HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO.36

Transcription

1 HARRIS COUNTY WATER CONTROL AND HARRIS COUNTY, TEXAS ANNUAL FINANCIAL REPORT JUNE 30, 2010 McCALL GIBSON SWEDLUND BARFOOT PLLC Certified Public Accountants

2 HARRIS COUNTY WATER CONTROL AND HARRIS COUNTY, TEXAS ANNUAL FINANCIAL REPORT JUNE 30, 2010

3 REQUIRED REQUIRED TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT 1-2 MANAGEMENT S DISCUSSION AND ANALYSIS 3-7 STATEMENT OF NET ASSETS AND GOVERNMENTAL FUNDS BALANCE SHEET 8-11 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS 12 PAGE STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUND REVENUES, EXPENDITURES AN]) CHANGES IN FUND BALANCES RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUN]) BALANCES TO THE STATEMENT OF ACTIVITIES 15 NOTES TO BASIC FINANCIAL STATEMENTS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE- BUDGET AND ACTUAL-GENERAL FUND 35 SUPPLEMENTARY INFORMATION - STANDARDS BY GOVERNMENT AUDITING INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS independent AUDITOR S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 41 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 48 SUPPLEMENTARY INFORMATION - BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE NOTES REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE (Included in the notes to basic financial statements) SERVICES AND RATES GENERAL FUND EXPENDITURES INVESTMENTS 55

4 TABLE OF CONTENTS PAGE TAXES LEVIED AND RECEIVABLE LONG-TERM DEBT SERVICE REQUIREMENTS CHANGES IN LONG-TERM BOND DEBT COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES GENERAL FUND AND DEBT SERVICE FUN]) - FIVE YEARS BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS 69-70

5 McCALL GIBSON SWEDLUND BARFOOT PLLC Certified Public Accountants Wortham Center Drive 7801 N. Capital of Texas Hwy. Suite 235 Suite 350 Houston, Texas Austin, Texas (713) (512) Fax (713) Fax: (512) Board of Directors Harris County Water Control and Improvement District No. 36 Harris County, Texas Independent Auditor s Report We have audited the accompanying financial statements of the governmental activities and each major fund of Harris County Water Control and Improvement District No. 36 (the District ) as of and for the year ended June 30, 2010, which collectively comprise the District s basic financial statements as listed in the preceding table of contents. These financial statements are the responsibility of the District s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted as promulgated within the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of governmental activities and each major fund of the District as of June 30, 2010, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. Member of American Institute of Cert(fled Public Accountants Texas Society of Cert(fled Public Accountants

6 Budget General Board of Directors Harris County Water Control and Improvement District No. 36 In accordance with Government Auditing Standards, we have also issued our report dated September 17, 2010, on our consideration of The District s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grants and other matters. The purpose of the internal control report is to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the internal control over financial reporting. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Management s Discussion and Analysis on pages 3 through 7 and the Schedule of Revenues, Expenditures, and Changes in Fund Balance and Actual Fund on page 35 are not a required part of the basic financial statements but are supplementary information required by the accounting procedures generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The supplementary information required by the Texas Commission on Environmental Quality as published in the Water District Financial Management Guide is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. The supplementary information, excluding that portion marked Unaudited on which we express no opinion, has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. McCall Gibson Swedlund Barfoot PLLC Certified Public Accountants c September 17,

7 HARRIS COUNTY WATER CONTROL AND MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2010 Our discussion and analysis of Harris County Water Control and Improvement District No. 36 s (the District ) financial performance provides an overview of the District s financial activities for the fiscal year ended June 30, Please read it in conjunction with the District s financial statements, which begin on page 9. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The basic financial statements include: (1) combined fund financial statements and government-wide financial statements and (2) notes to the financial statements. The combined fund financial statements and governmentwide financial statements combine both: (1) the Statement of Net Assets and Governmental Funds Balance Sheet and (2) the Statement of Activities and Governmental Fund Revenues, Expenditures and Changes in Fund Balances. This report also includes other supplementary information in addition to the basic financial statements. GOVERNMENT-WIDE FINANCIAL STATEMENTS The District s annual report includes two financial statements combining the government-wide financial statements and the fund financial statements. The government-wide portion of these statements provides both long-term and short-term information about the District s overall status. Financial reporting at this level uses a perspective similar to that found in the private sector with its basis in full accrual accounting and elimination or reclassification of internal activities. The first of the government-wide statements is the Statement of Net Assets. This information is found in the Statement of Net Assets column on pages 8 through 11. The Statement of Net Assets is the District-wide statement of its financial position presenting information that includes all of the District s assets and liabilities, with the difference reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the District as a whole is improving or deteriorating. Evaluation of the overall health of the District would extend to other non-financial factors. The government-wide portion of the Statement of Activities on pages 13 and 14 reports how the District s net assets changed during the current fiscal year. All current year revenues and expenses are included regardless of when cash is received or paid. FUND FINANCIAL STATEMENTS The combined statements also include fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District has three governmental fund types. The General Fund accounts for resources not accounted for in another fund, customer service revenues, costs and general expenditures. The Debt Service Fund accounts for ad valorem taxes and financial resources accumulated for servicing bond debt and the cost of assessing and collecting taxes. -3-

8 HARRIS COUNTY WATER CONTROL AND MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2010 FUND FINANCIAL STATEMENTS (Continued) The Capital Projects Fund accounts for financial resources segregated for acquisition or construction of facilities and related costs. Since the government-wide focus includes the long-term view, comparisons between these two perspectives may provide insight into the long-term impact of short-term financing decisions. The adjustments columns, the Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets on page 12 and the Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities on page 15 explains the differences between the two presentations and assists in understanding the differences between these two perspectives. NOTES TO THE BASIC FINANCIAL STATEMENTS The accompanying notes to the financial statements provide information essential to a full understanding of the government-wide and fund financial statements. The notes to the basic financial statements can be found on pages 16 through 33 in this report. OTHER INFORMATION In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information ( RSI ). The budgetary comparison schedule is included as RSI for the General Fund. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net assets may serve over time as a useful indicator of the District s financial position. In the case of the District, assets exceeded liabilities by $21,900,517 as of June 30, A portion of the District s net assets reflects its investments in capital assets (e.g. water and wastewater), less any debt used to acquire those assets that is still outstanding. The District uses these assets to provide water and wastewater services. A comparative analysis of government-wide changes in net assets is presented below: Governmental funds are reported in each of the financial statements. The focus in the fund statements provides a distinctive view of the District s governmental funds. These statements report short-term fiscal accountability focusing on the use of spendable resources and balances of spendable resources available at the end of the year. They are useful in evaluating annual financing requirements of the District and the commitment of spendable resources for the nearterm. -4-

9 HARRIS COUNTY WATER CONTROL AND MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2010 GOVERNMENT-WIDE FINANCIAL ANALYSIS (Continued) Summary of Changes in the Statement of Net Assets Change Positive (Negative) Current and Other Assets Capital Assets (Net of Accumulated Depreciation) $ 10,730,458 26,493,192 $ 9,530,938 21,514,634 $ 1,199,520 4,978,558 Total Assets $ 37,223,650 $ 31,045,572 $ 6,178,078 Long-Term Liabilities Other Liabilities $ 11,148,293 4,174,840 $ 11,849,274 2,421,259 $ 700,981 (1,753,581) Total Liabilities $ 15,323,133 $ 14,270,533 $ (1,052,600) Net Assets: Invested in Capital Assets, Net of Related Debt Restricted Unrestricted $ 15,100,122 1,599,428 5,200,967 $ 10,168,241 1,623,969 4,982,829 $ 4,931,881 (24,541) Total Net Assets $ 21,900,517 $ 16,775,039 $ 5,125,478 The following table provides a summary of the District s operations for the years ended June 30, 2010, and June 30, The District increased its net assets by $5,125,478, accounting for a 30.6% growth in net assets. Summary of Changes in the Statement of Activities Change Positive (Negative) Revenues: Property Taxes Grant Revenues Charges for Services Other Revenues $ 657,874 4,850,207 4,076, ,861 $ 667,906 1,498,122 3,773, ,504 $ (10,032) 3,352, ,154 (124,643) Total Revenues $ 10,107,602 S 6,587,038 $ 3,520,564 Expenses for Services 4,982,124 4,404,669 (577,455) Change in Net Assets $ 5,125,478 S 2,182,369 $ 2,943,109 Net Assets, Beginning of Year 16,775,039 14,592,670 2,182,369 Net Assets, End of Year 21,900,517 S 16,775,039 $ 5,125,478-5-

10 HARRIS COUNTY WATER CONTROL AND MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2010 FINANCIAL ANALYSIS OF THE DISTRICT S GOVERNMENTAL FUNDS The District s combined fund balances as of June 30, 2010, were $6,458,547, a decrease of $433,621 from the prior year. The General Fund fund balance increased by $264,351, primarily due to operating revenues exceeding operating expenditures. The Debt Service Fund fund balance decreased by $176,557, primarily due to the structure of the District s outstanding debt. The Capital Projects Fund fund balance decreased by $521,415, primarily due to capital asset costs paid from bond proceeds received in the current and prior fiscal year and grant revenues. GENERAL FUND BUDGETARY HIGHLIGHTS The Board of Directors amended the budget during the fiscal year. Actual revenues were $207,221 more than budgeted. Actual expenditures were $56,130 less than budgeted. See the budget to actual comparison on page 35. CAPITAL ASSETS The District s investment in capital assets as of June 30, 2010, amounts to $26,493,192 (net of accumulated depreciation). This investment in capital assets includes land, equipment and buildings as well as the water and wastewater systems. Capital asset activity during the current fiscal year included the following: Construction in Progress: Wastewater System improvements in the North Zone and South Zone-funded by 2009 Grants Metal Storage Building Completed Projects/Purchases: Generators Wastewater System improvements in the North Zone and South Zone-funded by Clean Water State Revolving Fund, Series 2008 Unlimited Tax Bonds Iron Fence -6-

11 HARRIS COUNTY WATER CONTROL AND MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2010 CAPITAL ASSETS (Continued) Capital Assets At Year-End, Net of Accumulated Depreciation Capital Assets Not Subject to Depreciation: Land and Land Improvements $ 305,302 Construction in Progress 5,339,826 Capital Assets Subject to Depreciation: Buildings, Vehicles and Equipment 1,942,168 Water System 2,904,452 Wastewater System 15,053,852 Capacity Interest in North Channel Water Authority facilities 908,603 Capacity Interest in Harris County Fresh Water Supply District No. 51 facilities 38,989 Total Net Capital Assets $26,493,192 Additional information on the District s capital assets can be found in Note 6 of this report. LONG-TERM DEBT ACTIVITY At the end of the current fiscal year, the District had total bond debt payable of $11,272,000. The changes in the debt position of the District during the fiscal year ended June 30, 2010, are summarized as follows: Bond Debt Payable, July 1, 2009 $ 11,660,000 Add: Additional Proceeds - Series 2007 Bonds 77,000 Less: Bond Principal Paid 465,000 Bond Debt Payable, June 30, 2010 $ 11, The District received $77,000 of proceeds from the Series 2007 bond issue during the year. The Series 2007 bonds are advanced to the District in installments. As of fiscal year end, the District has received $2,467,000 of the available $5,000,000. The District s bonds carry an underlying rating of A. The Series 2001, 2001A, 2007 and 2008 bonds carry a rating of A by virtue of the District s underlying rating. The District s underlying rating was the same for the current and prior fiscal years. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide a general overview of the District s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to Harris County Water Control and Improvement District No. 36, 903 Hollywood Street, Houston, Texas

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13 HARRIS COUNTY WATER CONTROL AND STATEMENT OF NET ASSETS AND GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2010 General Fund Debt Service Fund ASSETS Cash, Note 5 $ 5,508,419 $ 549,476 Investments, Note 5 614,278 Receivables: Property Taxes 254,075 Penalty and Interest on Delinquent Taxes 153,468 Service Accounts (Net of Allowance for Doubtful Accounts of $1,500) 299,211 Bond Proceeds Other 2,400 Due from City of Houston, Note ,144 Grant Receivable - Harris County, Note ,066 Grant Receivable - Texas Water Development Board, Note 10 Due from Other Funds, Note 14 8,656 Prepaid Costs - Water Authority, Note 8 86,379 Prepaid Costs - Security 14,641 Advance for Water Authority Operations, Note 8 78,758 Advance for Regional Wastewater Treatment Plant Operations, Note 8 28,543 Unamortized Bond Issuance Costs Land, Note 6 Construction in Progress, Note 6 Capital Assets (Net of Accumulated Depreciation), Note 6 TOTAL ASSETS $ 6.412,217 $ 1,571,297 The accompanying notes to basic financial statements are an integral part of this report. -8-

14 Capital Statement of Projects Fund Total Adjustments Net Assets $ 673,998 $ 6,731,893 $ $ 6,731, , , , , , , , ,211 12,000 12,000 12,000 2,400 2, , , , ,066 1,512,288 1,512,288 1,512,288 8,656 (8,656) 86,379 86,379 14,641 14,641 78,758 78,758 28,543 28, , , , ,302 5,339,826 5,339,826 20,848,064 20,848,064 $ $ ,800 $ 27,041,850 $ 37,223,650 The accompanying notes to basic financial statements are an integral part of this report. -9-

15 Undesignated - 10 HARRIS COUNTY WATER CONTROL AND STATEMENT OF NET ASSETS AND GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2010 Debt General Fund Service Fund LIABILITIES Accounts Payable $ 1,005,827 $ 7,314 Accrued Interest Payable Due to Other Funds, Note 14 Security Deposits 713,825 Deferred Revenues: Property Taxes 254,075 Penalty and Interest on Delinquent Taxes 153,468 Accrued Compensated Absences, Note 9 48,912 Long-Term Liabilities: Bonds Payable Due Within One Year, Note 3 Contractual Obligation Due Within One Year, Note 8 Bonds Payable Due After One Year, Note 3 Contractual Obligation Due After One Year, Note 8 TOTAL LIABILITIES $ 1,768,564 $ 414,857 FUND BALANCES/NET ASSETS FUND BALANCES Reserved for Authorized Construction: Bond Proceeds $ $ Net Investment Revenues Reserved for Future Debt Service 298,346 Reserved for September 2010 Debt Service 858,094 Reserved for Prepaid Costs 101,020 Reserved for Water Authority Operations, Note 8 78,758 Reserved for Regional Wastewater Treatment Plant Operations, Note 8 28,543 Unreserved 4,435,332 TOTAL FUND BALANCES $ 4,643,653 $ 1,156,440 TOTAL LIABILITIES AND FUND BALANCES $ 6,412,217 $ 1,571,297 NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Capital Projects Debt Service Unrestricted TOTAL NET ASSETS The accompanying notes to basic financial statements are an integral part of this report. -

16 Capital Statement of Projects Fund Total Adjustments Net Assets $ 1,531,176 $ 2,544,317 $ $ 2,544,317 97,515 97,515 8,656 8,656 (8,656) 713, , ,075 (254,075) 153,468 (153,468) 48,912 48, , ,000 80,271 80,271 10,582,000 10,582, , ,293 $ 1,539,832 $ 3,723,253 $ 11,599,880 $ 15,323,133 $ 525,494 $ 525,494 $ (525,494) $ 132, ,960 (132,960) 298,346 (298,346) 858,094 (858,094) 101,020 (101,020) 78,758 (78,758) 28,543 (28,543) 4,435,332 (4,435,332) $ $ ,800 $ 15,100,122 $ 15,100, , ,960 1,466,468 1,466,468 5,200,967 5,200,967 $ 21, $ 21, The accompanying notes to basic financial statements are an integral part of this report. $ 658,454 $ 6,458,547 $ (6,458,547) $

17 Governmental Governmental HARRIS COUNTY WATER CONTROL AND RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2010 Total Fund Balances Funds $ 6,458,547 Amounts reported for governmental activities in the Statement of Net Assets are different because: Unamortized bond issuance costs in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. 557,314 Land used in governmental activities is not a financial resource and therefore is not reported as an asset in governmental funds. 305,302 Construction in progress in governmental activities is not a financial resource and therefore is not reported as an asset in governmental funds. 5,339,826 Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. 20,848,064 Accrued interest on long-term liabilities is not payable with current financial resources and is not reported as a liability in the governmental funds. (97,515) Deferred tax revenues for the 2009 and prior tax levies became part of recognized revenue in the governmental activities of the District. 254,075 Deferred penalty and interest revenues for the 2009 and prior tax levies became part of recognized revenue in the governmental activities of the District. 153,468 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities at year end consist of: Bonds Payable Within One Year $ (690,000) Contractual Obligation Due Within One Year (80,271) Bonds Payable After One Year (10,582,000) Contractual Obligation Due After One Year (566,293) (11,918,564) Total Net Assets Activities $ 21, The accompanying notes to basic financial statements are an integral part of this report

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19 JULY JUNE HARRIS COUNTY WATER CONTROL AND STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2010 Debt General Fund Service Fund REVENUES Property Taxes $ $ 648,764 Water Service 2,634,729 Wastewater Service 731,136 Solid Waste Disposal 511,693 Penalty and Interest 45,826 47,618 Tap Connection and Inspection Fees 89,353 Investment Revenues 16,188 2,624 Grant Revenue, Note 10 2,044,908 Sales Tax Revenue, Note ,409 Miscellaneous Revenues 61, TOTAL REVENUES $ 6.564,129 $ EXPENDITURES/EXPENSES Service Operations: Personnel $ 1,165,311 $ Professional Fees 500,552 17,384 Contracted Services 695,083 53,400 Purchased Water Service, Note 8 653,566 Purchased Wastewater Service, Note 8 334,526 Maintenance and Repairs 67,578 Utilities 192,107 Contractual Payment to Water Authority, Note 8 89,310 Depreciation, Note 6 Other 276,327 8,772 Capital Outlay 2,325,418 Debt Service: Bond Principal 465,000 Bond Interest 342,155 TOTAL EXPENDITURES/EXPENSES $ 6,299,778 $ 886,711 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES! EXPENSES $ 264,351 $ ( ) OTHER FINANCING SOURCES (USES) Bond Proceeds, Note 15 $ -0- $ -0- NET CHANGE IN FUND BALANCES $ 264,351 $ (176,557) CHANGE IN NET ASSETS FUND BALANCES/NET ASSETS FUND BALANCES/NET ASSETS 1, ,379,302 1,332,997 30, 2010 $ 4, $ The accompanying notes to basic financial statements are an integral part of this report

20 - 14 2,605 21,417 21,417 73,035 73,035 89,353 89, , ,693 2,634,729 2,634, , ,136 93,444 16, ,749 Projects Fund Total Adjustments Activities Capital Statement of 2,805,299 4,850,207 4,850, , , ,000 (465,000) 756, ,244 statements are an integral part of this report. 748, ,483 The accompanying notes to basic financial , , , ,107 67,578 (3,098) 64,480 89,310 (89,310) 517, , , , , , ,155 (77,816) 264,339 5,125,478 5j25, $ $i $ ,179,869 6,892, , ,039 - $ (521,415) $ (433,621) $ 433,621 $ $ 77,000 $ 77,000 $ (77.000) $ -0- $ (598,415) S (510,621) $ 5,636,099 $ 5,125,478 S 3,406,319 $ 10,592,808 J5,610,684) $ 4,982,124 3,406,286 5,731,704 (5,731,704) $ $ 1,165,311 $ $ 1,165,311 $ 2,807,904 $ 10,082,187 $ 25,415 $ 10,107,602 $ $ 648,764 $ 9,110 $ 657,874

21 - 15 HARRIS COUNTY WATER CONTROL AND RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2010 Net Change in Fund Balances - Governmental Funds $ (433,621) Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report tax revenue when collected. However, in the Statement of Activities, revenue is recorded in the accounting period for which the taxes are levied. 9,110 Governmental funds report penalty and interest on delinquent taxes when collected. However, in the Statement of Activities, revenue is recorded in the year the penalty and interest are assessed. 16,305 Governmental funds report contractual obligation payments as expenditures. However, in the Statement of Activities, these payments are reported as decreases in long-term liabilities. 89,310 Governmental funds do not account for depreciation. However, in the Statement of Activities, capital assets are depreciated and depreciation expense is recorded. (756,244) Governmental funds report capital expenditures in the period purchased. However, in the Statement of Activities, capital assets are increased by new purchases. 5,734,802 Governmental funds report bond principal payments as expenditures. However, in the Statement of Activities, bond principal payments are reported as decreases in longterm liabilities. 465,000 Governmental funds report interest expenditures on bonds as expenditures in the year paid. However, in the Statement of Activities, interest is accrued on the bonds through fiscal year end. 77,816 Governmental funds report bond proceeds as other financing sources. However, issuing debt increases long-term liabilities in the Statement of Net Assets and does not affect the Statement of Activities. (77,000) Change in Net Assets - Governmental Activities $ The accompanying notes to basic financial statements are an integral part of this report. -

22 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 1. CREATION OF DISTRICT Harris County Water Control and Improvement District No. 36 (the District ) was originally created by an order of the Harris County Commissioner s Court, effective January 6, Pursuant to the provisions of Chapters 49 and 51 of the Texas Water Code, the District is empowered to purchase, operate and maintain all facilities, plants and improvements necessary to provide water, sanitary sewer service, storm sewer drainage, irrigation, solid waste collection and disposal, including recycling, and to construct parks and recreational facilities for the residents of the District. The District is also empowered to contract for or employ its own peace officers with powers to make arrests and to establish, operate and maintain a fire department to perform all fire-fighting activities within the District. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying basic financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as promulgated by the Governmental Accounting Standards Board. In addition, the accounting records of the District are maintained generally in accordance with the Water District Financial Management Guide published by the Commission. The Governmental Accounting Standards Board has established the criteria for determining whether or not a given entity is a component unit. The criteria are (1) is the potential component unit a legally separate entity, (2) does the primary government appoint a voting majority of the potential component unit s board, (3) is the primary government able to impose its will on the potential component unit, (4) is there a financial benefit or burden relationship. The District was created as an independent municipality. The District does not meet the criteria for inclusion as a component unit of any entity nor does any other entity meet the component unit criteria for inclusion in the District s basic financial statements. The District has entered into a joint venture with Harris County Fresh Water Supply District No. 51 and Harris County Municipal Utility District No. 53 for the construction and operation of a regional wastewater treatment plant. Oversight responsibility of the wastewater treatment plant is by Harris County Fresh Water Supply District No. 51. Additional disclosure concerning this joint venture is provided in Note 8. Financial Statement Presentation These financial statements have been prepared in accordance with Governmental Accounting Standards Board (GASB) Statement No. 34-Basic Financial Statements and Management s Discussion and Analysis-for State and Local Governments

23 This This This HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial Statement Presentation (Continued) GASB Statement No. 34 established standards for external financial reporting for all state and local government entities, which include a requirement for a Statement of Net Assets and a Statement of Activities. It requires the classification of net assets into three components: Invested in Capital Assets, Net of Related Debt; Restricted; and Unrestricted. These classifications are defined as follows: Invested in Capital Assets, Net of Related Debt component of net assets consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvements of those assets. Restricted Net Assets component of net assets consists of external constraints placed on the use of net assets imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Assets component of net assets consists of net assets that do not meet the definition of Restricted or Invested in Capital Assets, Net of Related Debt. When both restricted and unrestricted resources are available for use, generally it is the District s policy to use restricted resources first. Government-Wide Financial Statements The Statement of Net Assets and the Statement of Activities display information about the District as a whole. The District s Statement of Net Assets and Statement of Activities are combined with the governmental fund financial statements. The District is viewed as a specialpurpose government and has the option of combining these financial statements. The Statement of Net Assets is reported by adjusting the governmental fund types to report on the full accrual basis, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. Any amounts recorded due to and due from other funds are eliminated in the Statement of Net Assets. The Statement of Activities is reported by adjusting the governmental fund types to report only items related to current year revenues and expenditures. Items such as capital outlay are allocated over their estimated useful lives as depreciation expense. Internal activities between governmental funds, if any, are eliminated by adjustment to obtain net total revenue and expense of the government-wide Statement of Activities

24 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Financial Statements As discussed above, the District s fund financial statements are combined with the governmentwide statements. The fund statements include a Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances. Governmental Funds The District has three governmental funds and considers these funds to be major funds. General Fund - To account for resources not required to be accounted for in another fund, customer service revenues, costs and general expenditures. Debt Service Fund - To account for ad valorem taxes and financial resources accumulated for servicing bond debt and the cost of assessing and collecting taxes. Capital Projects Fund - To account for financial resources segregated for acquisition or construction of facilities and related costs. Basis of Accounting The District uses the modified accrual basis of accounting for governmental fund types. The modified accrual basis of accounting recognizes revenues when both measurable and available. Measurable means the amount can be determined. Available means collectable within the current period or soon enough thereafter to pay current liabilities. The District considers revenues reported in the governmental funds to be available if they are collectable within 60 days after year end. Also, under the modified accrual basis of accounting, expenditures are recorded when the related fund liability is incurred except for principal and interest on long-term debt, which are recognized as expenditures when payment is due. Property taxes considered available by the District and included in revenue include taxes collected during the year and taxes collected after year-end, which were considered available to defray the expenditures of the current year. Deferred tax revenues are those taxes which the District does not reasonably expect to be collected soon enough in the subsequent period to finance current expenditures. Amounts transferred from one fund to another fund are reported as an other financing source or use. Loans by one fund to another fund and amounts paid by one fund for another fund are reported as interfund receivables and payables in the Governmental Funds Balance Sheet if there is intent to repay the amount and if the debtor fund has the ability to repay the advance on a timely basis

25 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets, are reported in the government-wide Statement of Net Assets. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated assets are valued at their fair market value on the date donated. Repairs and maintenance are recorded as an expenditure in the governmental fund incurred and as an expense in the government-wide Statement of Activities. Capital asset additions, improvements and preservation costs, that extend the life of an asset, are capitalized and depreciated over the estimated useful life of the asset. Interest costs, including developer interest, engineering fees and certain other costs are capitalized as part of the asset. Assets are capitalized, including infrastructure assets, if they have an original cost greater than $5,000 and a useful life over two years. Depreciation is calculated on each class of depreciable property using the straight-line method of depreciation. Estimated useful lives are as follows: Budgeting Years Buildings 40 Water System Wastewater System Drainage System All Other Equipment 3-20 In compliance with governmental accounting principles, the Board of Directors annually adopts an unappropriated budget for the General Fund. The budget was amended during the current fiscal year. Pensions The District has employees. Payments are made into the Social Security System for their benefit and into an individual retirement account (see Note 9). Measurement Focus Measurement focus is a term used to describe which transactions are recognized within the various financial statements. In the government-wide Statement of Net Assets and Statement of Activities, the governmental activities are presented using the economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating - 19-

26 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Measurement Focus (Continued) income, changes in net assets, financial position, and cash flows. All assets and liabilities associated with the activities are reported. Fund equity is classified as net assets. Governmental fund types are accounted for on a spending or financial flow measurement focus. Accordingly, only current assets and current liabilities are included on the Balance Sheet, and the reported fund balances provide an indication of available spendable or appropriable resources. Operating statements of governmental fund types report increases and decreases in available spendable resources. Fund balances are included on the Balance Sheet as follows: Reserved: To indicate fund equity which is legally segregated for a specific future use. Unreserved: Designated - To indicate fund equity for which the District has made tentative plans. Undesignated - To indicate fund equity which is available for use in future periods. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. Subsequent Events In preparing these financial statements management has evaluated and disclosed all material subsequent events through September 17, 2010; which is the date these statements were available to be issued. -20-

27 Serially Serially HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 3. BONDS PAYABLE Series 2001 Series 2001A Amount Outstanding - June 30, 2010 $ 3,520,000 $ 490,000 Interest Rates 3.35% % 4.86%-5.71% Maturity Dates September 15, September 15, Beginning/Ending 2010/ /2021 Interest Payment Dates September 15/ September 15/ March 15 March 15 Callable Dates September 15, 2011 September 15, 2011 (1) (1) (1) In whole or from time to time in part on the callable date or any date thereafter, at a price equal to the principal amount thereof plus accrued interest to the date fixed for redemption. Amount Outstanding - June Series 2007 Series , 2010 $ 2,262,000 $ 5,000,000 Interest Rates 2.45% % 1.30%-2.80% Maturity Dates September 15, September 15, Beginning/Ending 2010/ /2028 Interest Payment Dates September 15/ September 15/ March 15 March 15 Callable Dates September 15, 2017 September 15, 2018 (2) (2) (2) Or any date thereafter, in inverse order of maturing at a redemption price of par, including accrued interest to the date fixed for redemption. The following is a summary of transactions regarding bonds payable for the year ended June 30, 2010: -21-

28 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 3. BONDS PAYABLE (Continued) Bond Debt Payable July 1, 2009 $ 11,660,000 Add: Bond Proceeds Series ,000 Less: Bond Principal Retirement Series 2001 $ 230,000 Series 2001A 30,000 Series ,000 Bond Debt Payable - June 30, 2010 $ Bond Debt Payable Due With One Year $ 690,000 Due After One Year ,000 Bond Debt Payable June 30, 2010 $ Original Bonds Voted S 34,500,000 Original Bonds Approved $ Original Bonds Issued $ * Refunding Bonds Voted $ * * Of the $5,000,000 approved in the Series 2007 bonds, the District has received $2,467,000 in installments from the Texas Water Development Board ( TWDB ) with the remaining $2,533,000 to be advanced to the District upon approval by the TWDB. Refunding bonds authorization is included in authorization for original bonds. As of June 30, 2010, the debt service requirements on the bonds outstanding were as follows: Fiscal Year Principal Interest Total 2011 $ 690,000 $ 327,419 $ 1,017, , ,407 1,014, , ,203 1,020, , ,683 1,019, , ,882 1,017, ,127, ,309 4,991, ,225, ,462 2,530, ,275,000 72,201 1,347,201 $ $ $

29 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 3. BONDS PAYABLE (Continued) The bonds are payable from the proceeds of an ad valorem tax levied upon all property subject to taxation within the District, without limitation as to rate or amount. During the year ended June 30, 2010, the District levied an ad valorem debt service tax rate of $0.28 per $100 of assessed valuation, which resulted in a tax levy of $661,514 on the adjusted taxable valuation of $236,255,193 for the 2009 tax year. The bond orders require the District to levy and collect an ad valorem debt service tax sufficient to pay interest and principal on bonds when due and the cost of assessing and collecting taxes. See Note 7 for the maintenance tax levy. The District s tax calendar is as follows: Levy Date Lien Date - Due Date - Delinquent Date - October 1, or as soon thereafter as practicable. January 1. Upon receipt, but no later than January February 1, at which time the taxpayer is liable for penalty and interest. NOTE 4. SIGNIFICANT BOND ORDER AND LEGAL REQUIREMENTS A. The bond orders state that the District shall maintain insurance on the system of a kind and in an amount which usually would be carried by private companies engaged in a similar type of business, but considering any governmental immunities to which the District may be entitled. The District has property coverage of $5,462,749, general liability coverage with a general aggregate limit of $6,000,000 and automobile liability coverage with a limit of $6,000,000. B. The bond orders state that the District is required by the Securities and Exchange Commission to provide continuing disclosure of certain general financial information and operating data to each nationally recognized municipal securities information depository and the state information depository. This information, along with the audited annual financial statements, is to be provided within six months after the end of each fiscal year and shall continue to be provided through the life of the bonds. C. For all bond issues, the District has covenanted that it will take all necessary steps to comply with the requirement that rebatable arbitrage earnings on the investment of the gross proceeds of the Bonds, within the meaning of section 148(f) of the Internal Revenue Code, be rebated to the federal government. The minimum requirement for determination of the rebatable amount is on the five year anniversary of the date of delivery of each issue

30 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 5. DEPOSITS AND INVESTMENTS Deposits Custodial credit risk is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The District s deposit policy for custodial credit risk requires compliance with the provisions of Texas statutes. Texas statutes require that any cash balance in any fund shall, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, be continuously secured by a valid pledge to the District of securities eligible under the laws of Texas to secure the funds of the District, having an aggregate market value, including accrued interest, at all times equal to the uninsured cash balance in the fund to which such securities are pledged. At fiscal year end, the carrying amount of the District s deposits was $6,731,893 and the bank balance was $6,822,671. Of the bank balance, $566,082 was covered by federal depository insurance and the balance was covered by collateral pledged in the name of the District and held in a third party depository. The carrying values of the deposits are included in the Governmental Funds Balance Sheet and the Statement of Net Assets at June 30, 2010, as listed as follows: Investments GENERAL FUND $ 5,508,419 DEBT SERVICE FUNL 549,476 CAPITAL PROJECTS FUND 673,998 TOTAL DEPOSITS $ 6,731,893 Under Texas law, the District is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity and that address investment diversification, yield, maturity, and the quality and capability of investment management, and all District funds must be invested in accordance with the following investment objectives: understanding the suitability of the investment to the District s financial requirements, first; preservation and safety of principal, second; liquidity, third; marketability of the investments if the need arises to liquidate the investment before maturity, fourth; diversification of the investment portfolio, fifth; and yield, sixth. The District s investments must be made with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived. No person may invest District funds without express written authority from the Board of Directors

31 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 5. Investments (Continued) DEPOSITS AND INVESTMENTS (Continued) Texas statutes include specifications for and limitations applicable to the District and its authority to purchase investments as defined in the Public Funds Investment Act. Authorized investments are summarized as follows: (1) obligations of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, (3) certain collateralized mortgage obligations, (4) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States or its agencies and instrumentalities, (5) certain A rated or higher obligations of states, agencies, counties, cities, and other political subdivisions of any state, (6) bonds issued, assumed or guaranteed by the State of Israel, (7) insured or collateralized certificates of deposit, (8) certain fully collateralized repurchase agreements secured by delivery, (9) certain bankers acceptances with limitations, (10) commercial paper rated A-i or P-i or higher and a maturity of 270 days or less, (11) no-load money market mutual funds and no-load mutual funds with limitations, (12) certain guaranteed investment contracts, (13) certain qualified governmental investment pools and (14) a qualified securities lending program. All investments are recorded at cost, which the District considers to be fair value. The District invests in TexPool, an external investment pool that is not SEC-registered. The State Comptroller of Public Accounts of the State of Texas has oversight of the pool. Federated Investors manages the daily operations of the pooi under a contract with the Comptroller. The fair value of the District s position in the pool is the same as the value of pool shares. As of June 30, 2010, the District had the following investments and maturities: Maturities in Years Fund and Less Than More Than Investment Type Fair Value DEBT SERVICE FUND - TexPool $ S 614,278 $ -0- $ -0- $ -0- Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. At June 30, 2010, the District s investment in TexPool was rated AAAm by Standard and Poor s. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The District considers the investment in TexPool to have a maturity of less than one year due to the fact the share position can usually be redeemed each day at the discretion of the District, unless there has been a significant change in value

