Additionally, the General Fund maintained a steady balance, the Special Revenue Fund decreased by $3.0 million on planned expenditures and the Capital Projects Fund increased $5.3 million primarily from the proceeds of the capital lease. The overall position of the District's funds remains financially strong and the District is able to meet all of its ongoing operational expenditures without having to resort to short-term financing activities. - 14 - SCHOOL DISTRICT OF CLAYTON MANAGEMENT'S DISCUSSION AND ANALYSIS - UNAUDITED Year ended June 30, 2019 Operating Funds (General and Special Revenue Funds Combined) - Budgeting Highlights In accordance with Chapter 67, RS Mo, the District adopts a budget for each fund. While the District uses its funding judiciously, there are a number of factors that affect the budget over which the District has little or no control. The District uses site-based budgeting which is designed to tightly control site budgets but provide flexibility for site management. 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. The District's financial strength is derived primarily from its strong local property values as over 73.2% 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 2018-2019 property tax revenues decreased by approximately $578 thousand or 1.34% less than the 2017-2018 totals primarily from a lower recoupment rate; current property taxes decreased by approximately $755 thousand and delinquent property taxes increased by approximately $177 thousand. The 2018 tax levy included a recoupment rate of 0.0468 for residential property and 0.0057 for commercial property. Legislation allows the District to assess a recoupment rate when the assessed value of property is lowered through the appeal process after the tax rate has been set. 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 $405 thousand below the original budget and approximately $3.1 million above the revised budget. For the year ended June 30, 2019, the General Fund budgetary basis actual expenditures were approximately $968 thousand less than final budgeted amounts. Expenditures were less in the area of Operation of Plant by approximately $428 thousand due to lower expenses in utilities and due to the timing of summer projects. Also, Instruction was less than budgeted by $264 thousand primarily as a result of lower expenditures for textbooks. The Special Revenue Fund budgetary basis actual expenditures reflect an overall positive variance of approximately $900 thousand from the final budget primarily in the function of Instruction. Expenditures were lower than budget in salaries and benefits partially due to the budgeting of certain extra-duty positions to be filled by certified personnel. However, these positions may be filled by either certified or non-certified personnel. A significant portion of these positions were filled by non- certified personnel and therefore the expenditures occurred in the General Fund. Expenditures for insurance and substitute costs were also below budget. For the year ended June 30, 2019, the combined General and Special Revenue change in fund balances was approximately $1 . 7 million lower than the 2018-2019 original budget and $5.2 million lower than the final budget. Missouri law prohibits a district from overspending the expenditure budget per fund. - 15 -

For the year ended June 30, 2019, the combined General and Special Revenue change in fund balances was approximately $1 . 7 million lower than the 2018-2019 original budget and $5.2 million lower than the 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, 2019 Capital Assets and Debt Administration Capital Assets At June 3 0, 2019, the District had capital assets with a net book value of $103 million, which includes $46.8 million in accumulated depreciation. Table 4 shows a breakdown of capital assets, net of accumulated depreciation, at year end. Governmental activities Land $ 714,536 98,535,256 3,338,288 Buildings and improvements Furniture and equipment Table 4 Capital Assets - Net June 30, 2019 Business- type activities $ 44,125 $ Total 714,536 98,535,256 3,382,413 Governmental activities $ 714,536 100,977,864 3,277,130 2018 Business- type activities $ 52,166 Total $ 714,536 100,977,864 3,329,296 Total $ 102,588,080 $ 44,125 $ 102,632,205 $ 104,969,530 $ 52,166 $ 105,021,696 The total additions for the year were $1.4 million which consisted of approximately $3 73 thousand of building and improvements and $989 thousand 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. Debt Administration At June 30, 2019, the District had $69.1 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 $106 million at June 30, 2019, far above the District's current level of debt. The District's Debt Service levy for 2018-2019 was $0.623 on each $100 of assessed valuation. The Debt Service Fund balance at June 30, 2019 was $5.0 million and equal to nearly 84.32% of the fiscal year 2019 annual debt service expense. The District's bond rating is AAA with Standard and Poor' s. - 16 -

