· 2 days ago · PRELIMINARY OFFICIAL STATEMENT DATED MAY 11, 2020. NEW ISSUE—BOOK-ENTRY ONLY . RATING Moody’s: “A1” (Underlying) “____” (Insured) (See Ratings herein)

PRELIMINARY OFFICIAL STATEMENT DATED MAY 11, 2020

NEW ISSUE—BOOK-ENTRY ONLY RATING Moody’s: “A1” (Underlying) “____” (Insured)

(See Ratings herein) In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, interest on the Bonds is

excluded from gross income for federal income tax purposes. Bond Counsel is also of the opinion that interest on the Bonds is not a specific item of tax preference under §57 of the Internal Revenue Code of 1986, as amended (the “Code”) for purposes of Federal alternative minimum taxes. The Bonds, and interest income therefrom, are free from taxation for purposes of personal income, corporate net income and personal property taxes within the Commonwealth of Pennsylvania.

The School District has designated the Bonds as “qualified tax-exempt obligations” for the purposes and effect contemplated by Section 265 of the Code (regarding the deductibility of interest expense related to tax-exempt income of certain financial institutions).

For further information concerning federal and state tax matters relating to the Bonds, see “Tax Exemption” herein.

$9,920,000* Freeport Area School District

Armstrong and Butler Counties, Pennsylvania General Obligation Bonds, Series of 2020

Dated: June 22, 2020 Principal Due: October 1 Interest Due: April 1 and October 1 First Interest Payment: October 1, 2020

The General Obligation Bonds, Series of 2020 (the “Bonds”) in the aggregate principal amount of $9,920,000* will be issued in registered

form in denominations of $5,000 or any integral multiple thereof. The Bonds will be registered in the name of Cede & Co., as the registered owner and nominee of The Depository Trust Company ("DTC"), New York, New York. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or any integral multiple thereof only under the book-entry only system maintained by DTC through its brokers and dealers who are, or act through, DTC Participants. The purchasers of the Bonds will not receive physical delivery of the Bonds. For so long as any purchaser is the beneficial owner of a Bond, that purchaser must maintain an account with a broker or a dealer who is, or acts through, a DTC Participant to receive payment of principal of and interest on the Bonds. See "BOOK-ENTRY ONLY SYSTEM" herein. If, under the circumstances described herein, Bonds are ever issued in certificated form, the Bonds will be subject to registration of transfer, exchange and payment as described herein.

The Bonds are general obligations of the Freeport Area School District, Armstrong and Butler Counties, Pennsylvania (the "School District"), payable from its taxes and other general revenues. The School District has covenanted that it will provide in its budget in each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year and will duly and punctually pay or cause to be paid from the related sinking fund or any other of its revenues or funds the principal of every Bond and the interest thereon on the dates, at the place and in the manner stated in the Bonds, and for such budgeting, appropriation and payment the School District irrevocably has pledged its full faith, credit and available taxing power, which taxing power presently includes the power to levy an annual ad valorem tax on all taxable real property within the School District, within the limits provided by law. (See “Security”, “Taxing Powers of the School District” and “The Taxpayer Relief Act” infra).

Interest on each of the Bonds is payable initially on October 1, 2020 and thereafter semiannually on April 1 and October 1 of each year until the maturity date of such Bond. The School District has appointed Manufacturers and Traders Trust Company (the “Paying Agent”), as paying agent, registrar and sinking fund depository for the Bonds. So long as Cede & Co., as nominee for DTC, is the registered owner of the Bonds, payments of the principal of, redemption premium, if any, and interest on the Bonds, when due for payment, will be made directly to DTC by the Paying Agent, and DTC will in turn remit such payments to DTC Participants for subsequent disbursement to the Beneficial Owners of the Bonds. If the use of the Book-Entry Only System for the Bonds is ever discontinued, the principal of and redemption premium, if any, on each of the Bonds will be payable, when due, upon surrender of such Bond to the Paying Agent at its corporate trust office in Harrisburg, Pennsylvania (or any successor paying agent at its designated office(s)) and interest on such Bond will be payable by check and mailed to the person(s) in whose name(s) such Bond is registered as of the Record Date with respect to the particular interest payment date (See “THE BONDS,” infra).

The Bonds are subject to redemption at the option of the School District prior to maturity. Proceeds of the Bonds will be used to refund a portion of the School District’s General Obligation Bonds, Series of 2015 and to pay the cost

and expense of issuing and insuring the Bonds. The Bonds are an authorized investment for fiduciaries in the Commonwealth of Pennsylvania pursuant to the Pennsylvania Probate, Estate

and Fiduciaries Code, Act of June 30, 1972, No. 164, P.L. 508, as amended and supplemented.

MATURITIES, AMOUNTS, RATES AND PRICES/YIELDS {As Shown on Inside Front Cover}

The Bonds are offered when, as and if issued, subject to withdrawal or modification of the offer without notice, and subject to the approving legal opinion of Dinsmore & Shohl LLP, of Pittsburgh, Pennsylvania, Bond Counsel, to be furnished upon delivery of the Bonds. Certain other matters will be passed upon for the School District by Tucker Arensberg, P.C., of Pittsburgh, Pennsylvania, School District Solicitor. PFM Financial Advisors LLC., Harrisburg, Pennsylvania, will act as Financial Advisor to the School District in connection with the issuance of the Bonds. It is expected that the Bonds will be available for delivery in New York, New York, on or about June 22, 2020.

PFM FINANCIAL ADVISORS LLC.

Financial Advisor to the School District

Dated: * Estimated, subject to change.

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Dated: June 22, 2020 Principal Due: October 1 Interest Due: April 1 and October 1 First Interest Payment: October 1, 2020

MATURITIES, AMOUNTS, RATES AND YIELDS/PRICES

Maturity Date

(October 1) Principal Interest Initial Offering CUSIP Year Amount Rate Yields Numbers(1) 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

(1)The above CUSIP (Committee on Uniform Securities Identification Procedures) numbers have been assigned by an organization not affiliated with the School District or the Underwriter, and such parties are not responsible for the selection or use of the CUSIP numbers. The CUSIP numbers are included solely for the convenience of Bondholders and no representation is made as to the correctness of such CUSIP numbers. CUSIP numbers assigned to securities may be changed during the term of such securities based on a number of factors including, but not limited to, the refunding or defeasance of such issue or the use of secondary market financial products. Neither the School District nor the Underwriter has agreed to, and there is no duty or obligation to, update this Preliminary Official Statement to reflect any change or correction in the CUSIP numbers set forth above.

(A portion of the Bonds may be structured as Term Bonds. See "Invitation to Bid".) *Estimated, subject to change.

FREEPORT AREA SCHOOL DISTRICT Armstrong and Butler Counties, Pennsylvania

BOARD OF SCHOOL DIRECTORS

John K. Haven President Frank C. Prazenica, Jr. 1st Vice-President Adam M. Toncini 2nd Vice-President Mary Dobransky Secretary* Michael J. Huth Treasurer Melanie Bollinger Member Christine F. Davies Member Richard G. Hill, Jr. Member Daniel P. Lucovich Member Gregory Selinger Member

*Non-voting Member

SUPERINTENDENT IAN MAGNESS

BUSINESS MANAGER RYAN MANZER

SCHOOL DISTRICT SOLICITOR TUCKER ARENSBERG, P.C.

Pittsburgh, Pennsylvania

BOND COUNSEL DINSMORE & SHOHL LLP

Pittsburgh, Pennsylvania

FINANCIAL ADVISOR PFM FINANCIAL ADVISORS LLC.

Harrisburg, Pennsylvania

PAYING AGENT MANUFACTURERS AND TRADERS TRUST COMPANY

Harrisburg, Pennsylvania

SCHOOL DISTRICT ADDRESS 621 South Pike Road, Sarver, PA 16055

i

No dealer, broker, salesman or other person has been authorized by the School District to give information or to make any representations, other than those contained in this Preliminary Official Statement, and if given or made, such other information or representations must not be relied upon. This Preliminary Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information set forth herein has been obtained from the School District and from other sources which are believed to be reliable but the School District does not guarantee the accuracy or completeness of information from sources other than the School District. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Preliminary Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in any of the information set forth herein since the date hereof.

TABLE OF CONTENTS

Page Page INTRODUCTION ......................................................................... 1 PURPOSE OF THE ISSUE ........................................................... 1

Sources and Uses of Bond Proceeds ...................................... 1 THE BONDS .................................................................................. 2

Description ............................................................................ 2 Payment of Principal and Interest .......................................... 2 Transfer, Exchange and Registration of Bonds ..................... 2

SECURITY FOR THE BONDS .................................................... 3 General Obligation Pledge .................................................... 3 Commonwealth Enforcement of Debt Service Payments ...... 3 Pennsylvania Budget Adoption ............................................. 3 Act 85 of 2016 ....................................................................... 4 Sinking Fund ......................................................................... 4

REDEMPTION OF BONDS ......................................................... 5 Mandatory Redemption ......................................................... 5 Optional Redemption ............................................................ 5 Notice of Redemption ........................................................... 5 Manner of Redemption .......................................................... 5

BOOK-ENTRY ONLY SYSTEM ................................................. 5 THE SCHOOL DISTRICT ........................................................... 7

Introduction ........................................................................... 7 Administration ...................................................................... 7 School Facilities .................................................................... 7 Enrollment Trends ................................................................. 8

SCHOOL DISTRICT FINANCES ............................................... 8 Introduction ........................................................................... 8 Financial Reporting ............................................................... 8 Summary and Discussion of Financial Results ...................... 9 Revenue................................................................................. 10 Taxing Powers ....................................................................... 12 Tax Levy Trends ................................................................... 14 Real Property Tax ................................................................. 14 Other Taxes ........................................................................... 16

COMMONWEALTH AID TO SCHOOL DISTRICTS .............. 16 Recent Lack of State Appropriations for Debt Service Subsidies ............................................................................... 16

DEBT AND DEBT LIMITS .......................................................... 18 Debt Statement ...................................................................... 18 Debt Service Requirements ................................................... 19 Future Financing ................................................................... 19 Debt Limit and Remaining Borrowing Capacity ................... 20

LABOR RELATIONS ................................................................... 20 School District Employees .................................................... 20 Pension Program ................................................................... 20 Other Post-Employment Benefits .......................................... 21

INFECTIOUS DISEASE OUTBREAK – COVID-19 .................. 21

LITIGATION ................................................................................. 22 DEFAULTS AND REMEDIES ..................................................... 22 TAX EXEMPTION ........................................................................ 22

State Tax Matters .................................................................. 22 Federal Income Tax Matters .................................................. 23

CONTINUING DISCLOSURE UNDERTAKING ...................... 24 RATINGS ....................................................................................... 26 UNDERWRITING ......................................................................... 26 LEGAL OPINION ......................................................................... 26 FINANCIAL ADVISOR ................................................................ 26 MISCELLANEOUS ...................................................................... 26

APPENDIX A- DEMOGRAPHIC AND ECONOMIC INFORMATION RELATING TO THE FREEPORT AREA SCHOOL DISTRICT

Population ............................................................................. A-1 Employment .......................................................................... A-2 Income .................................................................................. A-4 Transportation ....................................................................... A-4 Higher Education .................................................................. A-4

APPENDIX B- OPINION OF BOND COUNSEL

APPENDIX C- AUDITED FINANCIAL REPORT

APPENDIX D- SPECIMEN MUNICIPAL BOND INSURANCE POLICY

APPENDIX E- CONTINUING DISCLOSURE CERTIFICATE

[THIS PAGE INTENTIONALLY LEFT BLANK]

1

PRELIMINARY OFFICIAL STATEMENT



INTRODUCTION

This Preliminary Official Statement, including the cover and inside cover pages hereof, is furnished by the Freeport Area School

District, Armstrong and Butler Counties, Pennsylvania (the “School District”) in connection with the offering of its $9,920,000*, aggregate principal amount, General Obligation Bonds, Series of 2020 (the “Bonds”). The Bonds are dated as of June 22, 2020 and are being issued pursuant to a Resolution of the Board of School Directors of the School District adopted on March 12, 2020 (the “Resolution”), in accordance with the Local Government Unit Debt Act of the Commonwealth of Pennsylvania, Act of December 19, 1996, P.L. 1158, No. 177 (the "Act").

The Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York

(“DTC”). DTC will act as securities depository for the Bonds. Purchases of the Bonds can be made in book-entry only form and purchaser will not receive certificates representing their interest in the Bonds. So long as DTC, or its nominee Cede & Co., is the registered owner of the Bonds, payments of the principal of and interest on the Bonds will be made by the Paying Agent directly to Cede & Co. Disbursement of such payments to the DTC Participants is the responsibility of DTC, and disbursement of such payments to Beneficial Owners of the Bonds is the responsibility of the DTC Participants and the Indirect Participants. See “DESCRIPTION OF THE BONDS” and “BOOK-ENTRY ONLY SYSTEM” herein.

The information which follows contains summaries of the Resolution, the Bonds, relevant provisions of state and federal laws,

and the School District’s budget and financial statements. Such summaries do not purport to be complete and reference is made to the Resolution, the School District’s budget and the School District’s financial statements, copies of which are on file and available for examination at the offices of the School District. Reference is also made to the Bonds and to the full text of the cited laws and regulations.

PURPOSE OF THE ISSUE

Proceeds of the Bonds will be used to refund a portion of the School District’s General Obligation Bonds, Series of 2015 currently outstanding in the aggregate principal amount of $9,930,000 of which $9,645,000 (the “Refunded 2015 Bonds”) shall be refunded and to pay the cost and expense of issuing and insuring the Bonds. Sources and Uses of Bond Proceeds The following is a summary of the sources and uses of the proceeds from the issuance of the Bonds. Sources of Funds Bond Proceeds ........................................................................................................................................... Net Original Issue Premium/(Discount) .................................................................................................... Total Source of Funds ........................................................................................................................... Uses of Funds Amount Required to Call Refunded 2015 Bonds....................................................................................... Costs of Issuance(1) .................................................................................................................................... Total Use of Funds................................................................................................................................ (1)Includes legal, financial advisor, printing, rating, underwriter’s discount, municipal bond insurance, CUSIP, paying agent and miscellaneous costs. *Estimated, subject to change.

2

THE BONDS Description

The Bonds will be issued in fully registered form in denominations of $5,000 and integral multiples thereof, will be in the aggregate principal amount of $9,920,000*, will be dated as of June 22, 2020, and will bear interest at the rates and mature in the amounts and on the dates set forth on the inside front cover of this Preliminary Official Statement. Interest on the Bonds will be payable initially on October 1, 2020, and thereafter, semiannually on April 1 and October 1 of each year until the maturity date of such Bond or, if such Bond is subject to redemption prior to maturity, until the date fixed for redemption thereof, if payment of the redemption price has been duly made or provided for.

When issued, the Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company (“DTC”), New York, New York. Purchasers of the Bonds (the “Beneficial Owners”) will not receive any physical delivery of bond certificates, and beneficial ownership of the Bonds will be evidenced only by book entries. See “BOOK – ENTRY ONLY SYSTEM” herein.

Payment of Principal and Interest

So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, payments of principal of, redemption premium, if any, and interest on the Bonds, when due, are to be made to DTC and all such payments shall be valid and effective to satisfy fully and to discharge the obligations of the School District with respect to, and to the extent of, principal, redemption premium, if any, and interest so paid.

If the use of the Book-Entry Only System for the Bonds is discontinued for any reason, bond certificates will be issued to the Beneficial Owners of the Bonds and payment of principal, redemption premium, if any, and interest on the Bonds shall be made as described in the following paragraphs:

The principal of the Bonds, when due upon maturity or upon any earlier redemption, will be paid to the registered owners of the Bonds, or registered assigns, upon surrender of the Bonds to Manufacturers and Traders Trust Company (the “Paying Agent”), acting as paying agent, registrar and sinking fund depository for the Bonds, at its corporate trust office in Harrisburg, Pennsylvania (or to any successor paying agent at its designated office(s)).

Interest on the Bonds will be payable to the registered owner of a Bond from the interest payment date next preceding the date of registration and authentication of the Bond, unless: (a) such Bond is registered and authenticated as of an interest payment date, in which event such Bond shall bear interest from said interest payment date, or (b) such Bond is registered and authenticated after a Record Date (hereinafter defined) and before the next succeeding interest payment date, in which event such Bond shall bear interest from such interest payment date, or (c) such Bond is registered and authenticated on or prior to the Record Date preceding October 1, 2020, in which event such Bond shall bear interest from June 22, 2020, or (d) as shown by the records of the Paying Agent, interest on such Bond shall be in default, in which event such Bond shall bear interest from the date to which interest was last paid on such Bond. Interest on each Bond will be payable by check drawn on the Paying Agent, which shall be mailed to the registered owner whose name and address shall appear, at the close of business on the fifteenth (15th) day of the month (whether or not a day on which the Paying Agent is open for business) next preceding each interest payment date (the “Record Date”), on the registration books maintained by the Paying Agent, irrespective of any transfer or exchange of the Bond subsequent to such Record Date and prior to such interest payment date, unless the School District shall be in default in payment of interest due on such interest payment date. In the event of any such default, such defaulted interest shall be payable to the person in whose name the Bond is registered at the close of business on a special record date for the payment of such defaulted interest established by notice mailed by the Paying Agent to the registered owners of such Bonds not less than ten (10) days preceding such special record date.

If the date for payment of the principal of or interest on any Bonds shall be a Saturday, Sunday, legal holiday or a day on which banking institutions in the Commonwealth are authorized or required by law or executive order to close, then the date for payment of such principal or interest shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized or required to close, and payment on such date shall have the same force and effect as if made on the nominal date established for such payment. Transfer, Exchange and Registration of Bonds

Subject to the provisions described below under “Book-Entry Only System,” Bonds are transferable or exchangeable by the registered owners thereof upon surrender of Bonds to the Paying Agent, accompanied by a written instrument or instruments in form, with instructions, and with guaranty of signature satisfactory to the Paying Agent, duly executed by the registered owner of such Bond or his attorney-in-fact or legal representative. The Paying Agent shall enter any transfer of ownership of Bonds in the registration books and shall authenticate and deliver at the earliest practicable time in the name of the transferee or transferees a new fully registered bond or bonds of authorized denominations of the same series, maturity and interest rate for the aggregate principal amount which the registered owner is entitled to receive. The School District and the Paying Agent may deem and treat the registered owner of any Bond as the absolute owner thereof (whether or not a Bond shall be overdue) for the purpose of receiving payment of or on account of principal and interest and for all other purposes, and the School District and the Paying Agent shall not be affected by any notice to the contrary. *Estimated, subject to change.

3

SECURITY FOR THE BONDS General Obligation Pledge

The Bonds will be general obligations of the School District, payable from its tax and other general revenues. The School District has covenanted that it will provide in its budget for each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year, and will duly and punctually pay or cause to be paid from its Sinking Fund, as hereinafter defined, or any other of its revenues or funds, the principal of each of the Bonds and the interest thereon at the dates and place and in the manner stated on the Bonds, and for such budgeting, appropriation and payment the School District irrevocably has pledged its full faith, credit and available taxing power, which taxing power includes the power to levy ad valorem taxes on all taxable property within the School District within the limits provided by law (See “TAXES AND TAXING POWERS OF THE SCHOOL DISTRICT” herein). The Act presently provides for enforcement of debt service payments as hereinafter described (see “DEFAULTS AND REMEDIES” herein), and the Public School Code presently provides for the withholding and application of subsidies in the event of failure to pay debt service (see “Commonwealth Enforcement of Debt Service Payments” herein). Commonwealth Enforcement of Debt Service Payments

Section 633 of the Pennsylvania Public School Code of 1949, as amended by Act 150 of 1975, and as further amended and supplemented (the “Public School Code”), presently provides that in all cases where the board of school directors of any school district fails to pay or to provide for the payment of any indebtedness on the date of maturity or date of mandatory redemption or on any sinking fund deposit date, or any interest due on such indebtedness on any interest payment date or on any sinking fund deposit date, in accordance with the schedule under which the Bonds were issued, the Secretary of Education shall notify such board of school directors of its obligation and shall withhold out of any Commonwealth appropriation due such school district an amount equal to the sum of the principal amount maturing or subject to mandatory redemption and interest owing by such school district, or sinking fund deposit due by such school district, and shall pay over the amount so withheld to the bank or other person acting as sinking fund depository for such Bond issue. These withholding provisions are not part of any contract with the holders of the Bonds, and may be amended or repealed by future legislation.

The effectiveness of Section 633 of the Public School Code may be limited by the application of other withholding provisions

contained in the Public School Code, such as provisions for withholding and paying over of appropriations for payment of unpaid teachers’ salaries. Enforcement may also be limited by bankruptcy, insolvency, or other laws or equitable principles affecting the enforcement of creditors’ rights generally. See “Pennsylvania Budget Adoption” hereinafter. Pennsylvania Budget Adoption

Over the past several years the Commonwealth of Pennsylvania has, from time to time, started its fiscal year without a fully adopted state budget. In the state’s 2015-16 fiscal year, a final budget was not enacted until 270 days following the beginning of the fiscal year on March 27, 2016 when the Governor failed to sign or veto the state budget that was adopted by the General Assembly on April 17, 2016.

For the 2016-17 fiscal year, the state budget became law, known as Act 16A of 2016, on July 12, 2016 when the Governor

failed to sign or veto the state budget that was adopted by the General Assembly on July 1, 2016. On July 13, 2016, the General Assembly adopted and Governor signed into law an additional tax and revenue package, known as Act 85 of 2016, which was needed to balance the 2016-17 state budget.

For the 2017-18 fiscal year, the state budget became law, known as Act 1A of 2017, on July 11, 2017 when the Governor failed

to sign or veto the state budget that was adopted by the General Assembly on June 30, 2017. Act 1A of 2017 did not have any accompanying legislation regarding the potential revenue that would be needed to fund the balance of the 2017-18 Budget at the time of its enactment. On October 25, 2017, the General Assembly adopted House Bill 542 which contained the necessary revenue to fund the balance of the previously adopted Act 1A of 2017. On October 30, 2017 the Governor approved and signed House Bill 542 and it became known as Act 43 of 2017.

For the 2018-19 and 2019-20 fiscal years, the state budget was adopted timely. During a state budget impasse, school districts in Pennsylvania cannot be certain that state subsidies and revenues owed them

from the Commonwealth will become available. This includes many of the major state subsidies, and overall revenues, that a Pennsylvania school district receives including basic education funding, special education funding, PlanCon reimbursements, and certain block grants, among many others. Future budget impasses may affect the timeliness or amount of payments by the Commonwealth under the withholding provisions of Section 633 of the Public School Code, however recent legislation included in Act 85 of 2016 has attempted to address the timeliness of the withholding provisions of Section 633 of the Public School Code during any future budget impasses. See “Act 85 of 2016” hereinafter.

4

Act 85 of 2016

On July 13, 2016, the Governor of the Commonwealth signed into law Act No. 85 of 2016, (P.L. 664, No. 85) (“Act 85 of 2016”), an amendment to the Act of April 9, 1929 (P.L. 343, No. 176), known as the Fiscal Code (“Fiscal Code”). Act 85 of 2016 adds to the Fiscal Code Article XVII-E.4, entitled “School District Intercepts for the Payment of Debt Service During Budget Impasse”, which provides for intercept of subsidy payments by the Pennsylvania Department of Education (“PDE”) to a school district subject to an intercept statute or an intercept agreement in the event of a Commonwealth budget impasse in any fiscal year.

Act 85 of 2016 includes in the definition of “intercept statutes” Section 633 of the Public School Code. The Bonds are subject

to Section 633 of the Public School Code. Act 85 of 2016 provides that the amounts that may be necessary for PDE to comply with the provisions of the applicable

intercept statute or intercept agreement “shall be appropriated” to PDE from the General Fund of the Commonwealth after PDE submits justification to the majority and minority chairs of the appropriations committees of the Pennsylvania Senate and House of Representatives allowing ten (10) calendar days for their review and comment, if, in any fiscal year:

(1) annual appropriations for payment of Commonwealth money to school districts have not been enacted by July 1 and

continue not to be enacted when a payment is due; (2) the conditions under which PDE is required to comply with an intercept statute or intercept agreement have

occurred, thereby requiring PDE to withhold payments which would otherwise be due to school districts; and (3) the Secretary of PDE, in consultation with the Secretary of the Budget, determines that there are no payments or

allocations due to be paid to the applicable school districts from which PDE may withhold money as required by the applicable intercept statute or intercept agreement.

The necessary amounts shall be appropriated and paid to the paying agent on the day the scheduled payment for principal and

interest is due on the expiration of the tenth (10th) day following submission of the justification described above to the majority and minority chairs of the appropriations committees, who may comment on the justification but cannot prevent the effectiveness of the appropriation.

The total of all intercept payments under Article XVII-E.4 for a school district may not exceed 50% of the total nonfederal

general fund subsidy payments made to that school district in the prior fiscal year. Act 85 of 2016 requires that each school district with bonds or notes subject to an intercept statute or intercept agreement must

deliver to PDE, in such format as PDE may direct, a copy of the final Official Statement for the relevant bonds or notes or the loan documents relating to the obligations, within thirty (30) days of receipt of the proceeds of the obligations. The School District intends on submitting this information with respect to the Bonds to PDE within the prescribed timeframe following the issuance of the Bonds. Act 85 of 2016 provides that any obligation for which PDE does not receive the required documents shall not be subject to the applicable intercept statute or intercept agreement.

The provisions of Act 85 of 2016 are not part of any contract with the holders of the Bonds and may be amended or repealed by

future legislation. Sinking Fund

A sinking fund for the payment of debt service on the Bonds, designated "Sinking Fund, General Obligation Bonds, Series of 2020" (the "Sinking Fund"), has been created under the Resolution and is maintained by the Paying Agent, as Sinking Fund Depository. The School District shall deposit in the Sinking Fund a sufficient sum, not later than the date when interest and/or principal is to become due on the Bonds, so that on each payment date the Sinking Fund will contain an amount which, together with any other funds available therein, is sufficient to pay, in full, interest and/or principal then due on the Bonds.

The Sinking Fund shall be held by the Paying Agent, as Sinking Fund Depository, and invested by the Paying Agent in such

securities or shall be deposited in such funds or accounts as are authorized by the Act, upon direction of the School District. Such deposits and securities shall be in the name of the School District, but subject to withdrawal or collection only by the Paying Agent, as Sinking Fund Depository, and such deposits and securities, together with the interest thereon, shall be a part of the Sinking Fund.

The Paying Agent, as Sinking Fund Depository, is authorized without further order from the School District to pay from the

Sinking Fund the principal of and interest on the Bonds, as and when due and payable.

5

REDEMPTION OF BONDS Mandatory Redemption

Bidders may elect to structure the issue to include term bonds, which term bonds, if selected by the bidder, will be subject to

mandatory sinking fund redemptions prior to maturity, in the years and amounts as shown in the Invitation to Bid, upon payment of 100% of the principal amount of Bonds to be redeemed, together with accrued interest to the date fixed for redemption, or upon maturity, as applicable. Term bonds to be redeemed shall be selected by lot by the Paying Agent.

In lieu of such mandatory redemption, the Paying Agent, on behalf of the School District, may purchase from money in the

Sinking Fund, at a price not to exceed the principal amount plus accrued interest, or the School District may tender to the Paying Agent, all or part of the Bonds subject to being drawn for redemption in any such year.

Optional Redemption

The Bonds stated to mature on or after April 1, 2026, shall be subject to redemption prior to maturity, at the option of the School District, as a whole, on April 1, 2025, or on any date thereafter, or from time to time, in part (and if in part, in any order of maturity as selected by the School District and within a maturity by lot), on April 1, 2025, or on any date thereafter, in each case upon payment of a redemption price of 100% of the principal amount redeemed, together with accrued interest to the redemption date. Notice of Redemption

Notice of any redemption shall be given by depositing a copy of the redemption notice by first class mail not more than sixty (60) days and not less than thirty (30) days prior to the date fixed for redemption addressed to each of the registered owners of Bonds to be redeemed, in whole or in part at the addresses shown on the registration books; provided, however, that failure to give such notice by mailing, or any defect therein or in the mailing thereof shall not affect the validity of any proceeding for redemption of other Bonds called for redemption as to which proper notice has been given.

On the date designated for redemption, notice having been provided as aforesaid, and money for payment of the principal and

accrued interest being held by the Paying Agent, interest on the Bonds and portions thereof so called for redemption shall cease to accrue and such Bonds or portions thereof shall cease to be entitled to any benefit or security under the Resolution, and registered owners of such Bonds or portions thereof so called for redemption shall have no rights with respect to such Bonds, except to receive payment of the principal of and accrued interest on such Bonds to the date fixed for redemption. Manner of Redemption

If a Bond is of a denomination larger than $5,000, a portion of such Bond may be redeemed. For the purposes of redemption, a Bond shall be treated as representing that number of Bonds which is obtained by dividing the principal amount thereof by $5,000, each $5,000 portion of such Bonds being subject to redemption. In the case of partial redemption of a Bond, payment of the redemption price shall be made only upon surrender of such Bond in exchange for Bonds of authorized denominations in aggregate principal amount equal to the unredeemed portion of the principal amount thereof.

If the redemption date for any Bonds shall be a Saturday, Sunday, legal holiday or a day on which banking institutions in the

Commonwealth of Pennsylvania are authorized by law or executive order to close, then the date for payment of the principal, premium, if any, and interest upon such redemption shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized to close, and payment on such date shall have the same force and effect as if made on the nominal date of redemption.

BOOK-ENTRY ONLY SYSTEM

The information in this section has been obtained from materials provided by DTC for such purpose. The School District (herein referred to as the “Issuer”) and the Underwriter do not guaranty the accuracy or completeness of such information, and such information is not to be construed as a representation of the School District or the Underwriter.

The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities").

The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for the Securities, 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 3.6 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

6

certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for

the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner'') is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's

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

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 Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit bas 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 Securities 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 Securities unless authorized by

a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other

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

A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to Tender

Agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant's interest in the Securities, on DTC's records, to Tender Agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Securities to Tender Agent's DTC account.

DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice

to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities

depository). In that event, Security certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Issuer

believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.

7

NEITHER THE ISSUER NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, INDIRECT PARTICIPANT OR BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO: (1) THE BONDS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (4) THE DELIVERY TO ANY BENEFICIAL OWNER BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO BONDHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (6) ANY OTHER ACTION TAKEN BY DTC AS BONDHOLDER.

The Issuer and the Paying Agent cannot give any assurances that DTC or the Participants will distribute payments of the

principal or redemption price of and interest on the Bonds paid to DTC or its nominee, as the registered owner of the Bonds, or any redemption or other notices, to the Beneficial Owners or that they will do so on a timely basis, or that DTC will serve and act in the manner described in this Preliminary Official Statement.

THE SCHOOL DISTRICT

Introduction

Freeport Area School District (the “School District”), located in portions of Armstrong and Butler Counties, Pennsylvania (the “Counties”), is situated along the Allegheny River at the mouth of Buffalo Creek, approximately 30 miles northeast of Pittsburgh. The School District is comprised of the Borough of Freeport, Buffalo Township and South Buffalo Township (collectively, the “Component Municipalities”). The Component Municipalities of the School District encompass a combined land area of 53.4 square miles. The area provides an exceptional area to raise a family because it is far enough away from the congestion of urban areas, yet in close proximity to major highways and the Pennsylvania Turnpike, allowing easy access to surrounding cultural activities, shopping malls and major universities. Administration

The School District is governed by a nine-member Board of School Directors (the "School Board"), elected for four-year terms. The Superintendent is the chief administrative officer of the School District, with overall responsibility for the entire educational program. The Business Manager, under the supervision of the Superintendent, is responsible for all fiscal and budgetary affairs. Both of these officials are appointed by the School Board. School Facilities

The School District presently operates three elementary schools, one junior high school and one senior high school, all as described on the following table. Students in grades 11 and 12 may attend the Lenape Vocational-Technical School.