32 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 5. DEPOSITS AND INVESTMENTS (Continued) Restrictions All cash and investments of the Debt Service Fund are restricted for payment of debt service and cost of assessing and collecting taxes. All cash and investments of the Capital Projects Fund are restricted for the purchase of capital assets. NOTE 6. CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2010: July 1, 2009 Increases June 30, 2010 Capital Assets Not Being Depreciated Land and Land Improvements $ 305,302 $ $ 305,302 Construction in Progress 3,741,490 1,598,336 5,339,826 Total Capital Assets Not Being Depreciated $ 4,046,792 $ 1,598,336 $ 5,645,128 Capital Assets at Historical Costs Subject to Depreciation Buildings, Vehicles and Equipment $ 2,581,212 $ 31,700 $ 2,612,912 Water System 4,831,583 4,831,583 Wastewater System 13,797,520 4,104,766 17,902,286 Capacity Interest in North Channel Water Authority facilities 1,185,276 1,185,276 Capacity Interest in Harris County Fresh Water Supply District No. 51 facilities 397, ,782 Total Capital Assets at Historical Costs Subject to Depreciation $ 22,793,373 $ 4,136,466 $26,929,839 Less Accumulated Depreciation Buildings, Vehicles and Equipment $ 546,137 $ 124,607 $ 670,744 WaterSystem 1,798, ,118 1,927,131 Wastewater System 2,385, ,943 2,848,434 Capacity Interest in North Channel Water Authority facilities 247,041 29, ,673 Capacity Interest in Harris County Fresh Water Supply District No. 51 facilities , ,793 Total Accumulated Depreciation $ 5,325,531 $ 756,244 $ ,775 Total Depreciable Capital Assets, Net of Accumulated Depreciation $ ,842 $ 3,380,222 $20,848,064 Total Capital Assets, Net of Accumulated Depreciation $ 21,514,634 $ 4,978,558 $26,493,

33 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 7. MAINTENANCE TAX The Board of Directors of the District have the statutory authority to levy and collect an annual ad valorem tax for planning, maintaining, repairing and operating of the District s improvements, if such maintenance tax is authorized by a vote of the District s electorate. Such tax would be in addition to taxes which the District is authorized to levy for paying principal and interest on outstanding bonds, and any tax bonds which may be issued in the future. To date, an election has not been held to authorize a maintenance tax, and thus no maintenance tax has been levied. NOTE 8. CONTRACTS WITH OTHER GOVERNMENTAL ENTITIES North Channel Water Authority On May 24, 1990, the District entered into a contract with the North Channel Water Authority (the Authority ), a conservation and reclamation district and political subdivision of the State of Texas. The contract continues until December 31, 2040, and year to year thereafter until payment in full of the principal, premium, if any, and interest on all bonds and all related fees to be paid under any bond resolution of the Authority is made. Oversight of the Authority is exercised by the Board of Directors of the Authority. The Authority purchases treated surface water from the City of Houston and has constructed distribution lines to convey such surface water to the District and others so that the participants in the Authority s regional water supply system can meet the requirements of the Harris-Galveston Subsidence District for conversion to 80% surface water consisting of a combination of surface water and ground water from existing wells. The District contractually agreed to participate in the cost of the construction of the distribution lines for the surface water. The Authority sold bonds for this purpose in 1993 and the District began to pay its pro rata share of the Authority s debt service costs in The District is obligated for % of the debt incurred by the Authority. These payments are to be made to the Authority from the District s General Fund. The District s share of the Authority s debt service costs was $89,310 for the year ended June 30, As of June 30, 2010, the future contractual commitments for the Authority s bonds outstanding are as follows: Year Amount 2011 $ 80, , , , , ,307 TOTAL $ 646,

34 Capital HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 8. CONTRACTS WITH OTHER GOVERNMENTAL ENTITIES (Continued) North Channel Water Authority (Continued) The District is also contractually committed to pay for its share of the Authority s total operating costs. The District s share of operating costs was $653,566 during the fiscal year ended June 30, The District has also contributed $78,758 for its share of the Authority s operating reserve and prepaid a contractual commitment of three months purchased surface water of $86,379. The following summary of financial data of the North Channel Water Authority is presented for the fiscal year ending December 31, Separate financial statements may be obtained by contacting the Authority s attorney. Joint Venture Total Assets $25,658,423 Total Liabilities 18,903,836 Total Net Assets $ Operating Revenues $ 7,768,624 Operating Expenses 6,381,976 Operating Income $ 1,386,648 Net Non-Operating Revenues (Expenses) (801,289) Capital Activity Contribution 29,938 Change in Net Assets $ 615,297 Net Assets, Beginning of Year 6,139,290 Net Assets, End of Year $ 6,754,587 Regional Wastewater Treatment Plant On June 10, 1974, the District, Harris County Fresh Water Supply District No. 51 ( District No 51 ) and Harris County Municipal Utility District No. 53 entered into a 40 year contract for the purpose of sharing the cost of constructing and operating the Harris County Fresh Water Supply District No. 51 Regional Wastewater Treatment Plant (the Plant ). On May 2, 2004, the three districts amended the contract. Oversight of the Plant is exercised by the Board of Directors of District No. 51. Construction costs of the Plant were funded by the contribution of funds from each participating district. The Plant issues no debt. At June 30, 2010, ownership of capacity in the Plant was as follows: - 28-

35 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 8. CONTRACTS WITH OTHER GOVERNMENTAL ENTITIES (Continued) Regional Wastewater Treatment Plant (Continued) Capacity In Gallons Per Day Percentage Harris County Municipal Utility District No. 53 2,250, % Harris County Water Control and Improvement DistrictNo.36 1,500, Harris County Fresh Water Supply District No. 51 2,550, TOTAL % Monthly operating costs of the Plant are shared by the participants based on each participant s monthly water production, then subtracting any metered water usage that does not flow to the Plant. During the year ended June 30, 2010, the District s share of the Plant s operating expenditures was $334,526. The Plant has established an operating reserve with and the District s share of this reserve being $28,543. The following summary financial data of the regional wastewater treatment plant is presented for the fiscal year ending June 30, 2009 (the most recently available audited financial statements). Separate financial statements may be obtained by contacting District No. 51 s attorney, Sanford Kuhl Hagan Kugle Parker Kahn, at 5075 Westheimer, Suite 1180, Houston, Texas Joint Venture Total Assets $ 186,493 Total Liabilities 66,615 TotalFundBalance $ 119,878 Total Revenues $1,291,364 Total Expenditures 1,291,364 Net Change in Fund Balance $ -0- Beginning Fund Balance 119,878 Ending Fund Balance $

36 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 9. EMPLOYEE RETIREMENT BENEFITS AND ACCRUED COMPENSATED ABSENSES The District has established a plan whereby eligible employees can provide for retirement income through an employer sponsored individual retirement account. Any regular full-time employee of the District may elect to participate in the plan provided the employee has been employed for the entire twelve month period immediately prior to joining, and provided the employee is otherwise eligible for an individual retirement account. The District withholds half of the amount to be contributed for that month from the two pay periods that month. The monthly amount from the employee and the District is determined by the employee according to the Contribution Schedule established by the District. All of the contributions are fully vested and are controlled by the employee. The District has no unfunded liabilities for employee retirement expenses as of the balance sheet date. Employees are allowed to earn fifteen sick leave days per year. All employees have twelve days for vacation per year. After five years of continuous service, employees receive eighteen days of vacation per year. At the end of every calendar year, the District pays every employee for up to half of all unused vacation days and up to 75% of unused sick leave days. Upon termination of employment, whether voluntary or involuntary, including retirement, employees receive payment for unused vacation days and up to 75% of unused sick leave days. In the prior year, the District recorded a liability of $53,690 for accrued compensated absences. The decrease in the current year was $4,778 for a balance of $48,912. NOTE 10. GRANT PROGRAM In the current year, the District was awarded disaster assistance funds in the amount of $171 related to costs of recovery after Hurricane Ike from the Texas Department of Public Safety s Division of Emergency Management, a pass-through entity for the Federal Emergency Management Agency. On August 14, 2009, the District executed a grant contract with Harris County, Texas. The agreement provides for the District to participate in a Community Development Block Grant- American Recovery and Reinvestment Act of 2009 funds for the purpose of partially funding improvements to the wastewater infrastructure system by replacing and rehabilitation portions of the existing gravity wastewater system in the North Zone 1 of the District. Total grant funds allocated to the District are $1,188,113 with the District providing matching funds of $147,573. As of June 30, 2010, the District accrued $147,573 in engineering costs and $1,132,978 in construction costs related to this project. Reimbursement from Harris County was $1,132,978, of which $138,618 was recorded as receivable at year end

