Schedule A-6

Seattle School District No.1

Notes To Financial Statements

August 31, 1998

1. summary of significant accounting policies

2.  

   1. reporting entity

   2. The Seattle School District is an independent reporting municipal corporation organized pursuant to Title 28A. Revised Code of Washington for the purpose of providing public school services to students in grades preschool to grade 12. It is unaffiliated with the City of Seattle or any other governmental unit, agency or non-profit corporation.

      Based on the criteria specified in the Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, the District has no component units. The District’s Comprehensive Annual Financial Report includes all funds and account groups for which the District is financially accountable. Financial accountability was determined on the basis of (a) appointment of a voting majority of the organization’s governing body, (b) the District’s ability to impose its will on that organization, and (c) the potential for the organization to provide specific financial benefits to, or to impose specific financial burdens on the District.

       

   3. basis of presentation - fund accounting

   4. The Seattle School District’s financial reports conform to generally accepted accounting principles. The accounts of the school district are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts, or expenses, as appropriate. The various funds in this report are grouped into Governmental and Fiduciary funds and the account groups are General Fixed Assets and General Long-Term Debt shown as follows:

       

      1. governmental funds

      2.  

         1. General Fund

         2. This fund is used to account for all expendable financial resources, except those required to be accounted for in another fund. In keeping with the principle of as few funds as necessary, food services, maintenance, data processing, printing and transportation activities are included in this fund. These activities are legally designated in the General Fund.

             

         3. Special Revenue Funds

         4. Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. They are comprised of the Associated Student Body Program Fund and Transportation Vehicle Fund.

            1. Associated Student Body Program Fund

            2. This fund is used to account for the extracurricular fees collected in fund raising events for students. Disbursements require the joint approval of the appropriate student body organization and the District’s Board of Directors. This fund is accounted for as a special revenue fund since the financial resources legally belong to the school district.

            3. Transportation Vehicle Fund

            This fund is used to account for the purchase, major repair, rebuilding and debt service expenditures related to pupil transportation equipment. The major sources of revenue in this fund include state reimbursement for pupil transportation equipment, special levies and investment earnings on idle cash.

             

         5. Debt Service Fund

         6. This fund is used to account for the accumulation of resources for the payment of general obligation bonded debt principal and interest.

             

         7. Capital Projects Fund

         This fund is used to account for resources set aside for the acquisition and construction of fixed assets.

          

      3. fiduciary funds

      4.  

          

         1. Expendable Trust Funds

         2. Expendable Trust Funds are funds used to account for assets held by the School District in a trustee capacity. The funds are accounted for on the modified accrual basis. On August 31, 1998, the District maintained thirty-five (35) of these funds.

             

         3. Non-Expendable Trust Funds

         Non-Expendable Trust Funds are funds, the principal of which may not be expended. The funds are accounted for in essentially the same manner as proprietary funds, using the full accrual basis. On August 31, 1998, the District maintained four (4) of these funds.

          

      5. account groups

      6.  

         1. General Fixed Assets

         2. Fixed assets used in governmental fund type operations are accounted for in the General Fixed Assets Account Group, rather than in governmental funds.

             

         3. General Long Term Debt

      Long-term liabilities expected to be financed from governmental funds are accounted for in the General Long-Term Debt Account Group.

       

   5. basis of accounting

   6. The modified accrual basis of accounting is used for all governmental funds and expendable trust funds. Under this basis, revenues are recognized when they become measurable and available. "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period. Reported property taxes receivable are measurable, but not available, and are, therefore, included in deferred revenue, and not recognized as current year revenue. Categorical program claims and interdistrict billings are measurable and available, and both are accrued.

      Expenditures are recognized under the modified accrual basis of accounting when the related fund liability is incurred. The fund liability is incurred when the goods or services have been received. An exception to this rule is the recognition of principal and interest on general long-term debt which is recognized when due. All governmental funds and expendable trust funds are accounted for on a financial resources measurement focus. This means that only current assets and current liabilities are included on their balance sheets.

      Non-expendable trust funds are accounted for on a flow of "economic resources" measurement focus, using the full accrual basis of accounting. Revenue is recognized when it is earned and expenses are recognized when incurred.