TABLE 1

FREEPORT AREA SCHOOL DISTRICT FACILITIES

Original Addition/

Number Rated

Construction Renovation

of Pupil 2019-20 Building Date Date(s) Grades Classrooms Capacity Enrollments Elementary Schools

Buffalo .......................................... 1955 2002 K-5 26 800 611 South Buffalo ................................ 1954 2007 K-5 33 500 257

Secondary Schools

Freeport Area Senior High ............ 1960 1987 9-12 52 800 572 Freeport Area Middle School ....... 2015 -- 6-8 37 667 449

Source: School District Officials. Does not include full-time vocational-technical school students.

8

Enrollment Trends

The following Table 2 presents recent trends in school enrollment and projections of enrollments.

TABLE 2 FREEPORT AREA SCHOOL DISTRICT ENROLLMENT TRENDS

Actual Enrollments

Projected Enrollments Year Elementary Secondary Total

Year Elementary Secondary Total

2015-16 936 897 1,833 2020-21 988 906 1,894 2016-17 955 920 1,875 2021-22 963 922 1,885 2017-18 968 912 1,880 2022-23 976 932 1,908 2018-19 989 870 1,859 2023-24 978 950 1,928 2019-20 1,018 871 1,889 2024-25 980 977 1,957

Source: School District Officials.

SCHOOL DISTRICT FINANCES

Introduction

The School District budgets and expends funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by the Superintendent and Business Manager and submitted to the School Board for approval prior to the beginning of the fiscal year on July 1. Financial Reporting

The School District keeps its books and prepares its financial reports according to a modified accrual basis. Major accrual items are payroll taxes and pension fund contributions payable, delinquent taxes receivable, loans receivable from other funds, and revenues receivable from other governmental units. Its financial statements are audited by an independent certified public accountant, as required by State law. Mark C. Turnley, CPA, of New Brighton Pennsylvania, currently serves as the School District’s Auditor.

The School District’s auditor has not been engaged to perform, and has not performed, since the date of its report included in an

Appendix to this Official Statement, any procedure on the financial statements addressed in that report. Such auditor also has not performed any procedures relating to this Preliminary Official Statement Budgeting Process in School Districts under the 2006 Taxpayer Relief Act In General. School districts budget and expend funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by school district administrative officials on a uniform form furnished by such Department and submitted to the board of school directors for approval prior to the beginning of the fiscal year on July 1. Procedures for Adoption of the Annual Budget. Under the Pennsylvania Act No. 1 of the Special Session of 2006, as amended by Act 25 of 2011 (“Act 1” or the “Taxpayer Relief Act”), all school districts of the first class A, second class, third class and fourth class (except as described below) must adopt a preliminary budget proposal (which must include estimated revenues and expenditures and proposed tax rates) no later than 90 days prior to the date of the election immediately preceding the fiscal year. The preliminary budget proposal must be printed and made available for public inspection at least 20 days prior to its adoption; the board of school directors may hold a public hearing on the budget; and the board must give at least 10 days’ public notice of its intent to adopt the final budget. If the adopted preliminary budget includes an increase in the rate of any tax levy, the preliminary budget must be submitted to the Pennsylvania Department of Education (PDE) no later than 85 days prior to the date of the election immediately preceding the fiscal year. PDE is to compare the proposed percentage increase in the rate of any tax with the school district’s Index (see “Limitations on Local Taxes” herein) and within 10 days, but not later than 75 days prior to the upcoming election, inform the school district whether the proposed percentage increase is less than or equal to the Index. If PDE determines that a proposed tax increase will exceed the Index, the school district must reduce the proposed tax increase, seek voter approval for the tax increase at the upcoming election, or seek approval to utilize one of the referendum exceptions authorized under the Taxpayer Relief Act. With respect to the utilization of any of Taxpayer Relief Act referendum exceptions for which PDE approval is required (see “Limitations on Local Taxes” herein), the school district must publish notice of its intent to seek PDE approval not less than one week before submitting its request for approval to PDE and, if PDE determines to schedule a public hearing on the request, a notice of the date, time and place of such hearing. PDE is required by the Taxpayer Relief Act to rule on the school district’s request and inform the school district of its decision no later than 55 days prior to the upcoming election so that, if PDE denies the school district’s request, the school district may submit a referendum question to the local election officials at least 50 days before the upcoming election, if it so chooses.

9

If a school district seeks voter approval to increase taxes at a rate higher than the applicable Index, whether or not it first seeks approval to utilize one of the referendum exceptions available under the Taxpayer Relief Act, and the referendum question is not approved by a majority of the voters voting on the question, the board of school directors may not approve an increase in the tax rate greater than the applicable Index. Simplified Procedures in Certain Cases. The above budgetary procedures will not apply to a school district if the board of school directors adopts a resolution no later than 110 days prior to the election immediately preceding the upcoming fiscal year declaring that it will not increase any tax at a rate that exceeds the Index and that a tax increase at or below the rate of the Index will be sufficient to balance its budget. In that case, the Taxpayer Relief Act requires only that the proposed annual budget be prepared at least 30 days, and made available for public inspection at least 20 days, prior to its adoption, and that at least ten (10) days’ public notice be given of the board’s intent to adopt the annual budget. No referendum exceptions are available to a school district adopting such a resolution. Summary and Discussion of Financial Results A summary of the General Fund balance sheet and changes in fund balances is presented in Tables 3 and 4.

TABLE 3 FREEPORT AREA SCHOOL DISTRICT

SUMMARY OF COMPARATIVE GENERAL FUND BALANCE SHEET

2015

2016

2017

2018

2019

ASSETS Cash ............................................................................. $7,966,573 $10,551,677 $8,732,532 $7,294,175 $6,494,112

Investments ................................................................... 2,150 2,236 991,990 1,700,112 2,210,395 Taxes Receivable (Net) ................................................. 853,930 921,372 968,076 1,008,030 1,135,430 Due From Other Funds ................................................. 723,974 2,851,643 90,191 379,305 0 Intergovenmental Receivables ...................................... 6,547,718 98,058 100,105 121,222 1,524,706 State Revenue Receivable ............................................. 0 927,091 1,091,856 1,252,498 0 Federal Revenue Receivable ......................................... 0 65,110 49,158 309,680 0 Other Receivables ......................................................... 14,088 14,564 72,673 76,910 81,826 Inventories .................................................................... 43,266 44,107 27,078 39,495 40,602 TOTAL ASSETS .......................................................... $16,151,699 $15,475,858 $12,123,659 $12,181,427 $11,487,071

LIABILITIES Due to Other Funds ....................................................... $13,353 $4,655 $335,330 $0 $11,494 Accounts Payable .......................................................... 3,255,238 2,430,570 416,204 224,085 334,145 Accrued Salaries & Benefits ......................................... 2,594,503 2,928,602 2,863,277 3,127,246 3,356,615 Payroll Deducts & Withholdings .................................. 68 0 0 130,004 0 Other ............................................................................. 1,273,720 913,795 650,135 292,575 41,943 TOTAL LIABILITIES ................................................. $7,136,882 $6,277,622 $4,264,946 $3,773,910 $3,744,197

Deferred Inflows of Resources .................................... $757,150 $814,138 $844,603 $881,244 $960,597

FUND EQUITIES Nonspendable Fund Balance ......................................... $43,266 $44,107 $27,078 $39,495 $40,602 Restricted Fund Balance ............................................... 2,150 2,236 2,418 3,379 0 Committed Fund Balance.............................................. 3,486,571 3,486,571 3,000,000 3,000,000 3,000,000 Assigned Fund Balance ................................................. 2,536 118 238 1,177 193 Unassigned Fund Balance ............................................. 4,723,144 4,851,066 3,984,376 4,482,222 3,741,482 TOTAL FUND EQUITY.............................................. $8,257,667 $8,384,098 $7,014,110 $7,526,273 $6,782,277

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND EQUITIES ................... $16,151,699 $15,475,858 $12,123,659 $12,181,427 $11,487,071 Source: School District Annual Financial Reports.

10

TABLE 4 FREEPORT AREA SCHOOL DISTRICT GENERAL FUND

SUMMARY OF CHANGES IN FUND BALANCE*

Actual

Budgeted

2015

2016

2017

2018

2019

2020(1)

Beginning Fund Balance

$7,599,159 $8,495,054 $8,384,098 $7,014,110 $7,526,273 $6,782,276 Excess of Revenues over

658,508 (110,957) (1,369,988) 512,163 (743,997) (1,821,791)

(under) Expenditures

Chg. Inv/RS equity Trans/Prior Year Adj.

237,387

Ending Fund Balance * $8,495,054 $8,384,098 $7,014,110 $7,526,273 $6,782,276 $4,960,485

*Totals may not add due to rounding. (1)Reflects Budget, as adopted June 19, 2019. Source: School District Annual Financial Reports and Budget.

Revenue

Table 5 shows revenues and expenditures for the past five years and the Budget for 2019-20. On June 19, 2019, the School District adopted a budget for the 2019-20 school year, budgeted revenues of $31,652,474 and expenditures of $33,474,265.

The School District received $31,497,805 in revenue in 2018-19, and has budgeted revenue of $31,652,474 in 2019-20. Local

sources increased as a share of total revenue from 55.7 percent in 2014-15 to 56.5 percent in 2018-19. Revenue from Commonwealth sources decreased as a share of total revenue from 43.3 percent to 42.1 percent in 2018-19. Federal and Other sources increased as a share of total revenue from 0.9 percent to 1.3 percent during this period.

11


SUMMARY OF SCHOOL DISTRICT GENERAL FUND REVENUES AND EXPENDITURES*

(Years Ending June 30)

REVENUE ACTUAL Budget Local Sources 2015 2016 2017 2018 2019

2020(1)

Real Estate Taxes (Current) $11,917,738

$12,627,832

$13,494,601

$13,805,626

$14,146,656

$14,691,861 Interim Real Estate Taxes 0

34,823

112,016

56,170

89,387

70,000

Public Utility Tax 16,525

16,080

16,245

15,505

16,422

16,000 Payments in Lieu of Current Taxes 11,390

13,521

13,257

13,139

12,787

12,000

Total Act 511 Taxes 1,846,225

1,818,398

1,836,996

1,937,725

2,164,034

1,998,000 Delinquent Taxes 699,485

573,414

620,006 648,645 649,081

640000

Earnings on Investments 4,471

18,358

53,673

119,287

225,427

150,000 Revenue from Student Activities 61,436

61,473

65,102

61,875

53,129

60,000

Federal IDEA Pass Through Revenue 198,056

203,338

202,805

218,323

228,967

227,000 Rentals 17,954

21,026

40,560

46,935

141,158

50,000

Contributions & Donations 32,541

9,466

15,155

31,626

54,638

0 Tuition from Patrons 11,634

2,667

10,400

10,500

10,800

10,000

Refunds of Prior Years' Expenditures 78,068

26,007

23,945

13,689

17,338

10,000 Other Sources 10,980

14,545

10,988

39,700

14,937

0

Total Local Revenue $14,906,504

$15,440,949

$16,515,748

$17,018,743

$17,824,760

$17,934,861 State Sources

Instructional Subsidy $6,394,382

$6,488,227

$6,617,300

$6,650,101

$6,702,832

$6,700,051 Tuition -Orphans/Children Placed in Private Homes

12,004

13,731

21,590

15,096

18,781

0

Vocational Education 20

0

0

0

0

0 Special Education 959,282

981,566

995,655

1,019,907

1,036,366

1,032,599

Transportation 951,142

914,636

927,892

942,115

944,697

945,000 Rentals and Sinking Fund Reimbursements

315,317

284

690,877

344,824

381,247

356,011

Health Services 39,047

38,442

38,394

38,638

38,260

38,000 State Property Tax Reduction Allocation

704,988

705,022

705,192

705,383

705,007

706,426

Ready to Learn Block Grant 209,388

273,836

273,836

273,836

273,836

273,836 Revenue for Social Security 513,504

519,236

533,187

539,471

564,706

599,558

Revenue for Retirement 1,457,918

1,750,023

2,128,956

2,312,813

2,544,741

2,662,132 Other 43,142

28,750

53,895

42,093

52,903

0

Total State Sources $11,600,135

$11,713,752

$12,986,773

$12,884,277

$13,263,375

$13,313,613 Federal Sources $250,960

$272,673 $251,317 $512,891 $405,253 $403,000

Other Sources $800

$172,940 $565 $375 $4,417 $1,000 TOTAL REVENUE $26,758,399

$27,600,314

$29,754,403

$30,416,286

$31,497,805

$31,652,474

EXPENDITURES

Instruction $15,007,460

$15,937,425

$16,612,758

$16,705,357

$17,783,320

$19,076,389

Pupil Personnel 570,519

601,514

711,417

742,229

832,670

779,890 Instructional Staff 652,480

727,136

766,997

904,873

1,005,578

850,025

Administration 2,125,880

2,033,269

2,136,566

2,212,415

2,259,557

2,376,359 Pupil Health 286,854

266,500

262,751

277,373

278,858

307,618

Business 372,148

401,108

451,496

460,228

474,931

524,550 Operation and Maintenance 2,509,516

2,687,214

2,776,261

2,862,869

2,949,871

3,233,982

Student Transportation 1,464,081

1,483,193

1,551,587

1,598,159

1,589,982

1,613,705 Central 149,962

215,991

149,587

179,733

222,578

218,434

Other Support 78,736

74,272

80,091

80,181

81,951

80,181 Operation of Noninstructional Services 600,730

558,950

616,807

610,471

646,441

660,894

Facs., Acq., Const.&ImprovSvcs. 9,535

0

0

0

0

0 Debt Service 17,838

11

0

0

0

0

Fund Transfers 2,254,151

2,724,688

5,008,073

3,270,236

4,116,064

3,752,238 Refund of Prior Year Receipts 0

0

0

0

0

0

Budgetary Reserve 0

0

0

0

0

0 TOTAL EXPENDITURES $26,099,891

$27,711,270

$31,124,391

$29,904,124

$32,241,801

$33,474,265

REVENUES UNDER (OVER) EXPENDITURES $658,508

($110,957)

($1,369,988)

$512,163

($743,997)

($1,821,791)

*Totals may not add due to rounding. (1)Reflects Budget, as adopted June 19, 2019 Source: School District Annual Financial Reports and Budget.

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Taxing Powers

Subject to certain limitations imposed by the Taxpayer Relief Act (described below), the School District is empowered by the School Code and other statutes to levy the following taxes:

1. A basic annual tax on all real property taxable for school purposes, not to exceed 25 mills on each dollar of assessed valuation, to be used for general school purposes.

2. An unlimited ad valorem tax on the property taxable for school purposes to provide funds:

a. for minimum salaries and increments of the teaching and supervisory staff;

b. to pay rentals due any municipality authority or non-profit corporation or due the State Public School Building Authority;

c. to pay interest and principal on any indebtedness incurred pursuant to the Local Government Unit Debt Act, or any prior or subsequent act governing the incurrence of indebtedness of the school district; and

d. to pay for the amortization of a bond or note issue which provided a school building prior to the first Monday of July, 1959.

3. An annual per capita tax on each resident or inhabitant over 18 years of age of not less than $1.00 and not more than

$10.00. 4. Additional taxes subject to division with other political subdivisions authorized to levy similar taxes on the same person,

subject, business, transaction or privilege, under Act No. 511, enacted December 31, 1965, as amended (“The Local Tax Enabling Act”). These taxes, which may include, among others, an additional per capita tax, a wage and other earned income tax, a real estate transfer tax, a gross receipts tax, a local services tax and an occupation tax, shall not exceed, in the aggregate, an amount equal to the product of the market valuation of real estate in the School District (as certified by the State Tax Equalization Board of the Commonwealth – “STEB”) multiplied by twelve mills. All local taxing authorities are required by the Local Tax Enabling Act to exempt disabled veterans and members of the armed forces reserve who are called to active duty at any time during the tax year from any local services tax and to exempt from any local services tax levied at a rate in excess of $10 those persons whose total income and net profits from all sources within the political subdivision is less than $12,000 for the tax year. The Local Tax Enabling Act also authorizes, but does not require, taxing authorities to exempt from per capita, occupation, and earned income taxes and any local services tax levied at a rate of $10 or less per year, any person whose total income from all sources is less than $12,000 per year.

Limitations on Local Taxes

Under the Taxpayer Tax Relief Act a school district may not levy any new tax for the support of the public schools or increase the rate of any tax for school purposes by more than the Index (defined below), unless in each case either (a) such increase is approved by the voters in the school district at a public referendum or (b) one of the exceptions summarized below is applicable and the use of such exception is approved by the Pennsylvania Department of Education (PDE):

1. to pay interest and principal on indebtedness originally incurred (i) prior to September 4, 2004, in the case of a school district which had elected to become subject to the provisions of the prior Homeowner Tax Relief Act, Act 72 of 2004, or (ii) prior to June 27, 2006, in the case of a school district which had not elected to become subject to Act 72 of 2004; to pay interest and principal on any indebtedness approved by the voters at referendum (electoral debt); and to pay interest and principal on debt refunding or refinancing debt for which one of the above exceptions is permitted, as long as the refunding or refinancing incurs no additional debt other than for costs and expenses related to the refunding or refinancing and the funding of appropriate debt service reserves;

2. to pay costs incurred in providing special education programs and services to students with disabilities, under specified circumstances; and

3. to make payments into the State Public School Employees’ Retirement System when the increase in the estimated payments between the current year and the upcoming year is greater than the Index, as determined by PDE in accordance with the provisions of Act 1.

Any revenue derived from an increase in the rate of any tax allowed under the exception numbered 1 above may not exceed the anticipated dollar amount of the expenditure, and any revenue derived from an increase in the rate of any tax allowed pursuant to any other exception enumerated above may not exceed the rate increase required, as determined by PDE. If a school district’s petition or request to increase taxes by more than the Index pursuant to one or more of the allowable exceptions is not approved, the school district may submit the proposed tax increase to a referendum.

The Index (to be determined and reported by PDE by September of each year for application to the following fiscal year) is the

average of the percentage increase in the statewide average weekly wage, as determined by the State Department of Labor and

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Industry for the preceding calendar year, and the employment cost index for elementary and secondary schools, as reported by the federal Bureau of Labor Statistics for the preceding 12-month period beginning July 1 and ending June 30. If and when a school district has a Market Value/Income Aid Ratio greater than 0.40 for the prior school year, however, the Index is adjusted upward by multiplying the unadjusted Index by the sum of 0.75 and such Aid Ratio.

The Act 1 Index applicable to the School District in the next, current, and prior fiscal years are as follows:

Fiscal Year Index 2016-17 3.2% 2017-18 3.3% 2018-19 3.2% 2019-20 3.1% 2020-21 3.4%

In accordance with Act 1, the School District placed a referendum question on the May, 15, 2007, primary election ballot seeking voter approval to levy (or increase the rate of) the earned income and net profits tax (“EIT”) or a new personal income tax (“PIT”) and use the proceeds to reduce local real estate taxes by a homestead and farmstead exclusion. The referendum was NOT approved by the voters.

A board of school directors may submit, but is not required to submit, a referendum question to the voters at the municipal election seeking approval to levy or increase the rate of an EIT or impose PIT for the purpose of funding homestead and farmstead exclusions, but the proposed rate of the EIT or PIT shall not exceed the rate that is required to provide the maximum homestead and farmstead exclusions allowable under law.

The information set forth above is a summary of the Taxpayer Relief Act. This summary is not intended to be an exhaustive

discussion of the provisions of the Taxpayer Relief Act nor a legal interpretation of any provision of the Taxpayer Relief Act and a prospective purchaser of the Bonds should review the full text of the Taxpayer Relief Act as a part of any decision to purchase the Bonds.

Status of the Bonds Under the Taxpayer Relief Act

The Bonds described in this Preliminary Official Statement do not represent debt that was approved (“incurred”) by the board of school directors prior to the effective date of Act 1, therefore the board of school directors may not apply to the Pennsylvania Department of Education (PDE) to use the Act 1 referendum exception for previously incurred debt if a tax increase greater than the Index is needed to provide for payment of principal or interest on the Bonds. The School District, however, has sufficient millage in its current year budget to cover the full amount of the debt service on the Bonds without exceeding the Act 1 Index (although the actual tax increase may have exceeded the Index as a result of the application of other approved exceptions to the Index). Limitation on Estimated Ending Unreserved Undesignated Fund Balances

Pennsylvania Act No. 2003-48 (enacted December 23, 2003) prohibits a school district from increasing real property taxes unless the school district has adopted a budget for such school year that includes an estimated ending unreserved undesignated fund balance which is not more than a specified percentage of the total budgeted expenditures, as set forth below:

Total Budgeted Expenditures Estimated Ending Unreserved Undesignated Fund Balance

as a Percentage of Total Budgeted Expenditures Less than or equal to $11,999,999 12.0% Between $12,000,000 and $12,999,999 11.5% Between $13,000,000 and $13,999,999 11.0% Between $14,000,000 and $14,999,999 10.5% Between $15,000,000 and $15,999,999 10.0% Between $16,000,000 and $16,999,999 9.5% Between $17,000,000 and $17,999,999 9.0% Between $18,000,000 and $18,999,999 8.5% Greater than or equal to $19,000,000 8.0%*

“Estimated Ending Unreserved Undesignated Fund Balance” is defined in Act 2003-48 as that portion of the fund balance which is appropriable for expenditure or not legally or otherwise segregated for a specific or tentative future use, projected for the close of the school year for which a school district’s budget was adopted and held in the general fund accounts of the school district.”

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Tax Levy Trends

Table 6 shows the recent trend of tax rates levied by the School District. Table 7 shows the comparative trend of real property tax rates for the School District, the Counties and the municipalities within the School District.

TABLE 6 FREEPORT AREA SCHOOL DISTRICT TAX RATES

School District Real Estate

Real Estate

Local

(mills)

Earned Income

Transfer

Services

Armstrong

Butler

Tax

Tax

Tax

County

County

(%)

(%)

($)

2015-16 58.8000 134.7000 0.50 0.50 5.00 2016-17 62.4000 145.6000 0.50 0.50 5.00 2017-18 62.4000 145.6000 0.50 0.50 5.00 2018-19 62.4000 146.2891 0.50 0.50 5.00 2019-20 64.3000 148.9000 0.50 0.50 5.00

Source: Department of Community and Economic Development- Municipal Statistics


COMPARATIVE REAL PROPERTY TAX RATES (Mills on Assessed Value)

2016 2017 2018 2019 2020

School District Armstrong County 58.8000 62.4000 62.4000 62.4000 64.3000 Butler County 134.7000 145.6000 145.6000 146.2891 148.9000

Freeport Borough 13.000 13.0000 13.0000 13.0000 13.0000 South Buffalo Township 5.7000 5.7000 5.7000 5.7000 5.7000 Armstrong County 19.0000 19.0000 19.0000 19.0000 19.0000

Buffalo Township 4.38000 4.3800 4.3800 5.5000 5.5000 Butler County 27.6280 27.6260 27.6260 27.6260 27.6260

Source: Department of Community and Economic Development- Municipal Statistics Real Property Tax

The real property tax (excluding delinquent collections) produced $14,146,656 in 2018-19, approximately 44.9 percent of total revenue. The tax is levied on July 1 of each year. Taxpayers who remit within 60 days receive a 2 percent discount, and those who remit subsequent to 120 days after July 1 are assessed a 10 percent penalty. Beginning in the 2007-08 fiscal year, eligible taxpayers could opt into the installment method of payment for their school taxes. Installment payments are based upon four (4) one-fourth payments of the base tax amount. The due date for installment payments is August 31, September 30, October 31 and November 30.

The following tables summarize recent trends of assessed and market valuations of real property and real property tax collection

data. The last county-wide assessment in Armstrong County was in 1997. The County ratio for determining the assessed value of property is currently 50% of the 1997 assessment. The last countywide assessment in Butler County was in 1969. The percentage of the 1969 assessed values were raised from 75% to 100% in the 2009 tax year.

The following tables summarize recent trends of assessed and market valuations of real property and real property tax collection

data.

TABLE 8 FREEPORT AREA SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA

Market Assessed

Year Value Value Ratio 2014-15 ......................................................................... $740,316,917 $145,557,817 19.66% 2015-16 ......................................................................... 746,009,423 146,524,820 19.64% 2016-17 ......................................................................... 776,320,164 147,750,095 19.03% 2017-18 ......................................................................... 791,790,082 150,312,426 18.98% 2018-19 ......................................................................... 846,169,122 151,189,708 17.87%

Source: Pennsylvania State Tax Equalization Board.

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REAL PROPERTY ASSESSMENT DATA BY MUNICIPALITY

2017

2017

2018

2018

Market

Assessed

Market

Assessed

Value

Value

Value

Value

School District $791,790,082 $150,312,426 $846,169,122 $151,189,708 Freeport Borough 41,120,815 17,269,414 41,912,747 17,046,448 South Buffalo Township 200,534,062 60,129,647 206,218,874 60,139,572 Buffalo Township (Butler County) 550,135,205 72,913,365 598,037,501 74,003,688 Armstrong County 2,762,943,156 990,569,873 2,783,463,725 990,738,825 Butler County 14,391,545,194 1,809,790,422 15,509,675,156 1,839,068,569



ASSESSMENT BY LAND USE

2014

2015

2016

2017

2018

Residential ................................ $101,326,789 $102,567,030 $103,663,750 $105,439,808 $106,398,460 Trailers ...................................... 3,740,234 3,677,935 3,703,854 3,682,098 3,703,423 Seasonal .................................... 349,844 356,884 355,194 343,014 340,714 Lots ........................................... 1,394,849 1,391,115 1,413,995 1,367,340 1,431,728 Industrial ................................... 6,299,843 6,232,485 6,136,747 6,188,404 5,914,243 Commercial .............................. 13,631,328 13,362,858 13,299,192 14,412,534 14,515,873 Agriculture ................................ 17,311,522 17,434,464 17,791,670 17,435,150 17,503,379 Oil/Gas/Mineral ........................ 215,468 220,639 193,998 209,663 210,213 Land .......................................... 1,287,940 1,281,410 1,191,695 1,234,415 1,171,675 Total ......................................... $145,557,817 $146,524,820 $147,750,095 $150,312,426 $151,189,708



REAL PROPERTY TAX COLLECTION DATA

Includes Total

Collected Percent Delinquent Collections

Face at of Levy Collections as Percent

Amount Face Collected all Prior of Total

Year Levied (July-June) at Face Years Taxes Levied 2014-15 $12,620,159 $12,105,468 95.9% $12,749,290 101.0% 2015-16 13,302,007 12,825,887 96.4% 13,332,603 100.2% 2016-17 14,217,937 13,709,887 96.4% 14,287,731 100.5% 2017-18 14,578,392 14,042,817 96.3% 14,651,543 100.5% 2018-19 14,984,777 14,385,571 96.0% 14,984,895 100.0% Source: School District Officials.

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The ten largest real property taxpayers, together with 2019-20 assessed values, are shown in Table 12. The aggregate assessed value of these ten taxpayers totals approximately 49.2 percent of total assessed value.

TABLE 12

FREEPORT AREA SCHOOL DISTRICT TEN LARGEST REAL PROPERTY TAXPAYERS, 2019-20

2019-20 Assessed Owner Value Face

Oberg Inds, Inc.(1) $1,787,004 $266,085 Mellon Bank NA 2,166,000 139,274 NP Four, LP 1,278,530 82,209 Penn United Technology 524,800 78,143 Jkess LP 416,630 62,036 Sloan Brothers Company 956,960 61,533 A.P. Services, LLC 870,485 55,972 Rosebrook Realco, LLC 366,980 54,643 South Pike Square, LP 315,100 46,918 Flir Systems, Inc 674,545 43,373 (1)Taxpayer appeal pending.

Source: School District Officials. Other Taxes

Under Act 511, the School District collected $2,164,034 in other taxes in 2018-19. Among the taxes authorized by Act 511, the Real Estate Transfer Tax, Earned Income Tax and the Local Services Tax (formerly Emergency and Municipal Services Tax) are levied by the School District. The Act 511 limit, equal to 12 mills on the market value of real property, was $10,154,029.

Real Estate Transfer. The School District levies a tax of 0.5 percent of the value of real estate transfers. In 2018-19 the

collected portion of this tax yielded $341,654 or 1.08 percent of total revenue. Earned Income Tax. A tax at an effective rate of 0.5 percent is levied on the earned income of school district residents. In

2018-19 the collected portion of this tax yielded $1,804,367, or 5.72 percent of total revenue. Local Services Tax (formerly Emergency & Municipal Services Tax) A tax of $10.00 is levied on each resident with an

occupation (of which $5.00 is subject to sharing with the municipality that levies the same tax). In 2018-19 the collected portion of this tax yielded an estimated $18,012, or less than one percent of total revenue.

COMMONWEALTH AID TO SCHOOL DISTRICTS

Pennsylvania school districts receive financial assistance from the Commonwealth in a number of forms, all subject to statutory provisions and annual appropriation by the Pennsylvania General Assembly.

Basic education funding is allocated to all school districts in an amount equal to: (1) a fixed sum equal to the school district’s Fiscal

Year 2014-15 basic educational funding; plus (2) an additional increment determined annually pursuant to statutory formula which adjusts a school district’s average daily membership by a number of factors specific to the composition of the student population as well as the school district’s median household income, local tax effort and capacity to generate local revenue. The additional increment as calculated above for any individual school district may be zero.

Information concerning the calculation of the School District’s basic education funding can be found on the Pennsylvania Department of Education’s website at https://www.education.pa.gov

School districts may also receive state aid for special education, pupil transportation, vocational education, and health services, among other things.

Recent Lack of State Appropriations for Debt Service Subsidies

Commonwealth law presently provides that the School District will receive, subject to state legislative appropriation, reimbursement from the Commonwealth for a portion of debt service paid on the Bonds following final approval by PDE. Commonwealth reimbursement is calculated based on the “Reimbursable Percentage” assigned to the Bonds by the PDE and the School District's permanent Capital Account Reimbursement Fraction (“CARF”) (57.82%) or the wealth based Market Value Aid Ratio (“MVAR”) currently (60.06%), whichever is higher. The Reimbursable Percentage is determined through a process known as the “Planning and Construction Workbook” or “PlanCon”.

https://www.education.pa.gov/

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Based on the current PlanCon program, School District officials have estimated that the Reimbursable Percentage of the Bonds will be 13.32% (there has been no determination by the PDE). The School District's MVAR (which is higher than the CARF) is 60.06%. The product of these two factors is 8.00%, which is the estimated percentage of debt service which may be reimbursed by the Commonwealth, subject to annual appropriation. In future years, this percentage may change as the School District’s MVAR changes, or as a result of future legislation regarding changes to, or even elimination of, the PlanCon program.

Notwithstanding this provision of Commonwealth law, neither of the Commonwealth’s 2015-16 and 2016-17 budgets

appropriated funds for PlanCon reimbursements to any school district. Subsequent state budgets have included PlanCon reimbursement funding adequate for existing, but not for new, indebtedness.

Rather than appropriate the amounts committed over the 2015-2017 time frame to be paid from current state revenues, the

General Assembly determined to issue bonds through the Commonwealth Financing Authority (the “CFA”) to fund those fiscal 2015-16 and 2016-17 obligations. Act 25 of 2016 (“Act 25”) included an authorization to issue up to $2.5 billion of bonds to fund the obligations, and became law despite the Governor’s refusal to sign the legislation. The first CFA bond issue closed on October 31, 2016, and the proceeds were used to fund the past due PlanCon reimbursements for the 2015-16 as well as the 2016-17 fiscal year reimbursements. A second CFA bond issue to fund PlanCon reimbursements closed on January 18, 2018 and a third CFA bond issue closed on May 22, 2019.

Act 25 also instituted a moratorium on new projects entering the PlanCon process in order to allow an advisory committee

established under Act 25 to consider amendments to the PlanCon reimbursement program. This moratorium went into effect on May 15, 2016 and expired on June 30, 2017. On November 6, 2017, House Bill 178 became law without the signature of the Governor and became known as Act 55 of 2017. Contained in Act 55 of 2017 was an extension of the PlanCon moratorium through the end of the 2017-18 fiscal year and a retroactive effective date of July 1, 2017. (Subsequently, the Commonwealth enacted Act 42 of 2018, which permitted PlanCon applications submitted between July 1, 2017 and November 6, 2017, and whose school district votes to proceed with construction and award bids on their construction contracts no later than July 1, 2021, to receive PlanCon funding as permitted by law, if made available by the Commonwealth.) On June 22, 2018, the Governor approved and signed Act 39 of 2018, extending the PlanCon moratorium through the end of the 2018-2019 fiscal year, and on June 28, 2019, the Governor approved and signed Act 16 of 2019, continuing the moratorium on new Part A submittals through the end of the 2019-20 fiscal year.

