The $60,000 funding level projected for 2019-2020 is approximately $46,000 lower than the historic high of $106,854 received during the 2007-2008 school year. Historic funding levels and District support are: 2013- 2014 2014- 2015 2015- 2016 2016- 2017 2017- 2018 2018- 2019* 2019- 2020* State Funding $52,679 $60,237 $61,800 $63,820 $64,191 $60,000 $60,000 District Support $44,363 $35,290 $27,264 $26,284 $23,053 $38,810 $41,150 Total Cost of Program $97,042 $95,527 $89,064 $90,104 $87,245 $98,810 $101,150 Children Served 350 321 313 305 287 N/A N/A Families Served 204 206 211 211 198 N/A N/A *Budgeted 32 Early Childhood Special Education The Early Childhood Special Education (ECSE) program, including all staffing, is funded through a pass-through grant from DESE. ECSE is approximately 80% state funded and 20% federally funded. Over the past several years, DESE has advised the District that the ECSE funding exceeds DESE guidelines. In 2013, DESE stated that it would only fund the ECSE grant for less than half of the submitted full-time equivalencies (FTE). The District successfully appealed DESE’s decision. (Note: The grant approval takes place in arrears only after the funding has been provided the year prior.). While DESE approved the 2013 grant at the higher FTE level, it advised that it would no longer provide staffing levels as requested by the District. The District, with the assistance of an outside consultant and state officials with the ECSE program, completed a study of its ECSE program to determine appropriate staffing levels for the future. It was determined that projected staffing levels needed to serve students in the ECSE program at the Family Center were acceptable and it is anticipated that ECSE staffing should be covered by the DESE grant and District support should not be necessary. During the review of both the 2015-2016 and 2016-2017 final expenditure reports, DESE determined staffing levels were again too high and despite appeals by District administration, grant funding was reduced at a cost to the District of approximately $18,000 and $46,600 respectively. District staff will continue to monitor staffing levels and be proactive with working with state officials with the ECSE program to ensure staffing is maintained at the proper levels. Summer Programs It is recommended that the District maintain an overall investment in summer programs of $250,000. Academic summer programs will be budgeted at a total cost of $250,000 and recreation summer programs as fee-based revenue/expense neutral but operate with the intent to generate revenues where possible. Debt Service Currently, the District has bonds outstanding of approximately $92.8 million. In 2019-2020, the District will pay $7.85 in principal and interest payments and is budgeting the receipt of $845,580 in subsidy income direct from the federal government on federally subsidized debt as described below. All of the bond issues presently outstanding will be paid in full by 2030.  Series 2009C and 2010C are Taxable Build America Bonds – Direct Pay with a 35 percent interest rate subsidy.  Series 2010A are Qualified School Construction Bonds with a 96 percent interest rate subsidy.  Series 2010B is a Recovery Zone Economic Development Bond with a 45 percent interest rate subsidy. General obligation bonds outstanding at June 30, 2018, were as follows: Issue Date Maturity Date Rate of Interest Original Issue Amount Balance as of June 30, 2018 10/14/09 03/01/24 1.37% $9,185,000 $9,185,000 11/03/09 03/01/21 0.80%-4.75% 10,720,000 4,410,000 11/03/09 03/01/19 4.80%-5.60% 19,290,000 19,280,000 09/08/10 03/01/27 4.70% 3,987,000 3,987,000 09/28/10 03/01/30 4.70%-5.0% 16,205,000 16,205,000 09/28/10 03/01/28 3.90%-4.70% 16,270,000 16,270,000 12/27/17 3/1/29 4.00%-5.00% 23,465,000 23,465,000 $92,802,000 33

All of the bond issues presently outstanding will be paid in full by 2030.  Series 2009C and 2010C are Taxable Build America Bonds – Direct Pay with a 35 percent interest rate subsidy.  Series 2010A are Qualified School Construction Bonds with a 96 percent interest rate subsidy.  Series 2010B is a Recovery Zone Economic Development Bond with a 45 percent interest rate subsidy. General obligation bonds outstanding at June 30, 2018, were as follows: Issue Date Maturity Date Rate of Interest Original Issue Amount Balance as of June 30, 2018 10/14/09 03/01/24 1.37% $9,185,000 $9,185,000 11/03/09 03/01/21 0.80%-4.75% 10,720,000 4,410,000 11/03/09 03/01/19 4.80%-5.60% 19,290,000 19,280,000 09/08/10 03/01/27 4.70% 3,987,000 3,987,000 09/28/10 03/01/30 4.70%-5.0% 16,205,000 16,205,000 09/28/10 03/01/28 3.90%-4.70% 16,270,000 16,270,000 12/27/17 3/1/29 4.00%-5.00% 23,465,000 23,465,000 $92,802,000 33 Article VI, Section 26(b), of the Constitution of Missouri, limits the outstanding amount of authorized General Obligation Bonds of the District to 15% of the assessed valuation of a district. The approximate assessed value of taxable properties within the District boundaries is $1.136 billion. This results in the District’s constitutional debt limit being approximately $170 million. After deducting the amount of outstanding debt and adding back the cash available in the Debt Service Fund, this results in an $80.7 million legal debt margin. Fund Balance The fiscal year, as determined by Board Policy DBB, is inconsistent with the school year. Both are inconsistent with the tax year. Fiscal Year: July through June School Year: August through June Tax Year: January through December Essentially, the District receives one large paycheck per year. Although tax revenues in smaller amounts are received by the District throughout the year, the bulk of the revenue arrives in late December and early January. These revenues are generated by local property taxes, which are collected in the fall and distributed to school districts by the County Collector. Legal Debt Margin $80,666,787 47% General Obligation Bonds Outstanding less Cash Available in Debt Service Fund $89,769,270 53% Legal Debt Margin 34