       

   7. budgetary data 
   8. 1. general budgetary policies

      2. Chapter 28A.505 Revised Code of Washington (RCW) Chapter 392-123 of the Washington Administrative Code (WAC) mandate school district budget policies and procedures. The budgets for the General, Capital Projects, Debt Service, Associated Student Body and Transportation Vehicle funds are adopted by the Board after a public hearing. An appropriation is a prerequisite to expenditures. Appropriations lapse at the end of the fiscal period. Each fund’s total expenditures cannot by law exceed its formal fund appropriation. Appropriations are authorized by budget adoption by The Board of Directors at the fund level. These are the legal levels of budgetary control. Management can move budgets by areas, departments, and divisions. Only the Board of Directors may adopt a revised or supplemental budget appropriation after a public hearing at any time during the fiscal year. Management does not have the authority to amend the budget after the Board of Directors approves or amends the budgets. There was no budget amendments for any funds during the fiscal year.

          

      3. encumbrances

      4. Encumbrances accounting is employed in governmental funds. Purchase orders, contracts, and other commitments for the expenditure of moneys are recorded in order to reserve a portion of the applicable appropriation. Encumbrances are closed at the end of the fiscal year and re-opened the following year. General Fund Encumbrances in the amount of $184,282 and Capital Projects encumbrances of $366,206 were closed on August 31, 1998, and these amounts will be reestablished in the next fiscal year.

          

      5. budgetary basis of accounting

      For budgetary purposes, revenues and expenditures are recognized on the modified accrual basis of accounting as prescribed by law for all governmental funds. Fund balance is budgeted as available resources and pursuant to law, the budgeted ending fund balance cannot be negative.

       

   9. assets, liabilities and fund equity

   10.  

       1. cash and cash equivalents

       2. Cash and cash equivalents consist of cash on hand, deposits, pooled investments and imprest funds. Investments of surplus or pooled cash balances are considered cash equivalents per GASB statement 9. The District invests cash surpluses of all its individual funds not otherwise invested by the individual funds with the King County Investment Pool. King County is the ex-officio treasurer for the district. By investing in the County Investment Pool, the District is able to increase its investment yield due to the much bigger size and longer average investment holding period of the County Pool. At the same time, the District maintains liquidity for its funds and uses the pool as essentially a demand deposit account for all of its funds. Each fund receives its allocation of the proportionate share of the pooled earnings.

           

       3. inventory

       4. Inventory is valued at cost using the weighted average method perpetual inventory system. Inventory in the General Fund consists of expendable supplies held for consumption. The cost is recorded as an expenditure at the time individual inventory items are issued. Physical inventory counts are conducted annually. The Fund Balance designated for inventory is set aside by the Board of Directors for replacement, or increase to the inventory level.

          USDA Commodity inventory consists of food donated by the United States Department of Agriculture and is valued at the prices paid by the USDA for the commodities. Commodities used during the year are reported as revenues and expenditures within the General Fund. The amount of unused commodities at the end of the fiscal year are reported as deferred revenue.

           

       5. prepaid expenditures

       6. Prepaid Expenditures as of August 31, 1998 represent refundable escrow deposits on a real estate contract. Prior year prepaid expenditures represent uninventoried school supplies paid for in the 1996-97 school year but to be used in 1997-98, and are therefore only chargeable expenditures in the latter year.

           

       7. fixed assets

       Fixed assets include land, buildings, improvement other than buildings, and machinery/equipment. The accounting and reporting treatment applied to the fixed assets associated with a fund is determined by the measurement focus of the fund. Fixed assets used in the governmental fund operations are accounted for in the General Fixed Assets Account Group rather than in the governmental funds.

       General fixed assets are recorded as an expenditure in the fund purchasing the asset and are recorded in the General Fixed Assets Account Group at historical cost, or estimated historical cost. Donated fixed assets are valued at their estimated fair market value on the date donated. Depreciation is not reported for general fixed assets, and interest costs on fixed assets are not capitalized.

        

   11. revenue and expenditure recognition

   12.  

       1. property taxes

       2. Property tax revenues are collected as the result of special levies passed by the voters in the District. Per Revised Code of Washington 84.60.020, the tax assessment date is January 1 of the calendar year preceding the calendar year of collection. The tax lien date is January 1 of the year of collection and taxes receivable are recognized as of that date. Per RCW 84.56.020, current year taxes are due in full as of April 30. However, without incurring penalty, the taxpayer may elect to pay one half of taxes due by April 30, with the remaining one half taxes due October 31. If the first half payment is not paid by April 30, the entire tax becomes delinquent and begins to accrue interest at 12% per annum. In addition, a penalty of 3% is assessed on the amount of tax delinquent on May 31 of the year in which the tax is due and additional penalty of 8% is assessed on the total amount of delinquent tax on November 30 of the year in which the tax is due. Typically, a little more than half of taxes due are collected on the April 30 date. 

          The lien for property taxes is prior to all other liens on real property except filed Internal Revenue Service liens. King County, by law, may begin foreclosure of a tax lien after three years.

          Revenues from property taxes are considered available, and susceptible to accrual if collectible within sixty (60) days after the close of the fiscal period. The October 31 collection exceeds the sixty (60) days criteria, and is not accrued as revenue. It is recognized as receivable, and recorded as deferred revenue.

           

       3. compensated absences

       4.  

          1. Vacation Leave

          2. Employees earn vacation leave monthly, at various rates based on the number of years employed. Employees, represented by unions, may generally accumulate up to two (2) years of vacation leave earnings. Vacation leave in excess of two years accumulation is forfeited at fiscal year end. Unrepresented employees and school principals may accumulate up to one (1) year of vacation leave earnings. A maximum of 30 days unused annual leave is paid to all employee groups upon termination, or retirement at 100% of per diem value.

             Expenditure for vacation leave is recognized when paid. During fiscal year 97/98, the District incurred $343,727 of vacation leave expenditures. As of August 31, 1998, vacation leave payable including employer’s share of Social Security and Medicare taxes, is estimated to be $3,252,374 which is reported in the long term debt account group, as it will not be retired with current financial resources.

              

          3. Sick Leave

          Employees earn sick leave at the rate of one day per month. Employees may accumulate up to one year of sick leave earnings at the end of each fiscal year. Under the provisions of RCW 28A.400.210, sick leave accumulated by District employees is reimbursed at death or retirement at the rate of one day for each four (4) days (25% of per diem value) of accrued leave, limited to 180 accrued days. This chapter also provides for a limited annual buy-back of accumulated sick leave. As of January 31 of each year, upon employee request, sick leave accumulated by District employees in excess of sixty (60) days is paid at a rate of one day for four.

          Sick leave expenditures are recorded when paid. Sick leave payable is based on 25% of per diem value of all accumulated sick leave of employees who currently are eligible to receive termination payments as well as other employees who are expected to become eligible in the future to receive such payments, plus related employer’s share of Social Security and Medicare taxes. During fiscal year 97/98, the District incurred $936,968 of sick leave expenditures. As of August 31, 1998, sick leave payable is estimated to be $12,282,215, which is reported in the long term debt account group, as it will not be retired with current financial resources.

           

       5. memorandum captions

   The "Memorandum Only" total columns on combined statements are presented for overview informational purposes only. These do not fairly present financial position or results of operations in conformity with generally accepted accounting principles. Neither is such data comparable to a consolidation.

    

3. funds and account groups

4.  

   1. assets

   2.  

      1. deposits and investments

      2. The County Treasurer is the ex-officio treasurer for the District. In this capacity, the County Treasurer receives deposits and transacts investments on the District’s behalf.

          

         1. Deposits

         2. At fiscal year end, 100% of the District’s deposits were either insured or collateralized. The District’s deposits are covered by the FDIC. Collateral protection is provided by the Washington Public Deposit Protection Commission (WPDPC), a multiple financial institution collateral pool. The risk level of deposits is classified as category level 1 for risk disclosure purposes per GASB statement 3, insured by FDIC or uninsured but collateralized under the WPDPC multiple collateral pool. At year end, there was no difference between the carrying amount of the deposits and their market value. 

             

            		CARRYING		BANK
            DEPOSITS BY RISK CATEGORY		AMOUNT		BALANCE
            Category 1
            Demand Deposits - General Fund		$ 437,222		$ 437,222
            Category 2 & 3		$ -		$ -

             

         3. Investments

         Washington State law restricts the District to invest in obligations of the United States Treasury and instrumentalities, bankers’ acceptances issued in the secondary market, repurchase agreements and primary certificates of deposit issued by Washington State qualified public depositories as defined under RCW 39.58., the State Treasurer’s Investment Pool and the County Treasurer’s Investment Pool.

         The District joined the County’s Investment Pool in May, 1996. Thereafter, the District generally invests all its short-term cash surplus in the County’s Investment Pool with the exception of the Capital Project Fund, which in addition to being in the County’s Pool, also invests outside the County’s Pool.

