During the year the District revises the budget to deal with unexpected changes in revenues and expenditures as additional information becomes available. Schedules showing the District’s original and final budget amounts compared with actual amounts paid and received for the General and Special Revenue Funds are provided later in this report as required supplementary information. - 14 - SCHOOL DISTRICT OF CLAYTON MANAGEMENT'S DISCUSSION AND ANALYSIS - UNAUDITED Year ended June 30, 2020 Operating Funds (General and Special Revenue Funds Combined) - Budgeting Highlights - Continued The District’s financial strength is derived primarily from its strong local property values as over 76.7% of the District’s operating revenues are generated through local property taxes. Under Missouri Statutes, property tax rates fluctuate with changes in assessed values preventing windfall revenue increases during periods of growing property values. This mechanism also protects taxing entities during periods of falling property values and has minimized the impacts of recent property value declines. The 2019-2020 property tax revenues for all funds increased by approximately $16 million or 37.7% more than the 2018-2019 totals primarily from the successful passing of a tax levy in April of 2019 and a $1.2 million increase in delinquent property taxes. The District revised the original current property tax budget after assessed valuation information was obtained from St. Louis County. Property tax revenues finished the year approximately $3.7 million above the original budget and approximately $1.8 million above the revised budget for all funds. For the year ended June 30, 2020, the General Fund budgetary basis actual expenditures were approximately $2.2 million less than final budgeted amounts. COVID-19 caused expenditures to be less for student activities by approximately $260 thousand, for food services by approximately $320 thousand, for utilities by approximately $253 thousand, for training and professional travel by approximately $313 thousand and for supplies by approximately $373 thousand. The Special Revenue Fund budgetary basis actual expenditures reflect an overall positive variance of approximately $1.1 million from the final budget primarily in the function of Instruction. Expenditures were lower than budget in salaries and benefits primarily due to COVID-19 reducing the amount of extra pay stipends for student activities, summer programs, and athletics as well as reducing the cost of substitute teacher expenditures. For the year ended June 30, 2020, the combined General and Special Revenue change in fund balances was approximately $4.6 million greater than the 2019-2020 final budget. Missouri law prohibits a district from overspending the expenditure budget per fund. - 15 -

For the year ended June 30, 2020, the combined General and Special Revenue change in fund balances was approximately $4.6 million greater than the 2019-2020 final budget. Missouri law prohibits a district from overspending the expenditure budget per fund. - 15 - SCHOOL DISTRICT OF CLAYTON MANAGEMENT'S DISCUSSION AND ANALYSIS - UNAUDITED Year ended June 30, 2020 Capital Assets and Debt Administration Capital Assets At June 30, 2020, the District had capital assets with a net book value of $102.5 million, which includes $50.9 million in accumulated depreciation. Table 4 shows a breakdown of capital assets, net of accumulated depreciation, at year end. Table 4 Capital Assets - Net June 30, 2020 2019 Governmental activities Business- type activities Total Governmental activities Business- type activities Total Land $ 714,536 $ - $ 714,536 $ 714,536 $ - $ 714,536 Construction in progress 2,362,709 - 2,362,709 - - - Buildings and improvements 96,015,678 - 96,015,678 98,535,256 - 98,535,256 Furniture and equipment 3,338,060 87,767 3,425,827 3,338,288 44,125 3,382,413 Total $ 102,430,983 $ 87,767 $ 102,518,750 $ 102,588,080 $ 44,125 $ 102,632,205 The total additions for the year were $4.0 million which consisted of approximately $2.4 million construction in progress, $675,000 of building and improvements and $939,000 in furniture and equipment purchases. In June 2019, the District entered into an approximately $5.1 million capital lease for the purpose of renovation and improvements to Meramec Elementary and to fund capital contributions to the joint venture Clayton Recreation, Sports and Wellness Commission which is undergoing a $10 million renovation project. The majority of the lease proceeds were spent in the current year. Debt Administration At June 30, 2020, the District had $62.7 million in general obligation bonds outstanding. Missouri statute allows school districts to incur debt up to an amount equal to 15% of the most current assessed valuation. The District’s allowable debt level was approximately $140.1 million at June 30, 2020, far above the District’s current level of debt. The District’s Debt Service levy for 2019-2020 was $0.623 on each $100 of assessed valuation. The Debt Service Fund balance at June 30, 2020 was $6.4 million and equal to nearly 83.5% of the fiscal year 2021 annual debt service expense. The District’s bond rating is AAA with Standard and Poor’s. Other long-term liabilities of the District include compensated absences and capital leases for renovation and improvement projects. Additional information about debt is provided in Note E. - 16 -

