Facilities will be available for occupancy by the Board on or aboutApril 1, 2012; provided, however, that in the event the Facilities is not available for the Board’s use byOctober 2, 2012, the Facilities Lease shall not be void nor shall the Corporation be liable for damages, butthe Base Rental Payments, which are to commence for the 12-month period commencing on that date, shallbe abated in the proportion which the acquisition, design, construction and improvement costs of the part orparts of the Facilities not yet available for use and occupancy bears to the acquisition, design, constructionand improvement costs of the entire Facilities, until the time when such part is available for use andoccupancy by the Board. If the Facilities or any part thereof shall be available for use and occupancy by

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the Board before such dates, the Board may take possession of the Facilities or such part thereof. TheBoard covenants that it will cause the Facilities to be constructed with all practicable dispatch.

If on October 1, 2041, the Certificates shall not be fully paid, or if the rental payable under theFacilities Lease shall have been abated at any time and for any reason, then the term of the Facilities Leaseshall be extended until ten days after all Certificates shall be fully paid, except that the term of the FacilitiesLease shall not exceed October 1, 2051. If prior to October 1, 2051, all Certificates have been fully paid, orprovision therefor made, the term of the Facilities Lease shall end ten days thereafter or ten days afterwritten notice by the Board to the Corporation, whichever is earlier.

Substitution

The Board may substitute property as part of the Facilities for purposes of the Site Lease and theFacilities Lease, if the Board has filed with the Trustee, with copies to each rating agency then providing arating for the Certificates, all of the following:

(a) Executed copies of the Site Lease, the Facilities Lease or amendments thereto containingthe description of the substituted Facilities, including the legal description of the Leased Premises asmodified if necessary;

(b) A Certificate of the Board with copies of the Site Lease, the Facilities Lease and theAssignment Agreement, if needed, or amendments thereto containing the description of the substitutedFacilities, including the Leased Premises, stating that such documents have been duly recorded in theofficial records of the County Recorder of the County of Madera;

(c) A Certificate of the Board, (i) evidencing that the annual fair rental value of thesubstituted Facilities which will constitute the Facilities after such substitution will be at least equal to100% of the maximum amount of Base Rental Payments becoming due in the then current fiscal year or inany subsequent fiscal year; and (ii) stating that the useful economic life of the substituted Facilities is atleast equal to the remaining term of the Facilities Lease.

(d) With respect to the substituted Leased Premises, title insurance naming the Trustee as theinsured, and insuring the fee or leasehold estate of the Trustee in such substituted property subject only tosuch exceptions as do not substantially interfere with the Board’s right to use and occupy such substitutedproperty and as will not result in an abatement of Base Rental Payments payable by the Board under theFacilities Lease.

(e) A Certificate of the Board stating that the substituted Facilities are ready for immediateuse and occupancy by the Board.

(f) A Certificate of the Board stating that the essentiality of the substituted Facilities iscomparable to that of the existing Facilities.

(g) Evidence that such substitution will not cause any rating on the Certificates to be reducedor withdrawn.

(h) An Opinion of Counsel stating that such amendment or modification of the FacilitiesLease and of the Site Lease (i) is authorized or permitted by the Constitution and laws of the State ofCalifornia and the Trust Agreement; (ii) will, upon the execution and delivery thereof, be valid and bindingupon the Trustee, as assignee of the Corporation, and the Board in accordance with its terms; and (iii) willnot cause the interest component of the Base Rental Payments to be included in gross income for federalincome tax purposes.

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Certificate Reserve Fund

The Board agrees to cause to be provided to the Trustee upon the sale and delivery of theCertificates, money or a Qualified Surety Bond equal to the Certificate Reserve Fund Requirement fordeposit with the Trustee in the Certificate Reserve Fund. In the event that the Certificate Reserve Fundever contains any cash, then the cash shall be drawn upon before the Qualified Surety Bond, and theQualified Surety Bond shall be reinstated before cash is again deposited in the Certificate Reserve Fund. Ifon April 1 or October 1 of any year after the payment of the Base Rental Payments due the amount in theCertificate Reserve Fund exceeds the Certificate Reserve Fund Requirement, the Trustee, if the Board isnot then in default under the Facilities Lease or under the Trust Agreement, will credit such amount torental due or to be due from the Board unless directed by the Board to deposit any portion of such excess tothe Trust Administration Fund. Except for such withdrawals, the Board agrees to apply the moneys ondeposit in the Certificate Reserve Fund solely for the payment of Base Rental Payments due and payable bythe Board if and when rental is abated in accordance with the Facilities Lease or when other moneys of theBoard are not otherwise available to make such Base Rental Payments. The Board pledges and grants alien on and a security interest in any cash in the Certificate Reserve Fund to the Trustee in order to securethe Board’s obligation to pay the Base Rental Payments as provided in the Facilities Lease. Subject to thepledge in the Facilities Lease, the Board grants a lien on and a security interest in any cash in the CertificateReserve Fund to the provider of the Qualified Surety Bond, if any. The Board further agrees that if at anytime the balance in the Certificate Reserve Fund shall be reduced below the Certificate Reserve FundRequirement, the first Base Rental Payments thereafter payable by the Board and not needed to pay theinterest and principal components payable to the Certificate Owners on the next Base Rental Payment duedate shall be used to increase the balance in the Certificate Reserve Fund to the required Certificate ReserveFund Requirement. Interest earnings or profits on investments of moneys in the Certificate Reserve Fundthat would cause the amount in the Certificate Reserve Fund to exceed the Certificate Reserve FundRequirement shall be transferred to the Acquisition and Construction Fund until the completion of theProject, and thereafter shall be transferred to the Base Rental Payment Fund. At the termination of theFacilities Lease in accordance with its terms, any balance remaining in the Certificate Reserve Fund shallbe released from the foregoing pledge, lien and security interest and shall be transferred to such other fundor account of the Board, or otherwise used by the Board for any other lawful purposes, as the Board maydirect. The funds in the Certificate Reserve Fund may be invested in a guaranteed investment contract forlonger than five years provided that funds may be removed from the contract before maturity if necessaryto make payments on the Certificates.

Payment of Rental

The Board agrees to pay as rental for the use and occupancy of the Facilities the followingamounts at the following times:

Base Rental Payments. The Board will pay to the Trustee, as assignee of the Corporation, as BaseRental Payments under the Facilities Lease annual rental payments with principal and interest components,the interest components being payable semi-annually, in accordance with the Facilities Lease. Base RentalPayments will be calculated on an annual basis, for the twelve-month periods commencing on October 2and ending on October 1, and each annual Base Rental Payment will be divided into two interestcomponents, due on March 15 and September 15 of each rental payment period, and one principalcomponent, due on September 15 of each rental payment period; provided, however, that the first rentalpayment period shall commence on October 2, 2012 and shall end on October 1, 2013, and the first BaseRental Payment which is due on March 15, 2013 shall consist of only the interest component. Any interestor other income with respect to each Base Rental Payment installment accruing from the time of itspayment until payments are made on the Certificates shall belong to the Board and shall be returned by theTrustee to the Board on April 1 and October 1 of each year, or credited to the next Base Rental Paymentdue from the Board under the Facilities Lease. The interest components of the Base Rental Payments shallbe paid by the Board as and constitute interest paid on the principal components of the Base RentalPayments to be paid by the Board under the Facilities Lease, computed on the basis of a 360 day yearcomposed of twelve 30-day months. Each annual Base Rental Payment (to be payable in two installmentsas aforesaid) shall be for the use of the Facilities for the twelve-month period commencing on October 2 of

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the period in which such installments are payable. If the term of the Facilities Lease shall have beenextended pursuant to the Facilities Lease, Base Rental Payment installments shall continue to be due onMarch 15 and September 15 in each year, and payable as described above, continuing to and including thedate of termination of the Facilities Lease, in an amount equal to the amount of Base Rental Paymentspayable for the twelve-month period commencing October 2, 2040. Upon such extension of the FacilitiesLease, the principal and interest components of the Base Rental Payments shall be established so that theprincipal components will in the aggregate be sufficient to pay all unpaid principal components withinterest components sufficient to pay all unpaid interest components at a rate equal to the rate of interest onthe principal component of the Base Rental Payment payable on October 1, 2041.

Additional Payments. The Board will also make Additional Payments as shall be required for thepayment of all expenses, compensation and indemnification of the Trustee payable by the Board under theTrust Agreement, fees of auditors, accountants, attorneys or architects, and all other charges required to bepaid by the Board to comply with the terms of the Certificates or of the Trust Agreement; but not includingin Additional Payments amounts required to pay the principal or interest represented by the Certificates.

Such Additional Payments shall be billed to the Board by the Trustee from time to time pursuantto the Trust Agreement. Amounts so billed shall be paid by the Board within 30 days after receipt of thebill by the Board. The Board reserves the right to audit billings for Additional Payments although exerciseof such right shall in no way affect the duty of the Board to make full and timely payments for allAdditional Payments. Any payments of Additional Payments not expended upon receipt shall be held bythe Trustee in the Trust Administration Fund pursuant to the Trust Agreement.

Fair Rental Value. Base Rental Payments for each rental period during the term of the FacilitiesLease shall constitute the total rental for said rental period and shall be paid by the Board in each RentalPayment Period for and in consideration of the right of use and occupancy of, and continued quiet use andenjoyment of, the Facilities during each such period for which said rental is to be paid. The parties to theFacilities Lease have agreed and determined that such total rental payable for each twelve-month periodbeginning October 2 represents the fair rental value of the Facilities for each such period. In making suchdetermination, consideration has been given to the insured value of the Facilities, other obligations of theparties under the Facilities Lease, the uses and purposes which may be served by the Facilities and thebenefits from the Facilities that will accrue to the Board and to the general public.

Payment Provisions

Each installment of rental payable under the Facilities Lease shall be paid in lawful money of theUnited States of America to the Trustee at the Principal Corporate Trust Office of the Trustee, or such otherplace as the Trustee shall designate. Any such installment of rental accruing under the Facilities Leasewhich shall not be paid when due and payable under the terms of the Facilities Lease shall bear interest atthe rate of 12% per annum, or such lesser maximum rate of interest as may be permitted by law, from thedate when the same is due under the Facilities Lease until the same shall be paid. Notwithstanding anydispute between the Corporation and the Board, the Board shall make all rental payments when due withoutdeduction or offset of any kind and shall not withhold any rental payments pending the final resolution ofsuch dispute. In the event of a determination that the Board was not liable for the rental payments or anyportion thereof, the payments or excess of payments, as the case may be, shall be credited againstsubsequent rental payments due under the Trust Agreement or refunded at the time of such determination.Amounts required to be deposited by the Board with the Trustee pursuant to the Facilities Lease on anydate shall be reduced to the extent of amounts on deposit in the Base Rental Payment Fund, the InterestFund or the Principal Fund created pursuant to the Trust Agreement and available therefor.

All rental payments received will be applied first to the interest components of the Base RentalPayments due under the Facilities Lease, then to the principal components of the Base Rental Payments dueunder the Facilities Lease and thereafter to all Additional Payments due under the Facilities Lease, but nosuch application of any rental payments which are less than the total rental due and owing will be deemed awaiver of any default under the Facilities Lease.

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Appropriations Covenant

The Board covenants to take such action as may be necessary to include all such Base RentalPayments and Additional Payments due under the Facilities Lease in its annual budgets, to make thenecessary annual appropriations for all such Base Rental Payments and Additional Payments and to takesuch action annually as will be required to provide funds in such year for such Base Rental Payments andAdditional Payments. The Board will deliver to the Trustee on or before September 30 of each year aCertificate of the Board stating that the Board budget for such year provides for the payment of Base RentalPayments and Additional Payments due under the Facilities Lease in such year.

Pledge of Redevelopment Revenues

The Board pledges to the Trustee, as assignee of the Corporation’s rights in the Facilities Lease, allof the tax increment revenues (sometimes referred to as “pass-through revenues”) paid to the Board by theCity of Madera Redevelopment Agency and City of Chowchilla Redevelopment Agency (the“Redevelopment Revenues”) in order to secure the payment of the Base Rental Payments and AdditionalPayments. Such pledge shall constitute a first lien on and security interest in the Redevelopment Revenuesfor the payment of the Base Rental Payments and Additional Payments, shall be valid and binding from andafter delivery by the Trustee of the Certificates without any physical delivery thereof or further act, andshall be irrevocable until all of the Certificates are no longer Outstanding.

Certificate Reserve Fund

The Board agrees to cause to be provided to the Trustee upon the sale and delivery of theCertificates, money equal to the Certificate Reserve Fund Requirement for deposit with the Trustee in aseparate special fund created, to be held by the Trustee for and on behalf of the Board, known as the“Facilities Lease Certificate Reserve Fund” (the “Certificate Reserve Fund”).

To the extent that the Certificate Reserve Fund contains cash, then the cash shall be drawn uponbefore the Qualified Surety Bond, and the Qualified Surety Bond shall be reinstated before cash is againdeposited in the Certificate Reserve Fund. If on April 1 or October 1 of any year, after the payment of theBase Rental Payments due, the amount in the Certificate Reserve Fund exceeds the Certificate ReserveFund Requirement, the Trustee, if the Board is not then in default under the Facilities Lease or under theTrust Agreement, shall credit such amount to rental due or to become due from the Board unless directedby the Board to deposit any portion of such excess to the Trust Administration Fund. Except for suchwithdrawals, the Board agrees, and instructs the Trustee, to apply the moneys on deposit in the CertificateReserve Fund solely to Base Rental Payments due and payable by the Board if and when rental shall beabated in accordance with the Trust Agreement or when other moneys of the Board are, for any reason, notmade available to make such Base Rental Payments. The Board pledges and grants a lien on and a securityinterest in any cash in the Certificate Reserve Fund to the Trustee in order to secure the Board’s obligationto pay the Base Rental Payments as provided in the Facilities Lease. Subject to the foregoing pledge, theBoard grants a lien on and a security interest in any cash in the Certificate Reserve Fund to the provider ofa Qualified Surety Bond, if any. The Board further agrees that if at any time the balance in the CertificateReserve Fund shall be reduced below the Certificate Reserve Fund Requirement, the first Base RentalPayments thereafter payable by the Board and not needed to pay the interest and principal componentspayable to the Certificate Owners on the next Base Rental Payment due date shall be used to increase thebalance in the Certificate Reserve Fund to the required Certificate Reserve Fund Requirement. Interestearnings or profits on investments of moneys in the Certificate Reserve Fund that would cause the amountin the Certificate Reserve Fund to exceed the Certificate Reserve Fund Requirement shall be transferred tothe Acquisition and Construction Fund until the completion of the Project, and thereafter shall betransferred to the Base Rental Payment Fund. At the termination of the Facilities Lease in accordance withits terms, any balance remaining in the Certificate Reserve Fund shall be released from the foregoingpledge, lien and security interest and shall be transferred to such other fund or account of the Board, orotherwise used by the Board for any other lawful purposes, as the Board may direct. The funds in theCertificate Reserve Fund may be invested in a guaranteed investment contract for longer than five years

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provided that funds may be removed from the contract before maturity if necessary to make payments onthe Certificates.

Maintenance, Utilities

During the term of the Facilities Lease, all maintenance and repair, both ordinary andextraordinary, of the Facilities will be the responsibility of the Board, which will at all times maintain orotherwise arrange for the maintenance of the Facilities for the purposes intended, and the Board will payfor or otherwise arrange for the payment of all utility services supplied to the Facilities, which may include,without limitation, janitor service, security, power, gas, telephone, light, heating, ventilation, airconditioning, water and all other utility services, and shall pay for or otherwise arrange for payment of thecost of the repair and replacement of the Facilities resulting from ordinary wear and tear or want of care onthe part of the Board or any assignee or sublessee thereof or any other cause and shall pay for or otherwisearrange for the payment of all insurance policies required to be maintained with respect to the Facilities. Inexchange for the rental provided in the Facilities Lease, the Corporation agrees only to provide theFacilities to the Board as provided in the Facilities Lease.

Net-Net-Net Lease

The Facilities Lease shall be deemed and construed to be a “net-net-net lease” and the Board hasagreed that the rentals provided for in the Facilities Lease shall be an absolute net return to the Corporation,free and clear of any expenses, charges or set-offs whatsoever.

Fire and Extended Coverage and Earthquake Insurance

The Board shall procure or cause to be procured and maintain or cause to be maintained,throughout the term of the Facilities Lease, insurance against loss or damage to any structures constitutingany part of the Facilities by fire and lightning, with extended coverage insurance, vandalism and maliciousmischief insurance, sprinkler system leakage insurance, and earthquake insurance (but as to suchearthquake insurance only if such insurance is available at reasonable cost on the open market fromreputable insurance companies, and further, the Board need not obtain earthquake insurance on any portionof the Facilities the design and construction of which comply with the provisions of the Field Act). Saidextended 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 amount equal to the replacement cost (without deduction for depreciation) ofall structures constituting any part of the Facilities, excluding the cost of excavations, of grading and filling,and of the land (except that such earthquake insurance may be subject to a deductible clause of not toexceed ten percent of said replacement cost for any one loss and except that such other insurance may besubject to deductible clauses for any one loss of not to exceed $100,000), or, in the alternative, shall be inan amount and in a form sufficient (together with moneys in the Certificate Reserve Fund referred to in theTrust Agreement), in the event of total or partial loss, to enable all Certificates then Outstanding to beprepaid.

The policy must explicitly waive any co-insurance penalty.

In the event of any damage to or destruction of any part of the Facilities caused by the perilscovered by such insurance, if in the judgment of the Board the insurance proceeds are sufficient to repair,reconstruct or replace the damaged or destroyed portion of the Facilities, the Trustee, except as provided inthe Trust Agreement, shall cause the proceeds of the insurance to be utilized for the repair, reconstructionor replacement of the damaged or destroyed portion of the Facilities, and the Trustee shall hold theproceeds separate and apart from all other funds, in a special fund to be designated the “Insurance andCondemnation Fund,” to the end that such proceeds shall be applied to the repair, reconstruction orreplacement of the Facilities to at least the same good order, repair and condition as it was in prior to thedamage or destruction, insofar as the same may be accomplished by the use of the proceeds. The Trusteeshall permit withdrawals of the proceeds from time to time upon receiving the Written Request of theBoard, stating that the Board has expended moneys or incurred liabilities in an amount equal to the amount

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therein requested to be paid over to it for the purpose of repair, reconstruction or replacement, andspecifying the items for which such moneys were expended, or such liabilities were incurred, andcontaining the additional information, if any, required to be included in a Written Request of the Board. Inthe event insurance proceeds are not sufficient, the Board will use its commercially reasonable best effortsto provide sufficient construction funds in order to ensure completion of the reconstruction, repair,restoration, modification or improvement of the Facilities. Any balance of insurance proceeds not requiredfor the repair, reconstruction or replacement shall be treated by the Trustee as Base Rental Payments andapplied in the manner provided by the Trust Agreement. Alternatively, the Board, at its option, and if theproceeds of the insurance together with any other moneys then available for the purpose are at leastsufficient to prepay an aggregate principal amount represented by Outstanding Certificates, equal to theamount of Outstanding Certificates attributable to the portion of the Facilities so destroyed or damaged(determined by reference to the proportion which the initial cost of such portion of the Facilities bears tothe initial cost of the Facilities), may elect not to repair, reconstruct or replace the damaged or destroyedportion of the Facilities and thereupon shall cause the proceeds to be used for the prepayment ofOutstanding Certificates pursuant to the provisions of the Trust Agreement.

The Board shall promptly apply for federal disaster aid or State of California disaster aid in theevent that any portion of the Facilities is damaged or destroyed as a result of an earthquake occurring at anytime. Any proceeds received as a result of such disaster aid shall be used to repair, reconstruct, restore orreplace the damaged or destroyed portions of the Facilities, or, at the option of the Board, to prepayOutstanding Certificates if such use of such disaster aid is permitted.

As an alternative to providing the insurance required by the first paragraph of this section, or anyportion thereof, the Board may provide a self-insurance method or plan of protection, if and to the extentsuch self-insurance method or plan of protection affords reasonable coverage for the risks required to beinsured against, in light of all circumstances, giving consideration to cost, availability and similar plans ormethods of protection adopted by public entities in the State other than the Board. Before such othermethod or plan may be provided by the Board, and annually thereafter so long as such method or plan isbeing provided to satisfy the requirements of the Facilities Lease, there shall be filed with the Trustee acertificate of a licensed independent insurance consultant, stating that, in the opinion of the signer, thesubstitute method or plan of protection has been approved and is maintained on an actuarially sound basis,the self-insurance fund is held in a separate trust fund by an independent trustee, in the event the selfinsurance program is discontinued, the claim reserve fund is actuarially sound, and setting forth the currentlevel of funding in the self-insurance account. There shall also be filed with the Trustee a certificate of theBoard setting forth the details of such substitute method or plan. In the event of loss covered by any suchself-insurance method, the liability of the Board under the Trust Agreement shall be limited to the amountsin the self-insurance reserve fund or funds created under such method. The Board agrees that it will notchange or modify any self-insurance method in effect on the effective date of the Facilities Lease toincrease the amount of self-insurance being provided or to reduce the coverage of the self-insurance.

Liability Insurance

Except as provided in the Facilities Lease, the Board will procure or cause to be procured andmaintain or cause to be maintained, throughout the term of the Facilities Lease, standard comprehensivegeneral liability insurance policy or policies in protection of the Trustee, as assignee of the Corporation,and its members, directors, officers, agents and employees and the Trustee, indemnifying said partiesagainst all direct or contingent loss or liability for damages for personal injury, death or property damageoccasioned by reason of the operation of the Facilities, with minimum liability limits of $1,000,000 forpersonal injury or death of each person, and replacement cost for damage to property resulting from eachaccident or event. Such public liability and property damage insurance may, however, be in the form of asingle limit policy in the amount of $1,000,000 covering all such risks. Such liability insurance may bemaintained as part of or in conjunction with any other liability insurance carried by the Board.

As an alternative to providing liability insurance, or any portion thereof, the Board may provide aself-insurance method or plan of protection, if and to the extent such self-insurance method or plan ofprotection affords reasonable coverage for the risks required to be insured against, in light of all

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circumstances, giving consideration to cost, availability and similar plans or methods of protection adoptedby public entities in the State of California other than the Board. Before such other method or plan may beprovided by the Board, and annually thereafter so long as such method or plan is being provided to satisfythe requirements of the Facilities Lease, there will be filed with the Trustee a certificate of a licensedindependent insurance consultant, stating that, in the opinion of the signer, the substitute method or plan ofprotection has been approved and is maintained on an actuarially sound basis, the self-insurance fund isheld in a separate trust fund by an independent trustee, in the event the self-insurance program isdiscontinued, the claim reserve fund is actuarially sound, and setting forth the current level of funding inthe self-insurance account. There will also be filed with the Trustee a certificate of the Board setting forththe details of such substitute method or plan. In the event of loss covered by any such self-insurancemethod, the liability of the Board under the Facilities Lease shall be limited to the amounts in the self-insurance reserve fund or funds created under such method.

Rental Interruption Insurance or Use and Occupancy Insurance

The Board shall procure or cause to be procured and maintain or cause to be maintained,throughout the term of the Facilities Lease, rental interruption or use and occupancy insurance to coverloss, total or partial, of the rental income from or the use of the Facilities as the result of any of the hazardscovered by fire and extended coverage insurance required by the Facilities Lease, in an amount sufficient topay the part of the total rent attributable to the portion of the Facilities rendered unusable for a period of atleast 24 months (subject to a deductible not to exceed $25,000), except that such insurance need bemaintained as to the peril of earthquake only if such insurance is available at reasonable cost on the openmarket from reputable insurance companies, and further except that the Board need not obtain suchinsurance as to the peril of earthquake on any portion of the Facilities the design and construction of whichcomply with the provisions of the Field Act. The policy must refer to the Facilities and must list theTrustee and the Corporation as named insured. The proceeds of the policy shall be paid directly to theTrustee. Any proceeds of such insurance shall be used by the Trustee first to reimburse to the provider ofany Qualified Surety Bond held in the Certificate Reserve Fund any amounts required to be paid to it underits agreement with the Board, then to reimburse to the Board any rental theretofore paid by the Boardattributable to such portion of the Facilities for a period of time during which the payment of rental isabated, and any proceeds of such insurance not so used shall be applied to the extent required for the BaseRental Payments and to the extent required for the payment of Additional Payments under the FacilitiesLease. The Board shall use its best efforts to provide sufficient construction funds in excess of the amountof the insurance required under the Facilities Lease, if necessary, in order to ensure completion of thereconstruction, repair, or restoration of the Facilities.

Title Insurance

Upon the execution and delivery of the Facilities Lease, the Board will cause to be procured anddelivered to the Trustee a title policy or policies, in an aggregate amount equal to the aggregate principalcomponent of unpaid Base Rental Payments, subject only to Permitted Encumbrances, insuring the Board,the Corporation and the Trustee, as assignee of the Corporation, as to the Board’s leasehold estate in theLeased Premises and the Facilities. So long as any of the Certificates shall be Outstanding, any awardmade under the policy or policies of title insurance with respect to the Facilities or any portion thereof shallbe paid to the Trustee and applied to the prepayment of the Base Rental Payments as provided in theFacilities Lease.

Default and Remedies

(a) If the Board fails to pay any rental payable under the Facilities Lease when the same becomesdue and payable, time being expressly declared to be of the essence of the Facilities Lease, or the Boardfails to keep, observe or perform any other term, covenant or condition contained in the Facilities Lease tobe kept or performed by the Board for a period of 30 days after notice of the same has been given to theBoard by the Trustee or for such additional time as is reasonably required, in the sole discretion of theTrustee, to correct the same, or upon the happening of any of the events specified in paragraph (b) below(any such case being an “Event of Default” under the Facilities Lease and a default under the Trust

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Agreement), the Board will be deemed to be in default under the Facilities Lease, and it will be lawful forthe Trustee, as assignee of the Corporation, to exercise any and all remedies available pursuant to law orgranted pursuant to the Facilities Lease. Upon any such default, the Trustee, in addition to all other rightsand remedies it may have at law, will have the option to do any of the following:

(1) To terminate the Facilities Lease in the manner provided on account of defaultby the Board, notwithstanding any re-entry or re-letting of the Facilities as provided for insubparagraph (2) below, and to re-enter the Facilities and remove all persons in possession thereofand all personal property whatsoever situated upon the Facilities and place such personal propertyin storage in any warehouse or other suitable place located within the County of Madera,California. In the event of such termination, the Board agrees to surrender immediately possessionof the Facilities, without let or hindrance, and to pay the Trustee all damages recoverable at lawthat the Trustee may incur by reason of default by the Board, including, without limitation, anycosts, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon the Facilities and removal and storage of such property by the Trustee or its dulyauthorized agents in accordance with the provisions contained in the Facilities Lease. Neithernotice to pay rent or to deliver up possession of the Facilities given pursuant to law nor any entryor re-entry by the Trustee nor any proceeding in unlawful detainer, or otherwise, brought by theTrustee for the purpose of effecting such re-entry or obtaining possession of the Facilities nor theappointment of a receiver upon initiative of the Trustee to protect the Trustee’s interest under theFacilities Lease shall of itself operate to terminate the Facilities Lease, and no termination of theFacilities Lease on account of default by the Board shall be or become effective by operation oflaw or acts of the parties to the Facilities Lease, or otherwise, unless and until the Trustee shallhave given written notice to the Board of the election on the part of the Trustee to terminate theFacilities Lease. The Board covenants and agrees that no surrender of the Facilities or of theremainder of the term of the Facilities Lease or any termination of the Facilities Lease shall bevalid in any manner or for any purpose whatsoever unless stated or accepted by the Trustee bysuch written notice.

(2) Without terminating the Facilities Lease, (i) to collect each installment of rent asit becomes due and enforce any other terms or provision of the Facilities Lease to be kept orperformed by the Board, regardless of whether or not the Board has abandoned the Facilities, or(ii) to exercise any and all rights of re-entry upon the Facilities. In the event the Trustee does notelect to terminate the Facilities Lease in the manner provided for in subparagraph (1) above, theBoard shall remain liable and agrees to keep or perform all covenants and conditions contained inthe Facilities Lease to be kept or performed by the Board and, if the Facilities are not re-let, to paythe full amount of the rent to the end of the term of the Facilities Lease or, in the event that theFacilities are re-let, to pay any deficiency in rent that results therefrom; and further agrees to paysaid rent and/or rent deficiency punctually at the same time and in the same manner as provided inthe Facilities Lease for the payment of rent thereunder (without acceleration), notwithstanding thefact that the Trustee may have received in previous years or may receive thereafter in subsequentyears rental in excess of the rental specified in the Facilities Lease, and notwithstanding any entryor re-entry by the Trustee or suit in unlawful detainer, or otherwise, brought by the Trustee for thepurpose of effecting such entry or re-entry or obtaining possession of the Facilities. Should theTrustee elect to enter or re-enter as provided in the Facilities Lease, the Board irrevocably appointsthe Trustee as the agent and attorney-in-fact of the Board to re-let the Facilities, or any partthereof, from time to time, either in the Trustee’s name or otherwise, upon such terms andconditions and for such use and period as the Trustee may deem advisable, and to remove allpersons in possession thereof and all personal property whatsoever situated upon the Facilities andto place such personal property in storage in any warehouse or other suitable place located in theCounty of Madera, California, for the account of and at the expense of the Board, and the Boardexempts and agrees to save harmless the Trustee from any costs, loss or damage whatsoeverarising out of, in connection with, or incident to any such re-entry upon and re-letting of theFacilities and removal and storage of such property by the Trustee or its duly authorized agents inaccordance with the provisions contained in the Facilities Lease. The Board agrees that the termsof the Facilities Lease constitute full and sufficient notice of the right of the Trustee to re-let the

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Facilities and to do all other acts to maintain or preserve the Facilities as the Trustee deemsnecessary or desirable in the event of such re-entry without effecting a surrender of the FacilitiesLease, and further agrees that no acts of the Trustee in effecting such re-letting shall constitute asurrender or termination of the Facilities Lease irrespective of the use or the term for which suchre-letting is made or the terms and conditions of such re-letting, or otherwise, but that, on thecontrary, in the event of such default by the Board the right to terminate the Facilities Lease shallvest in the Trustee to be effected in the sole and exclusive manner provided for in sub-paragraph(1) above. The Board further waives the right to any rental obtained by the Trustee in excess ofthe rental specified in the Trust Agreement and conveys and releases such excess to the Trustee fordeposit in the Base Rental Payment Fund to be held in trust for the benefit of the Owners. TheBoard further agrees to pay the Trustee the cost of any alterations or additions to the Facilitiesnecessary to place the Facilities in condition for re-letting immediately upon notice to the Board ofthe completion and installation of such additions or alterations.

(b) If (1) the Board’s interest in the Facilities Lease or any part thereof be assigned ortransferred, either voluntarily or by operation of law or otherwise, without the written consent of theTrustee, as assignee of the Corporation, as provided for in the Trust Agreement, or (2) the Board or anyassignee shall file any petition or institute any proceeding under any act or acts, state or federal, dealingwith or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such actor acts, either as a bankrupt or as an insolvent, or as a debtor, or in any similar capacity, wherein orwhereby the Board asks or seeks or prays to be adjudicated a bankrupt, or is to be discharged from any orall of the Board’s debts or obligations, or offers to the Board’s creditors to effect a composition orextension of time to pay the Board’s debts, or asks, seeks or prays for reorganization or to effect a plan ofreorganization, or for a readjustment of the Board’s debts, or for any other similar relief, or if any suchpetition or any such proceedings of the same or similar kind or character be filed or be instituted or takenagainst the Board, or if a receiver of the business or of the property or assets of the Board shall beappointed by any court, except a receiver appointed at the instance or request of the Trustee, or if the Boardshall make a general or any assignment for the benefit of the Board’s creditors, or if (3) the Board shallabandon or vacate the Facilities, then the Board shall be deemed to be in default under the Facilities Lease.

(c) The Corporation shall in no event be in default in the performance of any of itsobligations under the Facilities Lease or imposed by any statute or rule of law unless and until theCorporation shall have failed to perform such obligations within 30 days or such additional time as isreasonably required to correct any such default after notice by the Board to the Corporation properlyspecifying wherein the Corporation has failed to perform any such obligation. In the event of default by theCorporation, the Board shall be entitled to pursue any remedy provided by law.

(d) In addition to the other remedies set forth in the Facilities Lease, upon the occurrence ofan event of default as described therein, the Trustee shall be entitled to proceed to protect and enforce therights vested in the Trustee as assignee of the Corporation by the Facilities Lease or by law. The provisionsof the Facilities Lease and the duties of the Board and of its trustees, officers or employees shall beenforceable by the Trustee by mandamus or other appropriate suit, action or proceeding in any court ofcompetent jurisdiction. Without limiting the generality of the foregoing, the Trustee shall have the right tobring the following actions:

(1) Accounting. By action or suit in equity to require the Board and its trustees, officers andemployees and its assigns to account as the trustee of an express trust.

(2) Injunction. By action or suit in equity to enjoin any acts or things which may be unlawfulor in violation of the rights of the Trustee.

(3) Mandamus. By mandamus or other suit, action or proceeding at law or in equity toenforce the Trustee’s rights against the Board (and its board, officers and employees) and tocompel the Board to perform and carry out its duties and obligations under the law and itscovenants and agreements with the Board as provided in the Facilities Lease.

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Each and all of the remedies given to the Trustee, as assignee of the Corporation, under theFacilities Lease or by any law now or hereafter enacted are cumulative and the single or partial exercise ofany right, power or privilege under the Facilities Lease shall not impair the right of the Trustee to other orfurther exercise thereof or the exercise of any or all other rights, powers or privileges. The term “re-let” or“re-letting” as used in the Facilities Lease shall include, but not be limited to, re-letting by means of theoperation by the Trustee of the Facilities. If any statute or rule of law validly shall limit the remedies givento the Trustee under the Facilities Lease, the Trustee nevertheless shall be entitled to whatever remedies areallowable under any statute or rule of law.

Eminent Domain

If the whole of the Facilities or so much thereof as to render the remainder unusable for thepurposes for which it was used by the Board is taken under the power of eminent domain, the term of theFacilities Lease will cease as of the day that possession is so taken. If less than the whole of the Facilitiesis taken under the power of eminent domain and the remainder is usable for the purposes for which it wasused by the Board at the time of such taking, then the Facilities Lease will continue in full force and effectas to such remainder, and the parties waive the benefits of any law to the contrary, and in such event thereshall be a partial abatement of the rental due under the Facilities Lease in an amount equivalent to theamount by which the annual payments of principal and interest represented by Certificates thenOutstanding will be reduced by the application of the award in eminent domain to the prepayment ofOutstanding Certificates. So long as any of the Certificates are Outstanding, any award made in eminentdomain proceedings for taking the Facilities or any portion thereof will be applied to the prepayment ofBase Rental Payments as provided in the Facilities Lease. Any such award made after all of theCertificates have been fully paid, or provision therefor made, will be paid to the Board.

Prepayment.