These revenues are generated by local property taxes, which are collected in the fall and distributed to school districts by the County Collector. Legal Debt Margin $80,666,787 47% General Obligation Bonds Outstanding less Cash Available in Debt Service Fund $89,769,270 53% Legal Debt Margin 34 The Board of Education must set aside money to pay District bills for the balance of the fiscal year (January-June) and for the first six months of the next fiscal year (July-December). As a budget for the following year is being created in the winter months, the Board must work with the actual amount of tax revenue received in January and estimate the amount that will be collected some 11-12 months later. The Board must, therefore, project its expenses far into the future. For example, when an official tax levy is established in September of one year, the taxes are not actually received by the District for six months, but must support the District until taxes are distributed again some 18 months later! Put graphically, here are the ABC’s of school taxes: A B C D July 2019 December 2019 January 2020 January 2020-December 2020 Begin Fiscal Year September 2019 tax levy set Taxes collected by County Collector District receives local taxes (79% of total income) District operates on taxes collected and fund balances 18 Months -----------------------------------------------------------------------------------------------------------→ If tax receipts in January are lower than estimated, it will be more difficult for the District to pay all of its operating expenses for the next 12 months. If new families move into Clayton over the summer months and additional children appear at school in September, additional faculty may have to be hired. If unexpected building repairs are needed, scheduled maintenance may have to be delayed. In setting a tax levy that will provide the money to support the budget, the District takes several steps. • First, financial planning is of prime importance. Annual costs for teachers’ salaries, building operations, and instructional materials are carefully analyzed. The District’s Chief Financial Officer carefully monitors projected increases in assessed valuation, the rate of tax collection, and political actions that may have an impact upon the District’s financial future. • Second, in building the budget, the Board sets aside contingency monies in each of the three operational funds: Special Revenue, General, and Capital Projects. (As stated earlier, the Debt Service Fund is predictable.) For example, the District could experience unpredicted increases in enrollment that would make it necessary to hire additional teaching staff and purchase additional instructional supplies. Contingency money could be used to meet these unanticipated expenditures. • Third, fund balances—money from each fund not spent during a budget year—is placed in a reserve fund. The Board may draw upon this fund—just as a citizen will draw upon a savings account—when the need arises. Because this money has been collected through a voter-approved tax levy or represents other money, such as interest income derived from invested tax revenue, no additional vote need be taken in order to use it. For Clayton, fund balances serve another important purpose. Since the District receives most of its tax revenue in late December and early January, but the fiscal year ends June 30, money must be set aside in the reserve fund to meet District expenses—such as payroll—from July through December. Experience has shown that a minimum fund balance of 18 percent of the expenditure budget must be maintained to prevent the necessity of borrowing money to meet District expenses during the fall months. 35

Since the District receives most of its tax revenue in late December and early January, but the fiscal year ends June 30, money must be set aside in the reserve fund to meet District expenses—such as payroll—from July through December. Experience has shown that a minimum fund balance of 18 percent of the expenditure budget must be maintained to prevent the necessity of borrowing money to meet District expenses during the fall months. 35 Proposition E was placed on the ballot because the District was prudently spending down operating reserves of $175,217 in 2009-2010, $820,654 in 2010-2011 and $2.0 million in 2011-2012. During 2012-2013 and 2013-2014, budget reductions of $935,900 and $1.2 million, respectively, were made both to ensure the District’s resources were allocated to programs that support its mission, vision and core values, as well as to secure the District’s ability to continue to provide our students with a rich and rigorous educational experience. As a result of these reductions and the ability to recoup approximately $5.0 million of protested taxes over three years, operating surpluses of $560,973 in 2012-2013, $1.6 million in 2013-2014, and $2.6 million in 2014-2015 were reported. During fiscal year 2015-2016 the District again began spending down reserves in the amount of $1.7 million due to the payback of over $2.0 million in protested taxes and 2016-2017 and 2017-2018 continued the trend with $2.4 million and $2.0 million respectively. The District is projected to continue to spend down reserves in 2018-2019 at approximately $4.0 million. However, due to the successful passing of Proposition E, the District is projected to have approximately a $2.9 million surplus and grow the fund balance to approximately 20%, which is 2% above the 18% fund balance goal. Historical revenues, expenses and fund balance from the last tax levy (2003) and projected for the next five years are presented below. 36

However, due to the successful passing of Proposition E, the District is projected to have approximately a $2.9 million surplus and grow the fund balance to approximately 20%, which is 2% above the 18% fund balance goal. Historical revenues, expenses and fund balance from the last tax levy (2003) and projected for the next five years are presented below. 36 Reporting Every district within the state of Missouri is required to file an Annual Secretary of the Board Report (ASBR) with DESE by August 15 of each year. The District submits this report for all governmental funds on the cash basis of accounting, which is a comprehensive basis of accounting other than generally accepted accounting principles (GAAP). The cash basis is used to enable the District to more accurately compare itself to other districts since the majority of the districts within the state of Missouri report on the cash basis of accounting. In accordance with RSMo 165.121 and Board Policy DIE, every district within the state of Missouri is required to file audited financial statements with DESE by December 31 of each year. The auditor’s management letter and a copy of the Board minutes indicating approval of the audit report must also be submitted to DESE. The District’s audited financial statements are prepared and audited in accordance with GAAP. 37 FINANCIAL SECTION 38 Actual Revenues, Expenditures and Balances 2017-2018 39