Other long-term liabilities of the District include compensated absences and capital leases for renovation and improvement projects. Additional information about debt is provided in Note E. - 16 - SCHOOL DISTRICT OF CLAYTON MANAGEMENT'S DISCUSSION AND ANALYSIS - UNAUDITED Year ended June 30, 2020 Economic Factors and Fiscal Year 2020-2021 Budget As a community, the students, staff, parents and patrons of the School District of Clayton are united in our commitment to student learning. Our mission, vision and core values embody why we are here, what we want our students to become, and the principles that guide our work. The District’s mission to inspire each student to love learning and embrace challenge within a rich and rigorous academic culture, and the vision to develop leaders who shape the world through independence, creativity and critical thinking set the standard for the education we provide. During the 2018-2019 school year, the District began developing a new strategic plan with the end in mind: our students. We developed a Profile of a Clayton Graduate that includes competencies we want for every Clayton graduate. During the 2019-2020 school year, we engaged the community to establish the direction of the District’s new strategic plan, using the Profile as the foundation of our work. We envision a plan that will influence our approach to learning and challenge the mental models of what our schools look like for our students. We have established goal statements to guide our work:  We will ensure each learner feels safe and valued.  We will commit to the educational growth of our learners through an equitable, personalized and individualized learning experience.  We will be dedicated to the personal growth of our learners in their social, emotional and physical well-being. While our District’s new strategic plan will serve as a guide for where we are going over the next three to five years, we will also be purposeful about being reflective and make adjustments along the way. We are taking an evergreen approach to our strategic plan. This means we will evaluate it more often and make changes as needed based on evidence we gather. We will have action steps that are aspirational, attainable, and aligned to our resources. On April 2, 2019, the Board of Education (Board) asked the community to vote on Proposition E, an operating levy increase of 56 cents per $100 of assessed valuation and an eight-cent waiver of Proposition C sales tax revenues. The voters approved the ballot measure with 64.2% of the votes. The net effect of both measures provided the District with an additional 64 cents of operating revenue, or approximately $7.3 million. The additional revenue will maintain and strengthen the District’s academic excellence and fiscal stability by eliminating the gap between revenues and expenses, addressing facility and maintenance needs and rebuilding reserves. The community's support of Proposition E will have a lasting impact on our schools and our students. - 17 -

The additional revenue will maintain and strengthen the District’s academic excellence and fiscal stability by eliminating the gap between revenues and expenses, addressing facility and maintenance needs and rebuilding reserves. The community's support of Proposition E will have a lasting impact on our schools and our students. - 17 - SCHOOL DISTRICT OF CLAYTON MANAGEMENT'S DISCUSSION AND ANALYSIS - UNAUDITED Year ended June 30, 2020 Proposition E was placed on the ballot because the District was prudently spending down operating reserves over several years. During this time, the District made reductions in expenditures with the goal of continuing to align District resources with our priorities but also protect what matters most: our instructional core. While we reduced our expenditures and made permanent changes to staffing and programs, we did it in a way that protected our instructional core and prioritized organizational and operational impacts in order to minimize the direct impact on our students and their learning. Due to the successful passing of Proposition E, the District projects approximately a $2.8 million operating surplus, growing the fund balance by approximately 40%, which exceeds the 18% fund balance goal. The District’s instructional and departmental operating budgets were prepared through a Zero-Based Budgeting (ZBB) approach. This approach helps ensure that the budget is developed to align with priorities for instructional practices and organizational needs. The ZBB approach is built on needs and priorities rather than on historical spending trends. The ZBB process is about creating accountability for what the District spends and transparency of the decisions for where the District spends. Proposed 2020-2021 total expenditures, including normal debt service payments and business-type activities, total $67.2 million. Projected total revenues, inclusive of business-type and debt service, of $69.5 million will result in a surplus of $2.3 million, which will incrase the overall fund balance to $33.3 million. Because many of the revenues and expenditures included in the total budget are restricted for specific purposes, the operating budget more clearly reflects the District’s expected results of operations. The operating revenue budget is projected to decrease by $2.7 million or 4.25% to a total of $60.0 million, primarily due to fluctuations in protested and financial institution taxes. Protested assessed values continue to remain a challenge for all of St. Louis County taxing authorities. Numerous protested tax appeals crowd the State Tax Commissions dockets resulting in continuous fluctuations in assessed valuation data and tax payments that cause significant fluctuations in revenue trends. Further, other revenue categories such as non-resident tuition, tuition from other local education agencies (LEA’s), and VICC are projected to decrease due to an increase in resident enrollment, resulting in less available space. Projected revenues are based upon the best information available at this time, as well as historical trends. The operating expenditure budget is projected to increase by $1.5 million or 2.64% to a total of $57.3 million. The 2020-2021 school year is the second year of a two-year salary agreement. A 1.1% budgetary increase for certified teaching staff has been included in the current projections per the salary agreement. The average salary increase for a teacher is 2.41% due to staff turnover. Administrative salaries, classified salaries, part-time temporary employment and substitute budgets will be increased by 2%. In addition, the operating budget supports the maintenance of our facilities and grounds, recommended technology improvements, textbook, musical instrument and athletic uniform replacement, and curriculum implementation plans. Due to the successful passing of Proposition E, additional funding for facility and maintenance needs will be budgeted. Total proposed maintenance Capital Improvement Plan (CIP) expenditures for 2020-2021 will have an additional $200,000 in funding for a total allocation of $922,790. An additional $595,000 of funding from Proposition E will also be used to pay the annual financing payments for improvements at the Center of Clayton. - 18 -

Total proposed maintenance Capital Improvement Plan (CIP) expenditures for 2020-2021 will have an additional $200,000 in funding for a total allocation of $922,790. An additional $595,000 of funding from Proposition E will also be used to pay the annual financing payments for improvements at the Center of Clayton. - 18 - SCHOOL DISTRICT OF CLAYTON MANAGEMENT'S DISCUSSION AND ANALYSIS - UNAUDITED Year ended June 30, 2020 In addition, funding for deferred capital requests will be discussed during the 2020-2021 school year. The proceeds from the sale of the Maryland building could be used to fund deferred capital requests. These funds are not part of operating funds and are not reflected in the operating budget. The Board has committed these funds for capital projects and must approve each expenditure from these funds. Capital requests in excess of this funding source could be financed over a period of 10 years. The District will continue to work to control costs and align resources with priorities while also looking at other strategies to maintain financial balance with minimal impact on students and classrooms. Operating revenues will exceed operating expenses, which will increase the operating fund balance by $2.8 million. The 2020-2021 year-end operating fund balances inclusive of business-type activities are projected at $27.5 million or 47%. However, $4.5 million has been formally committed by the Board for future capital expenditures. This leaves a net operating fund balance of $23.0 million, or 40% of budgeted operating expenditures, which exceeds the Board’s fund balance goal of 18%. As part of the normal budgeting process, long-range projections are developed and continually updated. This process allows the District to determine how much of available resources can be used for ongoing projects, such as new programs or initiatives, versus one-time projects, such as facility repairs. Current long-range projections include new revenue from four developments where construction plans have been approved.  Centene II – Phase I – 7600, 7606, 7620 Forsyth Boulevard; 14 South Hanley Road, Clayton – 40% tax abated property  Centene University/Early Childhood Development Center – 7501 Maryland Avenue, Clayton  Clarendale of Clayton – 7651 & 7601 Clayton Road, Clayton  Forsyth Point – 8001, 8015, 8019, 8023, 8025, 802, and 8049 Forsyth Boulevard and 15 North Meramec, Clayton There are several other potential new developments that are currently in the conceptual phase and have either not been submitted to the City for review or are waiting on approval. Estimated revenue from these developments will be included in projections when approved. This conservative and prudent approach to planning by Boards of Education has been a historical trademark of the District. Long-range financial planning will continue to be relied upon with administration prepared to react to unanticipated changes to planned revenue and expenses. In December 2019, a novel strain of coronavirus (COVID-19), was reported in Wuhan, China. The World Health Organization has declared the COVID-19 outbreak to constitute a "Public Health Emergency of International Concern." The extent of the impact of COVID-19 on the District's operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our students, employees and vendors all of which are uncertain and cannot be determined at this time. - 19 -