The Board shall prepay on any date from insurance and eminent domain proceeds not applied forthe replacement, repair or restoration of the damaged, destroyed, taken or affected portion of the Facilities,to the extent provided in the Facilities Lease, all of the principal components of Base Rental Payments thenunpaid or any part thereof (in an integral multiple of $5,000 and by lot within maturities), so that theaggregate annual amounts of the principal and interest components of Base Rental Payments which shall bepayable after such prepayment date shall be as nearly proportional as practicable, in each year, to theaggregate annual amounts of the principal and interest components of Base Rental Payments unpaid, forthat same year, prior to the prepayment date for the same year, at a prepayment amount equal to the sum ofthe principal and interest component prepaid plus accrued interest thereon to the date of prepayment, plusany applicable premium.

The Board may prepay, from any source of available funds, all or any portion of Base RentalPayments by depositing with the Trustee moneys or securities as provided in the Trust Agreement withrespect to defeasance of the Certificates sufficient to make such Base Rental Payments when due; providedthat the Board furnishes the Trustee with an Opinion of Counsel that such deposit will not cause interestevidenced by and payable with respect to the Certificates to be includable in gross income for federalincome tax purposes. The Board agrees that if following such prepayment the Facilities are damaged ordestroyed or taken by eminent domain, it is not entitled to, and by such prepayment waives the right of,abatement of such prepaid Base Rental Payments and shall not be entitled to any reimbursement of suchBase Rental Payments.

Option to Purchase

The Board will have the option to purchase the Corporation’s interest in any part of the Facilitiesupon payment of an option price consisting of moneys or securities of the category specified in clause (1)of the definition of the term Permitted Investments contained in the Trust Agreement (not callable by theissuer thereof prior to maturity) in an amount sufficient (together with the increment, earnings and intereston such securities) to provide funds to pay the aggregate amount for the entire remaining term of theFacilities Lease of the part of the total rent thereunder attributable to such part of the Facilities (determined

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by reference to the proportion which the initial cost of such part of the Facilities bears to the initial cost ofall of the Facilities). Any such payment shall be made to the Trustee and will be treated as Base RentalPayments and will be applied by the Trustee to pay the interest and principal components of the Certificatesand to prepay Certificates if such Certificates are subject to prepayment pursuant to the terms of the TrustAgreement. Upon the making of such payment to the Trustee: (a) the interest and principal components ofeach Base Rental Payment installment thereafter payable under the Facilities Lease shall be reduced by theamount thereof attributable to such part of the Facilities and theretofore paid pursuant to this section; (b)the rental abatement and option to purchase provisions of the Facilities Lease shall not thereafter beapplicable to such part of the Facilities; (c) the fire and extended coverage insurance and rental interruptionor use and occupancy insurance required by the Facilities Lease need not be maintained as to such part ofthe Facilities; and (d) title to such part of the Facilities including the portion of the Leased Premises uponwhich such part of the Facilities is located shall vest in the Board, and the term of the Facilities Lease andof the Site Lease shall end as to such part of the Facilities.

Liens

In the event the Board shall at any time during the term of the Facilities Lease cause any changes,alterations, additions, improvements, or other work to be done or performed or materials to be supplied, inor upon or attached to the Facilities, the Board shall pay, when due, all sums of money that may becomedue for, or purporting to be for, any labor, services, materials, supplies or equipment furnished or alleged tohave been furnished to or for the Board in, upon or relating to the Facilities and shall keep the Facilitiesfree of any and all mechanics’ or materialman’s liens or other liens against any portion of the Facilities orthe Corporation’s interest therein. In the event any such lien attaches to or is filed against the Facilities orthe Corporation’s interest therein, the Board shall cause each such lien to be fully discharged and releasedat the time the performance of any obligation secured by any such lien matures or becomes due, except thatif the Board desires to contest any such lien it may do so in good faith. If any such lien shall be reduced tofinal judgment and such judgment or such process as may be issued for the enforcement thereof is notpromptly stayed, or if so stayed and said stay thereafter expires, the Board shall forthwith pay anddischarge said judgment. The Board agrees to and shall, to the maximum extent permitted by law,indemnify and hold the Corporation and the Trustee and their respective members, officers, directors,agents, successors and assigns, harmless from and against, and defend each of them against, any claim,demand, loss, damage, liability or expense (including attorney’s fees) as a result of any such lien or claimof lien against the Facilities or the Corporation’s interest therein. So long as the Board fulfills itsobligations under its subordinate lease-leaseback agreements with David A. Bush, Inc. related to theconstruction of the Instructional Support Center Project, the Board shall be, in respect of the liens of thoseagreements, in compliance with the Facilities Lease.

CERTAIN PROVISIONS OF THE ASSIGNMENT AGREEMENT

Pursuant to the Assignment Agreement between the Corporation and the Trustee, dated as ofJune 1, 2011, the Corporation has assigned to the Trustee without recourse (i) all its rights to receive theBase Rental Payments and Additional Payments scheduled to be paid by the Board under and pursuant tothe Facilities Lease, (ii) all rents, profits, products and proceeds from the Facilities to which theCorporation has any right or claim whatsoever under the Facilities Lease, (iii) the right to take all actionsand give all consents under the Facilities Lease, (iv) any right of access more particularly described in theFacilities Lease, (v) all other right, title, and interest of the Corporation in the Facilities Lease, (vi) all right,title, and interest of the Corporation in the Site Lease, and (vii) all right, title, and interest of theCorporation in the funds and accounts (and the money and other property held therein) established pursuantto the Trust Agreement or the Facilities Lease.

CERTAIN PROVISIONS OF THE TRUST AGREEMENT

The Trust Agreement was entered into among the Trustee, the Corporation and the Board as ofJune 1, 2011. The Trust Agreement, among other things, provides for the execution and delivery of the

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Certificates and sets forth the terms thereof, provides for the creation of certain of the funds describedbelow, includes certain covenants of the Board and the Corporation, defines events of default and remediestherefor, and sets forth the rights and responsibilities of the Trustee.

Certain provisions of the Trust Agreement setting forth the terms of the Certificates, theprepayment provisions thereof and the use of the proceeds of the Certificates are set forth in the frontportion of this Official Statement. See “THE CERTIFICATES”.

The Trustee

The Trustee will receive all of the Certificate proceeds and Base Rental Payments under theFacilities Lease, execute and deliver the Certificates and act as a depository of amounts held thereunder.The Trustee is required to make deposits into and withdrawals from funds, and upon the Written Request ofthe Board will invest amounts held under the Trust Agreement in Permitted Investments.

Pledge of Base Rental Payments; Base Rental Payment Fund

The Base Rental Payments are irrevocably pledged by the Board for the punctual payment ofinterest and principal represented by the Certificates, and the Base Rental Payments will not be used forany other purpose while any Certificates remain Outstanding.

All Base Rental Payments will be paid directly by the Board to the Trustee, and if received by theCorporation at any time will be deposited by the Corporation with the Trustee within five business daysafter the receipt thereof.

Deposit to Base Rental Payment Fund

The Trustee will deposit the Base Rental Payments contained in the Base Rental Payment Fund atthe times and in the manner provided for in the Trust Agreement in the following respective funds, each ofwhich the Trustee agrees to establish and maintain under the Trust Agreement so long as any Certificatesare Outstanding, and the moneys in each of such funds will be disbursed only for the purposes and usesauthorized in the Trust Agreement.

(a) Interest Fund. The Trustee, on March 15 and September 15 of each year (commencingon September 15, 2011), will deposit in the Interest Fund that amount of moneys representing the portion ofthe Base Rental Payments designated as interest components coming due on each April 1 and October 1date, respectively. Moneys in the Interest Fund will be used and withdrawn by the Trustee solely for thepurpose of paying the interest represented by the Certificates when due and payable.

(b) Principal Fund. The Trustee, on September 15 of each year (commencing onSeptember 15, 2013), will deposit in the Principal Fund that amount of moneys representing the portion ofthe Base Rental Payments designated as the principal component coming due on each October 1 date,respectively. Moneys in the Principal Fund will be used and withdrawn by the Trustee solely for thepurpose of paying the principal represented by the Certificates when due and payable, including themandatory prepayment of any Certificates representing the principal components of Base Rental Paymentspayable in more than one year.

(c) Certificate Reserve Fund. If any Base Rental Payments have been paid from theQualified Surety Bond in the Certificate Reserve Fund established in the Facilities Lease, delinquent BaseRental Payments shall be utilized as provided in the Facilities Lease.

(d) Prepayment Fund. The Trustee, on the prepayment date specified in the Written Requestof the Board filed with the Trustee at the time that any prepaid Base Rental Payment is paid to the Trusteepursuant to the Facilities Lease, will deposit in the Prepayment Fund that amount of moneys representingthe portion of the Base Rental Payments designated as prepaid Base Rental Payments. Moneys in the

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Prepayment Fund will be used and withdrawn by the Trustee solely for the purpose of paying the interestand principal and any applicable premium represented by the Certificates to be prepaid.

Trust Administration Fund

The Trustee will deposit in the Trust Administration Fund (the initial payment into which isprovided for in the Trust Agreement and which fund the Trustee agrees to establish and maintain so long asany Certificates are Outstanding) all amounts received from the Board to be applied as Additional RentalPayments under the Facilities Lease, to be held by the Trustee for the benefit of the Board until disbursed.The moneys in the Trust Administration Fund will be disbursed by the Trustee upon the Written Request ofthe Board, for the payment of compensation and indemnification of the Trustee payable by the Board underthe Trust Agreement, fees of the auditors, accountants, attorneys or architects and all other charges requiredto be paid by the Board to comply with the terms of the Certificates or the Trust Agreement.

Establishment and Application of Rebate Fund

The Trustee will establish and maintain a fund separate from any other fund established andmaintained under the Trust Agreement designated as the “Rebate Fund.” Within the Rebate Fund, theTrustee shall maintain such accounts as shall be specified in a Written Request of the Board necessary inorder to comply with the terms and requirements of the Tax Certificate. All money at any time deposited inthe Rebate Fund will be held by the Trustee in trust, to the extent required to satisfy the Rebate Amount (asdefined in the Tax Certificate), for payment to the federal government of the United States of America. Allamounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively bythe Trust Agreement, the Facilities Lease and the Tax Certificate. The Trustee shall be deemedconclusively to have complied with such provisions if it follows a Written Request of the Board in themanner provided in the Tax Certificate and shall have no liability or responsibility to enforce complianceby the Board with the terms of the Tax Certificate.

Notwithstanding any other provision of the Trust Agreement, including in particular thedefeasance of the Certificate as provided therein, the obligation to remit the Rebate Amounts to the UnitedStates and to comply with all other requirements of the above paragraph, the tax covenants as set forth inthe Facilities Lease, and the Tax Certificate, shall survive the defeasance or payment in full of theCertificates.

Investments

Any moneys held by the Trustee under the Trust Agreement will be invested as directed by theBoard in a Written Request of the Board by the Trustee in Permitted Investments which will, as nearly aspracticable, mature on or before the dates when such moneys are anticipated to be needed for disbursementunder the Trust Agreement or under the Facilities Lease. In the absence of such Written Request, theTrustee shall invest in Permitted Investments consisting of money market funds as described in clause (4)of the definition thereof. Investments of funds in the Certificate Reserve Fund shall mature on or beforefive years from the date of investment, and shall be valued on or before each April 1 and October 1 atmarket value.

Interest earnings or profits on investments of the Base Rental Payment Fund shall be transferred tothe Certificate Reserve Fund, unless the amount already on deposit therein is greater than or equal to theCertificate Reserve Fund Requirement, in which event such interest earnings or profits shall be paid to theBoard. Interest earnings or profits on investments of moneys in the Certificate Reserve Fund that wouldcause the amount in the Certificate Reserve Fund to exceed the Certificate Reserve Fund Requirement shallbe transferred to the Acquisition and Construction Fund until the completion of the Project, and thereaftershall be transferred to the Base Rental Payment Fund. Interest earnings or profits on investments ofmoneys in other funds and accounts held by the Trustee under the Trust Agreement or under the FacilitiesLease shall remain in the fund or account from which the principal derived.

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Compliance with or Amendment of Site Lease or Facilities Lease

The Corporation and the Board will not alter, amend or modify the Site Lease or the FacilitiesLease without the prior written consent of the Trustee, which consent of the Trustee will be given only (i) ifthe Trustee is to be furnished an Opinion of Counsel or a Certificate of the Board to the effect that suchalterations, amendments or modifications are not materially adverse to the interests of the Owners, or (ii) toadd to the covenants and agreements of any party, other covenants to be observed, or to surrender any rightor power therein reserved to the Board, or (iii) to cure, correct or supplement any ambiguous or defectiveprovision contained therein, or (iv) to resolve questions arising thereunder, as the parties thereto may deemnecessary or desirable and which based upon an Opinion of Counsel or Certificate of the Board do notmaterially adversely affect the interests of the Owners of the Certificates, or (v) to modify the legaldescription of the Leased Premises to conform to the requirements of title insurance or otherwise to add ordelete property descriptions to reflect accurately the description of the parcels intended to be includedtherein, or (vi) if the Trustee first obtains the written consents of the Owners of at least a majority inaggregate principal amount of the Certificates then Outstanding to such alterations, amendments ormodifications; provided, however, that no such alteration, amendment or modification will extend the datefor the making of any Base Rental Payment, extend a Certificate Payment Date or reduce the rate of interestrepresented by any Certificate or extend the time of payment of such interest or reduce the amount ofprincipal represented thereby without the prior written consent of the Owner of any Certificate so affected,nor will any such alteration, amendment or modification reduce the percentage of Owners whose consent isrequired for the execution of any alteration, amendment or supplement.

Other Liens

The Board will keep the Facilities and all parts thereof free from judgments and liens and freefrom all claims, demands or encumbrances of whatever nature or character, except for PermittedEncumbrances, and free from any claim or liability which might embarrass or hamper the Board inconducting its business or utilizing the Facilities or any portion thereof. So long as any Certificates areOutstanding, neither the Corporation nor the Board will create or suffer to be created any pledge of or lienon the Base Rental Payments other than the pledge and lien of the Trust Agreement.

Action on Default

If an Event of Default occurs under the Facilities Lease, then such Event of Default will constitutea default under the Trust Agreement, and in each and every such case during the continuance of such Eventof Default the Trustee or the Owners of not less than a majority in aggregate principal amount ofCertificates at the time Outstanding will be entitled, upon notice in writing to the Board, to exercise theremedies provided to the Corporation (or the Trustee as Corporation’s assignee) in the Facilities Lease andto the Trustee in the Assignment Agreement.

Other Remedies of the Trustee

The Trustee shall have the right --

(i) by mandamus or other action or proceeding or suit at law or in equity to enforce its rightsagainst the Corporation or the Board or any member, director, officer or employee thereof, and to compelthe Corporation or the Board or any such member, director, officer or employee to perform or carry out itsor his or her duties under law and the agreements and covenants required to be performed by it or him orher contained in the Trust Agreement;

(ii) by suit in equity to enjoin any acts or things which are unlawful or violate the rights ofthe Trustee; or

(iii) by suit in equity upon the happening of any default under the Trust Agreement to requirethe Corporation and the Board and any members, directors, officers and employees thereof to account asthe trustee of an express trust.

A-25

No Liability by the Corporation to the Owners.

The Corporation shall not have any obligation or liability to the Owners with respect to thepayment when due of the Base Rental Payments by the Board, or with respect to the performance by theBoard of the other agreements and covenants required to be performed by it contained in the FacilitiesLease or in the Trust Agreement, or with respect to the performance by the Trustee of any right orobligation required to be performed by it contained in the Trust Agreement.

No Liability by the Board to the Owners.

Except for the payment when due of the Base Rental Payments and the performance of the otheragreements and covenants required to be performed by it contained in the Facilities Lease or in the TrustAgreement, the Board shall not have any obligation or liability to the Owners with respect to the TrustAgreement or the preparation, execution, delivery or transfer of the Certificates or the disbursement of theBase Rental Payments by the Trustee to the Owners, or with respect to the performance by the Trustee ofany right or obligation required to be performed by it contained in the Trust Agreement.

No Liability by the Trustee to the Owners.

Except as expressly provided in the Trust Agreement, the Trustee shall not have any obligation orliability to the Owners with respect to the payment when due of the Base Rental Payments by the Board, orwith respect to the performance by the Board of other agreements and covenants required to be performedby it contained in the Facilities Lease or in the Trust Agreement.

Amendment or Supplement of Trust Agreement

The Trust Agreement and the rights and obligations of the Corporation and the Board and theOwners and the Trustee thereunder may be amended or supplemented at any time by an amendment thereofor supplement thereto which will become binding when the written consents the Owners of a majority inprincipal amount of Certificates then Outstanding, exclusive of disqualified Certificates, are filed with theTrustee. No such amendment or supplement will (1) change the fixed Certificate Payment Date of anyCertificate or reduce the rate of interest represented thereby or extend the time of payment of such interestor reduce the amount of principal represented thereby without the prior written consent the Owner of theCertificate so affected, or (2) reduce the percentage of Owners whose consent is required for the executionof any amendment thereof or supplement thereto, or (3) modify any of the rights or obligations of theTrustee without its prior written consent thereto, or (4) amend the provisions of the Trust Agreementconcerning amendments and supplements without the prior written consent of the Owners of all Certificatesthen Outstanding. The Trustee will furnish copies to Standard & Poor’s of all amendments consented to bythe Owners.