Act 70 of 2019 (approved July 2, 2019), which was developed from the work of the PlanCon Advisory Committee formed

pursuant to Act 25, reforms the PlanCon program by, among other things, reducing the number of individual parts to the program, adjusting the reimbursement formulae, providing reimbursement for certain repair and maintenance projects and limiting state reimbursement payments to fixed amount over a twenty-year period. However, Act 70 did not appropriate, and the General Assembly did not include, new PlanCon funding in the 2019-20 fiscal year budget, and so the moratorium on new projects first imposed by Act 25 of 2016 continues. To the extent that Act 70, or any future legislation, contains material changes to the PlanCon program as it is structured currently, the amount of PlanCon reimbursement to the School District may be positively or negatively affected, which could materially impact the amount of local funds needed to be raised by the School District to pay debt service on its project bonds.

Notwithstanding the foregoing, the School District reasonably expects to receive PlanCon reimbursement in respect of the

Bonds, in amounts correlated to the reimbursement presently being received in respect of the project(s) financed (or refinanced) by Refunded 2015 Bonds.

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DEBT AND DEBT LIMITS

Debt Statement

Table 13 which follows shows the principal amount of debt of the School District as of May 7, 2020, including the issuance of the Bonds.

TABLE 13

FREEPORT AREA SCHOOL DISTRICT DEBT STATEMENT*

(As of May 7, 2020)

Gross

NONELECTORAL DEBT Outstanding General Obligation Bonds, Series of 2020 (last maturity 2032) ........................................................................... $9,920,000 General Obligation Bonds, Series of 2015 (last maturity 2033) ........................................................................... 430,000 General Obligation Note, Series A of 2014 (last maturity 2030) .......................................................................... 5,870,000 General Obligation Note, Series of 2014 (last maturity 2028) .............................................................................. 19,360,000 TOTAL NONELECTORAL DEBT ..................................................................................................................... $35,580,000 LEASE RENTAL DEBT .................................................................................................................................... $0 TOTAL PRINCIPAL OF DIRECT DEBT ......................................................................................................... $35,580,000

*Includes the estimated Bonds offered through this Preliminary Official Statement. Does not include the Refunded 2015 Bonds.

Table 14 presents the overlapping indebtedness and debt ratios of the School District. After issuance of the Bonds, the principal of direct debt of the School District will total $35,580,000. After adjustment for available funds and estimated State Aid, the local effort of direct debt will total $33,774,271.


BONDED INDEBTEDNESS AND DEBT RATIOS* (As of May 7, 2020)

Local Effort or

Net of Available

Gross

Funds and Estimated

Outstanding

State Aid(1)

DIRECT DEBT Nonelectoral Debt ................................................................................................ $35,580,000 $33,774,271

Lease Rental Debt ................................................................................................ 0 0 TOTAL DIRECT DEBT ..................................................................................... $35,580,000 $33,774,271

OVERLAPPING DEBT Armstrong County, General Obligation(2) ............................................................ $4,286,038 $4,286,038 Butler County(3) .................................................................................................... $3,061,796 $3,061,796 Municipal Debt .................................................................................................... 6,759,828 6,759,828 TOTAL OVERLAPPING DEBT ........................................................................ $14,107,662 $14,107,662 TOTAL DIRECT AND OVERLAPPING DEBT ............................................... $49,687,662 $47,881,932

DEBT RATIOS Per Capita............................................................................................................. $4,269.43 $4,114.27 2018-19 Assessed Value ...................................................................................... 32.86% 31.67% 2018-19 Market Value ........................................................................................ 5.87% 5.66%

*Includes the estimated Bonds offered through this Preliminary Official Statement. Does not include the refunded portion of the Refunded 2015 Bonds. (1)The School District may, at any time, claim a credit against the gross principal of debt outstanding equal to the amount estimated to be reimbursed by state sources. (2)Pro rata 8.91 percent share of $48,079,444 principal outstanding. (3)Pro rata 3.86 percent share of $79,405,500 principal outstanding.

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DEBT SERVICE REQUIREMENTS*

Other

Outstanding

General

Obligation

Series of 2020

Total Year

Debt

Principal

Interest

Subtotal

Requirements

2019-20

$3,567,255 2020-21

3,405,439

2021-22

3,409,387 2022-23

3,409,734

2023-24

3,406,482 2024-25

3,409,462

2025-26

3,408,233 2026-27

3,407,920

2027-28

3,408,325 2028-29

3,339,912

2029-30

3,343,575 2030-31 3,414,020

2031-32 3,408,860 2032-33 3,410,955 TOTAL

47,749,556

*Totals may not add due to rounding.

Debt Service Requirements

Table 16 presents data on the extent to which State Aid provides coverage for debt service and lease rental requirements. The School District has never defaulted on the payment of debt service.


COVERAGE OF DEBT SERVICE AND LEASE RENTAL*

2018-19 State Aid Received .............................................................................................................

$13,263,375 2018-19 Debt Service Requirements ...............................................................................................

3,322,241

Maximum Future Debt Service Requirements after Issuance of Bonds ............................................

Coverage of 2018-19 Debt Service Requirements ............................................................................

3.99 times

Coverage of Maximum Future Debt Service Requirements after Issuance of Bonds .......................

times

*Assumes current State Aid Ratio. See “State Aid to School Districts". Future Financing

The School District does not plan to issue additional long term (non-refunding) debt over the next 1-3 years.

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Debt Limit and Remaining Borrowing Capacity

The statutory borrowing limit of the School District under the Act is computed as a percentage of the School District's "Borrowing Base". The "Borrowing Base" is defined as the annual arithmetic average of "Total Revenues" (as defined by the Act), for the three full fiscal years ended next preceding the date of incurring debt. The School District calculates its present borrowing base and borrowing capacity as follows: Total Revenues for 2016-17 $ 29,062,961 Total Revenues for 2017-18 30,071,088 Total Revenues for 2018-19 31,112,141 Total $ 90,246,190

Annual Arithmetic Average (Borrowing Base) $ 30,082,063 Under the Act as presently in effect, new lease rental debt or new nonelectoral debt may not be incurred if the net amount of

such new debt plus all outstanding net nonelectoral debt and net lease rental debt would cause the total net nonelectoral plus net lease rental debt to exceed 225% of the Borrowing Base. The application of the aforesaid percentage to the School District's Borrowing Base produces the following product: Remaining Legal Net Debt Borrowing Limit Outstanding* Capacity Net Nonelectoral and Lease Rental Debt Limit: 225% of Borrowing Base $67,684,643 $35,580,000 $32,104,643 *Includes the estimated Bonds described herein, does not reflect credits against gross indebtedness that may be claimed for a portion

of principal of debt estimated to be reimbursed by State Aid.

LABOR RELATIONS

School District Employees

There are presently 251 employees of the School District, including 140 teachers, 9 administrators and 102 support personnel. The support personnel include secretaries, custodial employees, cafeteria employees, maintenance employees and teachers’ aides.

The School District's teachers and support personnel are represented by the Freeport Education Association, an affiliate of the

Pennsylvania State Education Association, under contracts which expire August 31, 2020 and August 23, 2020, respectively. Pension Program

Currently, all Pennsylvania school districts and intermediate units participate in a pension program administrated by the

Commonwealth. The program is formally known as the Public School Employees’ Retirement System (“PSERS”), and a percentage of each eligible employee’s salary is contributed by the employee, the School District and the Commonwealth. All full-time employees, part-time employees salaried over eighty days per year and hourly employees with over five hundred hours per year participate in the program.

Contributions are required by active members, School Districts, and the Commonwealth of Pennsylvania as established by the

Public School Employees’ Retirement Code. Members who enrolled prior to January 1, 2002 range from 5.28% to 7.5% of compensation, depending upon the date of commencement of employment and elections made by each employee member. Members who enrolled in the pension plan on or after January 1, 2002 and before July 1, 2011 is 7.5% of compensation. The contribution rate for PSERS members who enrolled on or after July 1, 2011 is 7.5% or 10.3%, depending upon elections made by each employee member. The PSERS Board of Trustees certified an annual employer contribution rate of 34.29% for the fiscal year 2019-20. Current financial projections indicate the possibility of increases in the contribution rate in the next five years.

The Commonwealth will reimburse the School District at the rate of 50% of its total contributions with respect to all employees

who were hired prior to July 1, 1994. With respect to employees hired after July 1, 1994, and who were not previously employed by another public school system in the Commonwealth, the School District will be reimbursed by the Commonwealth at the rate of the higher of 50% of contributions made by the School District or the current Market Value/Personal Income Aid Ratio. The School District is reimbursed on a quarterly basis.

Under Act 5 of 2017 (“Act 5”) PSERS will transition from a traditional defined benefit system and begin to offer defined

contribution plans as well. Beginning July 1, 2019, in addition to other transaction rules and options based on members’ classifications, certain classes of active members may choose to switch from the current defined benefit plan to one of three new retirement benefit plan options which will be available. Additionally, all active members newly hired on or after July 1, 2019 will be required to select one of those three new retirement benefit plan options and will not be eligible to participate in the current defined benefit plan. The three new plans consist of two hybrid plans, with defined benefit and defined contribution components, along with a stand-alone defined contribution plan.

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In addition to its comprehensive change in available plans for active members, Act 5 also made certain changes to the PSERS

Board of Trustees and administrative protocols and created the Public Pension Management and Asset Investment Review Commission to study and make recommendations to the General Assembly and the Governor regarding investment performance and strategies.

According to the Independent Fiscal Office, Act 5 is not expected to reduce school district and state contributions to PSERS

over the first fifteen years. However, beginning in fiscal 2034-35 through fiscal 2049-50, employer contribution rates are expected to begin to decline due to the lower long-term employer costs of the new benefit plans and will be lower, in the aggregate, over the study period.

Annual School District contributions have been as follows:

2014-15 $2,561,940 2015-16 $3,255,938 2016-17 $3,910,727 2017-18 $4,268,186 2018-19 $4,514,354

2019-20 (budget) $4,794,741

At June 30, 2019, the School District reported a liability of $46,133,000 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2018, and the total pension liability used to calculate the net pension liability was determined by rolling forward the PSERS total pension liability as of June 30, 2017 to June 30, 2018. The School District’s proportion of the net pension liability was calculated utilizing its one-year reported covered payroll as it relates to the total one-year reported covered payroll of all school districts. At June 30, 2018, the School District’s proportion was 0.0961% which was a decrease of 0.0032% from its proportion measured as of June 30, 2017.

As of June 30, 2018, the PSERS plan was 56.5% funded, with an unfunded actuarial accrued liability of approximately $44.9

billion. PSERS’ rate of return for fiscal year ended June 30, 2019 was 6.68%. The Fund had plan net assets of $56.7 billion at June 30, 2018. For more information, visit the PSERS website at www.psers.pa.gov, which is not incorporated by specific reference into this Official Statement. Source: School District Administrative Officials and PSERS. Other Post-Employment Benefits

The School District is obligated under collective bargaining agreements to provide in the future health insurance coverage for current and future retired employees, and to provide retirement severance pay for existing employees. The School District has become subject to the requirements of GASB Statements No. 43 and 45 commencing with the School District’s annual financial statements for the fiscal year ending June 30, 2011. For a full description of the School District’s Postemployment Healthcare Plan, please refer to Appendix C – Audited Financial Statements – Note 13 herein.

INFECTIOUS DISEASE OUTBREAK – COVID-19

The outbreak of COVID-19, a respiratory disease caused by a new strain of coronavirus, has been characterized as a pandemic

(the “Pandemic”) by the World Health Organization and is currently affecting many parts of the world, including the United States and the Commonwealth of Pennsylvania. On January 31, 2020, the Secretary of the United States Health and Human Services Department declared a public health emergency for the United States and on March 13, 2020, the President of the United States declared the outbreak of COVID-19 in the United States a national emergency. Subsequently, the President’s Coronavirus Guidelines for America and the United States Centers for Disease Control and Prevention called upon Americans to take actions to slow the spread of COVID-19 in the United States.

Pennsylvania Governor Tom Wolf ordered all non-life-sustaining businesses in Pennsylvania to close their physical locations as of 8:00 p.m. March 19, 2020 to slow the spread of COVID-19. On March 23, 2020, the Pennsylvania Department of Education (PDE) announced that all schools in the Commonwealth would be required to remain closed through at least April 6 as a result of the COVID-19 response efforts. On April 9, 2020, the closure order was extended by the Governor through the remainder of the 2019-20 academic year. The closure order has since been extended indefinitely in an effort to stop the spread of COVID-19. On April 1, 2020, the Governor issued a Stay at Home order effective for all Pennsylvania Counties through May 8, 2020. The Governor has extended the Stay at Home order until June 4, 2020 and some restrictions are being lifted for certain regions in a planned and managed approach.

On March 27, 2020, Act No. 13 of 2020 was signed into law by Governor Wolf to amend the School Code concerning the Pandemic. Act No. 13 permits the Pennsylvania Secretary of Education to further order the closure of all school entities until the threat to health and safety caused by the Pandemic has ended. Act No. 13 also waives the requirement that school entities be open for at least 180 days of instruction and provides for, inter alia, compensation of school entity employees, school subsidies and reimbursements from the Commonwealth as a result of actions taken by the Secretary of Education pursuant to Act No. 13, and

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continued payments to charter schools, intermediate units, career and technical centers, and approved private schools and residential rehabilitative institutions where public schools have placed students.

Act No. 13 requires each school entity to make a good faith effort to develop a plan to offer continuity of education using alternative means during the closure period. To assist schools during the extended closure, the Commonwealth’s 29 intermediate units will provide technical assistance to help develop continuity of education plans for all students. The School District is currently employing remote instructional resources for its students and working with its teachers to improve its remote instructional techniques to maximize the educational experience for all of its students.

The Pandemic has negatively affected travel, commerce, and financial markets globally, and is widely expected to continue negatively affecting economic growth and financial markets worldwide. These negative impacts may reduce or negatively affect property values within the School District. To secure the payment of the principal of and interest on the Bonds, the School District has pledged its full faith, credit and all available taxing power, which taxing power presently includes the power to levy ad valorem taxes on all taxable real property within the School District, within the limits provided by law as to rate or amount for such purpose. A reduction in property values may require an increase in the ad valorem tax rate required to pay the Bonds as well as the School District’s share of operations and maintenance expenses payable from ad valorem taxes. See “LEGISLATION AFFECTING LOCAL TAXING POWERS OF SCHOOL DISTRICTS - ACT 1 OF SPECIAL SESSION 2006 (TAXPAYER RELIEF ACT)” herein for a discussion of the limitations on the School District’s ability to increase the ad valorem tax rate. Despite any taxing initiatives taken by the School District, however, there is also a risk that some taxpayers within the School District will not be able to timely pay such taxes due to employment disruption across the country.

Because of the evolving nature of the outbreak and federal, state and local responses thereto, the School District cannot predict how the outbreak will impact the financial condition or operations of the School District, or if there will be any impact on the assessed values of property within the School District or deferral of tax payments to School Districts. The School District cannot predict costs associated with this or any other potential infectious disease outbreak, including whether there will be any reduction in Commonwealth funding or an increase in operational costs incurred to implement distance learning strategies or to clean, sanitize and maintain its facilities either before or after an outbreak of an infectious disease. At this time, it is also unclear whether the School District will receive any federal relief funding under the recently passed CARES Act, or, even if eligible, how much funding would be available to the School District.

The financial and operating data contained herein are the latest available, but are as of the dates and for periods prior to the economic impact of the Pandemic and measures instituted to slow it. Accordingly, they may not be indicative of the current financial condition or future prospects of the School District.

The School District continues to monitor the spread of COVID-19 and is working with federal, state, and local agencies to address the potential impact of the Pandemic upon the School District and its students. While the potential impact of the Pandemic on the School District cannot be quantified at this time, the continued outbreak of COVID-19 could have an adverse effect on the School District’s operations and financial condition, and the effect could be material.

Additional information with respect to events surrounding the outbreak of COVID-19 and responses thereto can be found on Commonwealth websites, including but not limited to the Governor’s office (http://www.pa.gov/), the Pennsylvania Department of Health (http://www.health.pa.gov/). The School District has not incorporated by reference the information on such websites and the School District does not assume any responsibility for the accuracy of the information on such websites.

LITIGATION

At the time of settlement, the School Board will deliver a certificate and the Solicitor will deliver a opinion stating that there is no litigation pending with respect to the Bonds, the Resolution or the right of the School District to issue said Bonds.

DEFAULTS AND REMEDIES

In the event of failure of the School District to pay or cause to be paid the interest on or principal of the Bonds, as the same becomes due and payable, the holders of the Bonds shall be entitled to certain remedies provided by the Act. Among the remedies, if the failure to pay shall continue for 30 days, holders of the Bonds shall have the right to recover the amount due by bringing an action in assumpsit in the Court of Common Pleas of the county in which the School District is located. The Act provides any judgment shall have an appropriate priority upon the funds next coming into the treasury of the School District. The Act also provides that upon a default of at least 30 days, holders of at least 25 percent of the Bonds may appoint a trustee to represent them. The Act provides certain other remedies in the event of default, and further qualifies the remedies hereinbefore described.

TAX EXEMPTION

State Tax Matters

In the opinion of Bond Counsel, the Bonds, and the interest income therefrom, are free from taxation for purposes of personal income, corporate net income and personal property taxes within the Commonwealth of Pennsylvania.

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The residence of a holder of a Bond in a state other than Pennsylvania, or being subject to tax in a state other than Pennsylvania, may result in income or other tax liabilities being imposed by such other state or its political subdivisions based on the interest or other income from the Bonds. Federal Income Tax Matters

In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, interest on the Bonds is excluded from gross income for Federal income tax purposes. Bond Counsel is also of the opinion that interest on the Bonds is not a specific item of tax preference under Section 57 of the Internal Revenue Code of 1986, as amended (the “Code”) for purposes of Federal individual alternative minimum taxes. Original Issue Discount

The Bonds that mature on _____________________________________ (collectively, the “Tax-Exempt Discount Bonds”) are being offered and sold to the public at an original issue discount (“OID”) from the amounts payable at their maturity. OID is the excess of the stated redemption price of a bond at maturity (par) over the price to the public at which a substantial amount of bonds of the same maturity are sold pursuant to the initial offering. Under the Code, OID on each Tax-Exempt Discount Bond will accrue over its term and the amount of accretion will be based on the yield to maturity, compounded semi-annually. The amount of OID that accrues during each semi-annual period will do so ratably within that period on a daily basis. With respect to an initial purchaser of a Tax-Exempt Discount Bond at its initial offering price, the portion of OID that accrues during the period that such purchaser owns such Bond is added to the purchaser's tax basis for purposes of determining gain or loss at the maturity, redemption, sale, or other disposition of that Tax-Exempt Discount Bond and thus, in practical effect, is treated as interest, which is excludable from gross income for federal income tax purposes.

Purchasers of Tax-Exempt Discount Bonds should consult their own tax advisors as to the effect of OID with respect to their

federal tax liability. Original Issue Premium

The Bonds that mature on _________________________________ (collectively, the “Tax-Exempt Premium Bonds”) are being offered and sold to the public at an original issue premium (“OIP”). An amount equal to the excess of the issue price of a Tax-Exempt Premium Bond over its stated redemption price at maturity constitutes OIP on such Tax-Exempt Premium Bond. An initial purchaser of a Tax-Exempt Premium Bond must amortize any OIP over such Tax-Exempt Premium Bond’s term using constant yield principles, based on the purchaser’s yield to maturity (or, in the case of Tax-Exempt Premium Bonds callable prior to their maturity, by amortizing the OIP to the call date, based on the purchaser’s yield to the call date and giving effect to any call premium). As OIP is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser’s basis in such Tax-Exempt Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Tax-Exempt Premium Bond prior to its maturity. Even though the purchaser’s basis may be reduced, no federal income tax deduction is allowed.

Purchasers of the Tax-Exempt Premium Bonds should consult their own tax advisors with respect to the determination and

treatment of OIP for federal income tax purposes.

Interest Expense Deductions for Financial Institutions

Under Section 265 of the Code, financial institutions are denied any deduction for interest expenses that are allocable, by a formula, to tax-exempt obligations acquired after August 7, 1986. An exception, which permits a deduction for 80% of such interest expenses, is provided in respect of certain tax-exempt obligations issued by a qualified issuer that specifically designates such obligations as “qualified tax-exempt obligations” under Section 265 of the Code.

The School District is not a qualified issuer and the School District has designated the Bonds as “qualified tax-exempt

obligations” for the purposes and effect contemplated by Section 265 of the Code. Financial institutions intending to purchase Bonds should consult their own tax advisors to determine the effect of the interest

expense deduction on their federal tax liability.

Continuing Compliance

The Code imposes various terms, restrictions, conditions and requirements relating to the exclusion from gross income for Federal income tax purposes of interest on obligations such as the Bonds. The School District has covenanted to comply with all such requirements, including non-arbitrage requirements under Section 148 of the Code, that are necessary to ensure that interest on the Bonds will not be includable in gross income for Federal income tax purposes. Failure to comply with these covenants could result in interest on the Bonds being includable in gross income for Federal income tax purposes and such inclusion could be required retroactively to the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with the aforesaid covenants. Moreover, Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may adversely affect the tax-exempt status of the interest on the Bonds.

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Certain requirements and procedures contained or referred to in the Resolution and other relevant documents may be changed

and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Such changes or actions could constitute an exchange or other tax event with respect to the Bonds, which could result in gain or loss to the holder of a Bond, and a consequent tax liability.

Pursuant to its continuing disclosure obligations made pursuant to SEC Rule 15c2-12 (see “Continuing Disclosure Undertaking”

herein), the School District may be required to provide notice of such changes or actions, as Material Events under said Rule. However, holders of the Bonds should consult their own tax advisors as to the effect of such changes or actions with respect to their federal tax liability.

Collateral Tax Liabilities

Although Bond Counsel has rendered an opinion that interest on the Bonds is excludable from gross income for Federal and Pennsylvania income tax purposes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may result in other collateral effects on a Bondholder’s Federal, state or local tax liabilities. The nature and extent of these other tax consequences may depend upon the particular tax status of the Bondholder or the Bondholder’s other items of income or deduction. Bond Counsel expresses no opinions regarding any tax consequences other than what is set forth in its opinion; each Bondholder or potential Bondholder is urged to consult with its own tax advisors with respect to the effects of purchasing, holding or disposing of the Bonds on its tax liabilities.

Examples of such other tax consequences for certain taxpayers include, without limitation, increasing the federal tax liability of

certain foreign corporations subject to the branch profits tax imposed by Section 884 of the Code, increasing the federal tax liability of certain insurance companies under Section 832 of the Code, increasing the federal tax liability of certain S corporations subject to Sections 1362 and 1375 of the Code, increasing the federal tax liability of certain individual recipients of social security or railroad retirement benefits under Section 86 of the Code, limiting the use of the Earned Income Credit under Section 32 of the Code, limiting the use of the refundable credit for coverage under a qualified health plan under Section 36B of the Code, and denying an interest expense deduction to certain financial institutions under Section 265 of the Code (unless, and in the circumstance when, the Bonds have been designated by the issuer as “qualified tax-exempt obligations”). Change in Law; Adverse Determinations

From time to time, certain legislative proposals may be introduced, or are pending, in the Congress of the United States or the

various state legislatures, including some that carry retroactive effective dates, that, if, enacted, could alter or amend the federal and state tax matters described above or affect the market value of the Bonds. No prediction can be made whether or in what form any such proposal or proposals might be enacted into law or whether, if enacted, the same would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation.

The Internal Revenue Service (the “Service”) regularly audits tax-exempt obligations to determine whether, in the view of the

Service, interest on such tax-exempt obligations is includible in the gross income of the owners thereof for federal income tax purposes. No prediction can be made whether or not the Service will commence an audit of the Bonds. If an audit is commenced, under current procedures, the Service may treat the School District as a taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until such time as the audit is concluded, regardless of the ultimate outcome.

Payments of interest on, and proceeds of the sale, redemption or maturity of, tax-exempt obligations, such as the Bonds, are in

certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any Bondholder who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or to any Bondholder who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income tax returns.

THE FOREGOING IS NOT INTENDED AS AN EXHAUSTIVE LIST OF THE PROVISIONS OF FEDERAL, STATE

AND LOCAL TAX LAWS WHICH MAY HAVE AN EFFECT ON INDIVIDUALS AND CORPORATIONS HOLDING THE BONDS OR RECEIVING INTEREST THEREON. PROSPECTIVE PURCHASERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE EFFECT ON THEIR FEDERAL, STATE OR LOCAL TAX LIABILITY AND GENERAL FINANCIAL AFFAIRS OF HOLDING THE BONDS OR RECEIVING INTEREST THEREON.

CONTINUING DISCLOSURE UNDERTAKING

In accordance with the requirements of the Rule 15c2-12 (the “Rule”) promulgated by the Securities and Exchange Commission (the

“SEC”), the School District (being an “obligated person” with respect to the Bonds, within the meaning of the Rule), will agree to provide the following to the Municipal Securities Rulemaking Board (the “MSRB”) in an electronic format as prescribed by the MSRB, either directly or indirectly through a designated agent:

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(A) Annually, not later than 270 days following the end of each fiscal year, beginning with the fiscal year ending June 30, 2020, the following financial information and operating information for the School District:

(1) financial statements for the most recent fiscal year, prepared in accordance with generally accepted accounting principles for local government units

(2) a summary of the budget for the current fiscal year (i.e. the fiscal year following the fiscal year of the financial statements being provided)

(B) If not submitted as part of the annual financial information, then when and if available, audited financial statements for the School District;

(C) In a timely manner not in excess of ten (10) business days after the occurrence of the event, notice of the occurrence of any of the following events with respect to the Bonds:

(1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability,

Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax-exempt status of the Bonds, or other material events affecting the tax-exempt status of the Bonds;

(7) modifications to rights of holders of the Bonds, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the School District; (13) the consummation of a merger, consolidation, or acquisition involving the School District or the sale of all or

substantially all of the assets of the School District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material;

(14) appointment of a successor or additional trustee or the change of name of a trustee, if material; (15) incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of

default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material; and

(16) default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties and

(D) in a timely manner, notice of a failure of the School District to provide the required annual financial information specified above, on or before the date specified above.

With respect to the filing of annual financial and operating information, the School District reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information to the extent necessary or appropriate as a result of a change in legal requirements or a change in the nature of the School District or its operations or financial reporting, but the School District will agree that any such modification will be done in a manner consistent with the Rule.

The events listed in (C) above are those specified in the Rule, not all of which may be relevant to the Bonds. The School District may from time to time choose to file notice of the occurrence of other events, in addition to the events listed in (C) above, but the School District does not commit to provide notice of the occurrence of any events except those specifically listed in (C) above.

The School District acknowledges that its undertaking pursuant to the Rule described herein is intended to be for the benefit of the holders and beneficial owners of the Bonds and shall be enforceable by the holders and beneficial owners of the Bonds, but the right of the holders and beneficial owners of the Bonds to enforce the provisions of the School District’s continuing disclosure undertaking shall be limited to a right to obtain specific enforcement, and any failure by the School District to comply with the provisions of the undertaking shall not be an event of default with respect to the Bonds.

The School District’s obligations with respect to continuing disclosure described herein shall terminate upon the prior redemption or payment in full of all of the Bonds or if and when the School District is no longer an “obligated person” with respect to the Bonds, within the meaning of the Rule.

The MSRB has been designated by the SEC to be the central and sole repository for continuing disclosure information filed by issuers of municipal securities since July 1, 2009. Information and notices filed by municipal issuers (and other “obligated persons” with respect to

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municipal securities issues) are made available through the MSRB’s Electronic Municipal Market Access (“EMMA”) System, which may be accessed on the internet at http://www.emma.msrb.org.

Certain operating data of the School District may be inherently included in the annual filings of financial statements, the summary of the budget, contents in Official Statements of future bond issues as well as publicly available information.

Existing Continuing Disclosure Filing History

Pursuant to proper exceptions under the Rule, the School District has not previously entered into Continuing Disclosure Agreements with respect to its previously issued note and bond issues that are currently outstanding.

RATINGS

Moody’s has assigned its underlying rating of “A1” to the School District. Such rating reflects only the view of such organization and any desired explanation of the significance of such rating should be obtained from the rating agency furnishing the same, at the following address: Moody’s Investor’s Service, Inc., 7 World Trade Center at 250 Greenwich Street, New York, New York 10007. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. 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 circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds.

UNDERWRITING

The Underwriter has agreed to purchase the Bonds from the School District, subject to certain conditions precedent, and will purchase the Bonds if any of such Bonds are purchased. The Bonds will be purchased for a purchase price of $_________ equal to the par value of the Bonds less an underwriters’ discount of $________, plus a net original issue premium of $__________, plus accrued interest, if any from the dated date of the Bonds to the date of delivery of the Bonds.

LEGAL OPINION

The Bonds are offered when, as and if issued, subject to withdrawal or modification of the offer without notice, and subject to

the approving legal opinion of Dinsmore & Shohl LLP, of Pittsburgh, Pennsylvania, Bond Counsel, to be furnished upon delivery of the Bonds. Certain other matters will be passed upon for the School District by Tucker Arensberg, P.C., of Pittsburgh, Pennsylvania, School District Solicitor.

FINANCIAL ADVISOR

The School District has retained PFM Financial Advisors LLC., Harrisburg, Pennsylvania, as financial advisor (the "Financial Advisor") in connection with the preparation, authorization and issuance of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in the Preliminary Official Statement. PFM Financial Advisors LLC. is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities.

MISCELLANEOUS

This Preliminary Official Statement has been prepared under the direction of the School District by PFM Financial Advisors LLC., Harrisburg, Pennsylvania, in its capacity as Financial Advisor to the School District. The information set forth in this Preliminary Official Statement has been obtained from the School District and from other sources believed to be reliable. Insofar as any statement herein includes matters of opinion or estimates about future conditions, it is not intended as representation of fact, and there is no guarantee that it is, or will be, realized. Summaries or descriptions of provisions of the Bonds, the Resolution, and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof. Reference is hereby made to the complete documents, copies of which will be furnished by the School District or the Financial Advisor upon request. The information assembled in this Preliminary Official Statement is not to be construed as a contract with holders of the Bonds.

The School District has authorized the distribution of this Preliminary Official Statement.

FREEPORT AREA SCHOOL DISTRICT ARMSTRONG AND BUTLER COUNTIES, PENNSYLVANIA By: President, Board of School Directors


APPENDIX A Demographic and Economic Information

Relating to the Freeport Area School District

A-1

Population

Table A-1 shows recent population trends for the School District, Armstrong and Butler Counties and the Commonwealth of Pennsylvania.

TABLE A-1

RECENT POPULATION TRENDS

Compound Average Annual Percentage Change

Area 2000 2010 2000-2010 School District ...................................... 11,574 11,756 0.16% Armstrong County ................................ 72,392 68,941 -0.49% Butler County ....................................... 174,083 183,862 0.55% Pennsylvania ......................................... 12,281,054 12,702,379 0.34% Source: U.S. Bureau of the Census, Decennial Census and Pennsylvania State Data Center, 2000 & 2010 General Population and Housing Characteristics: Pennsylvania.

TABLE A-2

AGE COMPOSITION

18-64 65+ Persons Per Years Years Household

Armstrong County ................... 61.0 18.4 2.38 Butler County .......................... 62.4 15.1 2.98 Pennsylvania ............................ 60.6 15.6 2.50 Source: Pennsylvania State Data Center, 2010 General Population and Housing Characteristics: Pennsylvania.

A-2

Employment

Overall employment data is not compiled for the School District but is compiled for the Pittsburgh MSA (an area which includes the School District).

