Board of Trustees Capistrano Unified School District Lynn Hatton-hodson President Amy Hanacek Vice President*

There is a lack of transparency to homeowners relative to how CFD funds are being used.

There does not seem to be appropriate oversight and auditing of CFDs and special tax expenditures within the County of Orange.

While the assumption is that the CFD debt would be repaid in a finite period of time, there is a mechanism available to controlling entities to extend debt obligations and thereby extend the CFD special tax in perpetuity. We understand we've been given the following directions to guide our responses to these findings: As to each Grand Jury finding, the responding person or entity shall indicate one of the following: (1) The respondent agrees with the finding (2) The respondent disagrees wholly or partially with the finding, in which case the response shall specify the portion of the finding that is disputed and shall include an explanation of the reasons therefore. Response to F.1: (2) We disagree with the findings - "how CFD funds are being used" are published in multiple reports: 1) CFD expenditures are reported in the District's financial statements in the "Capital Projects Fund for Blended Component Units". The aggregated financial activity of this fund is published annually in the District's audit reports - including assets, liabilities, revenues, and expenditures. Audit reports are available to the public on both the District's website and it's public disclosure website. 2) Expenditures for each CFD individually are reported in the District's CFD administration reports - including debt payments, facilities projects, and administrative services. The reports are prepared annually and available from the District's business office upon request. 3) More detailed information on specific facilities project expenditures is also reported in public meetings to the Board of Trustees on a monthly basis, and are accessible on the District's website or available from the District's business office upon request. Response to F.2. (2) We disagree with the findings - CFD expenditures are recorded in the District's financial statements in the "Capital Projects Fund for Blended Component Units". The financial activity of this fund is audited annually and published annually in the District's audit reports. While not having a special oversight or appeals committee unique to the CFDs, additional oversight is provided by, and appeals managed by, the Board of Trustees, which receives detailed reports on the financial activity of the CFDs in public meetings. SERVING THE COMMUNITIES OF: ALISO VIEJO · COTO DE CAZA · DANA POINT · LADERA RANCH · LAGUNA NIGUEL · LAS FLORES · MISSION VIEJO RANCHO SANTA MARGARITA · SAN CLEMENTE · SAN JUAN CAPISTRANO Response to Orange County Grand Jury Report, Mello-Roos: Perpetual Debt Accumulation And Tax Assessment Obligation, 2014-2015 September 2015 Response to F.3. (2) We disagree partially with the findings. As currently written, California Government Code requires the special tax to have a finite end date, stating the following in regard to the resolution of intention to establish the district: "the resolution shall specify a tax year after which no further special tax subject to this sentence shall be levied or collected" (California Government Code Section 53321(d)). That said, while existing law requires the special tax to have an end date, some CFDs may have had a formation date that preceded this statutory requirement. In Capistrano Unified School District, all CFDs have an end date - either established in the resolution of intention or subsequently established by the Board of Trustees. We noted the report's recommendations as follows: