Public Financial Management, Inc. Proposal to Serve as Financial Advisor

1. September 14, 2012 Public Financial Management, Inc.Proposal to Serve as Financial Advisor

2. PFM’s team has direct expertise and experience Engagement Manager Mike Berwanger Managing Director Los Angeles, CA Project Lead Laura Franke Senior Managing Consultant Los Angeles, CA Project Team Support Bob Gamble Managing Director San Francisco, CA Co-Project Lead Sarah Hollenbeck Senior Managing Consultant San Francisco, CA Project Team Support Mark Prussing Senior Managing Consultant Seattle, WA Credit Expertise Eric Espino Senior Managing Consultant Los Angeles, CA Pricing Support Todd Fraizer Managing Director Charlotte, NC Quantitative Support Hana Hu Consultant Los Angeles, CA • Under the guidance of the core team, the full resources and capabilities of PFM will be committed to further the District’s objectives In Attendance

3. Table of Contents I. Public Financial Management’s QualificationsII. Finance Plan ConsiderationsIII. Preliminary GO ProfileIV. Why PFM?

4. I. Public Financial Management’s Qualifications

5. PFM is the premier municipal financial and investment advisory firm 1984-2011 Financial Advisory Volume/No. of Transactions Matrix PFM Organizational Structure PFM Experience • Doing business in CA since 1987 • Perennially Top ranked CA FA firm • Top education FA nationally from 2001-2011 • Financial Advisor to comparable sophisticated issuers throughout the state • Bay area office is west coast hub • PFM is the nation’s largest independent financial advisory firm—with 32 offices and 467 employees throughout the United States—bringing a scale and presence unmatched by any of its competitors • The PFM Group was founded in 1975 on the principle of providing sound independent financial advice to state and local governments, and is comprised of Public Financial Management, Inc (“PFM”) and PFM Asset Management LLC (“PFMAM”)

6. PFM consistently ranks first among financial advisors 2011 Year-end Overall Long-Term Municipal New Issues 2011 Year-end General Obligation Long-Term Municipal New Issues • Although rankings provide a shorthand method of measuring success, it adds credence to our top billing when coupled with the length of service and level of satisfaction we provide our clients • As a result of the experience gained as such an active player in the markets, PFM offers the benefits of unrivaled levels of participation, preparation, strategy, and advocacy National Municipal Financial Advisory Rankings Source: Thomson Reuters National Municipal Financial Advisory Rankings Source: Thomson Reuters

7. PFM has extensive experience in California 2012 YTD Overall California Long-Term Municipal New Issues • Familiar with all forms of debt and all applicable State laws • Consistently the #1 Financial Advisor by transactions • If State of CA deals are excluded, PFM is the top ranked FA by par issuance as well

8. Our client relationships go beyond just bond transactions Structured Products Advisory Services Financial Advisory Services Strategic Municipal Consulting Investment Advisory Services • Multi-Year Strategic Financial and Management Plans • Labor Negotiation Support • Operational Review and Analysis • Budget Development and Performance Benchmarking • Revenue Enhancement • Capital Planning • Privatization Analysis • Debt Portfolio Management • New Issuance and Refunding/Restructuring Analysis • Pricing Analysis/Benchmarking • Valuation of Call Options • Capital Budgeting • Debt Policy Development • Transaction Management • Future Perfect Modeling • Asset/Liability Management • Investment Management • Structured Investment Contracts • Escrow Optimization and Structuring/Restructuring • Derivative Products Analysis/Execution • Competitive Bidding Services • Fixed-Income Portfolio Structuring/Management • Cash Management • Investment Policy Development • Cash Flow Forecasting • Arbitrage Rebate Compliance • Accounting/Record-keeping Services • PFM is a full service independent financial advisor and would offer the District a complete platform of services and expertise • With a myriad of business lines, PFM has resources to meet client needs at every level

9. Technical Capacity Asset/Liability Model Determine proper mix of fixed and variable rate assets and liabilities to minimize risk Debt Capacity Models Determine capacity to issue debt given revenue projections, rating considerations, and current market conditions Debt Profile Monitor refunding candidates on a maturity-by-maturity and aggregate basis Refunding Screen Determine apples-to-apples comparison of different coupon and yield structures Option Adjusted Yield Model Forward Rate Model Evaluate the costs and benefits of different financial structures given several inputs and constraints Cash Optimization Models Analyze the financial and credit impacts of financial alternatives on an issuers budget Capital Planning Models Weighted Student Finding Provides valuable funding allocation tool for Districts based on site and student profile data • PFM has invested a great deal in industry leading technology and proprietary models. We devote significant time and effort into training our professionals • PFM works diligently to be at the forefront of financial advisory firms and investment banks • The breadth and depth of these tools are unmatched in the Financial Advisory marketplace The PFM Analytical Toolbox: • Development of Specialized Models - PFM is an industry leader in developing specialized models for our clients • Creation and Evaluation of Databases - PFM creates comprehensive databases to evaluate and compare current market pricing indications versus numerous indices and selected comparable securities and to monitor and track variable rate demand bond and swap performance

10. The Quantitative Strategies Group (“QSG”) • Dedicated QSG Professionals • Monitor municipal market in order to stay abreast of new and emerging products and strategies • Administer the firm’s extensive three-month training program for new and lateral hires • Hosts PFM’s training seminars for clients, with topics spanning from the basics of transaction management to policy level considerations • Customized solutions: • Advanced financial analysis • Commercial and proprietary software • Individualized quantitative solutions for each client • Extensive quantitative capabilities allow us to provide services which address • Capital financing strategies • Strategic planning and budgeting • Investment management strategies

11. The Quantitative Strategies Group (“QSG”) • Dedicated QSG Professionals • Monitor municipal market in order to stay abreast of new and emerging products and strategies • Administer the firm’s extensive three-month training program for new and lateral hires • Hosts PFM’s training seminars for clients, with topics spanning from the basics of transaction management to policy level considerations • Customized solutions: • Advanced financial analysis • Commercial and proprietary software • Individualized quantitative solutions for each client • Extensive quantitative capabilities allow us to provide services which address • Capital financing strategies • Strategic planning and budgeting • Investment management strategies

12. PFM brings the value of independence to pricing 2011 Year-end PFM vs. Underwriters Overall Long-Term Municipal New Issues • PFM has an independent in-house bond pricing group and prices more transactions than any Wall Street firm • PFM averaged nineteen transactions per week last year and is averaging fifteen transactions per week this year • Our Pricing Group serves the same role as underwriters; however, PFM is not engaged in any trading or market making activities. PFM works solely as a financial advisor and does not underwrite bonds • At PFM we believe that independence and experience are at the core of good advocacy • We provide aggressive and informed representation to our clients in the pricing of securities • PFM’s only role is to meet the goals of our clients • Unbiased advice—no conflicts of interest • Track record of long-term client-focused service • No negotiated underwriting pressure—underwriters have to meet the goals of two clients: the issuer and the investor

13. II. Finance Plan Considerations

14. Capital Budget Planning PFM Approach to Developing a Plan of Finance • PFM can quickly integrate with the District’s current planning efforts and is ready to help adapt them over the coming years as conditions change • Pro-active management of refundings • Long-term planning efforts must maintain flexibility • Economic • Assessed Value • State Funding • Policy • Understand scope and timing of capital program • Tax rate constraints

15. SRVUSD’s Credit Profile Current Ratings Mitigants / Allaying Actions SRVUSD Credit Concerns • Very strong management practices have guided SRVUSD through a difficult funding environment • Strong reserve fund balances are key to high ratings State Budget Issues • Wealth levels of district are above city and county due to wealthy communities within District • Unemployment levels are improving • There remains high demand for classes Weak Economy • Very large and diverse tax base serving a more dense population than other districts in the state • Direct debt levels are moderate for rating category and agencies are aware of existing authorization and debt issuance plans Relatively High Debt Levels Significant Capital Plan • Lower capital costs during recession allow management to take advantage of cost savings on larger projects • Capital projects are essential for maintaining and modernizing a large and growing system

16. Rating Agencies and Dodd-Frank New Financial Regulations and Impact on Credit Rating Process New SEC Office • Dodd Frank Act created an office of Credit Ratings within the Securities Exchange Commission (SEC) to oversee new rules targeting Credit Rating Agencies (CRA) • Dodd-Frank as well as EU guidelines for structured finance products have resulted in CRAs initiating more frequent and “off-cycle” reviews of municipal issuers • 12 -18 month max period before a review is conducted for most issuers Frequent Rating Reviews • New disclosure requirements are being implemented with more to come and which are placing more demands on staff • CRAs requesting quarterly disclosure of financial performance from issuers in many cases Increased Disclosure Rigid Rating Criteria • Much of the recent criteria changes or proposals by the CRAs have centered on trying to fit issuers and ratings into a ”box” • There is also a move to be more quantitative with scoring of credit factors driving ultimate ratings Formal Relationships • Relationships with analysts have become noticeably formal and much of the interaction is driven by internal CRA processes

17. An Investor Relations Strategy is Important and Often Overlooked • Issuers are taking a more proactive stance to investor relations; however, many still focus on credit and investor outreach only at the time of a bond sale • Communication with investors should not be a one-time event as the bonds are being sold • For certain issuers with frequent borrowing needs PFM is emphasizing a long-term approach to managing investor and rating agency relations

18. III. Preliminary GO Profile

19. Couponing Considerations SAMPLE • Today’s market is dominated by callable premium bond structures, which typically carry a 5% coupon • Par bonds increase cost of capital but lower interest only period annual cost • PFM can work with the City and its underwriter to reduce the impact of the callable premium structure where possible at no added cost premium • Since par bond are not the coupon of choice in today’s market it is not realistic to assume that all bonds can be sold as par bonds with no yield premium

20. Capital Appreciation Bonds • CABs price at a premium to CIBs ranging from 4bps to over 100bps • While they meet near term goals of limited debt service impact they have a long term cost • Finding the right blend that balances these two competing goals can be part of the planning effort

21. Capital Structure and Considerations SAMPLE • Escalating annual debt service in upcoming years, which assumes stable tax rate and stable growth in A.V. • Current economic climate may challenge A.V. growth • Total Par Outstanding – $3.5 billion • Election of 2001: $1.09 billion • Election of 2003: $791 million • Election of 2008: $1.625 billion issued to date; $1.875 billion in remaining authorization

22. Bonding Capacity Analysis SAMPLE • A.V growth assumes to remain flat for the next several years • The District averages $300-400 million per issue • A $400 million new money issue (30 years @ 5%) would increase annual tax levy by 9.5% from $39.9 to $43.69. If a refunding were issued simultaneously, annual tax rate would be $43.60. Tax Rate Impacts

23. Financing Considerations SAMPLE • Structuring considerations will be largely driven by the policy consideration of balancing near-term debt service costs versus longer-term affordability • Propose level aggregate debt service with the underlying assumption of flat A.V. growth $400 mm New Money30 year fixed rate $400 mm New Money with Refunding of2003 Series A B&C

24. Refunding Analysis Approach SAMPLE • We performed a preliminary, comprehensive maturity-by-maturity refunding analysis of the District’s outstanding long-term debt using our proprietary model to identify either • Savings as a percentage of refunded par • Net present value (“NPV”) savings as a percentage of the imbedded call option value for each maturity which measures refunding efficiency • The District has done a good job of optimizing its refunding opportunities to date • Near term opportunities exist • Generally, we suggest our clients consider refunding bonds that produce 3% or greater savings depending on circumstances • We may still suggest that our clients consider refunding a bond with less than 3% savings if a refunding would capture a significant amount (generally around 60- 70%) of the theoretical call option value

25. Series 2003A B&C are refunding candidates SAMPLE • Savings will continue to increase, all else constant, as the call date nears and the escrow period is shortened • The recent pull back in rates has had a significant impact on savings • Option value is another consideration that PFM’s proprietary refunding screen can analyze in detail • As shown in the analysis below, 15 maturities totaling $62.9 million in PAR generate an estimated $6.5 million in NPV savings

26. Outstanding Debt • PFM will be with SRVUSD everystep of the way as SRVUSD considers various financing strategies

27. IV. Why PFM?

28. PFM is Uniquely Qualified to serve as Financial Advisor to SRVUSD • Technical sophistication to address complex concerns • Well versed in structuring and pricing complex instruments like CABs and Convertible CABs • Greater California presence than any other financial advisory or investment banking firm • Monitoring CAB dynamics and potential regulatory changes in CA • Over 40 California based professionals • All the services of a broker-dealer, but without the conflicts • District expertise – local and education specific • Independent pricing group – your desk • Successful rating agency and investor strategies • Credit market expertise – national leverage • Modeling and technical expertise – an extension of your staff