TABLE A-3 PITTSBURGH METROPOLITAN STATISTICAL AREA

(Allegheny, Armstrong, Beaver, Butler, Fayette, Washington and Westmoreland Counties)

Industry Employment ESTABLISHMENT DATA Oct 2019 Sep 2019 Aug 2019 Oct 2018 Sep 2019 Oct 2018 Total Nonfarm 1,198,800 1,194,300 1,185,500 1,201,800 4,500 -3,000 Total Private 1,081,400 1,078,600 1,077,800 1,085,400 2,800 -4,000 Goods Producing 158,200 159,300 161,300 162,100 -1,100 -3,900 Mining and Logging 11,100 11,200 11,500 11,000 -100 100 Construction 63,800 64,000 65,400 64,200 -200 -400 Specialty trade contractors 37,100 37,200 37,800 35,600 -100 1,500 Manufacturing 83,300 84,100 84,400 86,900 -800 -3,600 Durable Goods 60,400 61,200 61,400 63,600 -800 -3,200 Primary metal mfg. 10,800 10,900 10,900 10,900 -100 -100 Iron and steel mills and ferroalloy mfg. 5,600 5,600 5,600 5,700 0 -100 Non-Durable Goods 22,900 22,900 23,000 23,300 0 -400 SERVICE-PROVIDING 1,040,600 1,035,000 1,024,200 1,039,700 5,600 900 PRIVATE SERVICE-PROVIDING 923,200 919,300 916,500 923,300 3,900 -100 Trade, Transportation, and Utilities 211,100 209,600 205,900 211,100 1,500 0 Wholesale Trade 43,500 43,400 43,400 42,900 100 600 Retail Trade 119,700 118,800 119,200 120,100 900 -400 Building material and supplies dealers 7,700 7,800 8,000 7,500 -100 200 Food and beverage stores 21,700 21,700 22,000 21,900 0 -200 Clothing and clothing accessories stores 8,100 7,900 8,300 87,000 200 -78,900 General merchandise stores 23,500 22,800 23,100 24,700 700 -1,200 Department stores 10,000 9,500 9,500 10,700 500 -700 Transportation, Warehousing and Utilities 47,900 47,400 43,300 48,100 500 -200 Utilities 5,700 5,700 5,700 5,800 0 -100 Truck Transportation 12,200 12,100 12,200 12,100 100 100 Information 20,000 20,100 20,200 20,000 -100 0 Financial Activities 74,500 74,400 75,600 74,800 100 -300 Finance and Insurance 61,400 61,400 62,200 60,700 0 700 Credit intermediation and related activities 28,300 28,400 28,600 28,600 -100 -300 Depository credit intermediation 25,300 25,400 25,500 25,300 -100 0 Insurance carriers and related activities 25,600 25,500 25,500 24,900 100 700 Professional and Business Services 185,800 185,300 187,100 183,200 500 2,600 Professional and technical services 86,300 85,100 85,800 82,700 1,200 3,600 Architectural and engineering services 17,700 17,700 17,800 17,400 0 300 Scientific research and development services 8,900 8,800 9,000 8,600 100 300 Management of companies and enterprises 41,200 41,000 41,400 39,500 200 1,700 Administrative and waste services 58,300 59,200 59,900 61,000 -900 -2,700 Administrative and support services 54,600 55,100 55,700 57,600 -500 -3,000 Employment services 18,900 18,800 18,200 20,000 100 -1,100 Educational and Health Services 258,700 256,100 248,300 261,400 2,600 -2,700 Educational services 56,400 52,600 44,800 56,800 3,800 -400 Colleges and universities 44,100 40,900 32,100 42,900 3,200 1,200 Health care and social assistance 202,300 203,500 203,500 204,600 -1,200 -2,300 Ambulatory health care services 68,700 69,600 69,400 70,900 -900 -2,200 Offices of physicians 26,700 26,800 26,800 26,600 -100 100 Hospitals 57,000 57,400 57,200 57,800 -400 -800 General medical and surgical hospitals 51,600 52,100 52,000 52,000 -500 -400 Nursing and residential care facilities 36,500 36,500 36,700 36,700 0 -200 Social assistance 40,100 40,000 40,200 39,200 100 900 Leisure and Hospitality 121,300 121,600 127,300 122,000 -300 -700 Accommodations and food service 97,200 97,300 100,200 99,200 -100 -2,000 Food services and drinking places 87,300 87,600 90,100 89,300 -300 -2,000 Full time service restaurants 43,400 44,000 45,600 45,100 -600 -1,700 Limited-service eating places 31,600 32,000 33,500 32,600 -400 -1,000 Other Services 51,800 52,200 52,100 50,800 -400 1,000 Government 117,400 115,700 107,700 116,400 1,700 1,000 Federal Government 18,200 18,400 18,400 18,100 -200 100 State Government 15,500 15,400 13,300 14,900 100 600 Local Government 83,700 81,900 76,000 83,400 1,800 300 Local government educational services 49,700 47,500 40,500 49,700 2,200 0 Other Local Government 34,000 34,400 35,500 33,700 -400 300 Data benchmarked to March 2018

Source: Pennsylvania State Employment Services (Civilian Labor Force website: www.paworkstats.state.pa.us)

A-3

Following are the larger employers located within Armstrong County and Butler County:

Armstrong County

Butler County Armstrong County Memorial Hospital Federal Government Armstrong School District Butler Healthcare Providers

Armstrong County Westinghouse Electric Co. LLC Wal-Mart Associates Inc. AK Steel Corporation Rosebud Mining Company Wal-Mart Associates Inc. Cook Vandergrift Inc. Next Tier Concepts Inc. State Government Butler Area School District ATI Flat Rolled Products LLC Seneca Valley School District Apollo-Ridge School District PA State System of Higher Education Federal Government Penn United Technologies Inc.

Source: Center for Workforce Information and Analysis – 2nd Quarter of 2019.

Table A-4 shows recent trends in labor force, employment and unemployment for Armstrong and Butler Counties and the Commonwealth.

TABLE A-4

RECENT TRENDS IN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT

(Armstrong and Butler Counties)

Compound

Average

Annual %

2015 2016 2017 2018 2019(1) Rate

Armstrong County Civilian Labor Force (000) 33.0 33.1 32.7 32.1 32.9 -0.06%

Employment (000) 30.8 30.6 30.7 30.5 30.8 0.00% Unemployment (000) 2.2 2.5 3.0 1.6 2.1 -0.93% Unemployment Rate 6.6% 7.5% 6.1% 5.0% 6.4%

Butler County Civilian Labor Force (000) 98.1 98.6 98.3 98.6 99.8 0.34% Employment (000) 93.5 93.6 93.8 94.7 95.5 0.42% Unemployment (000) 4.6 5.0 4.5 3.8 4.3 -1.34% Unemployment Rate 4.7% 5.1% 4.6% 3.9% 4.3%

Pennsylvania Civilian Labor Force (000) 6,413.0 6,449.0 6,426.0 6,424.0 6,492.0 0.25% Employment (000) 6,074.0 6,102.0 6,113.0 6,151.0 6,208.0 0.44% Unemployment (000) 339.0 347.0 313.0 273.0 284.0 -3.48% Unemployment Rate 5.3% 5.4% 4.9% 4.2% 4.4%

(1)As of December 2019. Source: Pennsylvania State Employment Service.

A-4

Income Table A-5 shows recent trends in per capita income for the School District, Armstrong and Butler Counties and Pennsylvania over the 2010-2015 period.

TABLE A-5

RECENT TRENDS IN PER CAPITA INCOME*

Compound Average Annual Percentage Change 2010 2015 2010-2015

School District .......................................................... $28,025 $31,283 2.22% Armstrong County .................................................... $21,828 $24,391 2.25% Butler County ........................................................... $28,446 $32,301 2.57% Pennsylvania ............................................................. $27,049 $29,291 1.61% *Income is defined by the Bureau of the Census as the sum of wage and salary income, non-farm self-employment income, net self-employment income, Social Security and Railroad retirement income, public assistance income, interest, dividends, pensions, etc. before deductions for personal income taxes, Social Security, etc. School District income is the population-weighted average for political subdivisions. Source: U.S. Census Bureau, 2006-2010 American Community Survey and U.S. Census Bureau, 2010-2015 American Community Survey. Transportation

The School District is proximate to U.S. Route 422, as well as by Pennsylvania State Routes 356 and 28. These Routes provide access to the Pennsylvania Turnpike (Interstate 76). Higher Education

While there are no major colleges or universities located within the School District, higher educational facilities located within commuting distance include Indiana University of Pennsylvania, located in Indiana, Pennsylvania, Pennsylvania State University, campus located in New Kensington, Pennsylvania and the Westmoreland County Community college located near Greensburg, Pennsylvania. The one private institutions is Grove City College in Grove City.


APPENDIX B Opinion of Bond Counsel

16063435.1

FORM OF OPINION OF BOND COUNSEL

The form of the approving legal opinion of Dinsmore & Shohl LLP, Bond Counsel, is set forth below. The actual opinion will be delivered on the date of delivery of the Bonds and may vary from the form set forth to reflect circumstances both factual and legal at the time of such delivery. Bond Counsel has no duty, and has assumed no obligation, to revise, update or supplement its opinion to address or reflect a change or changes in such circumstances subsequent to the date of delivery of the Bonds, whether or not it has notice or obtains knowledge of the same, and whether or not this Official Statement shall be recirculated. The approving legal opinion of Bond Counsel represents its considered professional judgment, following a comparison of relevant factual certifications to applicable law. Such opinion is not a guarantee of a particular result, nor is such opinion binding on any administrative or judicial tribunal.

We have served as Bond Counsel to Freeport Area School District (Armstrong and Butler Counties, Pennsylvania) (the "Local Government Unit") and do hereby undertake to advise you in connection with the issuance, sale and delivery of its $_______,000, aggregate principal amount, General Obligation Bonds, Series of 2020 (the “Bonds”), issued in fully registered form, dated and bearing interest from May ___, 2020, maturing on various annual dates ending October 1, 2032 and subject to redemption prior to maturity at the option of the Local Government Unit beginning April ___, 20___. In that capacity, we have examined the Constitution of the Commonwealth of Pennsylvania; the Public School Code of 1949, Act of March 10, 1949, P.L. 30, No. 14, as amended (the "School Code"); the Local Government Unit Debt Act, 53 Pa.C.S.A. §8001 et seq., as amended (the "Debt Act"); the formal action of the Governing Body of the Local Government Unit authorizing the incurrence of nonelectoral debt evidenced by the Bonds (the "Debt Ordinance"); the corresponding Certificate of Approval of the Department of Community and Economic Development; the Internal Revenue Code of 1986, as amended (the "Tax Code"); and such other proceedings and law as we deemed necessary in order to render this opinion. We have reviewed the Federal Income Tax Certificate of an authorized officer of the Local Government Unit, along with other closing certificates of the Local Government Unit and other parties to the issuance and sale of the Bonds. Unless separately noted, we have relied upon, but have not independently verified, factual certifications made to us by the Local Government Unit, its officers and agents, and by said other parties, both in such certificates and otherwise during the course of our engagement. Both principal of and interest on the Bonds are payable at the designated corporate trust office of Manufacturers and Traders Trust Company, Harrisburg, Pennsylvania, as Paying Agent for the Local Government Unit; the bank has additionally been appointed Registrar and Sinking Fund Depository for the Bonds.

We have not been engaged nor undertaken to review the adequacy of disclosure in the Official Statement nor in any other securities offering material produced in respect of the Bonds and, except as to matters set forth in this opinion and described as such in said Official Statement, we express no opinion or belief with respect thereto. These proceedings demonstrate that, in the absence of any meritoriously-based action in a governmental or judicial forum affecting the validity of the Bonds, the same have been delivered upon full payment. Based on the foregoing, we are of the opinion on this date as follows: 1. The Bonds are valid and binding general obligations of the Local Government Unit. (a) The Bonds are issued for a valid purpose under the School Code.

16063435.1

(b) The Bonds, and all other outstanding debt of the Local Government Unit, are within constitutional and statutory limitations.

(c) The Debt Ordinance authorizing the Bonds was duly and properly enacted

and is in full force and effect. (d) The Bonds conform, in all substantial respects, to the form provided in the

Debt Ordinance. 2. The Bonds are secured by a pledge of the full faith, credit and taxing power of the Local Government Unit. The Local Government Unit has effectively covenanted in the Debt Ordinance to include the amount of debt service on this issue, in each fiscal year for which such sums are due, in its budget for that year; to appropriate such amounts to the payment of such debt service; and to pay or cause to be paid, from time to time as and when due, the principal of the Bonds and the interest thereon on the dates, at the place and in the manner stated in the Bonds. 3. Presently included among the general revenues of the Local Government Unit available for the payment of the Bonds are ad valorem real estate taxes, whose levy upon all taxable real property situate within the corporate limits of the Local Government Unit is subject to the limitations of Pennsylvania Act No. 1 of Special Session 2006 ("Act 1"), which became effective June 27, 2006. 4. The Bonds are payable and enforceable according to their own terms, those of the Debt Ordinance and all provisions of the Debt Act; however, any such payment and enforcement could be restrained by a court of proper jurisdiction operating under the authority of bankruptcy, receivership and other similar laws of accommodation and adjustment of creditors' rights, as then applicable. 5. The Bonds, having all the qualities and incidents of securities under Article 8 of the Uniform Commercial Code, are negotiable instruments. 6. The Bonds are an authorized investment, under the Probate, Estates and Fiduciaries Code, as amended, for fiduciaries and personal representatives (as such terms are therein defined) within the Commonwealth of Pennsylvania. 7. Under the laws, regulations, rulings and judicial decisions in effect as of the date hereof, interest on the Bonds (including, in the case of Bonds sold at an original issue discount, the difference between initial offering price and par) is excludable from gross income for Federal income tax purposes, pursuant to the Tax Code. Furthermore, interest on the Bonds will not be treated as a specific item of tax preference, under Section 57(a)(5) of the Tax Code, in computing the individual alternative minimum tax. Due to the designation of the Bonds as "qualified tax-exempt obligations" pursuant to Section 265(b)(3) of the Tax Code, certain financial institutions may be able to deduct 80% of the interest expense incurred in purchasing or carrying the Bonds. In rendering the opinions in this paragraph, we have assumed continuing compliance with certain covenants designed to meet the requirements of Section 103 of the Tax Code. We express no opinion as to any other Federal income tax consequence arising from ownership of the Bonds.

8. The Bonds, and interest income therefrom, are free from taxation for purposes of personal income, corporate net income and personal property taxes within the Commonwealth of Pennsylvania.

16063435.1

This opinion is rendered as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter be brought to our attention, or any changes in law that may hereafter arise.


APPENDIX C Audited Financial Report

FREEPORT AREA SCHOOL DISTRICT

~ ~ ~ ~ ~

FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2019


ARMSTRONG COUNTY, PENNSYLVANIA

FINANCIAL STATEMENTS

AND

OTHER INFORMATION REQUIRED BY GOVERNMENT AUDITING STANDARDS

AND UNIFORM GUIDANCE

WITH REPORTS OF

CERTIFIED PUBLIC ACCOUNTANT


FREEPORT AREA SCHOOL DISTRICT FREEPORT, PENNSYLVANIA

TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR’S REPORT ........................................................................................... i-iii MANAGEMENT’S DISCUSSION AND ANALYSIS ....................................................................... iv-xiv EXHIBIT A – STATEMENT OF NET POSITION .............................................................................. 1 EXHIBIT B – STATEMENT OF ACTIVITIES .................................................................................... 2 EXHIBIT C – BALANCE SHEET – Governmental Funds ................................................................. 3 EXHIBIT D – RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION ...................................................................................... 4 EXHIBIT E - STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN IN FUND BALANCES- Governmental Funds ................................................................................... 5 EXHIBIT F – RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES ........................................................................................... 6 EXHIBIT G - STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN IN FUND BALANCES, BUDGET AND ACTUAL – General Fund .................................................... 7 EXHIBIT H - STATEMENT OF NET POSITION – Proprietary Funds .............................................. 8 EXHIBIT I - STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION – Proprietary Funds ............................................................................................... 9 EXHIBIT J - STATEMENT OF CASH FLOWS – Proprietary Funds................................................ 10 EXHIBIT K– STATEMENT OF NET POSITION – Fiduciary Funds ................................................. 11 EXHIBIT L – STATEMENT OF CHANGES IN NET POSITION – Fiduciary Funds. ....................... 12 NOTES TO THE FINANCIAL STATEMENTS .............................................................................. 13-45 SUPPLEMENTARY INFORMATION: SCHEDULE 1 – DETAILED SCHEDULE OF BUDGETED AND ACTUAL REVENUES- General Fund ................................................................................................................................... 46 SCHEDULE 2 – DETAILED SCHEDULE OF BUDGETED AND ACTUAL EXPENDITURES- General Fund .................................................................................................................................47-49 SCHEDULE 3 – CASH SUMMARY – Activities Fund ..................................................................... 50

FREEPORT AREA SCHOOL DISTRICT FREEPORT, PENNSYLVANIA

TABLE OF CONTENTS PAGE REQUIRED SUPPLEMENTARY INFORMATION: SCHEDULE OF SCHOOL DISTRICT’S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY – DEFINED BENEFIT PENSION PLAN ...................................................................... 51 SCHEDULE OF SCHOOL DISTRICT’S CONTRACTUALLY REQUIRED CONTRIBUTIONS – DEFINED BENEFIT PENSION PLAN .......................................................................................... 52 SCHEDULE OF SCHOOL DISTRICT’S PROPORTIONATE SHARE OF THE NET OPEB LIABILITY – PSERS PLAN ........................................................................................................... 53 SCHEDULE OF SCHOOL DISTRICT’S CONTRACTUALLY REQUIRED OPEB CONTRIBUTIONS – PSERS PLAN .............................................................................................. 54 SCHEDULE OF CHANGES IN THE TOTAL OPEB LIABILITY AND RELATED RATIOS -RETIREES HEALTH PLAN ......................................................................................................... 55 NOTES TO REQUIRED SUPPLEMENTARY INFORMATION……………………………………..56-58 INFORMATION REQUIRED BY GOVERNMENTAL AUDITING STANDARDS AND THE UNIFORM GUIDANCE: Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ....................................................................59-60 Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control over Compliance required by the Uniform Guidance ........................................................61-62 Supplementary Schedule of Expenditures of Federal Awards ........................................................ 63 Notes to Schedule of Expenditures of Federal Awards ................................................................... 64 Schedule of Findings and Questioned Costs ................................................................................... 65 Status of Prior Audit Findings........................................................................................................... 66

Mark C. Turnley Certified Public Accountant 1000 3rd Avenue New Brighton, Pennsylvania 15066 (724) 384-1081 FAX (724) 384-8908

American Institute of Certified Public Accountants Pennsylvania Institute of Certified Public Accountants

To the Management and Board of Education Freeport Area School District

Independent Auditor’s Report Report on Financial Statements I have audited the accompanying financial statements of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of the Freeport Area School District as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise the School District’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility My responsibility is to express opinions on these financial statements based on my audit. I conducted my 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 I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Freeport Area School District’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Freeport Area School District’s internal control. Accordingly, I express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinions.

i

Opinions In my opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of the Freeport Area School District as of June 30, 2019 and the respective changes in financial position and, where applicable, cash flows thereof and the budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis on pages iv-xiv and the other required supplementary information on pages 51-58, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. I 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 my inquiries, the basic financial statements, and other knowledge I obtained during my audit of the basic financial statements. I do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information My audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Freeport Area School District’s basic financial statements. The accompanying supplementary schedules are presented for purposes of additional analysis and are not a required part of the financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The supplementary schedules and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In my opinion, the schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the basic financial statements as a whole.

ii

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, I have also issued my report dated December 10, 2019 on my consideration of the Freeport Area School District’s internal control over financial reporting and on my 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 my 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 in considering the Freeport Area School District’s internal control over financial reporting and compliance.

Mark C. Turnley, CPA December 10, 2019 New Brighton, Pennsylvania

iii

iv

FREEPORT AREA SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

Required Supplementary Information (RSI) June 30, 2019

The discussion and analysis of Freeport Area School District’s financial performance provides an overall review of the District’s financial activities for the fiscal year ended June 30, 2019. The intent of this discussion and analysis is to look at the District’s financial performance as a whole. Readers should also review the financial statements and accompanying notes to the financial statements to enhance their understanding of the District’s financial performance. The Management Discussion and Analysis (MD&A) is an element of the reporting model adopted by the Governmental Accounting Standards Board (GASB) in their Statement No. 34 Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments. Certain comparative information between the current year and the prior year is required to be presented in the MD&A. FINANCIAL HIGHLIGHTS The District’s total governmental activities liabilities and deferred inflows of resources exceeded total assets and deferred outflows of resources as of June 30, 2019 by $20,025,274 (net position – deficit). This was an increase in the deficit of $134,384 over June 30, 2018. This increase was mainly the result of the District’s implementation of GASB 68 ‘Accounting and Financial Reporting for Pensions’, during the 2014-2015 fiscal year. The District is now required to recognize their proportionate share of the Pennsylvania School Employees Retirement System (PSERS) overall net pension obligation. For the Freeport Area School District, this liability stands at $45,210,340 for governmental activities and $922,660 for business-type activities as of June 30, 2019. The School District had governmental funds revenues and other financing sources (uses) of $31,547,683 (excluding transfers) and governmental fund expenditures of $32,082,143 (excluding transfers) for the fiscal year ended June 30, 2019. The net change in fund balance for all governmental funds was a decrease of $605,231 with a total fund balance at June 30, 2019 of $8,427,193. These amounts are reflected on the Statement of Revenues, Expenditures, and Changes in Fund Balance – Governmental Funds (Exhibit E). The General Fund total fund balance decreased by $743,996 to $6,782,277 of which $3,741,482 is unassigned and is approximately equal to 11.2% of the 2019-2020 General Fund Budget. The Capital Projects Fund total fund balance increased by $63,684, primarily due to a transfer from the General Fund. The Debt Service Fund total fund balance increased by $75,081. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts: management’s discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the district:

• The first two statements are government-wide financial statements – the Statement of Net Position and the

Statement of Activities. These provide both long-term and short-term information about the District’s overall financial status.

• The remaining statements are fund financial statements that focus on individual parts of the Districts

operations in more detail than the government-wide statements. The governmental fund statements tell how general District services were financed in the short term as well as what remains for future spending. Proprietary fund statements offer short-term and long-term financial information about the activities the District operates like a business, which for this District is the Food Service Fund. Fiduciary fund statements provide information about financial relationships where the District acts solely as a trustee or agent for the benefit of others to whom the resources in question belong.

v



OVERVIEW OF THE FINANCIAL STATEMENTS (Continued)

The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. Figure A-1 shows how the required parts of the Financial Section are arranged and relate to one another:

Figure A-1 Required components of

Freeport Area School District’s Financial Report

Management Discussion

and Analysis

Basic

Financial Statements

Required

Supplementary Information

Government-wide


Fund


Notes to

the Financial

Statements

vi



OVERVIEW OF THE FINANCIAL STATEMENTS (Continued)

Figure A-2 summarizes the major features of the District’s financial statements, including the portion of the District they cover and the types of information they contain. The remainder of this overview section of management discussion and analysis explains the structure and contents of each of the statements.

Figure A-2 Major Features of Freeport Area School District’s Government-wide and Fund Financial Statements

Fund Statements Government-

wide Statements

Governmental

Funds

Proprietary

Funds

Fiduciary Funds

Scope Entire District (except fiduciary funds)

The activities of the District that are not proprietary or fiduciary, such as education, administration and student activities

Activities the District operates similar to private business – Food Services

Instances in which the District is the trustee or agent to someone else’s resources – Activity Funds

Required financial statements

Statement of net position Statement of activities

Balance sheet Statement of revenues, expenditures, and changes in fund balance

Statement of net position Statement of revenues, expenses and changes in net position Statement of cash flows

Statement of fiduciary net position Statement of changes in fiduciary net position

Accounting basis and measurement focus

Accrual accounting and economic resources focus

Modified accrual accounting and current financial resources focus



Type of asset/liability information

All assets and liabilities, both financial and capital, and short-term and long-term

Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included

All assets and liabilities, both financial and capital, and short-term and long-term

All assets and liabilities, both short-term and long-term

Type of inflow-outflow information

All revenues and expenses during year, regardless of when cash is received or paid

Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and payment is due during the year or soon thereafter



vii


MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) Required Supplementary Information (RSI)

June 30, 2019 OVERVIEW OF THE FINANCIAL STATEMENTS (Continued)

Government-wide Statements The government-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the 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 District’s net position and how they have changed. Net position, the difference between the District’s assets and liabilities, are one way to measure the District’s financial health or position. Over time, increases or decreases in the District’s net position are an indication of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the District, you need to consider additional non-financial factors, such as changes in the District’s property tax base and the performance of the students. The government-wide financial statements of the District are divided into two categories: • Governmental activities – All of the District’s basic services are included here, such as instruction,

administration and student activities. Property taxes and state and federal subsidies and grants finance most of these activities.

• Business type activities –The District operates a food service program and charges fees to staff, students and visitors to help cover the costs of operation.

Fund Financial Statements The District’s fund financial statements provide detailed information about the most significant funds – not the District as a whole. Some funds are required by state law and by bond issue requirements.

Governmental funds – Most of the District’s activities are reported in governmental funds, which focus on the determination of financial position and change in financial position, not on income determination. They are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District’s operations and the services it provides. Governmental fund information helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the District’s programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is reconciled in the financial statements.

viii



OVERVIEW OF THE FINANCIAL STATEMENTS (Continued) Fund Financial Statements (Continued)

Proprietary funds – These funds are used to account for the District activities that are similar to business operations in the private sector; or where the reporting is on determining net income, financial position, changes in financial position, and a significant portion of funding through user charges. When the District charges customers for services it provides – whether to outside customers or to other units in the District – these services are generally reported in proprietary funds. The Food Service Fund is the District’s proprietary fund and is the same as the business-type activities we report in the government-wide statements, but provide more detail and additional information, such as cash flows.

Fiduciary funds - The District is the trustee, or fiduciary, for a student activities fund in the secondary schools and a private purpose trust fund for post-secondary scholarships. All of the District's fiduciary activities are reported in separate Statements of Fiduciary Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations.

FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE

Table A-1 Fiscal Year ended June 30

Net Position

GOVERNMENTAL BUSINESS-TYPE GOVERNMENTAL BUSINESS-TYPEACTIVITIES ACTIVITIES TOTAL ACTIVITIES ACTIVITIES TOTAL

Current Assets 13,419,047$ 185,810$ 13,604,857$ 13,941,097$ 130,831$ 14,071,928$ Capital Assets 56,047,450 115,704 56,163,154 57,126,105 110,350 57,236,455 Deferred Outflows of Resources 7,528,682 150,110 7,678,792 9,518,010 189,170 9,707,180 TOTAL ASSETS & DEFERRED OUTFLOWS OF RESOURCES 76,995,179$ 451,624$ 77,446,803$ 80,585,212$ 430,351$ 81,015,563$

Current Liabilities 6,399,394$ 66,922$ 6,466,316$ 6,383,599$ 36,202$ 6,419,801$ Long-Term Liabilities 88,000,366 962,740 88,963,106 93,192,526 1,021,320 94,213,846 Deferred Inflows of Resources 2,620,693 40,420 2,661,113 899,977 9,360 909,337 TOTAL LIABILITIES & DEFERRED INTFLOWS OF RESOURCES 97,020,453$ 1,070,082$ 98,090,535$ 100,476,102$ 1,066,882$ 101,542,984$

Net Investment in Capital Assets 18,652,450$ 115,704$ 18,768,154$ 17,521,105$ 110,350$ 17,631,455$ Restricted - - - - - - Unrestricted (38,677,724) (734,162) (39,411,886) (37,411,995) (746,881) (38,158,876) TOTAL NET POSITION (20,025,274)$ (618,458)$ (20,643,732)$ (19,890,890)$ (636,531)$ (20,527,421)$

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION 76,995,179$ 451,624$ 77,446,803$ 80,585,212$ 430,351$ 81,015,563$

---------------------------JUNE 30, 2019---------------------------- ---------------------------JUNE 30, 2018---------------------------

ix



June 30, 2019 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (Continued)

The change in deferred outflows of resources, long-term liabilities, and deferred inflows of resources, along with the decrease in the District’s net position is attributed to implementation of GASB 75 during the 16-17 fiscal year and the aforementioned implementation of GASB 68 during fiscal year 2014-2015 which required the District to recognize their proportionate share of the Pennsylvania School Employees Retirement System (PSERS) overall net position obligation, which for the Freeport Area School District, totals $45,210,340 for its governmental activities and $922,660 for its business-type activities. Some of the District's net position is invested in capital assets (buildings, land, land improvements and equipment). The remaining unrestricted net position is a combination of committed and unassigned amounts. The results of this year's operations as a whole are reported in the Statement of Activities. All expenses are reported in the first column. Specific charges, grants, revenues and subsidies that directly relate to specific expense categories are represented to determine the final amount of the District's activities that are supported by other general revenues. The two largest general revenues are the Basic Education Subsidy provided by the Commonwealth of Pennsylvania, and the local taxes assessed to community taxpayers. Table A-2 takes the information from that Statement and rearranges it slightly so you can see the total revenues for the year.

Fiscal Year ended June 30 Changes in Net Position

GOVERNMENTAL BUSINESS-TYPE GOVERNMENTAL BUSINESS-TYPEACTIVITIES ACTIVITIES TOTAL ACTIVITIES ACTIVITIES TOTAL

REVENUESProgram Revenues:

Charges for Services 205,087$ 512,662$ 717,749$ 119,310$ 496,805$ 616,115$ Operating Grants and Contributions 6,108,509 432,632 6,541,141 5,915,184 426,133 6,341,317 Capital Grants and Contributions 381,247 - 381,247 344,824 - 344,824

General Revenues:Property Taxes 14,919,508 - 14,919,508 14,450,993 - 14,450,993 Other Taxes 2,238,211 - 2,238,211 2,062,456 - 2,062,456 Grants, Subsidies and Contributions 7,407,839 - 7,407,839 7,355,484 - 7,355,484 Investment Earnings 267,260 11 267,271 141,856 4 141,860 Other 99,375 - 99,375 85,390 - 85,390 Interfund Transfers (70,771) 70,771 - (87,454) 87,454 -

TOTAL REVENUES 31,556,265$ 1,016,076$ 32,572,341$ 30,388,043$ 1,010,396$ 31,398,439$

EXPENSESInstruction 19,304,118$ -$ 19,304,118$ 18,937,850$ -$ 18,937,850$ Instructional Student Support 2,220,292 - 2,220,292 2,097,763 - 2,097,763 Administrative and Financial Support 3,380,091 - 3,380,091 3,377,179 - 3,377,179 Operation and Maintenance of Plant 3,420,426 - 3,420,426 3,303,616 - 3,303,616 Pupil Transportation 1,589,982 - 1,589,982 1,598,159 - 1,598,159 Student Activities 663,499 - 663,499 640,285 - 640,285 Interest on Long-term Debt 1,112,241 - 1,112,241 1,045,587 - 1,045,587 Refund of Prior Year Receipts - - - - - - Food Services - 998,003 998,003 - 1,021,268 1,021,268

TOTAL EXPENSES 31,690,649$ 998,003$ 32,688,652$ 31,000,439$ 1,021,268$ 32,021,707$

CHANGE IN NET POSITION (134,384)$ 18,073$ (116,311)$ (612,396)$ (10,872)$ (623,268)$

-------------------- JUNE 30, 2019 ------------------------ -------------------- JUNE 30, 2018 ------------------------

x



June 30, 2019

FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (Continued) The increase in expenses reflects again the effects of the implementation of GASB Statement No. 68 implemented during the 2014-2015 fiscal year. The tables below present the expenses of both the Governmental Activities and the Business-type Activities of the District. Table A-3 shows the District's nine largest functions - instructional programs, instructional student support, administrative, operation and maintenance of plant, pupil transportation, student activities, community services, scholarships and awards, and food service as well as each program's net cost (total cost less revenues generated by the activities). This table also shows the net costs offset by the other unrestricted grants, subsides and contributions to show the remaining financial needs supported by local taxes and other miscellaneous revenues.