The Trust Agreement and the rights and obligations of the Corporation, the Board, the Owners andthe Trustee thereunder may also be amended or supplemented at any time by an amendment of orsupplement to the Trust Agreement which will become binding upon execution without the writtenconsents of any Owners, but only to the extent permitted by law and after receipt of an approving Opinionof Counsel and only for any one or more of the following purposes--

(a) to add to the agreements, conditions, covenants and terms required by the Corporation orthe Board to be observed or performed in the Trust Agreement, other agreements, conditions, covenantsand terms thereafter to be observed or performed by the Corporation or the Board, or to surrender any rightor power reserved to or conferred on the Corporation or the Board, and which in either case will notmaterially adversely affect the interests of the Owners; or

(b) to make such provisions for the purpose of curing any ambiguity or of correcting, curingor supplementing any defective provision contained in or in regard to questions arising under the Trust

A-26

Agreement which the Corporation or the Board may deem desirable or necessary and not inconsistent withthe Trust Agreement, and which will not materially adversely affect the interests of the Owners; or

(c) to modify, amend or supplement the Trust Agreement or any agreement supplemental tothe Trust Agreement in such manner as to permit the qualification of the Trust Agreement either under theTrust Indenture Act of 1939 or any similar federal statute in effect or to permit the qualification of theCertificates for sale under the securities laws of the United States of America or of any of the states of theUnited States of America, and, if they so determine, to add to the Trust Agreement or any agreementsupplemental thereto such other terms, conditions and provisions as may be permitted by said TrustIndenture Act of 1939 or similar federal statute; or

(d) to make any modifications or changes necessary or appropriate in the Opinion of Counselto preserve or protect the exclusion from gross income of interest represented by the Certificates for federalincome tax purposes; or

(e) to provide for the requirements of any certificate insurer in connection with the issuanceof any certificate insurance policy or any entity providing a policy of municipal bond insurance or letter ofcredit or similar financial instrument for deposit in the Certificate Reserve Fund established pursuant to theFacilities Lease to satisfy all or a portion of the Certificate Reserve Fund Requirement, so long as suchalterations, amendments or modifications are not materially adverse to the interest of the Owners.

Discharge of Certificates and Trust Agreement

If the Board pays or causes to be paid or there is otherwise paid to the Owners of all OutstandingCertificates the interest and principal and premium, if any, represented thereby at the times and in themanner stipulated in the Trust Agreement, then such Owners will cease to be entitled to the pledge of andlien on the Base Rental Payments as provided in the Trust Agreement, and all agreements and covenants ofthe Corporation, the Board and the Trustee to such Owners under the Trust Agreement will thereuponcease, terminate and become void and will be discharged and satisfied, provided, that the provisions of theTrust Agreement regarding unclaimed moneys shall apply in all events.

Any Outstanding Certificates will be deemed to have been paid within the meaning of and withthe effect expressed in the above paragraph if there is irrevocably deposited with the Trustee DefeasanceSecurities in an amount sufficient (together with the increment, earnings and interest on such securities) topay the interest and principal and premium, if any, represented by such Certificates payable on theirCertificate Payment Dates or on any dates of prepayment prior thereto, except that the Owners thereof willbe entitled to the principal, premium and interest represented by such Certificates, and the Board willremain liable for such Base Rental Payments, but only out of such moneys or securities deposited with theTrustee for such payment.

Continuing Disclosure

The Board covenants that it will comply with and carry out all of the provisions of the ContinuingDisclosure Certificate. Notwithstanding any other provision of the Trust Agreement, failure of the Board tocomply with the Continuing Disclosure Certificate shall not be considered an Event of Default; however,the Trustee may (and, at the request of any Participating Underwriter (as defined in the ContinuingDisclosure Certificate) or the Owners of at least 25% aggregate principal amount of OutstandingCertificates, shall) or any Owner or Beneficial Owner may take such actions as may be necessary andappropriate, including seeking mandate or specific performance by court order, to cause the Board tocomply with its continuing disclosure obligations. For purposes of this paragraph, “Beneficial Owner”means any person which has the power, directly or indirectly, to vote or consent with respect to, or todispose of ownership of, any Certificates (including persons holding Certificates through nominees,depositories or other intermediaries).


APPENDIX B

THE ANNUAL FINANCIAL REPORT OF THE BOARD AS OF AND FOR THE YEAR ENDED JUNE 30, 2010


MADERA COUNTY OFFICE OF EDUCATION COUNTY OF MADERA MADERA, CALIFORNIA

AUDIT REPORT

JUNE 30, 2010

BORCHARDT, CORONA & FAETH Accountancy Corporation

1540 E. Shaw Ave., Ste. 118 Fresno, California 93710-8008

Introductory Section

MADERA COUNTY OFFICE OF EDUCATION AUDIT REPORT YEAR ENDED JUNE 30, 2010

FINANCIAL SECTION Independent Auditors' Report

TABLE OF CONTENTS

Management's Discussion and Analysis (Required Supplementary Information)

Basic Financial Statements Government-Wide Financial Statements:

Statement of Net Assets Statement of Activities

Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of the Governmental Funds Balance

Sheet to the Statement of Net Assets Statement of Revenues, Expenditures, and Changes in

Fund Balances -Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes

in Fund Balances of Governmental Funds to the Statement of Activities Notes to the Financial Statements

Required Supplementarv Information Budgetary Comparison Schedules:

General Fund Schedule of Funding Progress Other Post-Employment Benefits

OTHER SUPPLEMENTARY INFORMATION SECTION Organization Schedule of Average Daily Attendance Schedule of Charter Schools Schedule of Instructional Time Schedule of Financial Trends and Analysis Schedule of Expenditures of Federal Awards Reconciliation of Annual Financial and Budget Report

With Audited Financial Statements

OTHER INDEPENDENT AUDITORS' REPORTS Independent Auditors' Report on Internal Control Over Financial Reporting

and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards

Independent Auditors' Report on State Compliance Independent Auditors' Report on Compliance With Requirements Applicable to

Each Major Program and Internal Control Over Compliance in Accordance With OMB Circular A-133

FINDINGS AND RECOMMENDATIONS SECTION Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings

1 3

9 10

12

13

14

15 16

30 31

32 33 34 35 36 37

39

40 41

43

45 48

Financial Section

BORCHARDT, CORONA & FAETH Accountancy Corporation

Board of Trustees Madera County Office of Education Madera, California

Independent Auditors' Report

Thomas R. Borchardt, CPA Gustavo M. Corona, CPA

Scott A. Faeth, CPA

We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Madera County Office of Education (the Office of Education), as of and for the year ended June 30, 2010, which collectively comprise the Office of Education's basic financial statements as listed in the table of contents. These financial statements are the responsibility of Madera County Office of Education's management. 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 the audit ~o obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Madera County Office of Education as of June 30, 201 0, and the respective changes in financial position for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2010 on our consideration of Madera County Office of Education's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

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

1540 E. Shaw Avenue, Suite 118, Fresno, California 93710 • (559) 225-6891 • Fax (559) 225-6951 • http://www.bcf-cpa.com

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Madera County Office of Education's financial statements as a whole. The accompanying schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements. The accompanying schedule 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the. United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

December 15, 2010

2

INTRODUCTION

MADERA COUNTY OFFICE OF EDUCATION Management's Discussion and Analysis (MD&A)

June 30, 2010

Our discussion and analysis of Madera County Office of Education financial performance provides an overview of the Office of Education's financial activities for the fiscal year ended June 30, 2010. It should be read in conjunction with the Office of Education's financial statements, which follow this section.

FINANCIAL HIGHLIGHTS

a The Government-wide Statement of Net Assets illustrates total net assets of $26,976,937, the result of assets of $35,358,023 less liabilities of $8,381,086 representing approximately 4.3% increase over the previous year.

a Operating and Capital Grants and Contributions accounted for $43,526,734 revenue or 71% of all revenues. General revenues accounted for $15,604,121 or 26% of total revenues of $60,906,643.

a Total assets in the General Fund were $10,589,746 at June 30, 2010. This was an increase of $3,005,143 (39.6%) over the prior year.

a Overall revenues in the General Fund were $58,553,151 which exceeded expenditures of $56,603,544 by $1,949,607; this resulted in increasing the ending balance.

a The Office of Education finalized several projects funded by the State School Facilities Program which is administered by the Office of Public School Construction. These included one portable classroom at Ronald Reagan Elementary School in Chowchilla and one portable classroom at the Oak Creek Intermediate School campus in Oakhurst.

a Student Programs and Services staff worked together to initiate the Life Games, patterned after Special Olympics but by design intended to involve more of our special students.

a The Madera Independent Charter Academy expanded operations this year. Pioneer Technical Center enrollment reached the charter maximum goal of 250.

a Career and Alternative Education Programs staff were ingenious in finding ways to expand programs with grant funding: $10,000 grants from AT&T and the California Milk Processor Board for drama and arts, $2,500 grant from PG&E for extracurricular activities and a $25,000 grant from Lowes for building trades students to construct a playground for younger community day school students.

a The Bridges to Leadership program expanded and had multiple cohorts operating during this fiscal year. This innovative program allows participants to complete the requirements for the Preliminary (Tier I) Administrative Services Credential.

a In response to new regulations issued by the Commission on Teacher Credentialing, the SELPA submitted a program for the Added Authorization Autism and has received approval from the California Commission on Teacher Credentialing to be a program provider state-wide.

a Educational Services had the vision to develop skilled trainers in the Speed of Trust framework, in order to provide this training throughout our region. Trainings were provided for multiples groups and in various venues during the year.

a The Office of Education, as lead for the Local Educational Consortium (LEC) assisted 60 LEAs throughout the six county regions with claiming Federal reimbursement for MediCal Administrative Activities (MAA). Office of Education staff provided leadership in advocating for protection of this funding source for schools at local, state and federal levels.

a Staff from Operations and Facilities worked with instructional program staff to collaborate with Madera County Public Health Department to coordinate efforts to respond to the threat of Pandemic H1 N1 Influenza.

3

OVERVIEW OF FINANCIAL STATEMENTS

This annual report consists of three parts - management's discussion and analysis (this section), the basic financial statements, and required supplementary information. The three sections together provide a comprehensive overview of the Office of Education. The basic financial statements are comprised of two kinds of statements that present financial information from different perspectives:

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

o Fund financial statements focus on reporting the individual parts of the Office of Education operations in more detail. The fund financial statements comprise the remaining statements.

• Governmental funds statements tell how general government services were financed in the short term as well as what remains for future spending.

The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The basic financial statements are followed by a section of required supplementary information that further explains and supports the financial statements.

Government-Wide Statements

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

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

o Over time, increases or decreases in the Office of Education's net assets are an indicator of whether its financial health is improving or deteriorating, respectively.

o To assess the overall health of the Office of Education, one needs to consider additional nonfinancial factors such as changes in enrollment, changes in the property tax base, and changes in program funding by the Federal and State governments, and condition of facilities.

The government-wide financial statements of the Office of Education include government activities. Most of the Office of Education's basic services are included here, such as regular and special education, transportation, maintenance and general administration. Revenue limit funding and federal and state grants finance most of these activities.

Fund Financial Statements

The fund financial statements provide more detailed information about the Office of Education's most significant funds-not the Office of Education as a whole. Funds are accounting devises that the Office of Education uses to keep track of specific sources of funding and spending for particular programs. Some funds are required to be established by state law and by bond covenants. The Board of Trustees establishes other funds to control and manage money for particular purposes or to show that the Office of Education is meeting legal responsibilities for using certain revenues. The Office of Education has two kinds of funds:

o Governmental funds - Most of the Office of Education's basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Office of Education's programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information at the bottom of the government funds' statements that explains the relationship (or differences) between them.

4

FINANCIAL ANALYSIS OF THE ENTITY AS A WHOLE

The Office of Education's combined net assets were $26,976,937 at June 30, 2010. See Table 1. The Office of Education's combined net assets reveal an increase of $1,122,682 (4.3%) over the previous year. Although there were a few areas of substantial increase or decrease these are due to the programs operated by the Office of Education which have varied fluctuations. The major change is due to Capital Asset construction projects. The Accounts Receivable change is due the state's deferral of state aid and to the high volume of federally funded programs and the delay of the funding of these programs.

Table 1 Net Assets

Governmental Activities 2010 2009

Assets Cash $ 4,986,956 $ 4,761,019 Accounts Receivable 8,912,143 6,686,602 Stores Inventories 3,476 0 Prepaid Expenses 5,176 3,019 Capital Assets, Net of Accumulated Depreciation 21,450,272 21,968,350

TOTAL ASSETS 35,358,023 33,418,990

Liabilities Accounts Payable 5,755,524 5,381,375 Deferred Revenue 479,475 677,539 Long Term Liabilities:

Capital Leases 424,154 529,628 OPES 1,452,762 729,307 Compensated Absences 269,171 246,887

TOTAL LIABILITIES 8,381,086 7,564,736

Net Assets Invested in Capital Assets, Net of Related Debt 21,026,118 21,438,722 Restricted 3,044,273 4,826,955 Unrestricted 2,906,546 (411 ,422}

TOTAL NET ASSETS $26,976,937 $25,854,255

Changes In Net Assets

Total Percentage

Change 2010·2009

4.75% 33.28%

100.00% 71.45%

(2.36%) 5.80%

6.95% (29.23%)

(19.91%) 99.20% 9.03% 10.79%

(1.92%) (36.93%) >200.00%

4.34%

Table 2 shows the Office of Education's total revenues of $60,906,643. About 18% of the revenue comes from Revenue Limit Sources. Operating and Capital Grants and Contributions accounted for the majority of total revenue (71 %).

The total cost of all programs and services was $59,783,961. The Office of Education's expenses are predominately related to educating and caring for students (41 %). Community and ancillary services accounted for another 13%. Administrative activities accounted for just over 9% of total costs. The remaining expenses were for plant services (maintenance and operations) and other outgo.

5

Table 2 anges m e Ch . N t A ssets

Total Percentage

Governmental Activities Change 2010 2009 2010-2009

Revenues: Program Revenues:

Charges for Services $ 1,775,788 $ 5,457,465 {67.46%) Operating Grants and Contributions 43,500,288 34,963,625 24.42% Capital Grants and Contributions 26,446 1,951,205 {98.64%)

General Revenues: Rev. Limit Sources 10,751,603 11,550,764 {6.92%) Fed & State Revenues 1,783,318 1,570,317 13.56% Local Revenues 3,069,200 2,412,108 27.24%

TOTAL REVENUES 60,906,643 57,905,484 5.18%

Expenditures: Instruction 13,812,255 13,517,420 2.18% Instruction Related Services 7,084,841 6,880,737 2.97% Pupil Services 3,706,905 3,754,621 {1.27%) Ancillary Services 2,441,709 2,975,432 {17.94%) Community Services 5,190,879 5,035,812 3.08% General Administration 5,489,309 5,260,205 4.36% Plant Services 2,307,575 2,484,469 {7.12%) Other Outgo 19,750,488 18,201,423 8.51%

TOTAL EXPENSES 59,783,961 58,110,119 2.88%

INCREASE IN NET ASSETS $ 1,122,682 $ ~204,635l >200.00%

Governmental Activities

The cost of all governmental activities this year was $59,783,961. Table 3 represents the cost of the Office of Education's functions as well as each function's net cost (total cost less fees generated by the activities and intergovernmental aid). The net cost reflects what was not funded by charges for services, operating grants and capital grants and contributions.

Table 3 Net Cost of Governmental Activities

Total Cost of Services Net Cost of Services 2010 2009 2010 2009

Instruction $13,812,255 $13,517,420 $ (3,805,234) $ {4,574,722) Instruction-Related Service 7,084,841 6,880,737 {1 ,900,681) (2, 135,946) Pupil Services 3,706,905 3,754,621 {954,901) {1 '153,723) Ancillary Services 2,441,709 2,975,432 {514,324) {808,679) Community Services 5,190,879 5,035,812 {1 ,083,052) ( 1 ,406, 726) General Administration 5,489,309 5,260,205 {1,190,756) {1 ,520,430) Plant Services 2,307,575 2,484,469 (955,694) 1,011,539 Other Outgo 19,750,488 18,201,423 (4,076,797} (_5, 149, 137)

$59,783,961 $58,110,119 ~$14,481 ,439l ($15,737,824)

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FINANCIAL ANALYSIS OF THE DISTRICT'S FUNDS

The strong financial performance of the Office of Education as a whole is reflected in its governmental funds. As the Office of Education completed the year, its governmental funds reported a combined fund balance of $7,673,882, which is an increase of $2,279,937 from last year's ending fund balance of $5,393,945.

General Fund Budgetary Highlights

Over the course of the year, the Office of Education revises its annual budget to reflect unexpected changes in revenues and expenditures. The final amendment to the budget was approved August 10, 2010. A schedule of the Office of Education's original and final budget amounts compared with actual revenues and expenses is provided in the supplemental section of the audited financial report.

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

At June 30, 2010, the Office of Education had invested $21 ,450,272 in a broad range of capital assets, including land, buildings and improvements, equipment and vehicles. See Table 4. More detailed information about the Office of Education's capital assets is presented in the notes to the financial statements.

Table4 ap1a sse s C 't I A t

Total Percentage

Governmental Activities Change

2010 2009 2010-2009

Land $ 1,077,922 $ 1,077,922 0.00% Buildings 21,332,436 20,364,494 4.75% Improvements 516,451 511,208 1.03% Machinery and Equipment 2,711,020 2,619,763 3.48% Work In Progress 804,308 1,725,071 (53.38%)

Totals at Historical Cost 26,442,136 26,298,458 0.55%

Total Accumulated Depreciation 4,991,865 4,330,108 15.28%

NET CAPITAL ASSETS $21,450,272 $21,968,350 (2.36%)

The Office of Education's fiscal year 2011 budget projects spending $125,000 for capital projects, primarily for equipment replacement and completion of new classrooms.

Long Term Debt At year end, the Office of Education had $2,146,087 in debt, as shown in Table 5. More detailed information about the Office of Education's debt is presented in the notes to the financial statements.

Table 5 ong- erm e L T D bt

Total Percentage

Governmental Activities Change 2010 2009 2010-2009

Capital Leases $ 424,154 $ 529,628 (19.91%) Other Post Employment Benefits 1,452,762 729,307 99.20% Compensated Absences 269,171 246,887 9.03%

TOTAL LONG-TERM DEBT $2,146,087 $1,505,822 42.52%

7

ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES

At the time these financial statements were prepared and audited, the Office of Education was aware of several circumstances that could affect its future financial health:

[J The uncertainty of federal and state funding can have a profound impact on the financial health of the Office of Education. No changes were anticipated, when the state budget was adopted. However, the State is projecting dramatic shortfalls in funding for the 2011, 2012 and 2013 budget years. It is possible that the State will impose additional deficits to education funding; the budget and cash flow are being monitored and adjusted very closely.

CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, parents, participants, investors and creditors with a general overview of the Office of Education's finances and to demonstrate the Office of Education's accountability for the money it receives. If you have questions about this report, or need additional financial information, contact Geri Kendall Cox or Julie DeWall at (559) 673-6051 ext. 295.

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MADERA COUNTY OFFICE OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2010

ASSETS: Cash in County Treasury Cash in Revolving Fund Accounts Receivable Stores Inventories Other Current Assets Capital Assets:

Land Land Improvements, Net Buildings, Net Equipment, Net Work in Progress

Total Assets

LIABILITIES: Accounts Payable Deferred Revenues Noncurrent Liabilities:

Due within one year Due in more than one year

Total Ua bilities

NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted For:

Capital Projects Unrestricted Total Net Assets

The accompanying notes are an integral part of this statement.


$ 4,985,926 1,030

8,912,143 3,476 5,176

1,077,922 334,232

18,458,791 775,019 804,308

35,358,023

5,755,524 479,475

379,470 1,766,617 8,381,086

21,026,118

3,044,273 2,906,546

$ 26,976,937

9

MADERA COUNTY OFFICE OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2010

Charges for Functions/Programs PRIMARY GOVERNMENT: Government Activities: Instruction Instruction-Related Services Pupil Services Ancillary Services Community Services General Administration Plant Services Other Outgo

Total Governmental Activities Total Primary Government

Expenses Services

$ 13,812,255 $ 389,205 7,084,841 201,868 3,706,905 107,832 2,441,709 75,977 5,190,879 161,930 5,489,309 169,439 2,307,575 51,679

19,750,488 617,858 59,783,961 1,775,788

$ 59,783,961 $ 1,775,788

General Revenues: Revenue Limit Sources Federal Revenues State Revenues Local Revenues

Transfers Total General Revenues Change in Net Assets

Net Assets - Beginning Net Assets - Ending


10

Program Revenues Operating Capital

Grants and Grants and Contributions Contributions

$ 9,617,816 $ 4,982,292 2,644,172 1,851,408 3,945,897 4, 129,114 1,273,756 26,446

15,055,833 43,500,288 26,446

$ 43,500,288 $ 26,446

Net (Expense) Revenue and Changes in Net Assets


$ (3,805,234) (1 ,900,681)

(954,901) (514,324)

(1 ,083,052) (1,190,756)

(955,6.94) (4,076,797)

(14,481 ,439) (14,481 ,439)

10,751,603 1,083,845

699,473 3,069,200

15,604,121 1,122,682

25,854,255 $ 26,976,937

11

MADERA COUNTY OFFICE OF EDUCATION BALANCE SHEET- GOVERNMENTAL FUNDS JUNE 30, 2010

ASSETS: Cash in County Treasury $ Cash in Revolving Fund Accounts Receivable Due from Other Funds Stores Inventories Prepaid Expenditures

Total Assets $

LIABILITIES AND FUND BALANCE: Liabilities:

Accounts Payable $ Due to Other Funds Deferred Revenue

Total Liabilities

Fund Balance: Reserved Fund Balances:

Reserve for Revolving Cash Reserve for Stores Inventories Reserve for Prepaid Items Reserve for Legally Restricted Balance

Designated Fund Balances: Designated for Economic Uncertainties

Unreserved Unreserved, reported in nonmajor:

Special Revenue Funds Total Fund Balance

Total Liabilities and Fund Balances $


General Fund

2,089,621 1,030

8,313,708 176,735

3,476 5,176

10,589,746

5,293,900 947,953 479,475

6,721,328

1,030 3,476 5,176

1,637,089

1,201,517 1,020,130

3,868,418

10,589,746

12

County School Other Total Facilities Governmental Governmental

Fund Funds Funds

$ 2,162,249 $ 734,056 $ 4,985,926 1,030

598,435 8,912,143 900,104 47,849 1,124,688

3,476 5,176

$ 3,062,353 $ 1,380,340 $ 15,032,439

$ 18,080 $ 442,414 $ 5,754,394 176,735 1,124,688

479,475 18,080 619,149 7,358,557

1,030 3,476 5,176

1,637,089

1,201,517 3,044,273 4,064,403

761,191 761,191 3,044,273 761,191 7,673,882

$ 3,062,353 $ 1,380,340 $ 15,032,439

MADERA COUNTY OFFICE OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2010

Total fund balances- governmental funds balance sheet

Amounts reported for governmental activities in the Statement of Net Assets are different because:

Capital assets used in governmental activities are not reported in the funds. Payables for capital leases which are not due in the current period are not reported in the funds. Payables for notes which are not due in the current period are not reported in the funds. Payables for compensated absences which are not due in the current period are not reported in the funds. Other long-term liabilities which are not due and payable in the current period are not reported in the funds.

Net assets of governmental activities -Statement of Net Assets


13

$ 7,673,882

21,450,272 (424,154)

(1,130) (269,171)

(1 ,452,762)

$ 26,976,937

MADERA COUNTY OFFICE OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES- GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2010

General Fund

Revenues: Revenue Limit Sources:

State Apportionments $ 2,417,899 Local Sources 6,784,249

Federal Revenue 19,853,873 Other State Revenue 18,655,379 Other Local Revenue 10,662,327

Total Revenues 58,373,727

Expenditures: Instruction 12,296,385 Instruction - Related Services 6,377,741 Pupil Services 3,406,829 Ancillary Services 2,400,402 Community Services 5,115,967 General Administration 5,353,169 Plant Services 1,632,738 Other Outgo 19,388,476 Debt Service:

Principal 105,474 Interest 26,363 Total Expenditures 56,103,544

Excess (Deficiency) of Revenues Over (Under) Expenditures 2,270,183

Other Financing Sources (Uses): Transfers In 179,424 Transfers Out (500,000)

Total Other Financing Sources (Uses) (320,576)

Net Change in Fund Balance 1,949,607

Fund Balance, July 1 1,918,811 Fund Balance, June 30 $ 3,868,418


County School Other Total Facilities Governmental Governmental

Fund Funds Funds

$ $ 1,549,455 $ 3,967,354 6,784,249

555,952 20,409,825 274,396 18,929,775

26,446 126,667 10,815,440 26,446 2,506,470 60,906,643

1,207,954 13,504,339 570,880 6,948,621 149,192 3,556,021

2,400,402 5,115,967

2,390 5,355,559 94,638 161,371 1,888,747

336,737 19,725,213

105,474 26,363

94,638 2,428,524 58,626,706

(68, 192) 77,946 2,279,937

500,000 679,424 (179,424) (679,424) 320,576

(68, 192) 398,522 2,279,937

3,112,465 362,669 5,393,945 $ 3,044,273 $ 761191 $ 7,673,882

MADERA COUNTY OFFICE OF EDUCATION RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2010

Net change in fund balances - total governmental funds

Amounts reported for governmental activities in the Statement of Activities ("SOA") are different because:

Capital outlays are not reported as expenses in the SOA. The depreciation of capital assets used in governmental activities is not reported in the funds. Expenses not requiring the use of current financial resources are not reported as expenditures in the funds. Repayment of capital lease principal is an expenditure in the funds but is not an expense in the SOA. (Increase) decrease in accrued interest from beginning of period to end of period. Compensated absences are reported as the amount earned in the SOA but as the amount paid in the funds.

Change in net assets of governmental activities - Statement of Activities


15

$ 2,279,937

143,679 (661,757) (723,455) 105,474

1,088 (22,284)

$=====1 !=0' 1,:=::22=,6=8=2

MADERA COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2010

A. Summary of Significant Accounting Policies

The Office of Education 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 Office of Education conform to accounting principles generally accepted in the United States of America (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA).

1. Reporting Entity

The Office of Education's combined financial statements include the accounts of all its operations. The Office of Education evaluated whether any other entity should be included in these financial statements. The criteria for including organizations as component units within the Office of Education's reporting entity, as set forth in GASB Statement No. 14, The Financial Reporting Entity, include whether:

• the organization is legally separate (can sue and be sued in its name) • the Office of Education holds the corporate powers of the organization • the Office of Education appoints a voting majority of the organization's board • the Office of Education is able to impose its will on the organization • the organization has the potential to impose a financial benefit/burden on the Office of

Education • there is fiscal dependency by the organization on the Office of Education

The Office of Education also evaluated each legally separate, tax-exempt organization whose resources are used principally to provide support to the Office of Education to determine if its omission from the reporting entity would result in financial statements which are misleading or incomplete. GASB Statement No. 14 requires inclusion of such an organization as a component unit when: 1) The economic resources received or held by the organization are entirely or almost entirely for the direct benefit of the Office of Education, its component units or its constituents; and 2) The Office of Education or its component units is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the organization; and 3) Such economic resources are significant to the Office of Education.

Based on these criteria, the Office of Education has no component units. Additionally the Office of Education is not a component unit of any other reporting entity as defined by the GASB Statement.

2. Basis of Presentation, Basis of Accounting

a. Basis of Presentation

Government-Wide Statements: The statement of net assets and the statement of activities include the financial activities of the overall government. Eliminations have been made to minimize the double-counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other non exchange transactions.

The statement of activities presents a comparison between direct expenses and program revenues for each function of the Office of Education'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. The Office of Education does not allocate indirect expenses in the statement of activities. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) 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.

16


Fund Financial Statements: The fund financial statements provide information about the Office of Education'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.

The Office of Education reports the following major governmental funds:

General Fund. This is the Office of Education's primary operating fund. It accounts for all financial resources of the Office of Education except those required to be accounted for in another fund.

County School Facilities Fund. This fund was established to receive apportionments from the State School Facilities Fund authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants.

The Office of Education reports the following non-major governmental funds:

Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. The following special revenue fund is utilized by the Office of Education:

• The Charter School Fund is used to separately report the activities of charter schools not included in the General Fund.

• The Deferred Maintenance Fund is used to account separately for state apportionments and the Office of Education's contributions for deferred maintenance purposes.

• The Forest Reserve Fund exists primarily to account separately for federal forest reserve monies received by county offices of education for distribution to school districts and community college districts.

• The Special Reserve Fund for Post-Employment Benefits is used to account for amounts the Office of Education has earmarked for the future cost of retiree benefits, but has not contributed irrevocably to a separate trust for the retiree benefit plan.

b. Measurement Focus, Basis of Accounting

Government-Wide Fund Financial Statements: This financial statement is reported using the economic resources measurement focus. It is 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 related cash flows take place. Nonexchange transactions, in which the Office of Education 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.

Governmental Fund Financial Statements: Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The Office of Education considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end. Revenues from local sources consist primarily of property taxes. Property tax revenues and revenues received from the State are recognized under the susceptible-to-accrual concept. Miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. 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.

17


When the Office of Education incurs an expenditure or expense for which both restricted and unrestricted resources may be used, it is the Office of Education's policy to use restricted resources first, then unrestricted resources.

3. Encumbrances

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

4. Budgets and Budgetary Accounting

Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for all government funds. By state law, the Office of Education's Board of Trustees must adopt a final budget no later than July 1. A public hearing must be conducted to receive comments prior to adoption. The Office of Education's Board of Trustees satisfied these requirements.

These budgets are revised by the Office of Education's Board of Trustees and Office of Education Superintendent during the year to give consideration to unanticipated income and expenditures.

Formal budgetary integration was employed as a management control device during the year for all budgeted funds. The Office of Education employs budget control by minor object and by individual appropriation accounts. Expenditures cannot legally exceed appropriations by major object code.

5. Assets. Liabilities. and Equity

a. Deposits and Investments

Cash balances held in banks and in revolving funds are insured up to $250,000 by the Federal Depository Insurance Corporation. All cash held by the financial institutions is fully insured or collateralized.

In accordance with Education Code Section 41001, the Office of Education maintains substantially all of its cash in the Madera County Treasury. The County pools these funds with those of other entities in the County and invests the cash. These pooled funds are carried at cost, which approximates market value. Interest earned is deposited quarterly into participating funds. Any investment losses are proportionately shared by all funds in the pool.

The County is authorized to deposit cash and invest excess funds by California Government Code Section 53648 et seq. The funds maintained by the County are either secured by federal depository insurance or are collateralized.

Information regarding the amount of dollars invested in derivatives with Madera County Treasury was not available.

b. Stores Inventories and Prepaid Expenditures

Inventories are recorded using the purchases method in that the cost is recorded as an expenditure at the time individual inventory items are purchased. Inventories are valued at average cost and consist of expendable supplies held for consumption. Reported inventories are equally offset by a fund balance reserve, which indicates that these amounts are not "available for appropriation and expenditure" even though they are a component of net current assets.

18


The Office of Education has the option of reporting an expenditure in governmental funds for prepaid items either when purchased or during the benefitting period. The Office of Education has chosen to report the expenditure during the benefitting period.

e. Capital Assets

Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated fixed assets are recorded at their estimated fair value at the date of the donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. A capitalization threshold of $5,000 is used.

Capital assets are being depreciated using the straight-line method over the following estimated useful lives:

Asset Class

Buildings Building Improvements Vehicles Office Equipment Computer Equipment

d. Receivable and Payable Balances

Estimated Useful Lives

25-50 20

2-15 3- 15 3-15

The Office of Education has provided detail of the receivable balances in Note E. The Office of Education believes that sufficient detail of payable balances is provided in the financial statements to avoid the obscuring of significant components by aggregation. Therefore, no disclosure is provided which disaggregates the payable balances.

There are no significant receivables which are not scheduled for collection within one year of year end.

e. Compensated Absences

Accumulated unpaid employee vacation benefits are recognized as liabilities of the Office of Education. The liability, if any, is recognized in the noncurrent liabilities -due within one year.

A percentage of Accumulated Sick Leave benefits are recognized as liabilities of the Office of Education. The Office of Education's policy is to record sick leave as an operating expense in the period taken and a percentage of the unused portion depending on length of service will vest and be payable upon retirement.

f. Deferred Revenue

Cash received for federal and state special projects and programs is recognized as revenue to the extent that qualified expenditures have been incurred. Deferred revenue is recorded to the extent cash received on specific projects and programs exceeds qualified expenditures.

g. Long-Term Obligation

In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the Statement of Net Assets. Bond premiums and discounts as well as issuance costs are deferred and amortized over the life of the bonds using the effective-interest method. Bonds payable are reported net of applicable bond premium or discount. Bond issuance costs are reported as prepaid expenditures and amortized over the term of the related debt.

In the fund financial statements, governmental funds recognize bond premiums and discounts as well as bond issuance costs, during the current period. The face amount of the debt issued, premiums, or discounts is reported as other financial sources/uses.

19


h. lnterfund Activity

lnterfund activity results from loans, services provided, reimbursements or transfers between funds. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures or expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefitting fund and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers In and Transfers Out are netted and presented as a single "Transfers" line on the government-wide statement of activities. Similarly, interfund receivables and payables are netted and presented as a single "Internal Balances" line of the government-wide statement of net assets.

i. Property Taxes

Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on December 1 0 and April 10. Unsecured property taxes are payable in one installment on or before August 31. The County of Madera bills and collects the taxes for the Office of Education.

j. Fund Balance Reserves and Designations

Reservations of the ending fund balance indicate the portions of fund balance not appropriable for expenditure or amounts legally segregated for a specific future use. The Reserve for Cash on Hand, Reserve for Stores Inventory, and Reserve for Prepaids reflects the portion of fund balance represented by petty cash, stores inventory, and prepaid expenses, respectively. The Reserve for Legally Restricted Balance reflects the portion of fund balance that is restricted for use by the grantor agency. These amounts are not available for appropriation and expenditure at the balance sheet date.

Designations of the ending fund balance indicate tentative plans for financial resource utilization in a future period.

k. Use of 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

B. Compliance and Accountability

1. Finance-Related Legal and Contractual Provisions

In accordance with GASB Statement No. 38, "Certain Financial Statement Note Disclosures,"violations of finance-related legal and contractual provisions, if any, are reported below, along with actions taken to address such violations:

Violation None reported

20

Action Taken Not applicable


2. Deficit Fund Balance or Fund Net Assets of Individual Funds

Following are funds having deficit fund balances or fund net assets at year end, if any, along with remarks which address such deficits:

Fund Name None reported

C. Excess of Expenditures over Appropriations

Deficit Amount

Not applicable Remarks Not applicable

As of June 30, 2010, expenditures exceeded appropriations in individual funds as follows:

Appropriations Category General Fund:

Other Outgo

Excess Expenditures

$38,796

The Office of Education decided to pass through more ARRA Special Education funds to the Districts.

D. Cash and Investments

Summary of Cash and Investments

Cash and investments at June 30, 2010 are classified in the accompanying financial statements as follows:

Statement of Net Assets: Governmental Activities:

Cash in County Treasury Cash on Hand (Revolving Fund)

Grand Total Cash and Investments

Cash and investments as of June 30, 2010 consist of the following:

Cash on Hand (Revolving Fund) Deposits with County Treasury Total Cash and Investments

Cash in County Treasury

$4,985,926 1.030

$4.986,956

$ 1,030 4.985.926

$4,986,956

In accordance with Education Code Section 41001, the Office of Education maintains substantially all of its cash in the Madera County Treasury as part of the common investment pool (the Office of Education's portion was $4,985,926 as of June 30, 2010). The fair value of the Office of Education's portion of this pool as of June 30, 2010, as provided by the pool sponsor, was $5,004,504. Assumptions made in determining the fair value of the Office of Education's pooled investment portfolios are available from the County Treasurer. The County is restricted by Government Code Section 53635 pursuant to Section 53601 to invest in time deposits, U.S. government securities, state registered warrants, notes or bonds, State Treasurer's investment pool, bankers' acceptances, commercial paper, negotiable certificates of deposit, and repurchase or reverse repurchase agreements.