The Debt Service Fund balance at June 30, 2019 was $5.0 million and equal to nearly 84.32% of the fiscal year 2019 annual debt service expense. The District's bond rating is AAA with Standard and Poor' s. - 16 - SCHOOL DISTRICT OF CLAYTON MANAGEMENT'S DISCUSSION AND ANALYSIS - UNAUDITED Year ended June 30, 2019 Capital Assets and Debt Administration - continued Other long-term liabilities of the District include compensated absences and a capital leases for renovation and improvement projects. Additional information about debt is provided in Note E. Economic Factors and Fiscal Year 2019-2020 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. The strategic planning process used the District's mission, vision and core values as a guide to develop strategic themes, objectives and initiatives. The 2019-2020 budget continues to focus on our strategic themes of Academic Excellence, Teacher and Administrator Excellence, Growth and Development of the Whole Child, and Resource Management. An effective learning organization continually takes time to evaluate progress and respond to it. While our District's strategic plan serves as a guide for where we are going, we also are purposeful about being reflective and making adjustments along the way. The District began working throughout the 2018-2019 school year to develop a new strategic plan, which will guide the District's work for the next three to five years. The first step in this process is starting with the end in mind: our students. We are working to develop a "Profile of a Graduate" that will prioritize the competencies we want for every Clayton graduate. 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. In the fall of 2018, we gathered input from the community through a platform called ThoughtExchange. The data collected from this input has been used as a launching point for developing our Profile of a Graduate. Once this work is finalized in the fall of 2019, a new strategic plan will be developed. 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 percent of the votes. The net effect of both measures will provide the District with an additional 64 cents of operating revenue, or approximately $7 .3 million. The additional revenue will be used to 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 be used to 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, 2019 Economic Factors and Fiscal Year 2019-2020 Budget - continued 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. The reductions were made with the goal of continuing to align District resources with our priorities but also protect what matters most: our instructional core. An academically-challenging curriculum, our students' engagement in their learning, and teachers' knowledge and skills are the three interdependent components of this District. 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. 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 of spending down reserves with $2.4 million and $2.0 million respectively. The District continued to spend down reserves in 2018-2019 at approximately $4.0 million. However, due to the successful passing of Proposition E, for 2019-2020, the District is projected to have approximately a $2.9 million operating surplus and grow the fund balance to approximately 24% which is 6 percent above the 18 percent fund balance goal. Beginning in 2015-2016, instructional and departmental operating budgets were prepared through a Zero-Based Budgeting (ZBB) approach. This approach is one of the key initiatives used to implement the Resource Management theme in the District's Strategic Plan. 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 for the decisions for where the District spends. The 2019-2020 budget was prepared using a ZBB approach. Proposed 2019-2020 total expenditures including normal debt service payments and business-type activities total $64.6 million. Projected total revenues, inclusive of business-type and debt service, of $69 .1 million will result in a surplus $4.5 million and grow the overall fund balance to $22.3 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 increase by $12.0 million or 25.87 percent to a total of $58.6 million primarily because of the successful passing of Proposition E, new developments, and the recoupment of the payback of approximately $1.2 million of protested taxes from the prior year. Protested assessed values continue to remain a challenge for all of St. Louis County. 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. - 18 -

Louis County. 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. - 18 - SCHOOL DISTRICT OF CLAYTON MANAGEMENT'S DISCUSSION AND ANALYSIS - UNAUDITED Year ended June 30, 2019 Economic Factors and Fiscal Year 2019-2020 Budget - continued 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 $1.8 million or 3.32 percent to a total of $55.6 million. 2018-2019 was the final year of a two-year salary agreement. Administration and teacher representatives began having salary discussions in March 2019. The Board approved a two- year salary schedule at their May 8, 2019 meeting. A 1.0 percent budgetary increase for certified teaching staff has been included in the current projections. The average salary increase for a teacher is 2.45 percent due to staff turnover. Administrative salaries, classified salaries, part-time temporary employment and substitute budgets will be increased by 2 percent. 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, an additional $675,000 a year in funding for facility and maintenance needs will be budgeted. Total proposed maintenance Capital Improvement Plan (CIP) expenditures for 2019-2020 will include funding at the same level as 2018-2019 of $625,280 with an additional $100,000 from Proposition E for a total allocation of $725,280. The remaining $575,000 of the additional $675,000 will be used to pay the annual financing payments improvements at the Center of Clayton. In addition, requests to expend funds from the sale of the Maryland Building will be presented during the 2019-2020 school year. 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. The first request will be to hire an architect to perform a safety audit of our buildings. Facility staff are currently prioritizing other capital maintenance projects to bring forward for approval. The District continues to work to control costs and align resources with priorities while also looking at other strategies to achieve financial balance with minimal impact on students and classrooms. Operating revenues will exceed operating expenses increasing the operating fund balance by $2.9 million. The District anticipates approximately $1.0 - $1.5 million of the budget to be unexpended each year. Including these anticipated unexpended budget funds, the operating fund balance is anticipated to increase approximately $4.4 million. The 2019-2020 year-end operating fund balances inclusive of business-type activities are projected at $16.3 million or 28.7 percent. However, $4.8 million has been formally committed by the Board for future capital expenditures. This leaves a net operating fund balance of $11.5 million or 20. 7 percent of budgeted operating expenditures which is slightly above the Board's fund balance goal of 18 percent. - 19 -