Table A-3 Fiscal Year ended June 30 Governmental Activities

------------JUNE 30, 2019------------- ------------JUNE 30, 2018-------------

TOTAL COST NET COST TOTAL COST NET COST OF SERVICE OF SERVICE OF SERVICE OF SERVICE

EXPENSESInstruction 19,304,118$ 15,147,671$ 18,937,850$ 14,886,102$ Instructional Student Support 2,220,292 1,921,026 2,097,763 1,829,911 Administrative and Financial Support 3,380,091 2,986,094 3,377,179 3,017,022 Operation and Maintenance of Plant 3,420,426 3,020,247 3,303,616 3,015,412 Pupil Transportation 1,589,982 645,285 1,598,159 656,044 Student Activities 663,499 544,489 640,285 515,867 Interest on Long-term Debt 1,112,241 730,994 1,045,587 700,763

TOTAL EXPENSES 31,690,649$ 24,995,806$ 31,000,439$ 24,621,121$ Less:

Unrestricted Grants, Subsidies 7,407,839 7,355,484 TOTAL NEEDS FROM LOCAL TAXES AND OTHER REVENUES 17,587,967$ 17,265,637$

xi



FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (Continued)

Table A-4 reflects the activities of the Food Service program, the only Business-type activities of the District.

Table A-4 Fiscal Year ended June 30 Business-Type Activities

The Statement of Revenues, Expenses and Changes in Fund Net Position for this proprietary fund will further detail the actual results of operations.

THE DISTRICT FUNDS At June 30, 2019, the District governmental funds reported a combined fund balance of $8,427,193 which is a decrease of $605,231. The primary reason for this decrease is related to the Capital Projects Fund having capital expenses of $633,645 for the fiscal year ended June 30, 2019.

General Fund Budget During the fiscal year, the Board of Directors authorizes revisions to the original budget to accommodate differences from the original budget to the actual expenditures of the District. All adjustments are again confirmed after the annual financial report is substantially completed, which is after the end of the fiscal year, as permitted by state law. A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in the financial statements. Transfers between specific categories of expenditures and financing uses occur during the year. The most significant transfers occur from one specific expenditure area to other specific expenditure areas. There was no budgetary reserve included in the original budget. A total of $1,196,469.52 in budgetary transfers were made during the fiscal year. The primary reason for the budgetary transfers is unanticipated expenses occurring within school departments or buildings as well as unanticipated changes in the Pennsylvania Department of Education’s chart of accounts. Excess funds are then transferred from different functions or object with the school department or building.

TOTAL COST NET COST TOTAL COST NET COSTOF SERVICE OF SERVICE OF SERVICE OF SERVICE

EXPENSESFood Service 998,003$ (52,709)$ 1,021,268$ (98,330)$

Interest Income 11 4 Transfer from General Fund 70,771 87,454

TOTAL BUSINESS-TYPE ACTIVITIESNET INCOME <LOSS> 18,073$ (10,872)$

---------------- JUNE 30, 2019 ----------- --------------- JUNE 30, 2018 ---------

xii



June 30, 2019

CAPITAL ASSET AND DEBT ADMINISTRATION CAPITAL ASSETS At June 30, 2019, the District had $56,047,450 invested in a broad range of capital assets, including land, land improvements, buildings and furniture and equipment.

Table A-5 Governmental Activities

Capital assets - net of depreciation

2019 2018 Land & Improvements $5,369,677 $5,747,326 Buildings &

Improvements $49,958,396

$18,112,592

Furniture & Equipment $719,377 $ 823,439 Construction in Progress $32,442,748 The most significant addition to the capital assets was the middle school project.

DEBT ADMINISTRATION As of July 1, 2018, the District had total outstanding bond principal of $39,605,000. During the year, the District made payments against principal of $2,210,000 resulting in ending outstanding debt as of June 30, 2019 of $37,395,000:

Table A-6 Outstanding Debt

2019 2018

ENERAL OBLIGATION BONDS

Series G of 2005 1,500,000$ 3,600,000$ Series of 2014 20,055,000 20,150,000 Series A of 2014 5,875,000 5,880,000 Series of 2015 9,965,000 9,975,000

37,395,000$ 39,605,000$

Other long-term obligations include net pension liability, net OPEB obligation, and accrued compensated absences. More detailed information about long-term liabilities is included in the Notes to the financial statements.

xiii



June 30, 2019

ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The District is continuing to experience increased residential and commercial development which has resulted in a gradual increase in assessed property values. Overall, assessed values in Armstrong County have nearly remained flat while Butler County assessments have increased 1.4% as of November 2019 as compared to certified assessed values as of June 30, 2020. The general fund expenditure budget for 2019-2020 is $33,474,265 with $17,934,861 coming from local revenue sources, $13,313,613 coming from state sources, $403,000 coming from federal sources and $1,000 coming from other financing sources along with the use of fund balance of $1,821,791. The budget includes the reduction of one teaching position based on current plans to evaluate and reduce teaching positions where appopriate. The total budget reflects an increase of 2.3% from the prior year, with an increase of 5.8% in local real estate taxes. The increase in local taxes is due to an average millage increase of 2.7%, an increase in the average collection rate of 1.1% and average assessment increases of 1.3%. Total general fund balance is anticipated to be $3,234,543 on June 30, 2020. The school board on June 13, 2007 committed $1,000,000 of the unassigned general fund balance for the purpose of deferred maintenance, such as, but not limited to, roof replacement, district paving, and equipment replacement; on March 8, 2010 the school board committed $1,000,000 of the unassigned fund balance for the purpose of offsetting future retirement costs; on February 9, 2011 the school board committed an additional $1,000,000 for the purpose of offsetting accumulated post-employment benefits. The total committed fund balance at June 30, 2019 is $3,000,000. The comparison of revenue and expenditure categories is as follows:

Table A-7

BUDGETED REVENUES

2019-2020 2018-2019 Local 56.7% 55.4% State 42.0% 43.2% Federal/Other 1.3% 1.4%

BUDGETED EXPENDITURES

2019-2020 2018-2019 Instruction 57.0% 55.3% Support Services 29.8% 29.8% Non-Instruction/Community/Other 2.0% 1.8% Fund Transfers/Debt 11.2% 13.1%

xiv



June 30, 2019

CONTACTING THE DISTRICT FINANCIAL MANAGEMENT The Freeport Area School District financial report is designed to provide our citizens, taxpayers, parents, students, investors and creditors with a general overview of the District's finances and to show the Board's accountability for the money it receives. If you have questions about this report or wish to request additional financial information, please contact Ryan Manzer, Business Manager at Freeport Area School District, PO Box C, Freeport, PA 16229, (724) 295-5141 x1226, [email protected].

EXHIBIT A

Governmental Business-TypeActivities Activities Total

ASSETSCurrent Assets:

Cash and Cash Equivalents 8,240,664$ 84,445$ 8,325,109$ Investments 2,210,395 - 2,210,395 Taxes Receivable, net 1,322,348 - 1,322,348 Internal Balances (11,494) 11,494 - Due From Other Governments 1,524,706 - 1,524,706 Other Accounts Receivable 91,826 17,831 109,657 Inventories 40,602 18,081 58,683 Prepaid Expenses - 53,959 53,959 Total Current Assets 13,419,047$ 185,810$ 13,604,857$

Noncurrent Assets: Land 823,039$ -$ 823,039$ Site Improvements (net) 4,546,638 - 4,546,638 Building & Building Improvements (net) 49,958,396 - 49,958,396 Furniture & Equipment (net) 719,377 115,704 835,081 Total Noncurrent Assets 56,047,450$ 115,704$ 56,163,154$ TOTAL ASSETS 69,466,497$ 301,514$ 69,768,011$

DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows Related to Pension 7,130,344$ 145,517$ 7,275,861$ Deferred Outflows Related to OPEB 398,338 4,593 402,931 TOTAL DEFERRED OUTFLOWS OF RESOURCES 7,528,682$ 150,110$ 7,678,792$

TOTAL ASSETS & DEFERRED OUTFLOWS OF RESOURCES 76,995,179$ 451,624$ 77,446,803$

LIABILITIESCurrent Liabilities:

Accounts Payable 445,781$ 40,307$ 486,088$ Retainage Payable - - - Accrued Salaries and Benefits 3,356,615 - 3,356,615 Payroll Deductions and Withholdings - - - Unearned Revenue 41,943 26,615 68,558 Bonds and Notes Payable - Current Portion 2,235,000 - 2,235,000 Compensated Absences - Current Portion 320,055 - 320,055 Total Current Liabilities 6,399,394$ 66,922$ 6,466,316$

Noncurrent Liabilities:Bonds and Notes Payable - Long-Term Portion (Net) 35,160,000$ -$ 35,160,000$ Compensated Absences - Long-Term Portion 1,280,219 - 1,280,219 Net Pension Liability 45,210,340 922,660 46,133,000 Net OPEB Obligation 6,349,807 40,080 6,389,887 Total Noncurrent Liabilities 88,000,366$ 962,740$ 88,963,106$ TOTAL LIABILITIES 94,399,760$ 1,029,662$ 95,429,422$

DEFERRED INFLOWS OF RESOURCESDeferred Inflows Related to Pension 1,849,260$ 37,740$ 1,887,000$ Deferred Inflows Related to OPEB 771,433 2,680 774,113 TOTAL DEFERRED INFLOWS OF RESOURCES 2,620,693$ 40,420$ 2,661,113$

NET POSITIONNet Investment in Capital Assets 18,652,450$ 115,704$ 18,768,154$ Unrestricted (Deficit) (38,677,724) (734,162) (39,411,886) TOTAL NET POSITION (Deficit) (20,025,274)$ (618,458)$ (20,643,732)$

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION 76,995,179$ 451,624$ 77,446,803$

STATEMENT OF NET POSITIONJUNE 30, 2019


The accompanying notes are an integral part of these financial statements1

EXHIBIT B

Net (Expense) Revenue andProgram Revenues Changes in Net Position

Operating CapitalCharges for Grants and Grants and Governmental Business-Type

Functions/Programs Expenses Services Contributions Contributions Activities Activities TotalGovernmental Activities: Instruction 19,304,118$ 10,800$ 4,145,647$ -$ (15,147,671)$ -$ (15,147,671)$ Instructional Student Support 2,220,292 - 299,266 - (1,921,026) - (1,921,026) Administrative and Financial Support Services 3,380,091 - 393,997 - (2,986,094) - (2,986,094) Operation and Maintenance of Plant Services 3,420,426 141,158 259,021 - (3,020,247) - (3,020,247) Pupil Transportation 1,589,982 - 944,697 - (645,285) - (645,285) Student Activities 663,499 53,129 65,881 - (544,489) - (544,489) Interest on Long-Term Debt 1,112,241 - - 381,247 (730,994) - (730,994) Total Governmental Activities 31,690,649$ 205,087$ 6,108,509$ 381,247$ (24,995,806)$ -$ (24,995,806)$

Business-Type activities: Food Service 998,003$ 512,662$ 432,632$ -$ -$ (52,709)$ (52,709)$ Total Business-Type Activities 998,003$ 512,662$ 432,632$ -$ -$ (52,709)$ (52,709)$

Total Primary Government 32,688,652$ 717,749$ 6,541,141$ 381,247$ (24,995,806)$ (52,709)$ (25,048,515)$

General Revenues: Taxes:

Property Taxes, Levied for General Purposes (net) 14,919,508$ -$ 14,919,508$ Taxes Levied for Specific Purposes 2,238,211 - 2,238,211 Basic Subsidy 6,702,832 - 6,702,832 Property Tax Relief Payment 705,007 - 705,007 Investment Earnings 267,260 11 267,271 Miscellaneous Income 94,958 - 94,958 Sale of Fixed Assets 4,417 - 4,417 Transfers between Governmental and Business-Type Activities (70,771) 70,771 -

Total General Revenues 24,861,422$ 70,782$ 24,932,204$ Change in Net Position (134,384)$ 18,073$ (116,311)$

Net Position - July 1, 2018 (Deficit) (19,890,890) (636,531) (20,527,421) Net Position — June 30, 2019 (Deficit) (20,025,274)$ (618,458)$ (20,643,732)$

STATEMENT OF ACTIVITIESFOR THE YEAR ENDED JUNE 30, 2019



EXHIBIT C

CAPITAL DEBT TOTALGENERAL PROJECTS SERVICE GOVERNMENTAL

FUND FUND FUND FUNDSASSETS:

Cash and Cash Equivalents 6,494,112$ 1,587,974$ 158,578$ 8,240,664$ Investments 2,210,395 - - 2,210,395 Taxes Receivable, net 1,135,430 - - 1,135,430 Due From Other Governments 1,524,706 - - 1,524,706 Other Accounts Receivables 81,826 10,000 - 91,826 Inventory 40,602 - - 40,602 TOTAL ASSETS 11,487,071$ 1,597,974$ 158,578$ 13,243,623$

LIABILITIES, DEFERRED INFLOW OF RESOURCES, AND FUND BALANCES:

LIABILITIES:Accounts Payable 334,145$ 42,430$ 69,206$ 445,781$ Due to Other Funds 11,494 - - 11,494 Accrued Salaries and Benefits 3,356,615 - - 3,356,615 Unearned Revenue 41,943 - - 41,943 TOTAL LIABILITIES 3,744,197$ 42,430$ 69,206$ 3,855,833$

DEFERRED INFLOW OF RESOURCES:Delinquent Real Estate Taxes 960,597$ -$ -$ 960,597$ TOTAL INFLOW OF RESOURCES 960,597$ -$ -$ 960,597$

FUND BALANCES:Nonspendable 40,602$ -$ -$ 40,602$ Committed 3,000,000 - - 3,000,000 Assigned 193 1,555,544 89,372 1,645,109 Unassigned 3,741,482 - - 3,741,482 TOTAL FUND BALANCES 6,782,277$ 1,555,544$ 89,372$ 8,427,193$

TOTAL LIABILITIES, DEFERRED INFLOW OF RESOURCES, AND FUND BALANCES 11,487,071$ 1,597,974$ 158,578$ 13,243,623$

FREEPORT AREA SCHOOL DISTRICTBALANCE SHEET

GOVERNMENTAL FUNDSJUNE 30, 2019


EXHIBIT D

Total Fund Balances - Governmental Funds 8,427,193$

Amounts reported for governmental activities in the statement ofnet position are different because:

Capital assets used in governmental activities are not financial resources,and therefore, are not reported as assets in governmental funds. The costof assets is $83,298,737, and the accumulated depreciation is $27,251,287. 56,047,450

Deferred outflows and inflows of resources related to pensions are applicableto future periods and, therefore, are not reported in the funds.

Deferred outflows of resources related to pension 7,130,344

Deferred inflows of resources related to pension (1,849,260)

Deferred outflows and inflows of resources related to OPEB are applicableto future periods and, therefore, are not reported in the funds.

Deferred outflows of resources related to OPEB 398,338

Deferred inflows of resources related to OPEB (771,433)

Property and wage taxes receivable in the statement of net position, which willnot be available soon enough to pay for the current period's expenditures,are deferred and not recognized as revenue in governmental funds. 1,147,515

Long term liabilities, including bonds payable, are not due and payablein the current period, and therefore, are not reported as liabilities inthe governmental funds. Long-term liabilities at year end consist of:

Bonds and Notes Payable 37,395,000$ Net Pension Liability 45,210,340 Accrued Compensated Absences 1,600,274

6,349,807 (90,555,421)

TOTAL NET POSITION - GOVERNMENTAL ACTIVITIES (20,025,274)


Net OPEB Obligation

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEETTO THE STATEMENT OF NET POSITION

JUNE 30, 2019


EXHIBIT E

CAPITAL TOTALPROJECTS DEBT SERVICE GOVERNMENTAL

GENERAL FUND FUND FUND FUNDSREVENUES

Local Sources 17,824,761$ 43,222$ 6,655$ 17,874,638$ State Sources 13,263,375 - - 13,263,375 Federal Sources 405,253 - - 405,253 Total Revenue 31,493,389$ 43,222$ 6,655$ 31,543,266$

EXPENDITURESInstruction 17,783,320$ -$ -$ 17,783,320$ Support Services 9,695,976 - 520 9,696,496 Noninstructional Services 646,441 - - 646,441 Capital Outlay - 633,645 - 633,645 Debt Service - - 3,322,241 3,322,241 Total Expenditures 28,125,737$ 633,645$ 3,322,761$ 32,082,143$ Excess ( Deficiency) of Revenue over Expenditures 3,367,652$ (590,423)$ (3,316,106)$ (538,877)$

OTHER FINANCING SOURCES (USES)Operating Transfers In -$ 654,107$ 3,391,187$ 4,045,294$ Operating Transfers Out (4,116,065) - - (4,116,065) Sale of Assets 4,417 - - 4,417 Total Other Financing Sources (Uses) (4,111,648)$ 654,107$ 3,391,187$ (66,354)$

NET CHANGE IN FUND BALANCES (743,996)$ 63,684$ 75,081$ (605,231)$

FUND BALANCE - JULY 1, 2018 7,526,273 1,491,860 14,291 9,032,424

FUND BALANCE - JUNE 30, 2019 6,782,277$ 1,555,544$ 89,372$ 8,427,193$

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCESGOVERNMENTAL FUNDS




EXHIBIT F

TOTAL NET CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS (605,231)$

Amounts reported for governmental activities in the statement ofactivities are different because:

Capital outlays are reported in governmental funds as expenditures.However, in the statement of activities, the cost of those assets isallocated over their estimated useful lives as depreciation expense.This is the amount by which depreciation expense ($1,487,166) exceededcapital outlays ($408,510) during the fiscal year. (1,078,656)

Governmental funds report district pension contributions as expenditures.However, in the statement of activities, the cost of pension benefitsearned net of employee contributions is reported as pension expense. (578,589)

Repayment of note and bond principal is an expenditure in the governmentalfunds, but the repayment reduces long-term liabilities in the statementof net position. 2,210,000

Because certain property and wage taxes will not be collected for severalmonths after the District's fiscal year ends, they are not considered as "available" revenues in the governmental funds. Deferred inflows of resourcesincreased by this amount this year. 79,354

In the statement of activities, certain operating expenses - compensated absences and retiree benefits - are measured by the amounts earnedduring the year. In the governmental funds, however, expenditures for these itemsare measured by the amount of financial resources used (paid). This is the amount by which compensated absences and retiree health benefits earnedexceeded the amount paid. (161,262)

CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES (134,384)$



RECONCILATION OF THE GOVERNMENT FUNDSSTATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES

TO THE STATEMENT OF ACTIVITIES


EXHIBIT G

Actual

Original Final (Budgetary Basis)REVENUES

Local Sources 16,756,660$ 16,788,071$ 17,824,761$ 1,036,690$ State Sources 13,067,265 13,092,265 13,263,375 171,110 Federal Sources 411,616 411,616 405,253 (6,363) Total Revenues 30,235,541$ 30,291,952$ 31,493,389$ 1,201,437$

EXPENDITURESRegular Programs 14,768,967$ 14,514,298$ 14,370,636$ 143,662$ Special Programs 2,832,038 2,975,354 2,946,136 29,218 Vocational Programs 300,000 293,678 293,590 88 Other Instructional Programs 174,894 186,381 169,189 17,192 Nonpublic School Programs 9,500 4,414 3,769 645 Pupil Personnel Services 738,409 853,038 832,670 20,368 Instructional Staff Services 892,079 1,001,461 1,005,578 (4,117) Administrative Services 2,386,621 2,312,585 2,259,558 53,027 Pupil Health 277,865 281,764 278,858 2,906 Business Services 488,289 492,160 474,931 17,229 Operation & Maintenance of Plant Services 3,085,902 3,050,132 2,949,870 100,262 Student Transportation Services 1,617,000 1,617,000 1,589,982 27,018 Central Services 199,145 237,657 222,578 15,079 Other Support Services 80,091 81,951 81,951 - Student Activities 575,856 635,087 646,441 (11,354) Total Expenditures 28,426,656$ 28,536,960$ 28,125,737$ 411,223$ Excess ( Deficiency) of Revenues over Expenditures 1,808,885$ 1,754,992$ 3,367,652$ 1,612,660$

OTHER FINANCING SOURCES (USES)Operating Transfers Out (4,279,824)$ (4,225,931)$ (4,116,065)$ (109,866)$ Sale of Assets 1,000 1,000 4,417 (3,417) Total Other Financing Sources (Uses) (4,278,824)$ (4,224,931)$ (4,111,648)$ (113,283)$

NET CHANGE IN FUND BALANCES (2,469,939)$ (2,469,939)$ (743,996)$ 1,725,943$

FUND BALANCE - JULY 1, 2018 5,796,255 5,796,255 7,526,273 1,730,018

FUND BALANCE - JUNE 30, 2019 3,326,316$ 3,326,316$ 6,782,277$ 3,455,961$

Budgeted Amounts Variance with Final Budget

Positive (Negative)

FREEPORT AREA SCHOOL DISTRICTSTATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE, BUDGET AND ACTUAL

GENERAL FUNDFOR THE YEAR ENDED JUNE 30, 2019


EXHIBIT H

FOOD SERVICES

ASSETSCurrent Assets:

Cash and Cash Equivalents 84,445$ Due From Other Funds 11,494 Other Accounts Receivable 17,831 Prepaid Expenses 53,959 Inventories 18,081 TOTAL CURRENT ASSETS 185,810$

Noncurrent Assets:Furniture and Equipment (Net) 115,704$ TOTAL NONCURRENT ASSETS 115,704$

TOTAL ASSETS 301,514$

DEFERRED OUTFLOWS OF RESOURCESDeferred Outflows Related to Pensoin 145,517$ Deferred Outflows Related to OPEB 4,593 TOTAL DEFERRED OUTFLOWS OF RESOURCES 150,110$

TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES 451,624$

LIABILITIESCurrent Liabilities:

Accounts Payable 40,307$ Unearned Revenue 26,615 TOTAL CURRENT LIABILITIES 66,922$

Noncurrent Liabilities:Net Pension Liability 922,660$ Net OPEB Liability 40,080 TOTAL NONCURRENT LIABILITIES 962,740$

TOTAL LIABILITIES 1,029,662$

DEFERRED INFLOWS OF RESOURCESDeferred Inflows Related to Pension 37,740$ Deferred Inflows Related to OPEB 2,680 TOTAL DERERRED INFLOWS OF RESOURCES 40,420$

NET POSITIONNet Investment in Capital Assets 115,704$ Unrestricted (Deficit) (734,162) TOTAL NET POSITION (Deficit) (618,458)$

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION 451,624$

FREEPORT AREA SCHOOL DISTRICTSTATEMENT OF NET POSITION

PROPRIETARY FUNDJUNE 30, 2019


EXHIBIT I

FOOD SERVICESOPERATING REVENUES

Food Service Revenue 512,662$ Total Operating Revenues 512,662$

OPERATING EXPENSESSalaries 292,199$ Employee Benefits 198,561 Other Purchased Services 413,723 Supplies 69,526 Depreciation 23,994 Total Operating Expenses 998,003$

OPERATING INCOME/(LOSS) (485,341)$

NONOPERATING REVENUES (EXPENSES)Earnings on Investments 11$ State Sources 87,922 Federal Sources 344,710 Total Nonoperating Revenues (Expenses) 432,643$

INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS (52,698)$

TRANSFERSTransfer from General Fund 70,771$ Total Transfers 70,771$

CHANGE IN NET POSITION 18,073$

NET POSITION - JULY 1, 2018 - (Deficit) (636,531)

NET POSITION - JUNE 30, 2019 (Deficit) (618,458)$

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITIONPROPRIETARY FUND




EXHIBIT J

FOOD SERVICES

CASH FLOWS FROM OPERATING ACTIVITIESCash Received from Users 544,718$ Cash Payments to Employees for Services (502,300) Cash Payments to Suppliers for Goods and Services (406,078) Net Cash Provided (Used) by Operating Activities (363,660)$

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIESState Sources 87,922$ Federal Sources 281,916 Operating Transfers In 70,771 Net Cash Provided (Used) by Non-Capital Financing Activities 440,609$

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESCapital Outlay (29,348)$ Net Cash Provided (Used) by Capital and Related Financing Activities (29,348)$

CASH FLOWS FROM INVESTING ACTIVITIESEarnings on Investments 11$ Net Cash Provided (Used) by Investing Activities 11$

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 47,612$

CASH AND CASH EQUIVALENTS - JULY 1, 2018 36,833

CASH AND CASH EQUIVALENTS - JUNE 30, 2019 84,445$

Reconciliation of Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities:

Operating Income (Loss) (485,341)$

ADJUSTMENTS TO RECONCILE OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:Depreciation 23,994 Donated Commodities Used 62,795 Accrual of GASB 68 Pension Expense 11,808 Accrual of GASB 75 OPEB Expense (268) (Increase) Decrease in Accounts Receivable 29,645 (Increase) Decrease in Prepaid Expenses 3,729 (Increase) Decrease in Inventories 7,585 Increase (Decrease) in Due to/from Other Funds (48,327) Increase (Decrease) in Unearned Revenue (1,237) Increase (Decrease) in Accounts Payable 31,957 Total Adjustments 121,681$

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (363,660)$

NONCASH NONCAPITAL FINANCING ACTIVITIES:During the year, the District received $62,795 of food commoditiesfrom the U.S. Department of Agriculture

STATEMENT OF CASH FLOWSPROPRIETARY FUND




EXHIBIT K

PRIVATE PURPOSE ACTIVITY

TRUST FUND FUNDS

ASSETSCash and Cash Equivalents 102,107$ 68,910$ TOTAL ASSETS 102,107$ 68,910$

LIABILITIESOther Current Liabilities -$ 68,910$ TOTAL LIABILITIES -$ 68,910$

NET POSITIONRestricted 102,107$ TOTAL NET POSITION 102,107$

FREEPORT AREA SCHOOL DISTRICTSTATEMENT OF NET POSITION

FIDUCIARY FUNDSJUNE 30, 2019


EXHIBIT L

PRIVATEPURPOSE

TRUST FUND

ADDITIONSInterest 1,794$

DEDUCTIONSScholarships Awarded (1,000)

CHANGE IN NET POSITION 794$

NET POSITION - JULY 1, 2018 101,313

NET POSITION - JUNE 30, 2019 102,107$

FREEPORT AREA SCHOOL DISTRICTSTATEMENT OF CHANGES IN NET POSITION

FIDUCIARY FUNDSJUNE 30, 2019

12

FREEPORT AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS

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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION The Freeport Area School District was established under the authority of an act of the state legislature that designated a school board as the governing body. The School District is located in the southwestern part of Armstrong and the southeastern part of Butler Counties. This District serves the surrounding municipalities that include South Buffalo Township and Freeport Borough in Armstrong County and Buffalo Township in Butler County. Approximately 55% of the land area is located in Armstrong County. The School District operates under a locally-elected nine-member Board form of government and provides educational services as mandated by the Commonwealth of Pennsylvania and selected federal agencies. The Board of Directors has complete authority over the operations and administration of the School District's activities. The School District owns and operates two elementary school buildings, one middle school building, and one senior high school building for its total enrollment of approximately 1,900 students in grades Kindergarten through12th grade. The financial statements of the Freeport Area School District have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). The most significant of the School District’s accounting policies are as follows: REPORTING ENTITY A reporting entity is comprised of the primary government, component units and other organizations that are included to ensure the financial statements are not misleading. The primary government of the Freeport Area School District consists of all funds, departments, boards and agencies that are not legally separate from the School District. Generally accepted accounting principles defines component units as legally separate entities that are included in the School District’s reporting entity because of the significance of their operating or financial relationship with the School District. Based on application of these criteria, the Freeport Area School District has no component units. The School District is associated with two jointly governed organizations (Note 13) and two public entity risk pools (Note 14). These organizations are:

• Jointly Governed Organizations: Lenape Area Vocational Technical School ARIN Intermediate Unit 28

• Public Entity Risk Pools:

Armstrong-Indiana Insurance Trust Educators Dental Consortium BASIS OF PRESENTATION AND MEASUREMENT FOCUS GOVERNMENT-WIDE FINANCIAL STATEMENTS – The statement of net position (Exhibit A) and the statement of activities (Exhibit B) display information about the School District as a whole. These statements include the financial activities of the primary government, except for fiduciary funds. The statements distinguish between those activities of the School District that are governmental and those that are considered business-type activities.


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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) BASIS OF PRESENTATION AND MEASUREMENT FOCUS (Continued) The government-wide statements are prepared using the economic resources measurement focus. That is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Governmental fund financial statements therefore include reconciliations (Exhibits D and F) with brief explanations to better identify the relationship between the government-wide statements and the statements for governmental funds. The government-wide statement of activities (Exhibit B) presents a comparison between direct expenses and program revenues for the District’s business-type activities (food service operations) and for each function of the School District’s governmental activities. Direct expenses are those that are specifically associated with a service, program or department and are therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program, and grants, subsidies and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues of the School District. The comparison of direct expenses with program revenues identifies the extent to which the business-type activity or government function is self-financing or draws from the general revenues of the School District.

FUND FINANCIAL STATEMENTS – Fund financial statements report detailed information about the School District. Under GASB Statement No. 34, the focus of the fund financial statements is on major funds. Major funds represent the District’s most important funds and are determined based on percentages of assets, liabilities, revenues, and expenditures/expenses. For Pennsylvania school districts, the General Fund and Food Service Fund are always considered major funds. Each major fund is presented in a separate column. Non major funds are segregated and presented in a single column. Fiduciary funds are reported by fund type. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental fund types are accounted for using a flow of current financial resources measurement focus. The financial statements for governmental funds are a balance sheet, which generally includes only current assets and current liabilities, and a statement of revenues, expenditures and changes in fund balances, which reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. All proprietary fund types are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the statement of net position. The statement of changes in fund net position presents increases (revenues) and decreases (expenses) in net total assets. The statement of cash flows provides information about how the School District finances and meets the cash flow needs of its proprietary activities. Fiduciary funds are reported using the economic resources measurement focus. FUND ACCOUNTING The School District uses funds to report on its financial position and the results of its operations during the year. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain school district functions or activities. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts. Funds are classified into three categories: governmental, proprietary and fiduciary. Fund categories are defined as follows:


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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) FUND ACCOUNTING (Continued)

Governmental Funds – Governmental funds focus on the sources, uses and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. A description of the School District’s major governmental funds is as follows: MAJOR GOVERNMENTAL FUNDS:

GENERAL FUND - The General Fund is used to account for all financial resources not required to be accounted for in some other fund. The General Fund balance is available for any purpose provided it is expended according to the Commonwealth of Pennsylvania Public School Code. CAPITAL PROJECTS FUND - The Capital Projects Fund accounts for financial resources used for the acquisition or construction of capital assets, as deemed necessary by the Board of Directors.

NON-MAJOR GOVERNMENTAL FUNDS:

DEBT SERVICE FUND - The Debt Service Fund accounts for the accumulation of resources for, and the payment of, general long-term debt, principal, interest and related costs.

Proprietary Funds – The Proprietary Fund is used to account for activities similar to those found in the private sector, where the determination of net income is necessary and useful for sound financial administration. Goods or services from such activities can be provided either to outside parties (enterprise funds) or to other departments or agencies within the School District (internal service funds). The School District’s major and sole enterprise fund is its Food Service Fund, which accounts for the financial transactions related to the food service operations of the District. Fiduciary Funds – Fiduciary fund reporting focuses on net position and changes in net position. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private-purpose trust funds and agency funds. Trust funds are used to account for assets held by the School District under a trust agreement for individuals, private organizations, or other governments and are therefore not available to support the School District’s own programs. Agency funds are custodial in nature and do not involve measuring income or any other results from operations. The School District maintains one private-purpose trust fund. The private-purpose trust fund accounts for student scholarships and is funded through the Slivan Memorial Scholarship Fund. The School District also maintains an Agency Fund which accounts for various student organization activity accounts administered by the District on behalf of the various student organizations. BASIS OF ACCOUNTING The basis of accounting determines when transactions are recorded in the financial records and reported in the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Government funds use the modified accrual basis of accounting. Proprietary and fiduciary funds use the accrual basis of accounting.


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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) BASIS OF ACCOUNTING (Continued) Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the School District, available means expected to be received within sixty days of fiscal year-end. Revenue resulting from non-exchange transactions, in which the School District receives value without directly giving equal value in return, includes property taxes, grants and contributions. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenues from grants and contributions are recognized in the fiscal year in which all eligibility requirements have been satisfied. On a modified accrual basis, revenue from non-exchange transactions must also be ‘available’ before it can be recognized. The management of the Freeport Area School District has determined that the revenues most susceptible to accrual (measurable and available) at June 30, 2019 under the modified accrual basis are 1) Act 511 taxes collected by the district within 60 days following the close of the fiscal year, 2) federal and state subsidies earned in the fiscal year 2018-2019, and 3) other miscellaneous revenues earned in fiscal year 2018-2019 but received subsequent to June 30, 2019. On the governmental fund financial statements, delinquent real estate tax receivables that will not be collected within the ‘available’ period have been reported as ‘deferred inflows of resources’. On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable. The primary expenditures deemed susceptible to accrual at June 30, 2019, are those which the Board of Education’s intention was to expense these items as budgeted for the 2018-2019 official budget, and for which the District has incurred an obligation during 2019, but has not paid as of June 30, 2019. Allocations of cost, such as depreciation and amortization, are not recognized in governmental funds but are included as part of expenses in the government-wide statement of activities. Unused donated commodities are reported as unearned revenue BUDGETS In June of 2018, the Freeport Area School District adopted its fiscal year June 30, 2019 annual budget for the general fund totaling $32,706,480 in accordance with the provisions of the Pennsylvania School Code. The budget is prepared utilizing the modified accrual method of accounting. Budgetary transfers among various expenditure line items can be performed by the District, as approved by the Board of Education, only during the last nine months of the fiscal year. The original and adjusted budgetary amounts are reflected in these financial statements (Exhibit G). All annual appropriations of the general fund lapse at fiscal year- end.

CASH AND CASH EQUIVALENTS Cash and cash equivalents include amounts in demand deposit accounts and any other highly liquid, short-term investments, with original maturity terms of less than three months.


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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

INVESTMENTS Under Section 440.1 of the Pennsylvania Public School Code of 1949, as amended, and PA Act 10 of 2016, Freeport Area School District is permitted to invest funds consistent with sound business practices in the following types of investments:

I. Obligations of (a) the United States of American or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, (b) the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the Commonwealth of Pennsylvania, or (c) of any political subdivision of the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the political subdivision.

II. Deposits in savings accounts, time deposits and share accounts of institutions insured by the Federal Deposit Insurance Corporation (FDIC) to the extent that such accounts are so insured and, for any amounts above the insured maximum, provided that approved collateral, as provided by law, is pledged by the depository.

III. U.S. government obligations, short-term commercial paper issued by a public corporation, and banker’s acceptances.

Investments of the Freeport Area School District include deposits pooled for investment purposes with the Pennsylvania Local Government Investment Trust (PLGIT) and the Pennsylvania School District Liquid Asset Fund (PSDLAF). Investments are reported at fair value. There were no deposit and investment transactions during the year that were in violation of state statues. SHORT-TERM INTERFUND RECEIVABLES/PAYABLES During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered. These receivables and payables are classified as 'due from/to other funds' on the governmental funds balance sheet. For the purposes of the government-wide statement of net position, governmental inter-fund receivables and payables have been eliminated. Amounts due between governmental activities and business-type activities, if any, are presented as off-setting internal balances on the statement of net position. INVENTORIES Inventories on the government-wide statement of net position (Exhibit A) and the proprietary fund statement of net position (Exhibit H) are recorded at a combination of actual cost and fair value on a first-in first-out basis. This inventory consists of purchased food and supplies and donated commodities from the U.S. Department of Agriculture as part of the food service program. The School District does not inventory the cost of such items as books and supplies, but rather records these items as an expenditure in the governmental funds and an expense in the government-wide statement of activities at the time of purchase. CAPITAL ASSETS AND DEPRECIATION General capital assets are those assets not specifically related to activities reported in the proprietary funds. These assets are reported in the governmental activities column of the government-wide statement of net position.


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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) CAPITAL ASSETS AND DEPRECIATION (Continued) Capital assets used by the proprietary fund are reported in both the business-type activity column of the government-wide statement of net position and on the proprietary fund statement of net position. All capital assets are recorded at cost (or estimated historical cost). Donated fixed assets are recorded at estimated fair value at the time of receipt. The School District maintains a capitalization threshold of $5,000. Management has elected to include certain homogeneous asset categories with individual assets less than $5,000 as composite groups for financial reporting purposes. In addition, capital assets purchased with long-term debt may be capitalized regardless of the thresholds established. Routine repair and maintenance costs that do not add to the value of the asset or extend its useful life are charged as an expense in the government-wide statement of activities. All reported capital assets, except land and construction in progress, are depreciated using the straight-line method over the following useful lives:

ASSET YEARS

Buildings 40Land Improvements 15Furniture 20Vehicles (Under 13,000 lbs) 8Information Systems (computers and peripherals) 5Data Handling Equipment 10Textbooks 7Library/workbooks 7Telephone System 10Music 10Band Uniforms 10Video/Cameras 10

The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. Capital assets purchased by governmental funds are recorded as expenditures in the fund financial statements (Exhibit E). The results of capitalizing fixed assets net of depreciation on the government-wide statement of net position and statement of activities, as opposed to recording these same assets as an expenditure in the fund financial statements (Exhibit E), is reflected in the required reconciliations of fund balance to net position (Exhibit D) and the changes in fund balances to the changes in net position (Exhibit F). LONG-TERM DEBT FINANCING COSTS Bond issue costs are recorded as expenditures in the governmental fund financial statements in the year paid. The School District did not incur bond issuance costs during the 2018-2019 year.


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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) COMPENSATED ABSENCES Compensated Absences are granted to employees and accumulated in accordance with contractual and other legal requirements as follows:

• Unused vacation amounts are estimated based on estimated daily rates per unused day for various employee groups within the School District

• Sick leave is granted as appropriate (medical evidence required) with budgetary provision being

made annually for the estimated cost of substitute personnel. Contractual provisions with professional employees require payment of $2,000 severance pay for employees retiring with 20 years credited service, 15 years of which are in the Freeport Area School District, plus $60 per day of accumulated sick leave. In addition, nonprofessional employees are entitled to severance pay for unused sick days computed as follows:

1.) Employees retiring who have worked between 15 to 19 years in the District shall receive

severance pay at $25 per day of accumulated sick days, to a maximum of 150 days.

2.) Employees retiring who have worked between 20 and 24 years in the District shall receive severance pay at $30 per day of accumulated sick days, to a maximum of 150 days.

3.) Employees retiring who have worked between 25 and 29 years in the District shall receive severance pay at $35 per day of accumulated sick days, to a maximum of 150 days.

4.) Employees retiring who have worked 30 years or more in the District shall receive severance pay at $40 per day of accumulated sick days, to a maximum of 150 days.

5.) Employees with a minimum of 15 years of continuous service in the District may elect to leave the severance pay with the employer to be used to purchase individual health care insurance to the maximum of the severance pay as described above. Such health care insurance coverage paid from severance pay shall commenced from the date of retirement and will continue until they qualify for Medicare or death or until complete use of the severance pay for premium payments, whichever event occurs first.

The School District incurs a liability for compensated absences which meet the following criteria:

1.) The School District’s obligation relating to employee’s rights to receive compensation for future absences is attributable to employee’s services already rendered.

2.) The obligation relates to rights that vest or accumulate. 3.) Payment of the compensation is probable. 4.) The amount can be reasonably estimated.

Teachers do not receive paid vacations but are paid only for the number of days they are required to work each year (for 2018-2019 teacher workdays could not exceed 188 days). Other full-time employees (administrators, secretarial, custodial, etc.) are granted vacation leave in varying amounts. In the event of termination an employee is reimbursed for any unused accumulated leave. Vacation pay is charged to operations when taken by the employees of the district


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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) COMPENSATED ABSENCES (Continued) In accordance with the above criteria the School District has accrued a liability for compensated absences which has been earned but not taken by School District employees. At June 30, 2019, the liability for compensated absences, including benefits, for unused leaves to present employees is as follows:

Vacation Pay 158,762$ Sick Leave 718,272 Estimated Sabbaticals 723,240 Total 1,600,274$

Compensated absences as of June 30, 2019 have been calculated in accordance with applicable GASB Statements. PENSIONS For the purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Public School Employees’ Retirement System (PSERS), and additions to/deductions from PSERS’s fiduciary net position have been determined on the same basis as they are reported by PSERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investment assets are reported at fair value. More information on pension activity is included in Note 10.

OTHER POSTEMPLOYMENT BENEFITS For the purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the Public School Employees’ Retirement System (PSERS), and additions to/deductions from PSERS’s fiduciary net position have been determined on the same basis as they are reported by PSERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investment assets are reported at fair value. More information on other postemployment benefits activity is included in Note 11. ACCRUED LIABILITIES AND LONG-TERM OBLIGATIONS All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements. For the business-type activities, these obligations and all similar obligations are reported again on the proprietary fund financial statement of net position (Exhibit H). In general, payables and accrued liabilities that will be paid from governmental funds are reported on the governmental fund financial statements regardless of whether they will be liquidated with current resources. However, the non-current portion of compensated absences and retiree health benefits that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they will be paid with current, expendable, available financial resources. In general, liabilities that mature or come due for payment during the fiscal year are considered to have been paid with current available financial resources.


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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ACCRUED LIABILITIES AND LONG-TERM OBLIGATIONS (Continued) Bonds and other long-term obligations that will be paid from governmental funds are not recognized as a liability in the fund financial statements when due. The District’s General Fund is typically used to liquidate long-term liability obligations. The results of recognizing these long-term obligations as liabilities on the government-wide statement of net position and statement of activities, as opposed to recording these same obligations as an expenditure in the fund financial statements (Exhibit E) only when paid, is reflected in the required reconciliations of fund balance to net position (Exhibit D) and the changes in fund balances to the changes in net position (Exhibit F). UNEARNED REVENUE Unearned revenue arises when the District receives resources before it has legal claim to them. This occurs when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the School District has a legal claim to the resources, the unearned revenue liability is removed and revenue is recognized. DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES In addition to assets and liabilities, the statement of net position and/or the balance sheet will sometimes report a separate section for deferred outflows and/or inflows of resources. These separate financial statement elements represent a decrease and/or increase in net position that applies to a future period and so will not be recognized as an outflow and/or inflow of resources (expense/expenditure or income/revenue) in the current period. NET POSITION Net position is classified into three categories according to the external donor or legal restrictions or availability of assets to satisfy District obligations. Net position is classified as follows:

• Net Investment in Capital Assets – This component of net position consists of capital assets net of accumulated depreciation, and reduced by the outstanding balances of debt that is attributable to the acquisition, construction and improvement of the capital assets, plus deferred outflows of resources less deferred inflows of resources related to those assets.

• Restricted Net Position – This component of net position consists of restricted assets reduced by

liabilities and deferred inflows related to those assets.

• Unrestricted – Consists of net position that does not meet the definition of ‘restricted’ or ‘net investment in capital assets’

When an expense is incurred that can be paid using either restricted or unrestricted resources (net position), the School District’s policy is to first apply the expense toward restricted resources and then toward unrestricted resources.

FUND EQUITY In the Balance Sheet – Governmental Funds (Exhibit C) fund balances are reported in specific categories to make the nature and extent of the constraints placed on any entity’s fund balance more transparent in accordance with GASB No. 54, Fund Balance Reporting and Governmental Fund Type Definitions.


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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) FUND EQUITY (Continued) The following classifications describe the relative strength of the spending constraints placed on the purposes for which resources can be used:

• Nonspendable fund balance – amounts that are not in a spendable form (such as inventory) or are required to be maintained intact. The non-spendable fund balance of $40,602 represents inventory as of June 30, 2019.

• Restricted fund balance – amounts constrained to specific purposes by their providers (such as

grantors, bondholders, and high levels of government), through constitutional provisions, or by enabling legislation

• Committed fund balance – amounts constrained to specific purposes by the School District itself,

using its highest level of decision-making authority; to be reported as committed, amounts cannot be used for any other purpose unless the School District takes the same highest-level action to remove or change the constraint. At June 30, 2019, management of the Freeport Area School District has committed $3,000,000 of the General Fund balance for the purpose of deferred maintenance to district buildings and equipment, future retirement costs and accumulated postemployment benefits.

• Unassigned fund balance – amounts that are available for any purpose

• Assigned fund balance – amounts the School District intends to use for a specific purpose; intent

can be expressed by the governing body or by an official or body to which the governing body delegates the authority. At June 30, 2019, management of the Freeport Area School District has assigned $193 of the General Fund balance for student athletic activities.

The School District establishes (and modifies or rescinds) fund balance commitments by passage of an ordinance or resolution. This is typically done through adoption and amendment of the budget. A fund balance commitment is further indicated in the budget document as a designation or commitment of the fund. The Board of Education has given authority to assign fund balance to the Business Manager. When expenditures/expenses are incurred for purposes for which unrestricted (committed, assigned, and unassigned) resources are available, and amounts in any of these unrestricted classifications could be used, it is the District’s general policy to spend the committed resources first, followed by assigned amounts and then unassigned amounts.

Act 48 of 2003 prohibits school districts from increasing real property taxes for the school year 2006-2007 or any subsequent school year, unless the school district has adopted a budget for such school year that includes an estimated ending unassigned fund balance which is not more than a specified percentage of the district’s total budgeted expenditures. For the Freeport Area School District, estimated ending unassigned fund balance must not exceed 8.0% of total budgeted expenditures. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires the District's management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.


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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) OPERATING REVENUES AND EXPENSES Operating revenues are those revenues that are generated directly from the primary activity of the proprietary fund. For the Freeport Area School District, these revenues are food service charges for lunch and breakfast service. Operating expenses are the necessary costs incurred to provide the aforementioned food service. Non-operating revenues of the District’s food service proprietary fund are comprised of interest earnings and state and federal subsidies, including donated commodities, received from the U.S. Department of Agriculture. The District did not have non-operating expenses during the fiscal year.

ADOPTION OF GASB PRONOUNCEMENTS The requirements of the following GASB Statements were adopted for the School District’s 2018-2019 financial statements. Except where noted, the adoption of these pronouncements did not have a significant impact on the School District’s financial statements. The GASB issued Statement No. 83, ‘Certain Asset Retirement Obligations’. The primary objective of this Statement is to provide financial statement users with information about ‘asset retirement obligations (ARO) that were not addressed in GASB Standards by establishing uniform accounting and financial reporting requirements for these obligations. The GASB issued Statement No. 88, ‘Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements’. The primary objective of this Statement is to improve consistency in the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements, and to provide financial statement users with additional essential information about debt. PENDING GASB PRONOUNCEMENTS In January of 2017, the GASB issued Statement No. 84, ‘Fiduciary Activities’. The primary objective of this Statement is to enhance the consistency and comparability of fiduciary activity reporting by state and local governments. This Statement also is intended to improve the usefulness of fiduciary activity information primarily for assessing the accountability of governments in their roles as fiduciaries. The provisions of this Statement are effective for the School District’s June 30, 2020 financial statements. In June of 2017, the GASB issued Statement No. 87, ‘Leases’. The primary objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases; enhancing the comparability of financial statements between governments; and also enhancing the relevance, reliability (representational faithfulness), and consistency of information about the leasing activities of governments. The provisions of this Statement are effective for the School District’s June 30, 2021 financial statements. In June of 2018, the GASB issued Statement No. 89, ‘Accounting for Interest Cost Incurred before the end of a Construction Period’. The primary objectives of this Statement are (a) to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and, (b) to simplify accounting for certain interest costs. The provisions of this Statement are effective for the School District’s June 30, 2021 financial statements.


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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) PENDING GASB PRONOUNCEMENTS (Continued) In August of 2018, the GASB issued Statement No. 90, ‘Majority Equity Interests (an amendment of GASB Statements No. 14 and No. 61’. The primary objectives of this Statement are to improve consistency in the measurement and comparability of the financial statement presentation of majority equity interests in legally separate organizations and to improve the relevance of financial statement information for certain component units. The provisions of this Statement are effective for the School District’s June 30, 2020 financial statements. In May of 2019, the GASB issued Statement No. 91, ‘Conduit Debt Obligations’. The primary objectives of this Statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. The provisions of this Statement are effective for the School District’s June 30, 2022 financial statements. The effects of implementing the aforementioned GASB Statements on the School District’s financial statements have not yet been determined. NOTE 2 - CASH DEPOSITS AND INVESTMENTS CASH DEPOSITS: At June 30, 2019, Freeport Area School District had the following carrying values on its cash and cash equivalents accounts:

Bank Balance Carrying ValueGeneral Fund - Checking 1,049,685$ 910,472$ General Fund - Petty Cash - 700 General Fund - PLGIT 5,487,983 5,487,983 General Fund - PSDLAF 94,957 94,957 Debt Service Fund - PLGIT 158,578 158,578 Capital Projects Fund - Checking 1,495,678 1,495,678 Capital Projects Fund - PLGIT 92,296 92,296 Proprietary Fund 84,445 84,445 Agency Funds 171,950 171,017

8,635,572$ 8,496,126$ CD's shown as investments 2,210,395 2,195,000

10,845,967$ 10,691,126$

The difference between the bank balance and the carrying value represents year-end reconciling items such as deposits in transit and outstanding checks. The Federal Deposit Insurance Corporation (FDIC) coverage threshold for government accounts is $250,000 per official custodian. This coverage includes checking and savings accounts, money market deposit accounts and certificates of deposit. Deposits in PLGIT and PSDLAF are not covered by FDIC insurance.


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NOTE 2 - CASH DEPOSITS AND INVESTMENTS (Continued) CASH DEPOSITS: (Continued) The purpose of the Pennsylvania Local Government Investment Trust (PLGIT), and the Pennsylvania School District Liquid Asset Fund (PSDLAF) is to enable their available funds for investments authorized under the intergovernmental Cooperation Act of 1972. The funds operate in a manner consistent with the SEC’s Rule 2(a) 7 of the Investment Company Act of 1940. The funds use amortized cost to report net position to compute share prices. These funds maintain net asset values of $1 per share. Accordingly, the fair value of the position in these funds is the same as the value of these shares. Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the District’s deposits may not be returned to it. The District does not have a separate policy for custodial credit risk in addition to the requirements of State Law. As of June 30, 2019, $2,200,631 of the District’s bank balance total is exposed to custodial credit risk as this amount represents uninsured deposits collateralized with securities held by the pledging financial institution or by its trust department or agent, but not in the School District's name. In accordance with Act Number 72-1971 Session of the Commonwealth of Pennsylvania, the aforementioned deposits, in excess of $250,000, are collateralized by securities pledged to a pooled public funds account with the Federal Reserve System. NOTE 3 - PROPERTY TAXES The Freeport Area School District levies property taxes July 1 of each fiscal year. The tax millage assessment for the 2018-2019 fiscal year was 62.4 for Armstrong County (Freeport Borough and South Buffalo Township) and 145.6 for Butler County (Buffalo Township), which represents $62.40 and $145.60 respectively of revenue for every $1,000 of assessed property value. Taxpayers are entitled to a 2% discount if taxes are paid prior to October 1st. Collections beginning December 1st are assessed a 10% penalty. Unpaid taxes are submitted to the District’s county tax claim bureau. Tax collectors are required under Act 169 of the Commonwealth of Pennsylvania to submit a reconciliation of their tax duplicate to the District by January 15th of the year following levy. A summary of the collection percentage by municipality is as follows:

FACE FACE PERCENTAMOUNT AMOUNT OF LEVY

MUNICIPALITY LEVIED COLLECTED COLLECTEDBuffalo Township 10,406,353$ 10,107,196$ 97.1%Freeport Borough 981,980 866,119 88.2%South Buffalo Township 3,585,738 3,412,257 95.2%

14,974,071$ 14,385,572$ 96.1%

The total amount of the levy returned to the County Tax Claim Bureau was $588,500 which is 3.93% of the total amount levied for tax year 2018-2019. Taxes receivable as shown in the government-wide statement of net position includes delinquent property taxes of $1,042,464. For purposes of the governmental fund financial statements, $960,597 of the delinquent property taxes receivable, although measurable, does not meet the available criteria to finance current fiscal year operations. Accordingly, this amount is equally off-set as a credit to deferred inflow of resources in the fund financial statements.


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NOTE 3 - PROPERTY TAXES (Continued) The effect of recognizing property tax revenue when taxes are levied, as opposed to when they are received using the ‘measurable and available’ criteria under the modified accrual basis of accounting, is reflected in the required reconciliations of fund balance to net position (Exhibit D) and the changes in fund balances to the changes in net position (Exhibit F). Taxes receivable are comprised of the following at June 30, 2019:

GOVERNMENTAL GOVERNMENTALACTIVITIES FUNDS

Delinquent Real Estate (60 Days) 81,869$ 81,869$ Delinquent Real Estate (Prior Years) 960,597 960,597 EIT 23,553 23,553 LST 187,072 154 Deed Transfer Taxes 69,257 69,257

1,322,348$ 1,135,430$

NOTE 4 – DUE FROM OTHER GOVERNMENTS The amount of ‘due from other governments’, as reflected on the government-wide statement of net position and the governmental funds balance sheet, is comprised of the following:

GovernmentalActivities

Commonwealth of Pennsylvania:State Subsidies 1,385,561$ Federal Pass-Through Grants 19,819

Other Intergovernmental Receivables 119,326 1,524,706$

NOTE 5 – UNEARNED REVENUE Unearned revenue totaling $68,558, as reflected on the government-wide statement of net assets (Exhibit A) and the proprietary fund statement of net position (Exhibit H) is comprised of $41,943 in unearned state grant revenue, $22,733 due paid on student accounts and $3,882 of donated commodities inventory of the District’s Food Service Fund. NOTE 6 – OTHER ACCOUNTS RECEIVABLE The amount of ‘other accounts receivable’ totaling $109,657, as reflected on the government-wide statement of net position (Exhibit A), the governmental funds balance sheet (Exhibit C), and the proprietary fund statement of net position (Exhibit H), is comprised of $24,855 due on student accounts and $84,802 miscellaneous revenues due from various sources.


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NOTE 7 – INTER-FUND OBLIGATIONS AND TRANSFERS During the fiscal year 2018-2019, the General fund transferred $3,391,187 to the Debt Service Fund for payment of District debt, $654,107 to the Capital Project Fund for various capital expenses, and transferred $70,771 to the Cafeteria Fund to subsidize food service expenses. Inter-fund receivables and payables as reflected on the governmental funds balance sheet (Exhibit C), proprietary fund statement of net position (Exhibit H), and fiduciary fund statement of net position (Exhibit K) are comprised of the following:

RECEIVABLE PAYABLEGeneral Fund -$ 11,494$ Food Service Fund 11,494 -

11,494$ 11,494$

The interfund receivables and payables are expected to be paid back within one year. NOTE 8 - CAPITAL ASSETS A summary of the governmental fixed asset activity for the 2018-2019 fiscal year was as follows:

Balance 7/1/2018 Additions

Deductions/ Adjustments

Balance 6/30/2019

Governmental Activities Land 823,039$ -$ -$ 823,039$ Land Improvements 10,461,329 45,574 - 10,506,903 Building and Improvements 29,917,408 32,643,640 - 62,561,048 Furniture and Equipment 9,245,703 162,044 - 9,407,747 Construction in Progress 32,442,748 - (32,442,748) -

82,890,227$ 32,851,258$ (32,442,748)$ 83,298,737$

Less: Accumulated depreciation

Land Improvements (5,537,043)$ (423,222)$ -$ (5,960,265)$ Building and Improvements (11,804,816) (797,837) - (12,602,653) Furniture and Equipment (8,422,262) (266,107) - (8,688,369)

(25,764,121)$ (1,487,166)$ -$ (27,251,287)$ Governmental Activities Capital Assets, Net 57,126,106$ 31,364,092$ (32,442,748)$ 56,047,450$

Business-Type ActivitiesFurniture and Equipment 749,384$ 29,348$ -$ 778,732$

Less: Accumulated Depreciation (639,034) (23,994) - (663,028) Business-Type Activities Capital Assets, Net 110,350$ 5,354$ -$ 115,704$


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NOTE 8 - CAPITAL ASSETS (Continued) Depreciation expense was charged to governmental functions as follows:

NOTE 9 - LONG-TERM LIABILITIES GENERAL OBLIGATION NOTE – SERIES G OF 2005 In August of 2005, the Freeport Area School District entered into a loan agreement with the Emmaus General Authority/PLGIT Bond Pool Program for $19,500,000 for the purpose of (1) currently refunding a portion of the District’s outstanding Series of 2000 note and all amounts disbursed under the line of credit in order to substitute the temporary financing evidenced by the 2000 note and the line of credit with long-term financing evidenced by the issues of bonds, (2) planning, designing, acquiring, constructing, equipping and furnishing additions, alterations and/or renovations to the District’s school buildings and (3) pay the remarketing costs. GENERAL OBLIGATION NOTE – SERIES OF 2014 On August 14, 2014, the Freeport Area School District entered into a loan agreement with the Emmaus General Authority/PLGIT Bond Pool Program in the amount of $20,300,000 for the purpose of (1) paying the costs of planning, designing, and constructing a new middle school, 629 South Pike Road, Sarver, PA 16055, and (2) paying the costs of issuing the Note. The Note shall bear interest from its date of issuance on the unpaid principal amount thereof at a variable rate provided in the Liquidity Facility Agreement, but in no event shall such variable rate exceed the maximum rate of 25% per annum. The note is scheduled to mature on February 1, 2028. GENERAL OBLIGATION NOTE – SERIES A OF 2014 On December 18, 2014, the Freeport Area School District entered into a loan agreement with the Emmaus General Authority/PLGIT Bond Pool Program in the amount of $5,900,000 for the purpose of (1) financing a portion of the costs of planning, designing, and constructing a new middle school as referenced above, and (2) paying the costs of issuing the note. The Note shall bear interest from its date of issuance on the unpaid principal amount thereof at a variable rate provided in the Liquidity Facility Agreement, but in no event shall such variable rate exceed the maximum rate of 25% per annum. The note is scheduled to mature on February 1, 2030. GENERAL OBLIGATION BONDS – SERIES OF 2015 On February 3, 2015, the Freeport Area School District issued General Obligation Bonds, Series of 2015 totaling $9,995,000. The purpose of the bond issue is to (1) pay a portion of the costs of acquiring and constructing additions, alterations, and renovations which constitute the Freeport Area School District Middle School and adjoining athletic facilities, and (2) pay the costs associated with issuing the bonds. Interest rates range between .650% and 3.050% with the bonds scheduled to mature on February 1, 2033. The bonds provide for early redemption options for the school district for those bonds maturing on or after February 1, 2024.

Instruction 1,024,953$ Instructional Student Support 47,998 Administrative and Financial Support Services 244,127 Operation and Maintenance of Plant Services 170,088

1,487,166$


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NOTE 9 - LONG-TERM LIABILITIES (Continued) A summary of the Freeport Area School District's general obligation notes and bond outstanding at June 30, 2019 is as follows:

YEAR ENDJUNE 30, INTEREST TOTAL

2020 858,527$ 3,093,527$ 2021 825,522 2,955,522 2022 779,028 2,999,028 2023 730,600 3,040,600 2024 680,236 3,080,236

2025-2029 2,569,269 16,049,269 2030-3033 925,743 13,545,743

7,368,925$ 44,763,925$

The following represents the changes in the district's long-term liabilities during the 2018-2019 fiscal year:

Balance 7/1/2018 Additions Reductions

Balance 6/30/2019

Due Within One Year

General Obligation Notes 29,630,000$ -$ 2,200,000$ 27,430,000$ 2,200,000$ General Obligation Bonds 9,975,000 - 10,000 9,965,000 35,000 Compensated Absences 1,665,439 - 65,165 1,600,274 - Net Pension Liability 49,043,000 - 2,910,000 46,133,000 - Net OPEB Obligation 6,443,495 - 53,608 6,389,887 -

96,756,934$ -$ 5,238,773$ 91,518,161$ 2,235,000$

NOTE 10 - PENSION PLAN The Freeport Area School District participates in the Public School Employees' Retirement System (PSERS). PSERS is a component unit of the Commonwealth of Pennsylvania. A brief description of the plan, and summary of the plan's provisions, are as follows:

SERIESYEAR END 2005G 2014 2014A 2015JUNE 30, PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL

2020 1,500,000$ 695,000$ 5,000$ 35,000$ 2021 - 2,090,000 5,000 35,000 2022 - 2,180,000 5,000 35,000 2023 - 2,270,000 5,000 35,000 2024 - 2,360,000 5,000 35,000

2025-2029 - 10,460,000 2,875,000 145,000 2030-3033 - - 2,975,000 9,645,000

1,500,000$ 20,055,000$ 5,875,000$ 9,965,000$


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NOTE 10 – PENSION PLAN (Continued) Plan Description PSERS is a governmental cost-sharing multiple-employer defined-benefit plan that provides retirement benefits to public school employees of the Commonwealth of Pennsylvania. The members eligible to participate in the System include all full-time public school employees, part-time hourly public school employees who render at least 500 hours of service in the school year, and part-time per diem public school employees who render at least 80 days of service in the school year in any of the reporting entities in Pennsylvania. PSERS issues a publicly available financial report that can be obtained at www.psers.state.pa.us. Benefits Provided PSERS provides retirement, disability, and death benefits. Members are eligible for monthly retirement benefits upon reaching (a) age 62 with a least 1 year of credited service; (b) age 60 with 30 or more years of credited service; or (c) 35 or more years of service regardless of age. Act 120 of 2010 (Act 120) preserves the benefits of existing members and introduced benefit reductions for individuals who become new members on or after July 1, 2011. Act 120 created two new membership classes, Membership Class T-E (Class T-E) and Membership Class T-F (Class T-F). To qualify for normal retirement, Class T-E and Class T-F members must work until age 65 with a minimum of three years of service or attain a total combination of age and service that is equal to or greater than ninety-two with a minimum of thirty-five years of service. Benefits are generally equal to 2% or 2.5%, depending upon membership class, of the member’s final average salary (as defined in the Code) multiplied by the number of years of credited service. For members whose membership started prior to July 1, 2011, after completion of five years of service, a member’s right to the defined benefits is vested and early retirement benefits may be elected. For Class T-E and Class T-F members, the right to benefits is vested after ten years of service. Participants are eligible for disability retirement benefits after completion of five years of credited service. Such benefits are generally equal to 2% or 2.5%, depending upon membership class, of the member’s final average salary (as defined in the Code) multiplied by the number of years of credited service, but not less than one-third of such salary nor greater than the benefit the member would have had at normal retirement age. Members over normal retirement age may apply for disability benefits. Death benefits are payable upon the death of an active member who has reached age 62 with at least one year of credited service (age 65 with at least three years of credited service for Class T-E and Class T-F members) or who has at least five years of credited service (ten years for Class T-E and Class T-F members). Such benefits are actuarially equivalent to the benefit that would have been effective if the member had retired on the day before death. Contribution Rates Member Contributions - Active members who joined the System prior to July 22, 1983, contribute at 5.25% (Membership Class TC) or at 6.5% (Membership Class TD) of the member’s qualifying compensation. Members who joined the System on or after July 22, 1983 and who were active or inactive as of July 1, 2001, contribute 6.25% (Membership Class TC) or at 7.5% (Membership Class TD) of the members qualifying compensation. Members who joined the System after June 30, 2001 and before June 1, 2011, contribute at 7.5% (automatic Membership Class TD). For all new hires and for members who elected Class T-D membership, the higher contribution rates began with service rendered on or after January 1, 2002.


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NOTE 10 – PENSION PLAN (Continued) Contribution Rates (Continued) Members who joined the System after June 30, 2011 automatically contribute at the Membership Class T-E rate of 7.5% (base rate) of the member’s qualifying compensation. All new hires after June 30, 2011, who elect Class T-F membership, contribute at 10.30% (base rate) of the member’s qualifying compensation. Membership Class T-E and Class T-F are affected by a ‘shared risk’ provision in Act 120 of 2010 that in future years could cause the Membership Class T-E contribution rate to fluctuate between 7.50% and 9.50% and Membership Class T-F contribution rate to fluctuate between 10.3% and 12.30%. Employer Contributions – Contributions required of employers are based upon an actuarial valuation. For fiscal year ended June 30, 2019, the rate of employer’s contribution was 32.60% of covered payroll, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Per the PSERS Retirement Code, the Commonwealth is required to contribute 50% of the above stated contribution rate directly to PSERS on behalf of the employer. Contributions to the pension plan from the employer were $8,691,722 for the year ended June 30, 2019. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2019, the School District reported a liability of $46,133,000 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2018, and the total pension liability used to calculate the net pension liability was determined by rolling forward the System’s total pension liability as of June 30, 2017 to June 30, 2018. The School District’s proportion of the net pension liability was calculated utilizing the employer’s one-year reported covered payroll as it relates to the total one-year reported covered payroll. At June 30, 2018 (the measurement date), the School District’s proportion was .0961% which was a decrease of .0032% from its proportion measured as of June 30, 2017. For the year ended June 30, 2019, the School District recognized pension expense of $5,996,713. At June 30, 2019, the School District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows Deferred Inflowsof Resources of Resources

Difference between expected and actual experience 371,000$ 714,000$ Changes in assumptions 860,000 - Net difference between projected and actual investment earnings 226,000 - Changes in proportions 1,473,000 1,173,000 Contributions subsequent to the measurement date 8,691,722 -

11,621,722$ 1,887,000$

The $8,691,722 reported as deferred outflows of resources related to pensions resulting from School District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability for the measurement year ended June 30, 2019.


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NOTE 10 - PENSION PLAN (Continued) Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions (Continued) Other amounts reported as deferred inflows/outflows of resources related to pensions will be recognized in pension expense as follows:

Measurement ReportingDate Date

Year ended Year endedJune 30, June 30, Amount

2019 2020 1,156,000$ 2020 2021 518,000 2021 2022 (455,000) 2022 2023 (176,000)

Actuarial Assumptions The total pension liability as of June 30, 2018 was determined by rolling forward the System’s total pension liability as of the June 30, 2017 to June 30, 2018 using the following actuarial assumptions, applied to all periods included in the measurement:

• Actuarial cost method – Entry Age Normal – level % of pay • Investment return – 7.25%, includes inflation at 2.75% • Salary growth – Effective average of 5.00%, comprised of inflation of 2.75% and 2.25% for real

wage growth and for merit or seniority increases • Mortality rates were based on the RP-2014 Mortality Tables for Males and Females, adjusted to

reflect PSERS’ experience and projected using a modified version of the MP-2015 Mortality Improvement Scale

The actuarial assumptions used in the June 30, 2017 valuation were based on the results of an actuarial experience study that was performed for the five-year period ending June 30, 2015. Investment Asset Allocation The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The pension plan’s policy in regard to the allocation of invested plan assets is established and may be amended by the Board. Plan assets are managed with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the pension.


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NOTE 10 - PENSION PLAN (Continued) Investment Asset Allocation (Continued)

Long-TermTarget Expected Real

Asset Class Allocation Rate of Return

Global public equity 20.0% 5.20%Fixed Income 36.0% 2.20%Commodities 8.0% 3.20%Absolute return 10.0% 3.50%Risk parity 10.0% 3.90%Infrastructure/MLP's 8.0% 5.20%Real estate 10.0% 4.20%Alternative investments 15.0% 6.70%Cash 3.0% 0.40%Financing (LIBOR) -20.0% 0.90%

100%

The above was the Board’s adopted asset allocation policy and best estimates of geometric real rates of return for each major asset class as of June 30, 2018. Discount Rate The discount rate used to measure the total pension liability was 7.25%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at contractually required rates, actuarially determined. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the School’s proportionate share of the net pension liability to changes in the discount rate The following presents the net pension liability, calculated using the discount rate of 7.25%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.25%) or 1-percentage-point higher (8.25%) than the current rate:

Current1% Discount 1%

Decrease Rate Increase6.25% 7.25% 8.25%

School District's proportionate share of the net pension liability 57,185,000$ 46,133,000$ 36,788,000$

Pension plan fiduciary net position Detailed information about PSERS’ fiduciary net position is available in PSERS Comprehensive Annual Financial Report which can be found on the System’s website at www.psers.pa.gov.


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NOTE 11 - POSTEMPLOYMENT BENEFITS OTHER THAN PENSION PSERS – HEALTH INSURANCE PREMIUM ASSISTANCE PROGRAM General Information about the Health Insurance Premium Assistance Program PSERS provides Premium Assistance which, is a governmental cost sharing, multiple-employer other postemployment benefit plan (OPEB) for all eligible retirees who quality and elect to participate. Employer contribution rates for Premium Assistance are established to provide reserves in the Health Insurance Account that are sufficient for the payment of Premium Assistance benefits for each succeeding year. Effective January 1, 2002 under the provisions of Act 9 of 2001, participating eligible retirees are entitled to receive premium assistance payments equal to the lesser of $100 per month or their out-of-pocket monthly health insurance premium. Premium Assistance Eligibility Criteria Retirees of the System (PSERS) can participate in the Premium Assistance program if they satisfy the following criteria:

• Have 24 ½ or more years of service, or • Are a disability retiree, or • Have 15 or more years of service and retired after reaching superannuation age, and • Participate in the HOP or employer-sponsored health insurance program

Plan Description Freeport Area School District employees participate in the PSERS – Health Insurance Premium Assistance program, which is a governmental cost sharing, multiple-employer other postemployment benefit plan (OPEB) for all eligible retirees who qualify and elect to participate. The members eligible to participate in the System include all full-time public-school employees, part-time hourly public school employees who render at least 500 hours of service in the school year, and part-time per diem public school employees who render at least 80 days of service in the school year in any of the reporting entities in Pennsylvania. PSERS issues a publicly available financial report that can be obtained at www.psers.state.pa.us. Benefits Provided Participating eligible retirees are entitled to receive premium assistance payments equal to the lesser of $100 per month or their out-of-pocket monthly health insurance premium. To receive premium assistance eligible retirees must obtain their health insurance coverage through either their school employer or PSER’s Health Options Program. As of June 30, 2018, there were no assumed future benefit increases to participating eligible retirees. Contributions The District’s contractually required contribution for the fiscal year ended June 30, 2019 was 0.83% of covered payroll, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. During the 2018-2019 fiscal year, the Freeport Area School District contributed $221,292 to the premium assistance program.

http://www.psers.state.pa.us/


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NOTE 11 - POSTEMPLOYMENT BENEFITS OTHER THAN PENSION (Continued) PSERS – HEALTH INSURANCE PREMIUM ASSISTANCE PROGRAM (Continued) OPEB Liability, OPEB Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB At June 30, 2019, the District reported a liability of $2,004,000 for its proportionate share of the net OPEB liability. The net OPEB liability was measured as of June 30, 2017, and the total OPEB liability used to calculate the net OPEB liability was determined by rolling forward the System’s total OPEB liability as of June 30, 2017 to June 30, 2018. The District’s proportion of the net OPEB liability was calculated utilizing the employer’s one-year reported covered payroll as it relates to the total one-year reported covered payroll. At June 30, 2018 (the measurement date), the district’s proportion was 0.0961%, which is a decrease of .0032% from its proportion measured as of June 30, 2017. For the year ended June 30, 2019, Freeport Area School District recognized OPEB expense of $124,227. At June 30, 2019, the District reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

The $221,292 reported as deferred outflows of resources related to OPEB resulted from District contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability for the measurement year ended June 30, 2019. Other amounts reported as deferred inflows/outflows of resources related to OPEB will be recognized in OPEB expense as follows:

Measurement Reporting

Date DateYear ended Year ended Amortization

June 30, June 30, Amount2019 2020 (2,000)$ 2020 2021 (2,000) 2021 2022 (2,000) 2022 2023 (3,000) 2023 2024 (3,000)

Thereafter Thereafter (3,000)

Deferred Outflows Deferred Inflowsof Resources of Resources

Difference between projected and actual investment earnings 3,000$ -$ Changes in proportions 72,000 58,000 Difference between expected and actual experience 12,000 - Changes in assumptions 32,000 76,000 Contributions subsequent to the measurement date 221,292 -

340,292$ 134,000$


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NOTE 11 - POSTEMPLOYMENT BENEFITS OTHER THAN PENSION (Continued) PSERS – HEALTH INSURANCE PREMIUM ASSISTANCE PROGRAM (Continued) Actuarial assumptions The Total OPEB liability as of June 30, 2018, was determined by rolling forward the System’s Total OPEB Liability as of June 30, 2017 to June 30, 2018 using the following actuarial assumptions, applied to all periods included in the measurement:

• Actuarial Cost Method – Entry Age Normal – level % of pay • Investment Return – 2.98% based on the S&P 20 Year Municipal Bond Rate. • Salary Increases – Effective average of 5.00%, comprised of inflation of 2.75% and 2.25% for real

wage growth and for merit or seniority increases. • Premium Assistance reimbursement is capped at $1,200 per year. • Assumed Healthcare cost trends were applied to retirees with less than $1,200 in premium

assistance per year. • Participation rate – Eligible retirees will elect to participate Pre-age 65 at 50% and Post Age 65 at

70% • Mortality rates were based on the RP-2014 Mortality Tables for Males and Females, adjusted to

reflect PSERS’ experience and projected using a modified version of the MP-2015 Mortality Improvement Scale.

• Participation rate: - Eligible retirees will elect to participate Pre age 65 at 50% - Eligible retirees will elect to participate Post age 65 at 70%

The following assumptions were used to determine the contribution rate:

• The results of the actuarial valuation as of June 30, 2016 determined the employer contribution rate for fiscal year 2018.

• Cost Method: Amount necessary to assure solvency of Premium Assistance through the third fiscal year after the valuation date.

• Asset Valuation method: Market Value • Participate Rate: 63% of eligible retirees are assumed to elect premium assistance. • Mortality rates and retirement ages were based on the RP-2000 Combined Healthy Annuitant

Tables with age set back 3 for both males and females for healthy annuitants and for dependent beneficiaries. For disabled annuitants, the RP-2000 Combined Disabled Tables with age set back 7 years for males and 3 years for females for disabled annuitants. (A unisex table based on the RP-2000 Combined Healthy Annuitant with age set back 3 years for both genders assuming the population consists of 25% males and 75% females is used to determine actuarial equivalent benefits.)

Investment Asset Allocation Investments consist primarily of short-term assets designed to protect the principal of plan assts. The expected rate of return on OPEB plan investments was determined using the OPEB asset allocation policy and best estimates of geometric real rates of return for each asset class. The OPEB plan’s policy in regard to the allocation of invested plan assets is established and may be amended by the Board. Under the program, as defined in the retirement code, employer contribution rates for Premium Assistance are established to provide reserves in the Health Insurance Account that are sufficient for the payment of Premium Assistance benefits for each succeeding year.


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NOTE 11 - POSTEMPLOYMENT BENEFITS OTHER THAN PENSION (Continued) PSERS – HEALTH INSURANCE PREMIUM ASSISTANCE PROGRAM (Continued) Investment Asset Allocation (Continued)

Long-TermTarget Expected Real

Asset Class Allocation Rate of Return

Cash 5.9% 0.03%US Core Fixed Income 92.8% 1.20%Non-US Developed Fixed 1.3% 0.40%

100% The above was the Board’s adopted asset allocation policy and best estimates of geometric real rates of return for each major asset class as of June 30, 2018. Discount Rate The discount rate used to measure the Total OPEB Liability was 2.98%. Under the plan’s funding policy, contributions are structured for short term funding of Premium Assistance. The funding policy sets contribution rates necessary to assure solvency of Premium Assistance through the third fiscal year after the actuarial valuation date. The Premium Assistance account is funded to establish reserves that are sufficient for the payment of Premium Assistance benefits for each succeeding year. Due to the short-term funding policy, the OPEB plan’s fiduciary net position was not projected to be sufficient to meet projected future benefit payments, therefore the plan is considered a “pay-as-you-go” plan. A discount rate of 2.98% which represents the S&P 20-year Municipal Bond Rate at June 30, 2018, was applied to all projected benefit payments to measure the total OPEB liability. Sensitivity of the Net OPEB liability to changes in the Discount Rate The following presents the net OPEB liability, calculated using the discount rate of 2.98%, as well as what the net OPEB liability would be if it were calculated using a discount rate that is 1-percentage point lower (1.98%) or 1-percentage-point higher (3.98%) than the current rate:

1% Current Discount 1%Decrease Rate Increase

1.98% 2.98% 3.98%Net OPEB Liability 2,279,000$ 2,004,000$ 1,775,000$

Sensitivity of the Net OPEB liability to changes in the Healthcare Cost Trend Rates Healthcare cost trends were applied to retirees receiving less than $1,200 in annual Premium Assistance. As of June 30, 2018, retirees Premium Assistance benefits are not subject to future healthcare cost increases. The annual Premium Assistance reimbursement for qualifying retirees is capped at a maximum of $1,200. As of June 30, 2017, 93,380 retirees were receiving the maximum amount allowed of $1,200 per year. As of June 30, 2017, 1077 members were receiving less than the maximum amount allowed of $1,200 per year. The actual number of retirees receiving less than the $1,200 per year cap is a small percentage of the total population and has a minimal impact on Healthcare Cost Trends as depicted below.


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NOTE 11 - POSTEMPLOYMENT BENEFITS OTHER THAN PENSION (Continued) PSERS – HEALTH INSURANCE PREMIUM ASSISTANCE PROGRAM (Continued) Sensitivity of the Net OPEB liability to changes in the Healthcare Cost Trend Rates (Continued) The following presents the net OPEB liability of the District as of the June 30 2018 measurement date, calculated using current Healthcare cost trends as well as what the District net OPEB liability would be if its health cost trends were 1-percentage point lower or 1-percentage-point higher than the current healthcare cost trend rate:

Current 1% Trend 1%

Decrease Rates IncreaseNet OPEB Liability 2,003,000$ 2,004,000$ 2,004,000$

OPEB plan fiduciary net position Detailed information about PSERS’ fiduciary net position is available in PSERS Comprehensive Annual Financial Report which can be found on the System’s website at www.psers.pa.gov. DISTRICT – POST-RETIREMENT HEALTHCARE BENEFIT PLAN Plan Description The Freeport Area School District administers a single-employer defined benefit healthcare plan (the Plan). The Plan provides for post-employment health care benefits to all eligible employees per the terms of the District’s collective bargaining agreement with the Freeport Area Education Association. To be eligible, teachers and administrators must have fifteen (15) years of credit eligibility in the retirement system or under Act 110/43 and support staff is eligible under Act 110/43. The program was established under the Early Retirement Incentive Program provided by The Freeport Area School District Board of Directors. The program entitles eligible employees to various health care benefits during the period between retirement and attaining Medicare age. The Plan is unfunded and no financial report is prepared. These benefits are accounted for in accordance with GASB Statement No. 75, Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions. Funding Policy The contribution requirements of plan members and the School District are established and may be amended by the Freeport Area Board of Directors. The plan is funded on a pay-as-you-go basis, i.e. premiums are paid to fund the health care benefits provided to eligible participants. For teachers and administrators, the District’s paid coverage for retirees continues until age 65, death, or qualification for Medicare if earlier, for a maximum of 120 continuous months from the date of retirement. During the District’s paid coverage period, the retiree is required to remit the PSERS premium assistance amount to the District.


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NOTE 11 - POSTEMPLOYMENT BENEFITS OTHER THAN PENSION (Continued) DISTRICT – POST-RETIREMENT HEALTHCARE BENEFIT PLAN (Continued) Participant Data and Total OPEB Liability The District’s total OPEB liability of $4,385,887 was measured as of July 1, 2018, and was determined by an actuarial valuation performed as of July 1, 2018. The July 1, 2018 valuation reflected the following participant data:

PARTICIPANT TOTAL OPEBDATA LIABILITY

Active employees 169 3,720,547$ Retirees 10 665,340 Total 179 4,385,887$

Changes in the Total OPEB Liability

Balance at July 1, 2018 4,420,495$ Changes for the year: Service cost 258,387 Interest 158,254 Changes of benefit terms - Differences between expected and actual experience (129,771) Changes in assumptions or other inputs (115,085) Benefit payments (206,393) Net Changes (34,608) Balance at June 30, 2019 4,385,887$

Changes in assumptions and other inputs reflect a change in the discount rate from 3.58% in 2017 to 3.87% in 2018. OPEB Expense for the fiscal year ended June 30, 2018

Service cost 258,387$ Interest 158,254 Changes of benefit terms - Differences between expected and actual experience (28,400) Changes of assumptions of other inputs (14,659) Benfit Payments - OPEB Expense 373,582$


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40

NOTE 11 - POSTEMPLOYMENT BENEFITS OTHER THAN PENSION (Continued) DISTRICT – POST-RETIREMENT HEALTHCARE BENEFIT PLAN (Continued) Other Actuarial Assumptions

• Cost Method – Entry Age Normal as a Level Percentage of Pay • Mortality – RPH-2014 Total Dataset Mortality Table projected using Scale MP-2018 • Discount Rate – 3.87% based on the Bond Buyers 20-Bond Index. • Inflation Rate – 3% • Salary Increases – 2.5% • Healthcare Trend – 2018-2019 fiscal year 6.75% decreasing on a graduated basis to 4.5% for fiscal

years 2028-2029 and later. • Percent Married – Actual spouse information was utilized for current retirees. For the active

population, it was assumed that 20% of teachers and administrators and 10% of support staff will elect to cover a spouse at retirement. Females are assumed to be three years younger than males.

• Participation – It is assumed that 100% of teachers and administrators who are eligible for the incentive will elect coverage. It is assumed that 25% of the members who retire after 55 and are only eligible for Act 110/43 will elect coverage. It is assumed that 10% of support staff who are 55 or older and meet the Act 110/43 requirements will elect coverage.

• Withdrawal Rates – Based off the “2016 Experience Study Report” for the Pennsylvania PSERS. The rates vary by age, gender, and years of service.

• Retirement Rates – Varying scale from 5% at age 55-57 to 100% at age 65. • Disability – None assumed.

Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB

Deferred Deferred Outflows Inflows

of Resources of ResourcesDifference between expected and -$ 385,410$ actual experienceChanges in assumptions or other inputs 39,280 254,703 Benefit payments subsequent to the measurement date 134,005 -

173,285$ 640,113$

The $134,005 amount reported as deferred outflows of resources resulting from the District’s benefit payments subsequent to the measurement date will be recognized as a reduction in next year’s total OPEB liability.


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41

NOTE 11 - POSTEMPLOYMENT BENEFITS OTHER THAN PENSION (Continued) DISTRICT – POST-RETIREMENT HEALTHCARE BENEFIT PLAN (Continued) Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB (Continued) The other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows:

Measurement ReportingDate Date

Year ended Year ended AmortizationJune 30, June 30, Amount

2019 2020 (43,059)$ 2020 2021 (43,059) 2021 2022 (43,059) 2022 2023 (43,059) 2023 2024 (43,059)

Thereafter Thereafter (385,538) Sensitivity of the total OPEB liability to changes in the Discount Rate The following presents the net OPEB liability, calculated using the discount rate of 3.87%, as well as what the net OPEB liability would be if it were calculated using a discount rate that is 1-percentage point lower (2.87%) or 1-percentage-point higher (4.87%) than the current rate:

Current1% Discount 1%

Decrease Rate Increase2.87% 3.87% 4.87%

Total OPEB Liability 4,643,229$ 4,385,887$ 4,046,093$

Sensitivity of the total OPEB liability to changes in the Healthcare Cost Trend Rates The following presents the net OPEB liability of the District, as well as what the District’s total OPEB liability would be if it were calculated using healthcare cost trend rates that are 1-percentage point lower or 1-percentage-point higher than the current healthcare cost trend rate:

Current 1% Trend 1%

Decrease Rates Increase

Total OPEB Liability 3,923,669$ 4,385,887$ 4,943,738$


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NOTE 12 - EARLY RETIREMENT INCENTIVE PLAN The Board of School Directors has agreed to continue its “Early Retirement Incentive Plan” (ERIP) for all full-time professional employees with a retirement date effective September 1, 2015 through June 30, 2020.

1) Eligibility for the ERIP shall be as follows:

• The professional employee must be on Step 15 of the salary scale in the collective Bargaining Agreement (CBA) of August 23, 2015.

• The professional employee must submit a letter of retirement to the Superintendent of Schools no later than April 1, in the year of retirement, to be effective by June 30, for the same year; and no later than November 1, in the year of retirement, to be effective by the end of the first semester.

• A professional employee who qualifies and has filed for permanent disability retirement under the PSERS shall not be eligible for the ERIP.

• Eligible professional employees must retire from the PSERS on or before June 30, in the

year of retirement, and submit copies of all necessary documents to the Superintendent of Schools prior to June 30, in the year of retirement.

• The Freeport Area School District reserves the right to revise, rescind and/or modify the

eligibility requirements stated herein in the event of amendments to the retirement provisions of PSERS.

2) The eligible professional employee who elects to participate in the ERIP shall receive the following:

• As a sum of $417 per month for sixty (60) continuous months for a maximum of $25,000 to

be paid beginning in July in the year of retirement as a non-elective contribution to a 403 (b) plan, with no cash option. The professional employee must retire before or in the year they first attain superannuation, or up to one year later, as currently defined by the PSERS in order to be eligible to receive the aforementioned monies.

• A maximum credit of $500 per month to be applied toward payment of the premium for new

retirees who qualify, at the employee’s current coverage under the Freeport Area School District’s Health Care Plan.

• The professional employee will pay to Freeport Area School district the full amount of the PSERS health care reimbursement for which they are eligible to receive.

• The maximum credit of $500 per month shall be payable during the life of the retiree up to

age 65 or they become eligible for Medicare, whichever occurs first.

• The maximum credit of $500 per month shall not exceed a period of one hundred and twenty (120) continuous months from the date of retirement.

• Retirees currently eligible for health insurance benefits must enroll in the current Freeport

Area School District health care plan provided to active employees, said enrollment to continue through the remainder of their eligibility to receive health insurance benefits.

• The professional employee’s spouse shall be eligible for the Freeport Area School District

Health Care Plan in accordance with COBRA legislation in effect when the retired employee’s health care benefits terminate.


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NOTE 12 - EARLY RETIREMENT INCENTIVE PLAN (Continued) The above benefits are financed on a pay-as-you-go basis. The following is a summary of the number of currently eligible participants and the amount of expenditures recognized during the year:

Health CareBenefits

Amount of benefit expenditures for the year paid by District 49,200$ Amount of benefit expenditures for the year paid by Retiree 41,933 Number of participants currently eligible 11 NOTE 13 – JOINTLY GOVERNED ORGANIZATIONS LENAPE AREA VOCATIONAL TECHNICAL SCHOOL The Freeport Area School District, in conjunction with three other School Districts (Armstrong, Freeport and Apollo Ridge) funds the operating budget of the Lenape Area Vocational Technical School (Vo-Tech). The Vo-Tech is designed to teach students from member districts trade related professions. Each district's share of tuition is based on the percentage of the district's enrollment to the total enrollment at the Vo-Tech. The Vo-Tech’s Joint Operating Committee is comprised of three appointed board members from the Armstrong School District and two appointed members from each of the other Districts. The Freeport Area School District contributed $299,343 to the Vo-Tech for the year ended June 30, 2019. The Vo-Tech issues separate financial statements annually, a copy of which can be obtained by contacting the Lenape Area Vocational Technical School’s business office at 2215 Chaplin Avenue, Ford City, Pa. 16226. ARIN INTERMEDIATE UNIT 28 The Freeport Area School District, in conjunction with ten other School Districts located in Armstrong and Indiana County, participates in the ARIN Intermediate Unit 28. The ARIN Intermediate Unit is mainly designed to provide special education, adult education, and non-public school services to the participating districts. Each school district appoints one member to the Board of Directors of the Intermediate Unit. The Freeport Area School District contributed $101,065 to the ARIN Intermediate Unit 28 as part of deductions from its 2018-2019 basic education subsidy. The Intermediate Unit issues separate financial statements annually, a copy of which can be obtained by contacting the ARIN Intermediate Unit 28 business office at 2895 West Pike, Indiana, Pa. 15701. NOTE 14 - RISK MANAGEMENT GENERAL INSURANCE The Freeport Area School District is exposed to various risks of loss related to tort; theft of, damage to, and destruction of assets, errors and omissions; injuries to employees; and natural disasters. These risks are covered by commercial insurance purchased from independent third parties. Settled claims for these risks have not exceeded commercial insurance coverage for the past three years. The Freeport Area School District is one of fourteen local educational agency members of the Armstrong Indiana Insurance Trust (AIIT), a public entity risk pool created on July 1, 1998 designed to administer health and medical insurance risks on a pooled basis.


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NOTE 14 - RISK MANAGEMENT (Continued) HEALTH INSURANCE Effective July 1, 2000, AIIT entered into an Administrative Service Contract (ASC) with Highmark Blue Cross-Blue Shield (self-insured medical/prescription insurance coverage). Stop-loss insurance coverage, for both specific and aggregate claim losses, is maintained to limit liability exposure. Specific coverage is for claim losses over $200,000. Aggregate coverage is based on claim losses over 120% of an annual composite factor used for single and family coverage under PPO medical plans. Specific and aggregate stop-loss insurance covers claims incurred over the fiscal year (July 1 through June 30) and paid within a fifteen-month period. AIIT has established three levels of reserve for potential long-term losses; a Termination Liability Reserve (TLR), a Claims Contingency Reserve (CCR) and a Rate Stabilization Reserve (RSR). TLR represents reserve funds necessary to cover run-out claims for a period of 60 days of average claims and related expenses to be adjusted annually. The CCR is an amount held in excess of the TLR, not to exceed 250% of the expected claims for the next fiscal year as calculated by Highmark Blue Cross Blue Shield. The RSR includes any funds accumulated beyond 50% of the prior year’s annual premium. As of June 30, 2018 (latest available), AIIT net position totaled $12,418,228, of which Freeport Area School District’s share was $750,938 (6.05%). The District’s share of net position includes $652,837 in claims contingency reserve, $384,134 in terminal liability reserve, $27,455 in Highmark loyalty reserve, and a negative $313,488 in trust equity. The District’s premium contributions for the 2018-2019 year were $2,955,266. PPO monthly coverage averaged 172 employees with a monthly average premium of $1,380. The AIIT issues separate financial statements annually, a copy of which can be obtained by contacting the ARIN Intermediate Unit 28 business office at 2895 West Pike, Indiana, Pa. 15701. DENTAL INSURANCE The Freeport Area School District is one of thirty-two local educational agency members of the Educator’s Dental Consortium, a public entity risk pool created on July 1, 2017 established for the purpose of purchasing and providing dental insurance to participating members. The consortium is authorized to provide a dental insurance plan using an Administrative Services only (ASO) funding arrangement. The funding formula for each participant will be set by the Administrator based on a 12-month utilization performance as detailed in the consortium agreement. NOTE 15– CONTINGENCIES STATE AND FEDERAL SUBSIDIES The Freeport Area School District's state and federally funded programs are subject to program compliance audits by various governmental agencies. The audit scopes of these program compliance audits are different than the scope of financial audits performed by an outside, independent certified public accounting firm. The District is potentially liable for any expenditure disallowed by the results of these program compliance audits. Management is not aware of any material items of noncompliance which would result in the disallowance of program expenditures.


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NOTE 15– CONTINGENCIES (Continued) LEGAL MATTERS The Freeport Area School District, in the normal course of operations, is party to various legal matters normally associated with school district such as real estate tax assessment appeals, personnel wage and benefits, student education and athletics, construction projects, and other miscellaneous legal matters. The District is not aware of any current claims, litigation or assessments against the District that would adversely impact the financial position of the District as of the date of this report. NOTE 16 – SUBSEQUENT EVENTS Management has determined that there are no events subsequent to June 30, 2019 through December 10, 2019, the date of the ‘Independent Auditor’s Report’ date, which is the date the financial statements were available to be issued, that require additional disclosure in the financial statements.

SUPPLEMENTARY INFORMATION

FREEPORT AREA SCHOOL DISTRICTDETAILED SCHEDULE OF BUDGETED AND ACTUAL REVENUES - GENERAL FUND


SCHEDULE 1

VARIANCEPOSITIVE

BUDGET ACTUAL (NEGATIVE)LOCAL SOURCE:Real Estate 13,886,160$ 14,146,657$ 260,497$ Interim Real Estate 50,000 89,387 39,387 Public Utility Tax 16,000 16,422 422 Payments in lieu of Current 12,000 12,787 787 Local Service Tax 17,500 18,013 513 Wage Taxes 1,600,000 1,804,367 204,367 RE Transfer Tax 200,000 341,654 141,654 Delinquent Taxes 575,000 604,112 29,112 Delinquent Earned Income Tax 40,000 44,968 4,968 Interest 55,000 225,532 170,532 Gain/(loss) on investment - (106) (106) Admissions 60,000 53,129 (6,871) IDEA Revenue Received from IU 200,000 228,967 28,967 Rentals 25,000 141,158 116,158 Contributions & Donations 31,411 54,638 23,227 Regular School Day Tuition 10,000 10,800 800 Refund of Prior Year Expenditures - 17,338 17,338 Miscellaneous 10,000 14,937 4,937 TOTAL LOCAL SOURCE 16,788,071$ 17,824,761$ 1,036,688$

STATE SOURCE:Basic Subsidy 6,646,303$ 6,702,832$ 56,529$ Section 1305/1306 - 18,781 18,781 Special Education 1,013,814 1,036,366 22,552 Transportation 940,000 944,697 4,697 Rental Payments/PLANCON 413,066 381,247 (31,819) Health Services 38,000 38,260 260 State Property Tax Reduction Allocation 705,007 705,007 - Safe Schools 25,000 40,550 15,550 Ready to Learn Grant 273,836 273,836 - PA Smart - 12,353 12,353 Social Security 569,824 564,706 (5,118) Retirement 2,467,415 2,544,741 77,326 TOTAL STATE SOURCE 13,092,265$ 13,263,375$ 171,112$

FEDERAL SOURCE:Title I 181,182$ 186,063$ 4,881$ Title II 67,434 40,618 (26,816) Title IV - 13,345 13,345 Medical Assit. Reimb. 160,000 160,000 - Medical Assit. Reimb. 3,000 5,227 2,227 TOTAL FEDERAL SOURCE 411,616$ 405,253$ (6,363)$

OTHER FINANCING SOURCES:Sale of Assets 1,000$ 4,417$ 3,417$ TOTAL OTHER FINANCING SOURCES 1,000$ 4,417$ 3,417$

TOTAL REVENUES AND OTHER FINANCING SOURCES 30,292,952$ 31,497,806$ 1,204,853$


FREEPORT AREA SCHOOL DISTRICTDETAILED SCHEDULE OF BUDGETED AND ACTUAL EXPENDITURES - GENERAL FUND


SCHEDULE 2

VARIANCEPOSITIVE

BUDGET ACTUAL (NEGATIVE)INSTRUCTION:

REGULAR PROGRAMS:Personal Services - Salaries 8,074,384$ 8,004,262$ 70,122$ Personal Services - Employee Benefits 5,314,070 5,245,229 68,840 Purchased Professional/Technical Services 81,178 80,705 473 Purchased Property Services 11,866 10,916 950 Other Purchased Services 389,449 384,840 4,609 Supplies 642,101 644,445 (2,343) Other Objects 1,250 240 1,010 TOTAL REGULAR PROGRAMS 14,514,298$ 14,370,636$ 143,662$

SPECIAL PROGRAMS:Personal Services - Salaries 1,470,078$ 1,469,890$ 188$ Personal Services - Employee Benefits 836,446 811,402 25,044 Purchased Professional/Technical Services 306,458 303,832 2,627 Other Purchased Services 329,420 328,639 781 Supplies 32,751 32,372 380 TOTAL SPECIAL PROGRAMS 2,975,354$ 2,946,136$ 29,219$

VOCATIONAL EDUCATION PROGRAMS:Other Purchased Services 293,678$ 293,590$ 88$ TOTAL VOCATIONAL EDUCATION PROGRAMS 293,678$ 293,590$ 88$

OTHER INSTRUCTIONAL PROGRAMS:Personal Services - Salaries 31,233$ 30,123$ 1,110$ Personal Services - Employee Benefits 14,707 14,612 95 Purchased Professional/Technical Services 3,288 2,928 360 Other Purchased Services 127,152 113,850 13,302 Supplies 10,000 7,675 2,325 TOTAL OTHER INSTRUCTIONAL PROGRAMS 186,381$ 169,189$ 17,191$

NONPUBLIC SCHOOL PROGRAMSPurchased professional And 4,414$ 3,769$ 646$ TOTAL NONPUBLIC SCHOOL PROGRAMS 4,414$ 3,769$ 646$

TOTAL INSTRUCTION 17,974,124$ 17,783,319$ 190,805

PUPIL PERSONNEL:Personal Services - Salaries 373,645$ 367,718$ 5,927$ Personal Services - Employee Benefits 265,239 251,411 13,828 Purchased Professional/Technical Services 201,188 198,400 2,788 Other Purchased Services 3,343 1,814 1,529 Supplies 9,548 9,368 180 Other Objects 75 3,960 (3,885) TOTAL PUPIL PERSONNEL 853,038$ 832,670$ 20,368$

INSTRUCTIONAL STAFF:Personal Services - Salaries 517,520$ 523,946$ (6,426)$ Personal Services - Employee Benefits 334,613 332,753 1,860 Purchased Professional/Technical Services 60,976 62,116 (1,139) Other Purchased Services 7,175 6,894 281 Supplies 71,125 70,658 467 TOTAL INSTRUCTIONAL STAFF 1,001,461$ 1,005,578$ (4,117)$




SCHEDULE 2

VARIANCEPOSITIVE

BUDGET ACTUAL (NEGATIVE)

ADMINISTRATION:Personal Services - Salaries 1,270,102$ 1,269,209$ 892$ Personal Services - Employee Benefits 757,487 731,411 26,076 Purchased Professional/Technical Services 163,214 142,012 21,202 Purchased Property Services 3,150 2,165 985 Other Purchased Services 32,885 31,525 1,360 Supplies 61,679 61,904 (225) Other Objects 21,925 21,331 593 TOTAL ADMINISTRATION 2,312,585$ 2,259,558$ 53,027$

PUPIL HEALTH:Personal Services - Salaries 176,782$ 176,329$ 453$ Personal Services - Employee Benefits 91,285 90,731 554 Purchased Professional/Technical Services 573 100 473 Purchased Property Services 725 300 425 Other Purchased Services 565 136 428 Supplies 11,835 11,262 572 TOTAL PUPIL HEALTH 281,764$ 278,858$ 2,906$

BUSINESS:Personal Services - Salaries 260,973$ 260,004$ 968$ Personal Services - Employee Benefits 185,384 184,395 989 Purchased Professional/Technical Services 24,419 14,380 10,039 Purchased Property Services 1,000 405 595 Other Purchased Services 2,300 1,649 651 Supplies 15,584 12,461 3,124 Other Objects 2,500 1,637 863 TOTAL BUSINESS 492,160$ 474,931$ 17,229$

OPERATION & MAINTENANCEOF PLANT SERVICES:Personal Services - Salaries 942,089$ 941,738$ 351$ Personal Services - Employee Benefits 741,911 741,433 478 Purchased Professional/Technical Services 209,830 202,493 7,338 Purchased Property Services 283,452 226,396 57,055 Other Purchased Services 144,080 129,966 14,114 Supplies 706,433 707,705 (1,272) Property 22,739 - 22,739 Other Objects 200 140 60 OF PLANT SERVICES 3,050,734$ 2,949,870$ 100,864$

STUDENT TRANSPORTATION:Other Purchased Services 1,604,000$ 1,577,936$ 26,064$ TOTAL STUDENT TRANSPORTATION 1,617,000$ 1,589,982$ 27,018$

CENTRAL:Personal Services - Salaries 76,559$ 76,319$ 240$ Personal Services - Employee Benefits 50,566 48,872 1,694 Purchased Property Services 100 100 - Other Purchased Services 2,460 1,860 600 Supplies 68,207 60,843 7,364 TOTAL CENTRAL SERVICES 237,657$ 222,578$ 15,079$

OTHER SUPPORT SERVICES:Other Purchased Services 81,951$ 81,951$ -$ TOTAL OTHER SUPPORT SERVICES: 81,951$ 81,951$ -$

TOTAL SUPPORT SERVICES 9,928,349$ 9,695,976$ 232,374$




SCHEDULE 2

VARIANCEPOSITIVE

BUDGET ACTUAL (NEGATIVE)

OPERATION OF NON-INSTRUCTIONAL SERVICES:

STUDENT ACTIVITIES:Personal Services - Salaries 286,162$ 283,984$ 2,178$ Personal Services - Employee Benefits 125,867 124,889 977 Purchased Professional/Technical Services 68,309 67,424 885 Purchased Property Services 8,289 7,889 400 Other Purchased Services 71,228 70,688 539 Supplies 61,190 76,356 (15,166) Property - - - Other Objects 14,043 15,210 (1,168) TOTAL STUDENT ACTIVITIES 635,087$ 646,441$ (11,353)$

TOTAL OPERATION OF NON-INSTRUCTIONAL SERVICES 635,087$ 646,441$ (11,353)$

OTHER FINANCING USES:

FUND TRANSFERS:Interfund Transfers - Debt Service Fund 4,225,931$ 4,116,065$ 109,867$ TOTAL FUND TRANSFERS 4,225,931$ 4,116,065$ 109,867$

BUDGETARY RESERVE: -$ -$ -$

TOTAL OTHER FINANCING USES 4,225,931$ 4,116,065$ 109,867$

TOTAL EXPENDITURES 32,763,492$ 32,241,801$ 521,692$


SCHEDULE 3FREEPORT AREA SCHOOL DISTRICT

CASH SUMMARY - ACTIVITIES FUNDFOR THE YEAR ENDED JUNE 30, 2019

AUDITED AUDITEDBALANCE BALANCE

CLUB 6/30/2018 RECEIPTS DISBURS. 6/30/2019

Band - Senior High 4,747$ 20,836$ 21,365$ 4,218$ Chorus - Senior High 1,869 7,700 8,662 907 Student Body Activities - Jr. High 921 1,384 1,627 678 Yearbook - Jr. High 1,328 7,727 7,887 1,168 SADD - 778 443 335 Special Needs Prom - 2,750 - 2,750 Class of 2018 540 3,350 3,443 447 Class of 2019 2,981 17,652 17,196 3,437 Class Play 2,656 3,206 3,206 2,656 Class Play - Jr. High 7,692 16,165 14,103 9,754 Science Club - Jr. High 579 10,561 10,459 681 Freeportian 7,908 14,050 13,083 8,875 DECA 1,007 12,886 12,146 1,747 Gay Straight Alliance 87 100 185 2 Key Club 1,774 4,292 4,751 1,315 English Department 298 1,078 924 452 Musical 6,212 27,796 23,135 10,873 National Honor Society 204 3,815 2,854 1,165 Ski Club: Junior High 1,015 13,757 13,658 1,114 Senior High 1,233 13,059 11,855 2,437 Student Council: Junior High 419 24,430 23,051 1,798 Senior High 6,730 3,384 4,810 5,304 Field Trip 788 5,783 5,810 761 Flower Fund 216 280 150 346 Guidance - 368 368 - Holly River Trip 3 677 588 92 TV Production 383 2,210 2,069 524 Student Body Activities - Other 426 2,947 3,018 355 Student Body Activities - Sr. High 556 1,140 1,000 696 Senior Trip - 35,624 35,624 - Tri M 165 203 244 124 Child Development 554 1,623 2,175 2 Other 970 2,499 125 3,344 Yellowjacket 553 - - 553

54,814$ 264,110$ 250,014$ 68,910$


REQUIRED SUPPLEMENTARY INFORMATION

As of the measurement date of June 30, 2018 2017 2016 2015 2014 2013

District's proportion of the net pension liability 0.0961% 0.0993% 0.0946% 0.0949% 0.0929% 0.0910%

District's proportionate share of the net pension liability 46,133,000$ 49,043,000$ 46,881,000$ 41,106,000$ 36,770,000$ 37,252,000$

District's covered-employee payroll 12,936,341$ 13,118,893$ 12,371,107$ 12,210,125$ 11,860,676$ 11,680,188$

District's proportionate share of the net pension liability as a percentage of its covered-employee payroll 356.62% 373.83% 378.96% 336.66% 310.02% 318.93%

Plan fiduciary net position as a percentage of the total pension liability 54.00% 51.84% 50.14% 54.36% 57.24% 54.49%

The amounts presented for each fiscal year were determined as of the measurement date, which is June 30 of the preceding fiscal year. This schedule is intended to illustrate information for a ten (10) year period. Information for that ten year period will be presented asinformation becomes available.

FREEPORT AREA SCHOOL DISTRICTREQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF SCHOOL DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITYDEFINED BENEFIT PENSION PLAN

JUNE 30,

51

2019 2018 2017 2016 2015 2014 2013

Contractually Required Contributions 4,345,860$ 4,062,260$ 3,870,066$ 3,201,939$ 2,535,385$ 1,937,143$ 1,391,577$

Contribution in relation to the contractually required contribution (4,345,860) (4,062,260) (3,870,066) (3,201,939) (2,535,385) (1,937,143) (1,391,577)

Contribution deficiency (excess) -$ -$ -$ -$ -$ -$ -$

District's covered payroll 13,372,973 12,936,341 13,118,893 12,371,107 12,210,125 11,860,676 11,680,188

Contributions as a percentage of covered-employee payroll 32.50% 31.40% 29.50% 25.88% 20.76% 16.33% 11.91%

This schedule is intended to illustrate information for a ten (10) year period. Information for that ten year period will be presented asinformation becomes available.

Note: Beginning in 2018 with the implementation of GASB 75, contributions as reported above reflect the pension portion of the contribution only.The premium assistance (OPEB) portion of the contribution is reflected on a separate RSI schedule. Prior year contributions reflect both the pensionand premium assistance amounts combined.


SCHEDULE OF SCHOOL DISTRICT'S CONTRACTUALLY REQUIRED CONTRIBUTIONSDEFINED BENEFIT PENSION PLAN

JUNE 30,

52

As of the measurement date of June 30, 2018 2017

District's proportion of the net OPEB liability 0.0961% 0.0993%

District's proportionate share of the net OPEB liability 2,004,000$ 2,023,000$

District's covered-employee payroll 12,936,341 13,118,893

District's proportionate share of the net OPEB liability as a percentage of its covered-employee payroll 15.49% 15.42%

Plan fiduciary net position as a percentage of the total OPEB liability 5.56% 5.73%

The amounts presented for each fiscal year were determined as of the measurement date, which is June 30 of the preceding fiscal year. This schedule is intended to illustrate information for a ten (10) year period. Information for that ten year period will be presented asinformation becomes available.


JUNE 30, SCHEDULE OF SCHOOL DISTRICT'S PROPORTIONATE SHARE OF THE NET OPEB LIABILITY - PSERS PLAN

53

2019 2018

Contractually Required Contributions 110,646$ 106,228$

Contribution in relation to the contractually required contribution (110,646) (106,228)

Contribution deficiency (excess) -$ -$

District's covered payroll 13,372,973$ 12,936,341$

Contributions as a percentage of covered-employee payroll 0.83% 0.82%

This schedule is intended to illustrate information for a ten (10) year period. Information for that ten year period will be presented asinformation becomes available.


SCHEDULE OF SCHOOL DISTRICT'S CONTRACTUALLY REQUIRED OPEB CONTRIBUTIONS - PSERS PLANJUNE 30,

54

FREEPORT AREA SCHOOL DISTRICT REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF CHANGES IN THE TOTAL OPEB LIABILITY AND RELATED RATIOS RETIREES HEALTH PLAN

JUNE 30, 2019

55

2019 2018 2017 2016Service cost 258,387$ 259,467$ 285,382$ -$ Interest 158,254 125,287 148,947 - Changes of benefit terms - - - - Differences between expected and actual (129,771) - (324,617) - Changes of assumptions or other inputs (115,085) (167,785) 48,343 - Benefit payments (206,393) (192,508) (345,000) - Net change in total OPEB liability (34,608) 24,461 (186,945) - Total OPEB liability - beginning of year 4,420,495 4,396,034 4,582,979 - Total OPEB liability - end of year 4,385,887$ 4,420,495$ 4,396,034$ -$

Covered-employee payroll 10,939,859$ 11,425,672$ 11,146,997$ n/a

Total OPEB liability as a percentage of covered employee payroll 40.09% 38.69% 39.44% n/a

FREEPORT AREA SCHOOL DISTRICT NOTES TO REQUIRED SUPPLEMENTARY INFORMATION

JUNE 30, 2019

56

NOTE 1 - FACTORS AND TRENDS USED IN THE ACTUARIAL VALUATION FOR PSERS PENSION BENEFITS

Changes in Benefit Terms

With the passage of Act 5, Class T-E and T-F members are now permitted to elect a lump sum payment of member contributions upon retirement.

Changes in Assumptions used in the Measurement of PSERS’ Total Pension Liability Beginning June 30, 2018

None

Changes in Assumptions used in the Measurement of PSERS’ Total Pension Liability Beginning June 30, 2017

None

Actuarial Assumptions used in Calculations of Actuarially Determined Contributions

None

NOTE 2 - FACTORS AND TRENDS USED IN THE ACTUARIAL VALUATION FOR THE PSERS POSTEMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (OPEB)


None

Changes in Assumptions used in the Measurement of PSERS’ Total OPEB Liability Beginning June 30, 2018

The discount rate decreased from 3.13% to 2.98%.


JUNE 30, 2019

57

NOTE 2 - FACTORS AND TRENDS USED IN THE ACTUARIAL VALUATION FOR THE PSERS POSTEMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (OPEB) (Continued)

Changes in Assumptions used in the Measurement of PSERS’ Total OPEB Liability Beginning June 30, 2017

The discount rate increased from 2.71% to 3.13%.


None


The following actuarial methods and assumptions were used to determine contribution rates reported in the OPEB required supplementary schedules:

• The results of the actuarial valuation as of June 30, 2016 determined the employer contribution rate for fiscal year 2018.

• Cost Method: Amount necessary to assure solvency of Premium Assistance through the third fiscal year after the valuation date

• Asset Valuation Method: Market value • Participation Rate: 63% of eligible retirees are assumed to elect premium assistance • Mortality rates and retirement ages were based on the RP-2000 Combined Healthy

Annuitant Tables with age set back 3 for both males and females for healthy annuitants and for dependent beneficiaries. For disabled annuitants, the RP-2000 Combined Disabled Tables with age set back 7 years for males and 3 years for females for disabled annuitants. (A unisex table based on the RP-2000 Combined Healthy Annuitant Tables with age set back 3 years for both genders assuming the population consists of 25% males and 75% females is used to determine actuarial equivalent benefits.)


JUNE 30, 2019

58

NOTE 3 - FACTORS AND TRENDS USED IN THE ACTUARIAL VALUATION FOR THE RETIREE OPEB SCHOOL PLAN


None

Changes in Assumptions

• Changed discount rate from 3.58% to 3.87% • Updated the medical trend rates • Updated the mortality improvement scale to MP-2018

ACTUARIAL ASSUMPTIONS USED IN CALCULATIONS OF ACTUARIALLY DETERMINED CONTRIBUTIONS

The total OPEB liability was determined as of the July 1, 2018 actuarial valuation using the following actuarial assumptions, applied to all periods included in the measurement:

• Cost Method – Entry Age Normal as a Level Percentage of Pay • Mortality – RPH-2014 Total Dataset Mortality Table projected using Scale MP-2018 • Discount Rate – 3.87% based on the Bond Buyers 20-Bond Index. • Inflation Rate – 3% • Salary Increases – 2.5% • Healthcare Trend – 2018-2019 fiscal year 6.75% decreasing on a graduated basis to 4.5% for fiscal

years 2028-2029 and later. • Percent Married – Actual spouse information was utilized for current retirees. For the active

population, it was assumed that 20% of teachers and administrators and 10% of support staff will elect to cover a spouse at retirement. Females are assumed to be three years younger than males.

• Participation – It is assumed that 100% of teachers and administrators who are eligible for the incentive will elect coverage. It is assumed that 25% of the members who retire after 55 and are only eligible for Act 110/43 will elect coverage. It is assumed that 10% of support staff who are 55 or older and meet the Act 110/43 requirements will elect coverage.

• Withdrawal Rates – Based off the “2016 Experience Study Report” for the Pennsylvania PSERS. The rates vary by age, gender, and years of service.

• Retirement Rates – Varying scale from 5% at age 55-57 to 100% at age 65. • Disability – None assumed.


AS REQUIRED BY

GOVERNMENT AUDITING STANDARDS AND UNIFORM GUIDANCE

Mark C. Turnley Certified Public Accountant


59

American Institute of Certified Public Accountants

Pennsylvania Institute of Certified Public Accountants

INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS

PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Management and Board of Education Freeport Area School District I have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standard issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Freeport Area School District as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise Freeport Area School District’s basic financial statements, and have issued my report thereon dated December 10, 2019. Internal Control over Financial Reporting In planning and performing my audit of the financial statements, I considered the Freeport Area School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing my opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Freeport Area School District’s internal control. Accordingly, I do not express an opinion on the effectiveness of the Freeport Area School District’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Freeport Area School District’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. My consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during my audit I did not identify any deficiencies in internal control that I consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

60

To the Board of Education Freeport Area School District Compliance and Other Matters As part of obtaining reasonable assurance about whether the Freeport Area School District's financial statements are free of material misstatement, I 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 my audit, and accordingly, I do not express such an opinion. The results of my tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report This purpose of this report is solely to describe the scope of my testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Freeport Area School District’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Freeport Area School District’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Mark C. Turnley Certified Public Accountant December 10, 2019 New Brighton, Pennsylvania


American Institute of Certified Public Accountants

Pennsylvania Institute of Certified Public Accountants

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON

INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE

To the Board of Education Freeport Area School District REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM I have audited the Freeport Area School District’s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Freeport Area School District’s major federal programs for the year ended June 30, 2019. The Freeport Area School District’s major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor’s Responsibility My responsibility is to express an opinion on compliance for each of the Freeport Area School District’s major federal programs based on my audit of the types of compliance requirements referred to above. I conducted my audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that I plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Freeport Area School District’s compliance with those requirements and performing such other procedures as I considered necessary in the circumstances. I believe that my audit provides a reasonable basis for my opinion on compliance for each major federal program. However, my audit does not provide a legal determination on the Freeport Area School District’s compliance. Opinion on Each Major Federal Program In my opinion, Freeport Area School District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2019. 61

REPORT ON INTERNAL CONTROL OVER COMPLIANCE Management of Freeport Area School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing my audit of compliance, I considered the Freeport Area School District’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing my opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, I do not express an opinion on the effectiveness of the Freeport Area School District’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. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. My consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. I did not identify any deficiencies in internal control over compliance that I consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of my testing of internal control over compliance and the results of that testing based on the requirements of Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Mark C. Turnley Certified Public Accountant December 10, 2019 New Brighton, Pennsylvania 62

FEDERAL GRANTOR / PROJECT TITLE

FUNDING SOURCE

FEDERAL CFDA

NUMBER

PASS-THROUGH GRANTOR NUMBER

GRANT PERIOD BEGINNING /

ENDING DATE

PROGRAM AWARD

AMOUNT

2018-2019 AMOUNTS

PASSED ON TO SUB-

RECIPIENTS

TOTAL RECEIVED THIS

PERIOD

ACCRUED (DEFERRED)

REVENUE JULY 1 REVENUE

RECOGNIZED EXPENDITURES

ACCRUED (DEFERRED)

REVENUE JUNE 30

U.S. Department of Education: Passed through ARIN Intermediate Unit 28: (IDEA Cluster) IDEA Indirect 84.027 062-19-0-008 7/1/18-6/30/19 226,755$ -$ 126,320$ -$ 226,755$ 226,755$ (1) 100,435$ IDEA - Section 619 Indirect 84.173 131-19-0-008 7/1/18-6/30/19 2,212 - - - 2,212 2,212 (1) 2,212 IDEA Indirect 84.027 062-18-0-008 7/1/17-6/30/18 216,055 - 92,466 92,466 - - - IDEA - Section 619 Indirect 84.173 131-18-0-008 7/1/17-6/30/18 2,268 - 2,268 2,268 - - - Total passed through ARIN Intermediate Unit 28 -$ 221,054$ 94,734$ 228,967$ 228,967$ 102,647$

Passed through Pa. Department of Education: Title I Indirect 84.010 013-190159 7/1/18-9/30/19 183,272$ -$ 171,056$ -$ 183,272$ 183,272$ 12,216$ Title I Indirect 84.010 013-180159 7/1/17-9/30/18 184,727 - 24,304 21,513 2,791 2,791 - Total Title I Cluster - 195,360 21,513 186,063 186,063 12,216

Title II - Improving Teacher Quality Indirect 84.367 020-190159 7/1/18-9/30/19 40,618 - 40,348 - 40,618 40,618 270 Title II - Improving Teacher Quality Indirect 84.367 020-180-159 7/1/17-9/30/18 44,181 - 5,833 5,833 - - - Title IV Indirect 84.424 144-190159 7/1/18-9/30/19 13,345 - 13,345 - 13,345 13,345 - Title IV Indirect 84.424 144-180159 7/1/17-9/30/18 10,000 - - 7,733 - - 7,733 Total passed through Pa. Department of Education -$ 254,886$ 35,079$ 240,026$ 240,026$ 20,219$

TOTAL DEPARTMENT OF EDUCATION -$ 475,940$ 129,813$ 468,993$ 468,993$ 122,866$

U.S. Department of Health and Human Services:Passed through Pa. Dept. of Public Welfare: Title XIX Indirect 93.778 N/A 7/1/18-6/30/19 N/A -$ 5,227$ -$ 5,227$ 5,227$ -$

TOTAL DEPARTMENT OF HEALTH AND HUMAN SERVICES -$ 5,227$ -$ 5,227$ 5,227$ -$

U.S. Department of Agriculture: Passed through Pa. Dept. of Education: National School Lunch Program Indirect 10.555 N/A 7/1/18-6/30/19 N/A -$ 235,051$ -$ 235,051$ 235,051$ -$ National School Breakfast Program Indirect 10.553 N/A 7/1/18-6/30/19 N/A - 46,865 - 46,865 46,865 - Passed through Pa. Dept. of Agriculture: National School Lunch Program Indirect 10.555 N/A 7/1/18-6/30/19 N/A - 62,795 * - 62,795 62,795 - (Value of Donated Commodities) TOTAL DEPARTMENT OF AGRICULTURE (Child Nutrition Cluster) -$ 344,711$ -$ 344,711$ 344,711$ -$

TOTAL FEDERAL ASSISTANCE -$ # 825,878$ 129,813$ 818,931$ 818,931$ 122,866$

# Reconciliation with federal subsidy confirmation: * Total USDA Commodity Received Per above 825,878$

23,499 (1) Major ProgramIDEA (221,054) Medical Assistance (Admin) (5,227) ,,Medical Assistance (ACCESS) 435,000 PA Smart Grant 10,294 Donated commodities (62,795) Per confirmation 1,005,595$

FREEPORT AREA SCHOOL DISTRICTSCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


School lunch matching subsidy

63

64

FREEPORT AREA SCHOOL DISTRICT NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

JUNE 30, 2019 NOTE 1 – BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the ‘Schedule’) includes the federal grant activity administered by the Freeport Area School District for the year ended June 30, 2019. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Grant Guidance – UGG). Because the Schedule presents only a selected portion of the operations of the School District, it is not intended to and does not present the financial position or changes in net position of the Freeport Area School District. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING Expenditures reported on the Schedule are presented using the accrual method of accounting. Under this method, grant revenue is recognized to the extent expenditures are incurred. Expenditures are recognized when the liability for the expenditure is incurred rather than when the disbursement is actually made. The federal expenditures are recognized, as applicable, under the cost principles contained in Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards, wherein certain types of expenditures are not allowable or limited to reimbursement. NOTE 3 - RELATIONSHIP TO FINANCIAL STATEMENTS Federal financial award revenues are included in the financial statements as ‘local source’ and 'federal source' revenues. NOTE 4 – RECEIVABLES AND UNEARNED REVENUE Federal grants receivable are included as part of 'due from other governments' in Exhibit A and Exhibit C as referenced in Note 4 to the Financial Statements. Unearned federal grant revenue, if any, is included as part of 'unearned revenue' in Exhibit A and Exhibit C, and is referenced in Note 5 to the Financial Statements. NOTE 5 - NON-CASH ASSISTANCE The Freeport Area School District received donated commodities from the Department of Agriculture in connection with its food service program. The amount of non-cash assistance expended in the accompanying schedule of expenditures of federal awards reflects the fair market value of the commodities used during the 2018-2019 fiscal year. NOTE 6 – INDIRECT COST RATE The District has elected not to use the 10% de minimis indirect cost rate allowed under the Uniform Guidance.

FREEPORT AREA SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS


65

Section I – Summary of Auditor’s Results

Financial Statements Type of auditor’s report issued Unmodified Internal control over financial reporting:

• Material weakness(es) identified? yes X no • Significant deficiency(ies) identified? yes X no

Noncompliance material to financial statements noted? yes X no Federal Awards Internal control over major programs:

• Material weakness(es) identified? yes X no • Significant deficiency(ies) identified? yes X no

Type of auditor’s report issued on compliance for major programs Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? yes X no Identification of major programs: CFDA number(s) Name of Federal Program or Cluster 84.027 IDEA 84.173 IDEA 619 The dollar threshold for distinguishing type A and type B programs: $750,000 Auditee qualified as low-risk auditee? X yes _ no

Section II – Financial Statement Findings

Findings related to the financial statements which are required to be report in accordance with Government Auditing Standards. None

Section III – Federal Award Findings and Questioned Costs Findings and questioned costs related to Federal Awards which are required to be reported in accordance with the Uniform Guidance 2 CFR 200.516(a): None

FREEPORT AREA SCHOOL DISTRICT STATUS OF PRIOR AUDIT FINDINGS

FOR THE YEAR ENDING JUNE 30, 2019

66

The audit report of the Freeport Area School District for the year ended June 30, 2018, dated December 3, 2018, contained no audit findings.

APPENDIX D Specimen Municipal Bond Insurance Policy

APPENDIX E Continuing Disclosure Certificate

16063437.1

$______,000 FREEPORT AREA SCHOOL DISTRICT

(Armstrong and Butler Counties, Pennsylvania) Dated May ___, 2020 - Final Maturity October 1, 2032 GENERAL OBLIGATION BONDS, SERIES OF 2020

CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Freeport Area School District (the “Issuer”), in connection with the issuance of its $________,000 General Obligation Bonds, Series of 2020 (the “Bonds”). The Bonds are being issued pursuant to a resolution adopted by the Board of School Directors of the Issuer on March 12, 2020 (the “Resolution”). The Issuer covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Issuer for the benefit of the Bondholders and in order to comply with, and constitutes the written undertaking for the benefit of the holders of the Bonds required by, Section (b)(5)(i) of Securities and Exchange Commission Rule 15c2-12 under the Securities Exchange Act of 1934, as amended (17 C.F.R. Part 240, § 240.15c2-12) (the “Rule”).

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

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

“Disclosure Representative” means the Business Manager of the Issuer or his or her designee, or such other officer or employee as the Issuer shall designate from time to time.

“Dissemination Agent” means any person or entity designated by the Issuer.

“EMMA” means the continuing disclosure service of the MSRB’s Electronic Municipal Market Access system, as established by SEC Release No. 34-58256, as amended, and approved by SEC Release No. 34-59061.

"Financial Obligation" shall mean (a) a debt obligation, (b) a derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation, or (c) a guarantee of either (a) or (b). The term “Financial Obligation” shall not include municipal securities as to which a final official statement has been provided to the MSRB consistent with the Rule.

“Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate, if such event is material with respect to the Bonds.

“Tax-exempt” means that interest on the Bonds is excluded from gross income for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating any other tax liability, including any alternative minimum tax.

2

16063437.1

Section 3. Provision of Annual Reports. The Issuer shall provide the Annual Report within 270 days following the end of each fiscal year (the “Report Date”), beginning with the fiscal year ending June 30, 2020 to EMMA which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate, provided that the audited financial statements of the Issuer may be submitted separately from the balance of the Annual Report.

Section 4. Content of Annual Reports. The Issuer’s Annual Report shall contain or incorporate by reference the following financial information and operating information for the Issuer:

(a) financial statements for the most recent fiscal year, prepared in accordance with generally accepted accounting principles for local government units;

(b) if not submitted as part of the Annual Report, then when and if available, audited financial statements for the Issuer; and

(c) a summary of the budget for the current fiscal year.

Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Issuer or related public entities, which have been submitted to EMMA. If the document incorporated by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board or EMMA. The Issuer shall clearly identify each such other document so incorporated by reference.

Section 5. Reporting of Significant Events. (a) This Section 5 shall govern the giving of notices of the occurrence of any of the following events if such event is material with respect to the Bonds:

(i) principal and interest payment delinquencies;

(ii) non-payment related defaults, if material;

(iii) unscheduled draws on debt service reserves reflecting financial difficulties;

(iv) unscheduled draws on credit enhancements reflecting financial difficulties;

(v) substitution of credit or liquidity providers, or their failure to perform;

(vi) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701-TEB) or other similar events affecting the tax-exempt status of the security;

(vii) modifications to the rights of security holders, if material;

(viii) bond calls, except for mandatory scheduled redemptions not otherwise contingent upon the occurrence of an event, and tender offers;

(ix) defeasances;

(x) release, substitution or sale of property securing repayment of the securities, if material;

(xi) rating changes;

3

16063437.1

(xii) bankruptcy, insolvency, receivership or similar event, such as determination of distressed status, affecting the Issuer;

(xiii) the consummation of a merger, consolidation, or acquisition of the Issuer or the sale of all or substantially all of the assets of the Issuer, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material;

(xiv) the appointment of a successor or additional trustee or the change of name of a trustee, if material;

(xv) the incurrence of a Financial Obligation of the Issuer, if material, or the agreement, in connection with a Financial Obligation, to new, or additional, covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the Issuer, any of which affect security holders, if material; and

(xvi) Default, event of acceleration, termination event, modification of terms, or other similar event under the terms of a Financial Obligation of the Issuer, any of which reflect financial difficulties.

(b) Whenever the Issuer obtains knowledge of the occurrence of a Listed Event the Issuer shall as soon as practicable determine if such event is material information for holders of Bonds, provided, that any event under subsection (a)(xi) will always be deemed to be material.

(c) If the Issuer has determined that knowledge of the occurrence of a Listed Event is material, the Issuer shall promptly notify the Paying Agent in writing and report the event pursuant to subsection (d).

(d) If the Issuer determines to report the occurrence of Listed Events pursuant to subsection (c) above, then the Issuer shall file a notice of such occurrence with EMMA. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Resolution.

Section 6. Termination of Reporting Obligation. The Issuer’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds.

Section 7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent with or without appointing a successor Dissemination Agent. If no replacement Dissemination Agent is appointed, the Issuer shall undertake all obligations thereof hereunder.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Issuer may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws, acceptable to the Issuer, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been

4

16063437.1

effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule.

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

Section 10. Default. In the event of a failure of the Issuer or the Dissemination Agent to comply with any provision of this Disclosure Certificate any holder of Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Issuer or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed a default under the Resolution or the Bonds and the rights and remedies provided by the Resolution and the Bonds upon the occurrence of a default shall not apply to any such failure. The sole remedy under this Disclosure Certificate in the event of any failure of the Issuer or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to compel performance.

Section 11. Immunities of Individuals. No recourse shall be had for any claim based hereon against any member, officer or employee, past, present or future, of the Issuer or the officers of the Issuer or of any successor body, as such.

Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Issuer, the initial purchaser of the Bonds, and holders from time to time of the Bonds, and shall create no rights in any other person or entity.

Section 13. Notices.

Any notices or communications to or with the Issuer may be given as follows:

Freeport Area School District 621 South Pike Road Sarver, PA 16055 Attention: Business Manager

IN WITNESS WHEREOF, the Issuer has caused its duly authorized officer to execute this

Certificate as of this ___ day of May, 2020.

FREEPORT AREA SCHOOL DISTRICT By: President, Board of School Directors

Documents

· 2 days ago · PRELIMINARY OFFICIAL STATEMENT DATED MAY 11, 2020. NEW ISSUE—BOOK-ENTRY ONLY . RATING Moody’s: “A1” (Underlying) “____” (Insured) (See Ratings herein)