         All investments are stated at fair market value, per GASB Statement 31. Gains or losses on investments, realized or unrealized, are recognized as investment revenue. The District did not incur investment losses during the fiscal year. There was no known violations of legal or contractual provisions for deposits and investments. Category 1 includes insured investments or registered securities that are held by the District or its agent in the District’s name. All investments held were Category 1.

         Investment in pools managed by other governments are not classified into one of the categories of custodial credit risk outlined in GASB Statement 3. Custodial credit risk only applies to uninsured or unregistered investments that are evidenced by a security and investments in pools managed by other governments are not evidenced by securities.

          

         Investments by							Carrying		Market
         Risk Category & Type					Fund		Amount		Value
         	Category 1
         		US Government
         		Agency Issues			Capital Projects		$ 27,927,845		$ 27,927,845
         	Category 2 & 3						$ -		$ -
         Investments not Subject
         to Risk Categorization
         		County Treasurer's
         		Investment Pool			General		$ 55,292,546		$ 55,292,546
         					Special Revenue		2,358,427		2,358,427
         					Debt Service		13,628		13,628
         					Capital Projects		46,420,001		46,420,001
         					Trust		902,564		902,564
         					TOTAL		$ 104,987,166		$ 104,987,166

      3. inventories

      4. Inventories as of August 31, 1998 consist of the following:

         Operating Supplies					$ 932,176
         Maintenance Supplies					230,791
         Food Services Food Provisions					185,248
         Food Services Supplies					200,684
         USDA Commodities					200,020
         TOTAL					$ 1,748,919

          

          

      5. receivables

• Taxes Receivable

Property taxes are levied at the beginning of the calendar year and are recorded on the balance sheet of the taxing fund as taxes receivable and deferred revenue. Property taxes are recognized as revenue when collected in cash. At the time of tax receipts the balance sheet accounts, taxes receivable and deferred revenue, are reduced by the amount of the collection. Taxes Receivable not collectible within sixty (60) days after the fiscal year end are deferred and not included in current revenue. See Note I. F1. Property Taxes.

• Governmental Receivable

Are recorded at the time they are invoiced and accrued as revenue. This includes receivables from local, state and federal governmental organizations.

• Accounts Receivable

Accounts invoiced and revenue accrued for lease and rental of district facilities and other miscellaneous items. No allowance for uncollectible amounts are established. After analysis of uncollectible accounts receivable, they are written off periodically during the fiscal year by the direct write-off method. Use of the direct write-off method does not result in any material difference. All receivables are reported at their gross value and are considered to be fully collectible.

Receivables as of August 31, 1998, consist of the following:

Changes in the fixed asset accounts are tabulated as follows:

RCW 39.36.015 and 39.36.02 provide that debt cannot be incurred in excess of the following percentages of the value of the taxable property of the district.

• .0375% - without of a vote of the people (non-bonded debt only).
• 2.5% - with a vote of the people.
• 5.0% - with a vote of the people, provided the indebtedness in excess of 2.5 percent if for capital outlay.

The assessed valuation of taxable property for 1998 taxing purposes was $45,251,884,000.

The future minimum lease payments to be received in aggregate for each of the five succeeding fiscal years is as follows:

1. litigation

2. Whereas the District is frequently involved in lawsuits arising from its normal educational activities, it is the opinion of the District General Counsel that these will be resolved without any material impact against the District.

    

3. construction commitments

4. In February 1995, the voters of the District approved a six (6) year, $330 million property tax levy to fund renovation and/or construction of nineteen (19) school buildings around the District. The District received its first tax receipts from this levy in the Spring of 1996. Collections from this "Building Excellence" levy will total approximately $55 million per year for six years.

   Construction work has been completed for Kimball Elementary School, Rainier Beach High School, and Sanislo Elementary School. Construction is still on-going at Ballard High School, Cooper Elementary School, Highland Park Elementary School, Seward Elementary School and Whittier Elementary School. The Board authorized the creation of a separate Lincoln project. All projects are currently on schedule based on the schedule that was presented to voters in 1995 except for Ballard and the African American Academy which will be completed one year later, and Dunlap and Emerson construction which will be moved up one year.

   In February, 1995, the voters of Seattle passed a six (6) year $150 million levy. The levy will fund a Buildings, Technology and Athletics Facility (BTA) program of the District. The BTA program will include deferred maintenance, code requirements, seismic upgrades, and modernization of athletic facilities, classroom technology and management information systems. There are four (4) components to the Levy. They are Building Reinvestment, Technology, Athletic Facilities, and Science and Performing Arts.

    

5. year 2000 programming issues