37 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 10. GRANT PROGRAM (Continued) On August 31, 2009, the District executed a grant contract with Harris County, Texas. The agreement provides for the District to participate in a Community Development Block Grant- American Recovery and Reimbursement Act of 2009 funds for the purpose of partially funding improvements to the wastewater infrastructure system by replacing and rehabilitating portions of the existing gravity wastewater system in the North Zone 2 of the District. Total grant funds allocated to the District are $1,103,940 with the District providing matching funds of $137,473. As of June 30, 2010, the District accrued $137,473 in engineering costs and $877,608 in construction costs related to this project. Reimbursement from Harris County was $877,608, of which $114,686 was recorded as receivable at year end. On August 31, 2009, the District executed a grant contract with Harris County, Texas. The agreement provides for the District to participate in a Community Development Block Grant- American Recovery and Reinvestment Act of 2009 funds for the purpose of partially funding improvements to the wastewater infrastructure system by replacing and rehabilitating portions of the existing gravity wastewater system in the South Zone of the District. Total grant funds allocated to the District are $810,912 with the District providing matching funds of $438,309. As of June 30, 2010, the District accrued $124,843 in engineering costs and $34,322 in construction costs related to this project. Reimbursement from Harris County was $34,322, of which $26,762 was recorded as receivable at year end. On November 6, 2009, the District executed a grant contract with Texas Water Development Board ( TWDB ). The agreement provides for the District to participate in a Clean Water State Revolving Fund-American Recovery and Reinvestment Act of 2009 grant. Funds will be used to provide for certain wastewater collection system improvements. Total grant funds allocated to the District are $3,623,000. As of June 30, 2010, the District accrued $312,534 in engineering costs and $622,867 in construction costs. Reimbursement from TWDB was $935,401, of which $443,924 was recorded as receivable at year end. On December 18, 2009, the District executed a grant contract with TWDB. The agreement provides for the District to participate in a Drinking Water State Revolving Fund-American Recovery and Reinvestment Act of 2009 grant. Funds will be used to provide for certain wastewater system improvements. Total grant funds allocated to the District are $7,150,000. As of June 30, 2010, the District accrued $437,043 in engineering costs and $1,432,855 in construction costs. Reimbursement from TWDB was $1,869,898, of which $1,068,364 was recorded as receivable at year end. -31-

38 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 11. EMERGENCY WATER SUPPLY AGREEMENT On October 9, 2003, the District executed an emergency water supply agreement with Harris County Fresh Water Supply District No. 47 (District No. 47). The agreement provides for the supply of water during a temporary period defined as a maximum of 15 days unless otherwise agreed to in writing. District No. 47 constructed at its sole cost, the facilities to interconnect with the District s water facilities. The districts pay for water supplied at the current rate for water charged by District No. 53 pursuant to the agreement between the District and District 53. The term of this agreement is ten years. Thereafter, the agreement is automatically renewed for one year periods until either district gives 30 days written notice or cancellation prior to the anniversary of the agreement. NOTE 12. STRATEGIC PARTNERSHIP AGREEMENT Effective March 31, 2005, the District entered into a Strategic Partnership Agreement with the City of Houston, Texas which was amended on December 12, The agreement provides that in accordance with Subchapter F of Chapter 43 of the Local Government Code and Act, the City shall annex a tract of land defined as the Subject Tract for the limited purposes within the Subject Tract within the boundaries of the District. The District continues to develop, to own, and to operate and maintain a water and wastewater system in the District. None of the taxable property within the District is liable for any present or future debts of the City, and current and future taxes levied by the City are not and will not be levied on taxable property within the District. Provisions of the Regulatory Plan adopted by the City is applicable to the Subject Tract of land within the District. The District s assets, liabilities, indebtedness, and obligations will remain the responsibility of the District during the period preceding full-purpose annexation. Upon annexation for limited purposes of the Subject Tract by the City, the qualified voters of the Subject Tract may vote in City elections pursuant to Local Government Code. The City is responsible for notifying the voters within the Subject Tract. The City imposes a Sales and Use Tax within the boundaries of the Subject tract. The Sales and Use Tax is imposed on the receipts from the sales and use at commercial establishment of taxable items at the rate of 1% or the rate specified under the future amendments to Chapter 321 of the Tax Code. The City agreed to pay to the District an amount equal to one-half of all Sales and Use Tax revenues generated within the boundaries of the Subject Tract. The City agreed to deliver to the District its share of the sales tax receipts within 30 days of the City receiving the funds from the State Controller s office. In consideration of the sales tax payment and the City s limited-annexation of the Subject Tract in the District, the parties agreed the City will not annex the District for full purposes or commence any action to annex the District for full purposes during the term of this Agreement. The term of this Agreement is 30 years from the effective date of the agreement. During the current fiscal year, the District received $428,409 in sales tax revenue from the City of Houston, of which $105,144 was recorded as receivable at year end

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40 HARRIS COUNTY WATER CONTROL AND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 13. RISK MANAGEMENT The District is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters. The District carries commercial insurance for its fidelity bonds and participates in the Texas Municipal League Intergovernmental Risk Pool (TML) to provide property, mobile equipment, general liability, boiler and machinery, errors and omissions, public employee dishonesty, automobile, and workers compensation coverage. The District, along with other participating entities, contributes annual amounts determined by TML s management. As claims arise they are submitted and paid by TML. During the current fiscal year the District contributed $29,062 to the fund for this insurance coverage. There have been no significant reductions in coverage from the prior year and settlements have not exceeded coverage in the past three years. NOTE 14. INTERFUND PAYABLES AND RECEIVABLES Interfund liabilities at year end consist of the following: The Capital Projects Fund owes the General Fund $8,656 for engineering and inspection costs for water line improvement projects. NOTE 15. BOND PROCEEDS - SERIES 2007 On August 1, 2007, the District issued $5,000,000 in Drinking Water State Revolving Fund Series 2007, Unlimited Tax Bonds through the TWDB. The proceeds are being used to finance the District s rehabilitation of approximately 82,000 linear feet of water transmission and distribution lines to address water loss within its water system. Through June 30, 2010, the District has received installments of $2,467,000 of Series 2007 Bond proceeds, of which $77,000 was received in the current fiscal year. The remaining funds will be advanced to the District upon approval by the TWDB

41 HARRIS COUNTY WATER CONTROL AND REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2010

42 - 35 HARRIS COUNTY WATER CONTROL AND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2010 Final Variance Original Amended Positive Budget Budget Actual (Negative) REVENUES Water Service $ 2,400,000 $ 2,460,000 $ 2,634,729 $ 174,729 Wastewater Service 775, , ,136 (43,864) Solid WasteDisposal 500, , ,693 11,693 Penalty and Interest 40,000 42,500 45,826 3,326 Tap Connection and Inspection Fees 47,000 49,000 89,353 40,353 Investment Revenues 25,000 5,000 16,188 11,188 Sales Tax Revenues 390, , ,409 28,409 Miscellaneous Revenues 90,500 80, (18,613) TOTAL REVENUES $ 4, $ 4.312,000 $ 4.519,221 $ 207,221 EXPENDITURES Service Operations: Personnel $ 1,138,200 $ 1,180,000 $ 1,165,311 $ 14,689 Professional Fees 650, , ,796 (27,796) Contracted Services 550, , ,540 (41,540) Purchased Water Service 625, , ,566 (3,566) Purchased Wastewater Service 430, , ,526 96,974 Repairs and Maintenance 71,500 71,500 67,578 3,922 Utilities 129, , ,107 (59,107) Other 165, , ,626 17,374 Capital Outlay , , TOTAL EXPENDITURES $ 4,259,200 $ 4,311,000 $ 4,254,870 $ NET CHANGE IN FUND BALANCE $ 8,300 $ 1,000 $ 264,351 $ 263,351 FUND BALANCE JULY 1, ,302 4, ,379, FUNDBALANCE JUNE3O,2010 $ $ $ 4, $ See accompanying independent auditor s report. -

43 HARRIS COUNTY WATER CONTROL AND SUPPLEMENTARY INFORMATION - REQUIRED BY GOVERNMENT AUDITING STANDARDS JUNE 30, 2010

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45 McCALL GIBSON SWEDLUND BARFOOTPLLC Certified Public Accountants Wortharn center Drive 7801 N. capital of Texas Hwy. Suite 235 Suite 350 Houston, Texas Austin, Texas (713) (512) Fax (713) Fax: (512) E-Moil: corn Board of Directors Harris County Water Control and Improvement District No. 36 Harris County, Texas September 17, 2010 Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statement Performed in Accordance with Government Auditing Standards Members of Board of Directors: We have audited the financial statements of Harris County Water Control and Improvement District No. 36 ( the District ) as of and for the year ended June 30, 2010, which collectively comprise the District s basic financial statements and have issued our report and management letter thereon dated September 17, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the District s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District s internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the District s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the District s financial statements that is more than inconsequential will not be prevented or detected by the District s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the District s internal control. Member of Amen con Institute of Certfled Public Accountonts Texos Society of Certified Public Accountants

46 Board of Directors Harris County Water Control and Improvement District No. 36 Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identifi all deficiencies in internal control that might be significant deficiencies or material weaknesses. The purpose of the internal control report is to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the internal control over financial reporting. We observed the following matters that we consider to be material weaknesses: As is common within the system of internal control of most small organizations, the accounting function of the District does not prepare the financial statements complete with footnotes in accordance with accounting principles generally accepted in the United States of America. Accordingly, the District has not established internal controls over the preparation of its financial statements. This condition is considered to be a material weakness of the District s system of internal control over financial reporting. During the course of performing our audit, we prepared various journal entries to present the financial statements on the government-wide basis of accounting. In addition, we prepared the capital asset and depreciation schedules and posted adjustments related to the presentation of the capital assets in the government-wide financial statements. This reliance on the auditor to perform these functions is considered to be a material weakness in the system of internal control. The District s response to our findings identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit the District s response and accordingly, we express no opinion on it. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the Board of Directors of the District, federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. ilr-i/ifll McCall Gibson Swedlund Barfoot PLLC Certified Public Accountants September 17,

47 McCALL GIBSON SWEDLUND BARFOOT PLLC Certified Public Accountants Wortharn Center Drive 7801 N. Capital of Texas Hwy. Suite 235 Suite 350 Houston, Texas Austin, Texas (713) (512) Fax (713) Fax: (512) corn September 17, 2010 Board of Directors Harris County Water Control and Improvement District No. 36 Harris County, Texas Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with 0MB Circular A-133 Members of Board of Directors: Compliance We have audited the compliance of Harris County Water Control and Improvement District No. 36 (the District ) with the types of compliance requirements described in the U. S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, The District s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the District s management. Our responsibility is to express an opinion on the District s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the Unites States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and 0MB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A- 133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the District s compliance with those requirements. Member of American Institute of Cert(fled Public Accountants Texas Society of Certfled Public Accountants

48 - 40 Board of Directors Harris County Water Control and Improvement District No. 36 In our opinion, the District complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, Internal Control Over Compliance The management of the District is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the District s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District s internal control over compliance. A control deficiency in an entity s internal control over compliance exists when the design or operation of a control does not allow management of employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity s ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity s internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the Board of Directors, management, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.,lql ifrfzl McCall Gibson Swedlund Barfoot PLLC Certified Public Accountants September 17,

49 HARRIS COUNTY WATER CONTROL AND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2010 Federal Federal Grantor/Pass-through Grantor/Program CFDA LoanlContract/Warrant Federal or Cluster Title Number Grant Award Number Expenditures U.S. Department of Housing and Urban Development: Community Development Block Grant Pass CDBG CD $ 1,111,672 Through programs from The Harris County Community Development Department- American Recovery and Reinvestment Act Community Development Block Grant Pass CDBG CD ,015,081 Through programs from The Harris County Community Development Department - American Recovery and Reinvestment Act Community Development Block Grant Pass CDBG CD ,165 Through programs from The Harris County and CD Community Development Department - American Recovery and Reinvestment Act Environment Protection Agency: Drinking Water State Revolving Fund, Series L070094/ , Unlimited Tax Bonds, Pass-Through Loan from the Texas Water Development Board Clean Water State Revolving Fund, Series L080013/ , Unlimited Tax Bonds, Pass-Through Loan from the Texas Water Development Board Drinking Water State Revolving Fund, G100025/ ,401 American Recovery and Reinvestment Act of 2009 Pass-Through Grant from Texas Water Development Board Clean Water State Revolving Fund, American G100009/ ,898 Recovery and Reinvestment Act of 2009 Pass-Through Grant from Texas Water Development Board $ 5,692,203 See accompanying independent auditor s report. -41-

50 HARRIS COUNTY WATER CONTROL AND NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2010 NOTE 1. BASIS OF PRESENTATION The accompanying schedule of expenditures of federal award includes the federal grant activity of the District and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of 0MB Circular A- 133, Audits of States, Local Governments and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in or used in the preparation of the basic financial statements. NOTE 2. CONTRACT/GRANT FUNDS On August 14, 2009, the District executed a grant contract with Harris County, Texas. The agreement provides for the District to participate in a Community Development Block Grant American Recovery and Reinvestment Act of 2009 funds for the purpose of partially funding improvements to the wastewater infrastructure system by replacing and rehabilitating portions of the existing gravity wastewater system in the North Zone 1 of the District. Total grant funds allocated to the District are $1,188,113. The District is required by the grant contract to spend $147,573 of its own funds toward the cost of this project. Total funds expended for this project were $1,280,551, of which $147,573 were District funds. Reimbursement by Harris County was $1,132,978, of which $138,618 was recorded as receivable at year end. The project is in progress at year end. On August 31, 2009, the District executed a grant contract with Harris County, Texas. The agreement provides for the District to participate in a Community Development Block Grant American Recovery and Reinvestment Act of 2009 funds for the purpose of partially funding improvements to the wastewater infrastructure system by replacing and rehabilitating portions of the existing gravity wastewater system in the North Zone 2 of the District. Total grant funds allocated to the District are $1,103,940. The District is required by the grant contract to spend $137,473 of its own funds toward the cost of this project. Total funds expended for this project were $1,015,081, of which $137,473 were District funds. Reimbursement by Harris County was $877,608, of which $114,686 was recorded as receivable at year end. The project is in progress at year end. On August 31, 2009, the District executed a grant contract with Harris County, Texas. The agreement provides for the District to participate in a Community Development Block Grant American Recovery and Reinvestment Act of 2009 funds for the purpose of partially funding improvements to the wastewater infrastructure system by replacing and rehabilitating portions of the existing gravity wastewater system in the South Zone of the District. Total grant funds allocated to the District are $810,912. The District is required by the grant contract to spend $438,309 of its own funds toward the cost of this project. Total funds expended for this project

51 HARRIS COUNTY WATER CONTROL AND NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2010 NOTE 2. CONTRACT/GRANT FUNDS (Continued) were $159,165, of which $124,843 were District funds. Reimbursement by Harris County was $34,322, of which $26,762 was recorded as receivable at year end. The project is in progress at year end. On November 6, 2009, the District executed a grant contract with Texas Water Development Board ( TWDB ). The agreement provides for the District to participate in a Clean Water State Revolving Fund-American Recovery and Investment Act of 2009 grant. Funds will be used to provide for certain wastewater collection system improvements. Total grant funds allocated to the District are $3,623,000. As of June 30, 2010, the District accrued $312,534 in engineering costs and $622,867 in construction costs. Reimbursement from TWDB was $935,401, with $443,924 recorded as receivable for this project. On December 18, 2009, the District executed a grant contract with TWDB. The agreement provides for the District to participate in a Drinking Water State Revolving Fund-American Recovery and Investment Act of 2009 grant. Funds will be used to provide for certain wastewater system improvements. Total grant funds allocated to the District are $7,150,000. As of June 30, 2010, the District accrued $437,043 in engineering costs and $1,432,855 in construction costs. Reimbursement from TWDB was $1,869,898, with $1,068,364 recorded as receivable for this project. NOTE 3. BOND PROCEEDS The District expended Series 2007 Unlimited Tax Bonds funds in the amount of $2,418,060 from the Texas Water Development Board, a pass-through entity for the Environmental Protection Agency s Drinking Water State Revolving Fund. Of these funds, $79,730 were expended in the current year. These funds were used for the rehabilitation of approximately 82,000 linear feet of water transmission and distribution lines to address water loss within their water system. The District expended Series 2008 Unlimited Tax Bonds funds in the amount of $4,093,866 from the Texas Water Development Board, a pass-through entity for the Environmental Protection Agency s Clean Water State Revolving Fund. Of these funds, $521,256 were expended in the current year. These funds were used for the rehabilitation and/or replacement of approximately 35,000 linear feet of wastewater lines that have deteriorated

52 HARRIS COUNTY WATER CONTROL AND SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2010 Section I Summary of Auditor s Results Financial Statements Type of auditor s report issued: Unqualified Internal control over financial reporting: Material weakness(es) identified? X yes no Significant Deficiencies(s) identified that are not considered to be material weaknesses? yes X None reported Noncompliance material to financial statements noted? yes X no Federal Awards Internal control over major programs: Material weakness(es) identified? yes X no Significant Deficiencies(s) identified that are not considered to be material weakness(es)? yes X None reported Type of auditor s report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with section 5 10(a) of Circular A-133 yes X no See accompanying independent auditor s report

53 HARRIS COUNTY WATER CONTROL AND SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2010 Identification of major programs: C FDA Number(s) Name offederal Program or Cluster U.S. Department of Housing and Urban Development/Community Development Block Grant Environmental Protection Agency/Clean Water State Revolving Fund Loan Environmental Protection Agency/Drinking Water Revolving Fund Loan Dollar threshold used to distinguish between type A and type B programs: $300,000 Audited Qualified as low-risk auditee? yes X no See accompanying independent auditor s report. -45-