Cash on Hand (Revolving Fund)

Cash balances on hand ($1 ,030) are not insured or collateralized.

21


Investment Accounting Policy

The Office of Education is required by GASB Statement No. 31 to disclose its policy for determining which investments, if any, are reported at amortized cost. The Office of Education's general policy is to report money market investments and short-term participating interest-earning investment contracts at amortized cost and to report nonparticipating interest-earning investment contracts using a cost-based measure. However, if the fair value of an investment is significantly affected by the impairment of the credit standing of the issuer or by other factors, it is reported at fair value. All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. The term "short-term" refers to investments which have a remaining term of one year or less at time of purchase. The term "nonparticipating" means that the investment's value does not vary with market interest rate changes. Nonnegotiable certificates of deposit are examples of nonparticipating interest-earning investment contracts.

The Office of Education's investments in external investment pools are reported at an amount determined by the fair value per share of the pool's underlying portfolio, unless the pool is 2a7-like, in which case they are reported at share value. A 2a7 -like pool is one which is not registered with the Securities and Exchange Commission ("SEC") as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940. The Office of Education's investment policy does not contain any specific provisions intended to limit the Office of Education's exposure to interest rate risk, credit risk, and concentration of credit risk.

Disclosures Relating to Credit Risk

Generally, 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.

Concentration of Credit Risk

The investment policy of the Office of Education contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. The Office of Education has no investments.

Custodial Credit Risk

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The California Government Code and the Office of Education's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits, other than the following provisions for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 11 0% of the total amount deposited by the public agencies.

The Office of Education had no deposits with financial institutions.

The custodial credit risk for investments is the risk that, in the event of the failure of the counter party (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government code and the Office of Education's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for investments. With respect to investments, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to a local government's indirect investment in securities through the use of mutual funds or government investment pools.

22

MADERA COUNTY OFFICE OF EDUCAl"ION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2010

Disclosures Relating to Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of it fair value to changes in market interest rates.

E. Accounts Receivable

Accounts receivable as of June 30, 2010, consist of the following:

Other General Governmental

Fund Funds Totals Apportionment $ 827,232 ~499,508 §1,326,740 Federal Government:

Federal Programs 2,596,342 2,397 2,598,739 State Government:

Categorical Aid Programs 3,050,942 47,218 3,098,160 Lottery 12,198 6,161 18,359

Total State Government 3,063,140 53,379 3,116,519 Local Government:

Other 404,190 20,000 424,190 Interest 27,311 (51,918) (24,607) Miscellaneous 1,395,493 75,069 1,470,562 Totals $8,313,708 ~598,435 ~8,912,143

F. Capital Assets

Capital asset activity for the period ended June 30, 2010, was as follows:

Beginning Ending Balances Increases Decreases Balances

Governmental activities: Capital assets not being depreciated:

Land $ 1,077,922 $ $ $ 1,077,922 Work-in-Progress 1,725,071 82,998 1,003,761 804,308

Total capital assets not being depreciated 2,802,993 82,998 1,003,761 1,882,230 Capital assets being depreciated:

Buildings 20,364,494 967,942 21,332,436 Site Improvements 511,208 5,243 516,451 Equipment 2,619,763 91,257 2,711,020

Total capital assets being depreciated 23,495,465 1,064,442 24,559,907 Less accumulated depreciation for:

Buildings 2,416,679 456,966 2,873,645 Site Improvements 165,407 16,812 182,219 Equipment 1,748,022 187,979 1,936,001

Total accumulated depreciation 4,330,108 661,757 4,991,865 Total capital assets being depreciated, net 19,165,357 402,685 19,568,042

Governmental activities capital assets, net ~21,968,350 ~ 485,683 ~1,003,761 ~21 ,450,272

23


Depreciation was charged to functions as follows:

Instruction Instruction-Related Services Pupil Services Ancillary Services Community Services Enterprise General Administration Plant Services

G. lnterfund Balances and Activities

1. Due To and From Other Funds

$ 7,224 5,088

82,619 4,882 2,221

21,836 31,812

506,075 $ 661,757

Balances due to and due from other funds at June 30, 2010, consisted of the following:

Due To Other Fund Due From Other Fund Amount Purpose General County School Facilities $ 900,104 Temporary loan to General Fund for cash

flow and transfer of costs General Charter School 47,849 Transfer of costs and revenues corrections,

and Title I and Title II revenue to charter schools

Charter School General 176,735 Temporary loan to Charter School Fund for cash flow, transfer of expenses between funds

$1,124,688

All amounts due are schedule to be repaid within one year.

2. Transfers To and From Other Funds

Transfers in to and out from other funds at June 30, 2010, consisted of the following:

Transfers Out From Transfers In To Amount Reason General Fund Special Reserve Fund

for Post-Employment Benefits $500,000 Transfer for Other Post-Employment

Benefits Deferred Maintenance Fund General Fund 120,000 Transfer of flexed Deferred Maintenance

to General Fund Forest Reserve Fund General Fund 59.424 Transfer of Forest Reserve funds to

General Fund $679,424

H. Long-Term Obligations

1. Long-Term Obligation Activity

Long-term obligations include debt and other long-term liabilities. Changes in long-term obligations for the period ended June 30, 2010, are as follows:

Governmental activities: Capital leases OPES Liability (Note L) Compensated absences

Beginning Balance

$ 529,628 729,307 246,887

~1,505,822

24

Increases

$ 723,455 269,171

~992,626

Amounts Ending Due Within

Decreases Balance One Year

$105,474 $ 424,154 $110,299 1,452,762

246,887 269,171 269,171 ~352,361 ~2,146,087 ~379,470


The funds typically used to liquidate Other Long-Term Liabilities in the past are as follows:

Liability Compensated absences Capital Leases

2. Capital Leases

Activity Type Governmental Governmental

Fund General General and Debt Service

The Office of Education leases relocatable buildings, vehicles, and other equipment valued at $1,549,248 under agreements that provide for title to pass upon expiration of the lease. Future minimum lease payments are as follows:

Year Ending June 30: 2011 2012 2013 2014 2015

2016-2017

Amount Representing Interest Present Value of Net Minimum Lease Payments

$131,838 62,005 62,006 62,006 62,006

124.011 503,872 (79,718)

$424.154

The Office of Education will receive no sublease rental revenues nor pay any contingent rentals associated with these leases.

During the year, the Office of Education made payments on capital leases of $131,838, of which $26,363 represents interest.

I. Commitments Under Noncapitalized Leases

The Office of Education has entered into various leases for an office building and copiers with lease terms in excess of one year. The agreements do not contain a purchase option. The agreements contain a termination clause providing for cancellation after a specified number of days written notice to lessors, but it is unlikely that the Office of Education will cancel any of the agreements prior to the expiration date. Future minimum lease payments under these agreements are as follows:

Year Ending June 30

2011 2012 2013 2014 2015 2016

Total

$ 580,109 586,345 562,413 556,274 281,625

110 $2.566,876

The Office of Education will receive $87,295 of sublease rental revenues from other governmental agencies, equivalent to 25% of the total office building lease payments over the life of the leases.

The Office of Education paid $605,465 for these leases during the year ended June 30, 2010.

25

MADERA COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2010

J. Joint Ventures (Joint Powers Agreements)

The Office of Education participates in joint ventures under joint powers agreements (JPAs) with the SelfInsured Schools of California I, and the Self-Insured Schools of California II. The relationship between the Office of Education and the JPAs is such that none of the JPAs is a component unit of the Office of Education for financial reporting purposes.

Self-Insured Schools of California I (SISCI)

SISC I arranges for and provides workers' compensation insurance for its members. SISC I is governed by a Board consisting of a representative from each member. The Board controls the operations of SISC I, including the selection of management and approval of operating budgets, independent of any influence by the members beyond their representation on the Board. Each member pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionately to their participation in SISC I.

Self-Insured Schools of California II (SISC Ill

SISC II arranges for and provides property and liability insurance for its members. SISC II is governed by a Board consisting of a representative from each member. The Board controls the operations of SISC II, including the selection of management and approval of operating budgets, independent of any influence by the members beyond their representation on the Board. Each member pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionately to their participation in SISC II.

K. Employee 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).

PERS:

Plan Description

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

Funding Policy

Active plan members are required to contribute 7% of their salary (7% of monthly salary over $133.33, if the member participates in Social Security), and the Office of Education is required to contribute at an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CaiPERS Board of Administration. The required employer contribution rate for the fiscal year 2009-10 was 9. 709% of annual payroll. The contribution requirements of the plan members are established by state statute. The Office of Education's contributions to CaiPERS for the fiscal year ending June 30, 2010, 2009, and 2008 were $1,080,798, $1,050,036, and $938,904, respectively, and equal 1 00% of the required contributions for each year.

26


STRS:

Plan Description

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

Funding Policy

Active plan members are required to contribute 8.0% of their salary and the Office of Education is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the STRS Board. The required employer contribution rate for fiscal year 2009-10 was 8.25% of annual payroll. The contribution requirements of the plan members are established by state statute. The Office of Education's contributions to STRS for the fiscal year ending June 30, 2010, 2009, and 2008 were $891,917, $871,822, and $800,042, respectively, and equal100% of the required contributions for each year. The amount contributed by the State on behalf of the Office of Education was $461,295.

L. Post-Employment Benefits Other than Pension Benefits

The Office of Education provides life-time post-employment health care benefits, as established by board policy, to eligible employees who retire from the Office of Education on or after attaining the minimum age of 50 under the PERS or age 55 with at least 20 years of service under the STRS. Employees hired prior to 1979-80 fiscal year are not subject to the 20 year service requirement. Employees hired on or after April 15, 1990 are not eligible to receive health care benefits. On June 30, 2010, 48 retirees met these eligibility requirements.

Office of Education Funding Policy

The contribution requirements of program members and the Office of Education are established and may be amended through negotiations between the Office of Education and the respective bargaining units. For the fiscal year ended June 30, 2010, the funding was based on the "pay-as-you-go" basis. For the fiscal year ended June 30, 2010, the Office of Education paid $433,301, as the "pay-as-you-go" cost (approximately 98.3% of total premiums). Plan members receiving benefits contributed $7,315 or approximately 1. 7% of the total premiums, through their required contribution.

27


Annual OPEB Cost and Net OPEB Obligation

The Office of Education's annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 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 liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the Office of Education's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the Office of Education's net OPEB obligation:

Annual required contribution (ARC) Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost (expense) Contributions made Increase in net OPEB obligation Net OPEB obligation - beginning of year Net OPEB obligation - end of year

$1,198,238 36,465

(77.947) 1,156,756

433.301 723,455 729.307

$1.452.762

The Office of Education'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, 2010 was as follows:

Fiscal Year Ended

June 30, 2009 June 30, 2010

Annual OPEB Cost $1,198,238

1,156,756

Percentage of Annual OPEB

Cost Contributed 39.1% 37.5%

Refer to the Required Supplementary Information for the schedule of funding progress.

Funded Status and Funding Progress

Net OPEB Obligation $ 792,307

1,452,762

As of July 1, 2008, the most recent actuarial valuation date, the plan was not funded. The actuarial accrued liability for benefits was $13,486,677 based on 96 employees, and the actuarial value of assets was $-0-, resulting in an unfunded actuarial accrued liability (UAAL) of $13,486,677. The covered payroll (annual payroll of active employees covered by the Plan) was $3,339,054, and the ratio of the UAAL to the covered payroll was 403.9%.

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 rates of employee turnover, retirement, mortality, healthcare cost trend and interest rates. Amounts determined regarding the funded status ofthe plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents 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 the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.


In the July 1, 2008 actuarial valuation, the projected unit credit cost method was used. The actuarial assumptions included a 5% investment rate, which is a blended rate of the expected long-term investment returns on plan assets and that contributions and benefits are paid mid year, and an annual healthcare cost trend rate of 8% initially, reduced by decrements to ultimate rate of 5% after 4 years. The UAAL is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at June 30, 201 0 was 28 years.

M. Commitments and Contingencies

State and Federal Allowances. Awards and Grants

The Office of Education has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursement will not be material.

N. Subsequent Events

Tax and Revenue Anticipation Notes

The Office of Education has renewed a contract with California School Boards Association Finance Corporation's Cash Reserve Program to issue a tax and revenue anticipation note in July 2010. Pursuant to the terms of the note, the proceeds will be set aside within the County treasury to the credit of the Office of Education. The arrangement calls for a loan of $4,600,000 with interest due of $84,333, maturing on June 1, 2011.

29

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Required Supplementary Information

MADERA COUNTY OFFICE OF EDUCATION GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2010

Revenues: Revenue Limit Sources:

State Apportionments Local Sources

Total Revenue Limit Federal Other State Other Local

Total Revenues

Expenditures: Current:

Certificated Salaries Classified Salaries Employee Benefits Books and Supplies Services and Other Operating Expenditures Other Outgo

Capital Outlay Debt Service:

Principal Interest and Fiscal Charges

Total Expenditures

Excess (Deficiency) of Revenues Over (Under) Expenditures

Other Financing Sources (Uses): Transfers In Transfers Out Other Sources

Total Other Financing Sources (Uses)

Excess (Deficiency) of Revenues and Other Financing Sources Over (Under) Expenditures and Other Uses

Fund Balances, July 1 Fund Balances, June 30

$

$

Budgeted Amounts Original Final

2,839,476 $ 2,406,416 7,966,946 6,809,428

10,806,422 9,215,844 22,897,823 21,638,711 16,610,394 16,261,199 10,116,843 10,964,485 60,431,482 58,080,239

9,889,703 10,737,295 13,396,251 13,647,655 6,039,743 6,578,231 2,644,494 1,482,033 6,591,313 6,885,014

22,043,735 19,226,415 33,000 39,090

100,848 105,475 30,990 26,363

60,770,077 58,727,571

(338,595) (647,332)

66,027 179,424 (500,000)

420,433 486,460 (320,576)

147,865 (967,908)

1,918,811 1,918,811 2,066,676 $ 950,903

30

Variance with Final Budget

Positive Actual (Negative)

$ 2,417,899 $ 11,483 6,784,249 (25, 179) 9,202,148 (13,696)

19,853,873 (1,784,838) 18,655,379 2,394,180 10,662,327 (302,158) 58,373,727 293,488

10,312,469 424,826 12,916,075 731,580 6,266,152 312,079 1,283,923 198,110 5,905,711 979,303

19,265,211 (38,796) 22,166 16,924

105,474 26,363

56,103,544 2,624,027

2,270,183 2,917,515

179,424 (500,000)

(320,576)

1,949,607 2,917,515

1,918,811 $ 3,868,418 $ 2,917,515

MADERA COUNTY OFFICE OF EDUCATION SCHEDULE OF FUNDING PROGRESS OTHER POST-EMPLOYMENT BENEFITS FOR THE FISCAL YEAR ENDED JUNE 30, 2010

Unfunded Actuarial Actuarial Actuarial Actuarial Valuation Value of Accrued Accrued

Date Assets Liability Liability

July 1, 2008 $ $13,486,677 $13,486,677

31

UAALas a Annual Percentage

Funded Covered of Covered Ratio Payroll Payroll

0.0% $3,339,054 403.9%

Supplementary Information Section

MADERA COUNTY OFFICE OF EDUCATION ORGANIZATION YEAR ENDED JUNE 30,2010

The Office of Education was established on May 16, 1893 and is comprised of an area of 2,147 square miles located in Madera County. There were no changes in the boundaries of the Office of Education during the current year. The Office of Education is currently operating special education, alternative education, including court and community school, community day schools, a charter high school offering vocational classes, and an independent study charter academy. The Office of Education also provides business and educational support to nine districts located within Madera County and service and support to LEAs within a six county region.

Board of Trustees

Name Office Term Expires

Sara Wilkins President November 2010

Ronald Manfredo Vice-President November 2010

Leon Bass Member November 201 0

Cathie Bustos Member November 2012

Grant Sturm Member November 2012

Bobby Thatcher Member November 2012

Maxine Yocum Member November 2012

Administration

Sally L. Frazier, Ed.D. County Superintendent Since January 1, 1987

Dr. Cecilia Massetti Associate Superintendent Since July 1, 2003

Cyndy Dolph, M.A. Assistant Superintendent Since July 1, 2006

Geri Kendall Cox Chief Business and Administrative Services Officer Since July 1, 1999

32

MADERA COUNTY OFFICE OF EDUCATION SCHEDULE OF AVERAGE DAILY ATTENDANCE YEAR ENDED JUNE 30, 2010

Original Original Audited Second Period Annual Annual

ReQort Re12ort Re!;!ort Elementary:

Special Education: Special day class 153 155 155 Extended year 13 13 13 County community schools ~ ~ ~

Elementary Totals 175 177 177

High School: Special Education:

Special day class 125 125 125 Extended year 9 9 9 County community schools ~ 20 20

High School Totals 153 154 154

Elementary/High School (J-27/28): Community day school- mandatory expelled 1 Community day school - all other pupils ADA 26 26 26 Community schools - probation 34 37 37 Community schools - pupils expelled 2 2 2 Community schools - homeless 6 6 6 Juvenile hall, homes and camps 85 80 86*

Total Elementary/High School (J-27/28) 154 151 157

Charter School: Classroom-Based Instruction:

Grades 9 through 12 182 187 187

Non Classroom-Based Instruction: Grades 1 through 3 Grades 4 through 6 2 3 3 Grades 7 and 8 15 20 20 Grades 9 through 12 64 _n _n

Total Charter School 263 281 281

ADA Totals 745 763 769 = =

*Related to audit finding

Average daily attendance is a measurement of the number of pupils attending classes of the Office of Education. 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.

33

MADERA COUNTY OFFICE OF EDUCATION SCHEDULE OF CHARTER SCHOOLS YEAR ENDED JUNE 30, 2010

Charter Schools Chartered by Office of Education

Pioneer Technical Center Madera County Independent Academy

34

Included/Not Included

Included Included

MADERA COUNTY OFFICE OF EDUCATION SCHEDULE OF INSTRUCTIONAL TIME FOR THE FISCAL YEAR ENDED JUNE 30, 2010

*1982-83 1986-87 Actual Minutes 1986-87

Grade Level Minutes Requirement Reduced

Kindergarten N/A 36,000 35,000

Grade 1 N/A 50,400 49,000

Grade 2 N/A 50,400 49,000

Grade 3 N/A 50,400 49,000

Grade 4 N/A 54,000 52,500

Grade 5 N/A 54,000 52,500

Grade 6 N/A 54,000 52,500

Grade 7 N/A 54,000 52,500

Grade 8 N/A 54,000 52,500

Grade 9 N/A 64,800 63,000

Grade 10 N/A 64,800 63,000

Grade 11 N/A 64,800 63,000

Grade 12 N/A 64,800 63,000

Number Number 2009-10 of Days of Days Actual Traditional Multitrack

Minutes Calender Calendar

37,800 180 N/A

59,160 180 N/A

59,160 180 N/A

59,160 180 N/A

58,920 180 N/A

58,920 180 N/A

58,920 180 N/A

63,090 180 N/A

63,090 180 N/A

70,245 180 N/A

70,245 180 N/A

70,245 180 N/A

70,245 180 N/A

*County offices of education only have to meet the 1986-87 requirements, not the 1982-83.

Status

In Compliance

In Compliance

In Compliance

In Compliance

In Compliance

In Compliance

In Compliance

In Compliance

In Compliance

In Compliance

In Compliance

In Compliance

In Compliance

Districts, including basic aid districts, must maintain their instructional minutes at either the 1982-83 actual minutes or the 1986-87 requirement, whichever is greater as required by Education Code Section 46201. This schedule is required of all districts, including basic aid districts.

The Office of Education 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 instruction time offered by the Office of Education and whether the Office of Education complied with the provisions of Education Code Sections 46200 through 46206.

35

MADERA COUNTY OFFICE OF EDUCATION SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS YEAR ENDED JUNE 30, 2010

(Budget) 2011

General Fund

Revenues and Other Financial Sources $53,590.813

Expenditures 54,184,993 Other Uses and Transfers Out 36,801

Total Outgo 54,221,794

Change in Fund Balance (Deficit) (630,981)

Ending Fund Balance ~ 3,237,437

Available Reserves $ 1,207,404

Designations of Fund Balance $

Undesignated Fund Balance ~ 1,207,404

Available reserves as a percentage of total outgo 2.23%

Total long-term debt $ 1,766,617

Average daily attendance at Annual 484

2010 2009 2008

$58,553.151 $57,099. 186* $53,093.793

56,103,544 55,134,606 54,260,717 500,000 14,559 150,534

56,603,544 55,149,165 54,411,251

1,949,607 1,950,021 (1,317,458)

~ 3,868,418 i 4,386,698* § 2,436,677

§ 2,221,646 ~ 2,402,034* § 902,156

§ 1,201,517 § 1,126,896 ~ 731,034

~ 1,020,129 ~ 1,275,138 § 171,122

3.92% 4.36%* 1.66%**

$ 2,146,087 $ 1,505,822 $ 887,172

482 491 482

*Balances adjusted related to State deferral of accounts receivable in the amount of $2,467,887 which is added to Total Revenue and Available Reserves for purposes of meeting minimum reserve percentage.

**The Office of Education is allowed to include the Special Reserve Fund (Fund 20 $1,145,966) undesignated reserves as part of this calculation so that the available reserve would meet recommended minimum reserve amounts for 2008. After the aggregation of the available reserves, the percentage of available reserves to total outgo are 3.7% for 2008.

This schedule discloses the Office of Education's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the Office of Education's ability to continue as a going concern for a reasonable period of time.

The General Fund balance has increased by $1 ,431,7 41 over the past two years. The fiscal year 2010-11 budget projects a decrease of $630,981 (16.31 %). For an Office of Education of this size, the state recommends available reserves of at least 3% of total General Fund expenditures, transfers out, and other uses (total outgo).

The Office of Education has incurred an operating deficit in one of the past three years, and anticipates incurring an operating deficit during the 2010-11 fiscal year. Totallong-termdebthas increased by $1,258,915 over the past two years.

Average daily attendance has remained unchanged over the past two years. An increase of two ADA is anticipated during fiscal year 2010-11.

36

MADERA COUNTY OFFICE OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30,2010

Federal Grantor/Pass-Through Grantor/ Program Title U.S. Department of Labor:

Passed through Employment Development Department: WIA-ARRA WIA- Adult Program* WIA- Youth Activities* WIA - Dislocated Workers* WIA- Manufacturing Grant

Total U.S. Department of Labor

U.S. Department of Health and Human Services: Passed through California Department of Health and Human

Services: MediCal Billing Option MediCal Administrative Activities

Passed Through California Department of Education: Child Development: Infant/Toddler Child Care Resource

Contracts Child Development: Local Planning Councils

Total U.S. Department of Health and Human Services

U.S. Department of Education: Passed Through California Department of Education:

NCLB: Title I, Part A, Basic Grants Low-Income and Neglected*

NCLB: Title I, Local Delinquent Programs, Part D* NCLB: Title I, Basic School Support* IDEA: Mental Health Allocation Plan, Part B* IDEA: Basic Local Assistance Entitlement, Part B* IDEA: Quality Assurance and Focused Monitoring• IDEA: Preschool Local Entitlement, Part B* IDEA: Preschool Grants, Part B* IDEA: Preschool Staff Development * IDEA: Early Intervention Grants, Part C NCLB: Title IV, Part A, Drug-Free Schools NCLB: Title IV, Drug-Free Schools Program Development NCLB: Title X, McKinney-Vente Homeless Assistance Grants NCLB: Title IV, 21 51 Century, Part B NCLB: Title II, Part A, Improving Teacher Quality Local Grants NCLB: Title II, Part A, Administrator Training ARRA: Title X, McKinney-Vente Homeless Assistance ARRA: Title I, Part A, Basic Grants Low-Income and

Neglected* ARRA: Title I, Part D, Local Delinquent Programs* ARRA: IDEA, Part B, Local Assistance Private SchooiiSPs* ARRA: IDEA, Part B, Sec 611, Preschool Local Entitlement* ARRA: IDEA, Part B, Basic Local Assistance* ARRA: IDEA, Part B, Sec 619, Preschool Grants• ARRA: State Fiscal Stabilization Fund (SFSF)

Total U.S. Department of Education

U.S. Department of Agriculture: Passed Through Madera County Office of Education:

Forest Reserve Funds*

Total Expenditures of Federal Awards

Pass-Through Federal Entity CFDA Identifying

Number Number

17.207 10055 17.258 10055 17.259 10055 17.260 10055 17.269 10055

93.778 10013 93.778 10060

93.575 13942 93.575 13946

84.010 14329 84.010 14357 84.010 14416 84.027 10115 84.027 13379 84.027 14468

84.027A 13682 84.173 13430

84.173A 13431 84.181 23761 84.186 14347 84.186 14378 84.196 14332 84.287 14349 84.367 14341 84.367 14344 84.387 15007

84.389 15005 84.389 15009 84.391 10123 84.391 15002 84.391 15003 84.392 15000 84.394 25008

10.665 Not available

*Indicates clustered program under OMB Circular A-133 Compliance Supplement

The accompanying notes are an integral part of this schedule.

37

Federal Exgenditu res

$ 37,952 1,931,448 1,286,767 1,177,640

29,310 4,463,117

142,408 39,907

653 106,196 289,164

138,092 195,821

1,014,953 55,462

7,813,475 86,882

324,534 146,852

1,287 35,989

364 8,217

54,669 529,855

10,462 1,839 6,827

69,369 131,406

3,049 206,703

3,497,745 152,466 161,708

14,648,026

396,161

~19,796,468

MADERA COUNTY OFFICE OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2010

Basis of Presentation

The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of Madera County Office of Education and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements.

Reconciliation of Expenditures

Reconciliation of expenditures per schedule of federal grant activity with the federal revenue reported on the Office of Education's Statement of Revenue, Expenditures, and Changes in Fund Balances- Governmental Funds follows:

Schedule of Expenditures of Federal Awards

MediCal Billing Option received in 2009-10 MediCal Billing Option spent in 2009-10 MediCal Administrative Activities entitlement received in 2009-10 MediCal Administrative Activities funds spent in 2009-10 ARRA: State Fiscal Stabilization Fund funds received in 2009-10 ARRA: State Fiscal Stabilization Fund funds spent in 2009-10 Title I, Teacher Improvement Private Schools Funds received in 2009-10 Title V, Part B, Public Charter Schools Grants Funds received in 2009-10 ARRA: Title I, Part D, Local Delinquent Programs (Charter School) Funds

received in 2009-1 0 Rounding Federal revenue reported on the Statement of Revenues, Expenditures, and

Changes in Fund Balances -Governmental Funds

38

$19,796,468

145,494 (142,408) 687,684 (39,907)

(161,708) 4,119

89,844

30,238 1

$20.409,825

MADERA COUNTY OFFICE OF EDUCATION RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2010

June 30, 2010, annual financial and budget report fund balances

Adjustments and Reclassifications: Increasing (Decreasing) the Fund Balance:

Accounts receivable (overstatement)

June 30, 2010 Audited Financial Statement Fund Balances

June 30, 2010 Annual Financial and Budget Report- Form Debt

Adjustments and Reclassifications: Increase (Decrease) in total liabilities:

Capital leases Net OPEB obligation

Net Adjustments and Reclassifications

June 30, 2010, Long-Term Obligation Activity

Other Governmental

Funds

$781,887

(20.696)

$761,191

Long-Term Obligation Activity

$ 693,225

100 1,452,762

1,452.862

$2,146,087

This schedule provides the information necessary to reconcile the fund balances of all funds and the total long-term liabilities as reported on the annual financial and budget report to the audited financial statements. Funds that required no adjustment are not presented.

39

Other Independent Auditors' Reports

Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial

Statements Performed in Accordance With Government Auditing Standards


We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Madera County Office of Education, as of and for the year ended June 30, 2010, which collectively comprise the Madera County Office of Education's basic financial statements and have issued our report thereon dated December 15, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered Madera County Office of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Madera County Office of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Madera County Office of Education's internal control over financial reporting.

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 combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Madera County Office of Education's financial statements will not be prevented, or detected and corrected on a time basis.

Our consideration of internal control over financial reporting 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 financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.

Compliance and Other Matters

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

This report is intended solely for the information and use of management, others within the organization, the Board of Trustees, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Fresno, California December 15, 2010

40

Independent Auditors' Report on State Compliance


We have audited the financial statements of Madera County Office of Education, as of and for the year ended June 30, 2010, and have issued our report thereon dated December 15, 2010. Our audit was made in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the State's audit guide, Standards and Procedures for Audits of California K-12 Local Educational Agencies 2009-10, published by the Education Audit Appeals Panel. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The Office of Education's management is responsible for the Office of Education's compliance with laws and regulations. In connection with the audit referred to above, we selected and tested transactions and records to determine the Office of Education's compliance with the state laws and regulations applicable to the following items:

Description Attendance Accounting:

Attendance Reporting Kindergarten Continuance Independent Study Continuation Education

Instructional Time: School Districts County Offices of Education

Instructional Materials: General Requirements

Ratios of Administrative Employees to Teachers Classroom Teacher Salaries Early Retirement Incentive School Accountability Report Card Public Hearing Requirement- Receipt of Funds Class Size Reduction Program (Including In Charter Schools):

General Requirements Option One Classes Option Two Classes Only One School Serving Grades K-3

After School Education and Safety Program: General Requirements After School Before School

Contemporaneous Records of Attendance, for Charter Schools Mode of Instruction, for Charter Schools Nonclassroom-Based Instruction/Independent Study, for

Charter Schools Determination of Funding for Nonclassroom-Based Instruction,

For Charter Schools Annual Instructional Minutes - Classroom Based, for Charter Schools

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Procedures in Procedures

Audit Guide Performed

8 Yes 3 N/A

23 N/A 10 N/A

6 N/A 3 Yes

8 Yes 1 N/A 1 N/A 4 N/A 3 Yes 1 Yes

7 N/A 3 N/A 4 N/A 4 N/A

4 Yes 4 Yes 5 N/A 1 Yes 1 Yes

15 Yes

3 N/A 3 Yes

The term "N/A" is used above to mean one or more of the following: 1) The Office of Education did not offer the program during the current fiscal year, 2) The program applies only to a different type of local education agency, or 3) The procedures in the audit guide have been revised by subsequent state legislation.

Based on our audit, we found that, for the items tested, Madera County Office of Education complied with the state laws and regulations referred to above, except as described in the findings and recommendations section of this report as items 2010-1 and 2010-2. Further, based on our examination, for items not tested, nothing came to our attention to indicate that Madera County Office of Education had not complied with the state laws and regulations.

This report is intended solely for the information and use of the Board of Trustees, management, State Controller's Office, Department of Finance, Department of Education, and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties.


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Independent Auditors' Report on Compliance With Requirements Applicable to Each Major Program and

Internal Control over Compliance in Accordance With OMB Circular A-133


Compliance

We have audited the compliance of Madera County Office of Education with the types of compliance requirements described in the U. S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2010. Madera County Office of Education's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of Madera County Office of Education's management. Our responsibility is to express an opinion on Madera County Office of Education's compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-profit Organizations. Those standards and OMB Circular A-133 require that we plan and 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 Madera County Office of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Madera County Office of Education's compliance with those requirements.

In our opinion, Madera County Office of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2010.

Internal Control Over Compliance

Management of Madera County Office of Education is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered Madera County Office of Education's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 Madera County Office of Education's internal control over compliance.

A deficiency in internal control 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.

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 deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we considered to be material weaknesses, as defined above.

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This report is intended solely for the information and use of management, others within the organization, the Board of Trustees, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.


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Findings and Recommendations Section

MADERA COUNTY OFFICE OF EDUCATION SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30,2010

F. Summary of Auditors' Results

1. Financial Statements

Type of auditors' report issued:

Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified not considered

to be material weakness(es)

Noncompliance material to financial statements noted?

2. Federal Awards

Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified not considered


Type of auditors' report issued on compliance for major programs:

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

Identification of major programs:

Unqualified

___ Yes X No

___ Yes X None reported

___ Yes X No

___ Yes X No

___ Yes X None reported

Unqualified

___ Yes X No

CFDA Number(s) Name of Federal Program or Cluster

84.010 84.027 84.173 84.173 84.389 84.391

NCLB: Title I, Basic School Support IDEA: Basic Local Assistance IDEA: Preschool Grants, Part B IDEA: Preschool Staff Development ARRA: Title I, Part A, Basic Grants Low-Income and Neglected ARRA: IDEA, Part B, Basic Local Assistance

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

Auditee qualified as low-risk auditee?

3. State Awards

Internal control over state programs: Material weakness(es) identified? Significant deficiency(ies) identified not considered


Type of auditors' report issued on compliance for state programs:

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$594,000

___ Yes X No

___ Yes X No

X Yes None reported

Qualified

MADERA COUNTY OFFICE OF EDUCATION SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2010

D. State Award Findings and Questioned Costs

Finding Identification

201 0 - 1 Attendance: After School Education and Safety Program #1 0000

Criteria or Specific Requirement

California Code Section- Title 5 - Section 19846- Verify attendance reported to California Department of Education for the after school base program, and determine whether the reported number of students served is supported by written records

Condition

During our analysis of attendance records, we noted that Attendance Report Form for the second SemiAnnual Report was incorrectly prepared. Attendance information was cumulatively reported with the attendance from the first Semi-Annual Report and attendance information did not agree to original signin/sign-out sheets.

The students served reported on the Attendance Report are overstated and in some instances do not have supporting documentation.

A clerical error occurred when inputting students served for the second Semi-Annual Report, where cumulative attendance was inputted rather than only attendance for the second half of the 2009-10 year. Also, we noted instances where the original sign-in/sign-out sheets indicating student attendance did not match the attendance summarized in the computerized attendance system. The use of sign-in/sign-out sheets noted instances where students may have been in attendance, but did not sign-in, and instances where students signed-in but their attendance was not counted.

Questioned Costs

None

Recommendation

The Office of Education should revise the 2009-1 0 second Semi-Annual Report, and should review the original sign-in sheets on a daily basis, and reconcile the sheets to the summary spreadsheets. The use of actual attendance rosters rather than sign-in/sign-out sheets will help eliminate errors.

Office of Education Response

The Office of Education has revised the Semi-Annual Report and has provided additional training to the program staff in the proper use of the School Matrix attendance program and will provide on-going support. Attendance records will be reconciled to sign-in sheets at the program sites and summary information will be double-checked and reconciled prior to being reported to the California Department of Education.

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MADERA COUNTY OFFICE OF EDUCATION SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2010

D. State Award Findings and Questioned Costs

Finding Identification

2010-2 Attendance- Records #10000

Criteria or Specific Requirement

Education Code Section 46000 - Calculation of Average Daily Attendance (ADA)

Condition

During our analysis of attendance records, we noted that the Annual Report of Attendance was incorrectly prepared. The summary spreadsheets used to consolidate the information reported on the Annual did not support ADA reported.

This exception results in an increase of 6.10 ADA on the Annual Report of Attendance.

Clerical errors were made during the summarization of the original rosters into the computer-generated attendance reports.

Questioned Costs

The recalculation of the worksheet resulted in a increase of $61,311 (6.1 0 ADA x $10,051 per ADA) on Annual Report of Attendance.

Recommendation

The Office of Education should also review the preparation of the Annual Report of Attendance, along with the supporting documentation, to make sure errors are corrected before submission to the California Department of Education. The District will need to amend the Annual Report of Attendance in order to properly report the change in ADA.

Office of Education Response

The Office of Education will review the preparation of all Report of Attendance information, along with the supporting documentation, to make sure errors are corrected before submission to the California Department of Education. The Office of Education has amended the Annual Report of Attendance in order to properly report the change in ADA.

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MADERA COUNTY OFFICE OF EDUCATION SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS YEAR ENDED JUNE 30,2010

Finding/Recommendation

1. The reports provided to us by the Office of Education from the new accounting software (Smarte Finance} was inadequate. The system requires ad hoc reporting which allows for restating of data by the user. Budget reports were not available for operating and audit use. It was recommended that the Office of Education work with their software provider to implement new reports to assist the business office personnel with their reporting requirements and budgetary decisions.

2. During our analysis of attendance records, we noted that Attendance Report Form for the 1st Semi-Annual Report was incorrectly prepared. Attendance information did not agree to original signin/sign-out sheets. It was recommended that the Office of Education review the original sign-in sheets on a daily basis, and reconcile the sheets to the summary spreadsheets. The use of actual attendance rosters rather than signin/sign-out sheets will help eliminate errors.

Current Status

Implemented

Not Implemented

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Office of Education's Explanation if

Not Implemented

The Office of Education has provided additional training to the program staff in the proper use of the School Matrix attendance program and will provide on-going support. Attendance records will be reconciled to sign-in sheets at the program sites and summary information will be double-checked and reconciled prior to being reported to the California Department of Education.

APPENDIX C

FORM OF CONTINUING DISCLOSURE CERTIFICATE

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APPENDIX C

FORM OF CONTINUING DISCLOSURE CERTIFICATE

MADERA COUNTY BOARD OF EDUCATION2011 CERTIFICATES OF PARTICIPATION

(REFUNDING AND 2011 CAPITAL PROJECTS)

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed anddelivered by the Madera County Board of Education (the “Issuer”) in connection with theissuance of the above-named Certificates (the “Certificates”). The Certificates are being issuedpursuant to a trust agreement (the “Trust Agreement”) dated as of June 1, 2011 entered into bythe Issuer, the Municipal Asset Finance Corp. and The Bank of New York Mellon TrustCompany, N.A. as trustee. The Issuer covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is beingexecuted and delivered by the Issuer for the benefit of the Holders and Beneficial Owners of theCertificates and in order to assist the Participating Underwriter in complying with Securities andExchange Commission (“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 definedin this Section, the following capitalized terms shall have the following meanings:

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

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

“Dissemination Agent” shall mean the Issuer, or any successor Dissemination Agentdesignated in writing by the Issuer and which has filed with the Issuer a written acceptance ofsuch designation.

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

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

“MSRB” shall mean the Municipal Securities Rulemaking Board or any other entitydesignated or authorized by the Securities and Exchange Commission to receive reports pursuantto the Rule. Until otherwise designated by the MSRB or the Securities and ExchangeCommission, filings with the MSRB are to be made through the Electronic Municipal MarketAccess (EMMA) website of the MSRB, currently located at http://emma.msrb.org.

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“Participating Underwriter” shall mean the original underwriter of the Certificatesrequired to comply with the Rule in connection with offering of the Certificates.

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

SECTION 3. Provision of Annual Reports.

(a) The Issuer shall, or shall cause the Dissemination Agent to, on April 1 ofeach year, commencing with the report for the 2010-2011 fiscal year (which is due not later thanApril 1, 2012), provide to the MSRB an Annual Report which is consistent with the requirementsof Section 4 of this Disclosure Certificate. The Annual Report may cross-reference otherinformation as provided in Section 4 of this Disclosure Certificate; provided, that the auditedfinancial statements of the Issuer may be submitted separately from the balance of the AnnualReport and later than the date required above for the filing of the Annual Report if they are notavailable by that date. If the Issuer’s fiscal year changes, it shall give notice of such change in afiling with the MSRB. The Annual Report shall be submitted on a standard form in use byindustry participants or other appropriate form and shall identify the Certificates by name andCUSIP number.

(b) Not later than 15 business days prior to said date, the Issuer shall providethe Annual Report to the Dissemination Agent (if other than the Issuer). If the Issuer is unable toprovide to the MSRB an Annual Report by the date required in subsection (a), the Issuer shall, ina timely manner, send or cause to be sent to the MSRB a notice in substantially the form attachedas Exhibit A.

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

SECTION 4. Content of Annual Reports. The Issuer’s Annual Report shall contain orinclude by reference the following:

(a) Audited financial statements of the Issuer for the preceding fiscal year,prepared in accordance with the laws of the State of California. If the Issuer’saudited financial statements are not available by the time the Annual Report isrequired to be provided to the MSRB pursuant to Section 3(a), the Annual Reportshall contain unaudited financial statements in a format similar to the financialstatements contained in the final Official Statement, and the audited financialstatements shall be provided to the MSRB in the same manner as the AnnualReport when they become available.

To the extent not included in the audited financial statement of the Issuer, the Annual Reportshall also include the following:

� Audit report,

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� Second interim financial report.

Any or all of the items listed above may be set forth in one or a set of documents or may beincluded by specific reference to other documents, including official statements of debt issues ofthe Issuer or related public entities, which have been made available to the public on theMSRB’s website. The Issuer shall clearly identify each such other document so included byreference.

SECTION 5. Reporting of Significant Events.

(a) The Issuer shall give, or cause to be given, notice of the occurrence of anyof the following events with respect to the Certificates in a timely manner not later than tenbusiness days after the occurrence of the event:

1. Principal and interest payment delinquencies;

2. Unscheduled draws on debt service reserves reflecting financialdifficulties;

3. Unscheduled draws on credit enhancements reflecting financialdifficulties;

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

5. Issuance by the Internal Revenue Service of proposed or finaldetermination of taxability or of a Notice of Proposed Issue (IRS Form5701 TEB);

6. Tender offers;

7. Defeasances;

8. Rating changes; or

9. Bankruptcy, insolvency, receivership or similar event of the obligatedperson.

Note: for the purposes of the event identified in subparagraph (9), the event isconsidered to occur when any of the following occur: the appointment of areceiver, fiscal agent or similar officer for an obligated person in a proceedingunder the U.S. Bankruptcy Code or in any other proceeding under state or federallaw in which a court or governmental authority has assumed jurisdiction oversubstantially all of the assets or business of the obligated person, or if suchjurisdiction has been assumed by leaving the existing governmental body andofficials or officers in possession but subject to the supervision and orders of acourt or governmental authority, or the entry of an order confirming a plan ofreorganization, arrangement or liquidation by a court or governmental authorityhaving supervision or jurisdiction over substantially all of the assets or business ofthe obligated person.

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(b) The Issuer shall give, or cause to be given, notice of the occurrence of anyof the following events with respect to the Certificates, if material, in a timely manner not laterthan ten business days after the occurrence of the event:

1. Unless described in paragraph 5(a)(5), adverse tax opinions or othermaterial notices or determinations by the Internal Revenue Service withrespect to the tax status of the Certificates or other material eventsaffecting the tax status of the Certificates;

2. Modifications to rights of Certificate holders;

3. Optional, unscheduled or contingent Certificate calls;

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

5. Non-payment related defaults;

6. The consummation of a merger, consolidation, or acquisition involving anobligated person or the sale of all or substantially all of the assets of theobligated person, other than in the ordinary course of business, the entryinto a definitive agreement to undertake such an action or the terminationof a definitive agreement relating to any such actions, other than pursuantto its terms; or

7. Appointment of a successor or additional trustee or the change of name ofa trustee.

(c) Whenever the Issuer obtains knowledge of the occurrence of a ListedEvent described in Section 5(b), the Issuer shall determine if such event would be material underapplicable federal securities laws.

(d) If the Issuer learns of the occurrence of a Listed Event described inSection 5(a), or determines that knowledge of a Listed Event described in Section 5(b) would bematerial under applicable federal securities laws, the Issuer shall within ten business days ofoccurrence file a notice of such occurrence with the MSRB. Notwithstanding the foregoing,notice of the Listed Event described in subsections (a)(7) or (b)(3) need not be given under thissubsection any earlier than the notice (if any) of the underlying event is given to Holders ofaffected Certificates pursuant to the Trust Agreement.

SECTION 6. Format for Filings with MSRB. Any report or filing with the MSRBpursuant to this Disclosure Certificate must be submitted in electronic format, accompanied bysuch identifying information as is prescribed by the MSRB.

SECTION 7. Termination of Reporting Obligation. The Issuer’s obligations under thisDisclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment infull of all of the Certificates. If such termination occurs prior to the final maturity of theCertificates, the Issuer shall give notice of such termination in a filing with the MSRB.

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SECTION 8. Dissemination Agent. The Issuer may, from time to time, appoint orengage a Dissemination Agent to assist it in carrying out its obligations under this DisclosureCertificate, and may discharge any such Dissemination Agent, with or without appointing asuccessor Dissemination Agent. The Dissemination Agent shall not be responsible in any mannerfor the content of any notice or report prepared by the Issuer pursuant to this DisclosureCertificate. The initial Dissemination Agent shall be the Issuer.

SECTION 9. Amendment; Waiver. Notwithstanding any other provision of thisDisclosure Certificate, the Issuer may amend this Disclosure Certificate, and any provision ofthis 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, or5(a) or (b), it may only be made in connection with a change in circumstances that arisesfrom a change in legal requirements, change in law, or change in the identity, nature orstatus of an obligated person with respect to the Certificates, or the type of businessconducted;

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

(c) The amendment or waiver does not, in the opinion of nationallyrecognized bond counsel, materially impair the interests of the Holders or BeneficialOwners of the Certificates.

In the event of any amendment or waiver of a provision of this Disclosure Certificate, the Issuershall describe such amendment in the next Annual Report, and shall include, as applicable, anarrative explanation of the reason for the amendment or waiver and its impact on the type (or inthe case of a change of accounting principles, on the presentation) of financial information oroperating data being presented by the Issuer. In addition, if the amendment relates to theaccounting principles to be followed in preparing financial statements, (i) notice of such changeshall be given in a filing with the MSRB, and (ii) the Annual Report for the year in which thechange is made should present a comparison (in narrative form and also, if feasible, inquantitative form) between the financial statements as prepared on the basis of the newaccounting principles and those prepared on the basis of the former accounting principles.

SECTION 10. Additional Information. Nothing in this Disclosure Certificate shall bedeemed to prevent the Issuer from disseminating any other information, using the means ofdissemination set forth in this Disclosure Certificate or any other means of communication, orincluding any other information in any Annual Report or notice required to be filed pursuant tothis Disclosure Certificate, in addition to that which is required by this Disclosure Certificate. Ifthe Issuer chooses to include any information in any Annual Report or notice in addition to thatwhich is specifically required by this Disclosure Certificate, the Issuer shall have no obligationunder this Certificate to update such information or include it in any future Annual Report ornotice of occurrence of a Listed Event or any other event required to be reported.

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SECTION 11. Default. In the event of a failure of the Issuer to comply with anyprovision of this Disclosure Certificate, any Holder or Beneficial Owner of the Certificates maytake such actions as may be necessary and appropriate, including seeking mandate or specificperformance by court order, to cause the Issuer to comply with its obligations under thisDisclosure Certificate; provided, that any such action may be instituted only in the SuperiorCourt of the State of California in and for the County of Madera or in U.S. District Court in ornearest to the County. The sole remedy under this Disclosure Certificate in the event of anyfailure of the Issuer to comply with this Disclosure Certificate shall be an action to compelperformance.

SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefitof the Issuer, the Dissemination Agent, the Participating Underwriter and Holders and BeneficialOwners from time to time of the Certificates, and shall create no rights in any other person orentity.

Date: June __, 2011.

MADERA COUNTY BOARD OF EDUCATION

ByAuthorized Issuer Representative

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CONTINUING DISCLOSURE EXHIBIT A

FORM OF NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARDOF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: MADERA COUNTY BOARD OF EDUCATION

Name of CertificateIssue:

MADERA COUNTY BOARD OF EDUCATION2011 CERTIFICATES OF PARTICIPATION(REFUNDING AND 2011 CAPITAL PROJECTS)

Date of Issuance: June __, 2011

NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect tothe above-named Certificates as required by Section 4 of the Continuing Disclosure Certificateof the Issuer, dated the Date of Issuance. [The Issuer anticipates that the Annual Report will befiled by _____________.]

Dated:_______________

MADERA COUNTY BOARD OF EDUCATION

By [to be signed only if filed]

APPENDIX D

FORM OF OPINION OF SPECIAL COUNSEL

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APPENDIX D

FORM OF OPINION OF SPECIAL COUNSEL

[CLOSING DATE]

Madera County Board of Education28123 Avenue 14Madera, California

2011 Certificates of Participation(Refunding and 2011 Capital Projects)

Evidencing and Representing Fractional Undivided Interests of the Owners Thereofin the Base Rental Payments to be Made by the

Madera County Board of Education(Final Opinion)

Ladies and Gentlemen:

We have acted as special counsel to the Madera County Board of Education (the“Board”) in connection with the execution and delivery of $14,835,000 aggregate principalamount of Certificates of Participation relating to the Board’s 2011 Certificates of Participation(Refunding and 2011 Capital Projects) (the “Certificates”). In such connection, we havereviewed the Site Lease, dated as of June 1, 2011 (the “Site Lease”), by and between the Boardand the Municipal Asset Finance Corp. (the “Corporation”), the Facilities Lease, dated as ofJune 1, 2011 (the “Facilities Lease”), by and between the Corporation and the Board, the TrustAgreement, dated as of June 1, 2011 (the “Trust Agreement”), by and among The Bank of NewYork Mellon Trust Company, N.A., as trustee (the “Trustee”), the Corporation and the Board,the Assignment Agreement, dated as of June 1, 2011 (the “Assignment Agreement”), by andbetween the Corporation and the Trustee, the Tax Certificate, dated the date hereof (the “TaxCertificate”), opinions of counsel to the Board, the Corporation, and the Trustee, certificates ofthe Board, the Corporation, the Trustee and others, and such other documents, opinions andmatters to the extent we deemed necessary to render the opinions set forth herein.

The opinions expressed herein are based on an analysis of existing laws,regulations, rulings and court decisions and cover certain matters not directly addressed by suchauthorities. Such opinions may be affected by actions taken or omitted or events occurring afterthe date hereof. We have not undertaken to determine, or to inform any person, whether anysuch actions are taken or omitted or events do occur or any other matters come to our attentionafter the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to,and may not, be relied upon in connection with any such actions, events or matters. Ourengagement with respect to the Certificates has concluded with their issuance, and we disclaimany obligation to update this letter. We have assumed the genuineness of all documents andsignatures presented to us (whether as originals or as copies) and the due and legal execution anddelivery thereof by, and validity against, any parties other than the Board. We have assumed,

Madera County Board of Education[Closing Date]Page 2

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without undertaking to verify, the accuracy of the factual matters represented, warranted orcertified in the documents, and of the legal conclusions contained in the opinions, referred to inthe first paragraph hereof. Furthermore, we have assumed compliance with all covenants andagreements contained in the Site Lease, the Facilities Lease, the Trust Agreement, theAssignment Agreement and the Tax Certificate, including (without limitation) covenants andagreements compliance with which is necessary to assure that future actions, omissions or eventswill not cause interest on the Certificates to be included in gross income for federal income taxpurposes.

In addition, we call attention to the fact that the rights and obligations under theCertificates, the Site Lease, the Facilities Lease, the Trust Agreement, the AssignmentAgreement and the Tax Certificate and their enforceability may be subject to bankruptcy,insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other lawsrelating to or affecting creditors' rights, to the application of equitable principles, to the exerciseof judicial discretion in appropriate cases and to the limitations on legal remedies against countyboards of education and non-profit corporations in the State of California. We express noopinion with respect to any indemnification, contribution, penalty, choice of law, choice offorum, choice of venue, waiver or severability provisions contained in the foregoing documents,nor do we express any opinion with respect to the state or quality of title to or interest in any ofthe real or personal property described in or as subject to the lien of the Site Lease, the FacilitiesLease, the Trust Agreement or the accuracy or sufficiency of the description contained therein of,or the remedies available to enforce liens on, any such property. Finally, we undertake noresponsibility for the accuracy, completeness or fairness of the Official Statement or otheroffering material relating to the Certificates and express no opinion with respect thereto.

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

1. The Site Lease, the Facilities Lease and the Trust Agreement have been dulyexecuted and delivered by, and constitute valid and binding obligations of, the Board.

2. The obligation of the Board to make the Base Rental Payments during the termof the Facilities Lease constitutes a valid and binding obligation of the Board, payable fromfunds of the Board lawfully available therefor.

3. Assuming due authorization, execution and delivery of the Trust Agreementand the Certificates by the Trustee, the Certificates are entitled to the benefits of the TrustAgreement.

Madera County Board of Education[Closing Date]Page 3

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4. The portion of each Base Rental Payment designated as and constitutinginterest paid by the Board under the Facilities Lease and received by the registered owners of theCertificates is excluded from gross income for federal income tax purposes under Section 103 ofthe Internal Revenue Code of 1986 and is exempt from State of California personal incometaxes. Such interest is not a specific preference item for purposes of the federal individual orcorporate alternative minimum taxes, although we observe that it is included in adjusted currentearnings when calculating corporate alternative minimum taxable income. We express noopinion regarding other tax consequences related to the accrual or receipt of such interest or theownership or disposition of the Certificates.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

per

1228 N Street, Suite 13 Sacramento, CA 95814

(916) 444-5100