54 Financial HARRIS COUNTY WATER CONTROL AND SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2010 Section II Statement Findings We observed the following matters related to annual financial reporting that we consider to be material weaknesses: Condition, Criteria, Cause, Effect, Recommendation: As is common within the system of internal control of most small organizations, the accounting function of the District does not prepare the financial statements complete with footnotes in accordance with accounting principles generally accepted in the United States of America. Accordingly, the District has not established internal controls over the preparation of its financial statements. This condition is considered to be a material weakness of the District s system of internal control over financial reporting. During the course of performing our audit, we prepared various journal entries to present the financial statements on the government-wide basis of accounting. In addition, we prepared the capital asset and depreciation schedules and posted adjustments related to the presentation of the capital assets in the government-wide financial statements. This reliance on the auditor to perform these functions is considered to be a material weakness in the system of internal control. Management s Response: The District s Board of Directors is appointed or elected from the general population and the Directors do not necessarily have governmental accounting expertise. The Board engages consultants who possess industry knowledge and expertise to provide financial services, as well as legal and professional engineering services. Based on the auditor s unqualified opinion and after reading the financial statements, the Board believes the financial statements to be materially correct. The Board does not think that the addition of an employee or consultant to oversee the annual financial reporting process is necessary nor would it be cost effective. See accompanying independent auditor s report. -46-

55 - 47 HARRIS COUNTY WATER CONTROL AND SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2010 Section III Federal Award Findings and Questioned Costs None See accompanying independent auditor s report. -

56 HARRIS COUNTY WATER CONTROL AND SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2010 None See accompanying independent auditor s report. -48-

57 HARRIS COUNTY WATER CONTROL AND SUPPLEMENTARY INFORMATION - REQUIRED BY THE WATER DISTRICT FINANCIAL MANAGEMENT GUIDE JUNE 30, 2010

58 - 50 HARRIS COUNTY WATER CONTROL AND SERVICES AND RATES FOR THE YEAR ENDED JUNE 30, SERVICES PROVIDED BY THE DISTRICT DURING THE FISCAL YEAR: X Retail Water Wholesale Water Drainage X Retail Wastewater Wholesale Wastewater Irrigation Parks/Recreation Fire Protection X Security X Solid Waste/Garbage Flood Control Roads Participates in joint venture, regional system and/or X wastewater service (other than emergency interconnect) Other (specify): 2. RETAIL SERVICE PROVIDERS a. RETAIL RATES FOR A 5/8 METER (OR EQUIVALENT): Based on the rate order approved June 4, Rate per 1,000 Minimum Minimum Flat Gallons over Charge Usage Rate Minimum Use Usage Levels WATER: $ 34.20* 3,000 N $ ,001 to 8,000 $ ,001 to 13,000 $ ,00landup WASTEWATER: $ ,000 N $ ,001 and up SURCHARGE: Commission Regulatory Assessments 0.5% water and wastewater charges District employs winter averaging for wastewater usage? Yes X No Total charges per 10,000 gallons usage: Water: $68.14 Wastewater: $17.75 Surcharge: $0.43 Total: $86.32 * Includes solid waste collection and mass notification system charges. See accompanying independent auditor s report. -

59 8 x HARRIS COUNTY WATER CONTROL AND SERVICES AND RATES FOR THE YEAR ENDED JUNE 30, RETAIL SERVICE PROVIDERS (Continued) b. WATER AND WASTEWATER RETAil CONNECTIONS (Unaudited): Total Active ESFC Active Meter Size Connections Connections Factor ESFCs Unmetered x 1.0 <3/4Y 3,641 3,137 xl.0 3, x ½ 7 6 x x x x x x115.0 Total Water Connections Total Wastewater Connections 3,704 3,235 x 1.0 3, TOTAL WATER CONSUMPTION DURING THE FISCAL YEAR ROUNDED TO THE NEAREST THOUSAND: (Unaudited) Gallons pumped into system: 340,836,000 Water Accountability Ratio: 87% (Gallons billed/gallons pumped) Gallons billed to customers: 296,541,000 Gallons purchased: 310,759,000 From: North Channel Water Authority See accompanying independent auditor s report

60 HARRIS COUNTY WATER CONTROL AND SERVICES AND RATES FOR THE YEAR ENDED JUNE 30, STANDBY FEES (authorized only under TWC Section ): Does the District have Debt Service standby fees? Yes No X Does the District have Operation and Maintenance standby fees? Yes No X 5. LOCATION OF DISTRICT: Is the District located entirely within one county? Yes X No County or Counties in which District is located: Harris County, Texas Is the District located within a city? Entirely Partly Not at all X Is the District located within a city s extra territorial jurisdiction (ETJ)? Entirely X Partly Not at all ETJ s in which District is located: City of Houston, Texas Are Board Members appointed by an office outside the District? Yes No X See accompanying independent auditor s report

61 HARRIS COUNTY WATER CONTROL AND GENERAL FUND EXPENDITURES FOR THE YEAR ENDED JUNE 30, 2010 PERSONNEL EXPENDITURES (Including Benefits) Salaries $ 768,536 Payroll Taxes 66,521 Pension 3,000 Insurance 327,254 TOTAL PERSONNEL EXPENDITURES (Including Benefits) $ 1, PROFESSIONAL FEES: Auditing $ 26,500 Engineering 9,337 Legal 264,005 Financial Advisor 200,710 TOTAL PROFESSIONAL FEES $ 500,552 PURCHASED SERVICES FOR RESALE: Purchased Water Service $ 653,566 Purchased Wastewater Service 334,526 TOTAL PURCHASED SERVICES FOR RESALE $ 988,092 CONTRACTED SERVICES: Answering Service $ 747 Security Services 6,038 Janitorial Services 8,055 TOTAL CONTRACTED SERVICES $ 14,840 UTILITIES: Electricity $ 102,155 Water 1,363 Gas 522 Street Lights 64,354 Telephone 23,713 TOTAL UTILITIES $ 192,107 REPAIRS AND MAINTENANCE $ 67,578 ADMINISTRATIVE EXPENDITURES: Analysis $ 8,433 Data Processing 57,555 Dues and Seminars 18,633 Director Fees of Office 27,750 Election 2,930 Insurance 29,062 See accompanying independent auditor s report

62 HARRIS COUNTY WATER CONTROL AND GENERAL FUND EXPENDITURES FOR THE YEAR ENDED JUNE 30, 2010 ADMINISTRATIVE EXPENDITURES (Continued): Legal Notices $ 11,421 Memberships and Subscriptions 2,328 Office Supplies and Postage 41,684 Other 14 Public Relations 3,659 Travel and Meetings 2,536 TOTAL ADMiNISTRATIVE EXPENDITURES $ 206,005 CAPITAL OUTLAY Capitalized Assets $ 2,325,418 Capital Purchases Not Capitalized TOTAL CAPITAL OUTLAY $ 2,325,418 TAP CONNECTION EXPENIMTURES $ 1,350 SOLID WASTEDISPOSAL $ 511,344 FIRE FIGHTING $ -0- PARKS AND RECREATION $ -0- SECURITY $ OTHER EXPENDITURES: Contractual Payment to Water Authority $ 89,310 Equipment Rental 8,913 Gas and Other Fuels 17,525 Labor 8,345 Landfill 2,165 Permit Fees 25,455 Uniforms 2,512 Other 4,057 TOTAL OTHER EXPENDITURES $ 158,282 TOTAL EXPENDITURES S 6,299,778 Number of persons employed by the District 15 Full-Time -0- PartTime See accompanying independent auditor s report

63 HARRIS COUNTY WATER CONTROL AND INVESTMENTS JUNE 30, 2010 Accrued Identification Interest or Certificate Interest Maturity Balance at Receivable at Funds Number Rate Date End of Year End of Year DEBT SERVICE FUND TexPool Varies Daily $ $ -0- See accompanying independent auditor s report

64 HARRIS COUNTY WATER CONTROL AND TAXES LEVIED AND RECEIVABLE FOR THE YEAR ENDED JUNE 30, 2010 Debt Service Taxes TAXES RECEIVABLE - JULY 1, 2009 $ 244,965 Adjustments to Beginning Balance (3,640) $ 241,325 Original 2009 Tax Levy $ 552,441 Adjustment to 2009 Tax Levy 109, ,514 TOTAL TO BE ACCOUNTED FOR $ 902,839 TAX COLLECTIONS: Prior Years $ 59,180 Current Year 589, ,764 TAXES RECEIVABLE - JUNE 30, 2010 $ TAXES RECEIVABLE BY YEAR: 2009 $ 71, , , , , , , , , , , , , , , , , , , , andprior 131 TOTAL TAXES RECEIVABLE BY YEAR $ 254,075 See accompanying independent auditor s report

65 No HARRIS COUNTY WATER CONTROL AND TAXES LEVIED AND RECEIVABLE FOR THE YEAR ENDED JUNE 30, 2010 PROPERTY VALUATIONS Land $ 124,644,887 $114,167,317 $ 89,641,810 $ 49,353,767 Improvements 116,310, ,256, ,500, ,367,926 Personal Property 33,576,250 30,827,007 27,728,493 30,731,230 Exemptions (38,276,662) (41.322,704) (38.528,814) (28,479,498) TOTAL PROPERTY VALUATIONS $236,255,193 $237,928,119 $211,342,459 $ 184,973,425 TAX RATES PER $100 VALUATION: Debt Service AdjustedTaxLevy* $ $ 666,199 $ $ PERCENT OF TAXES COLLECTED TO TAXES LEVIED 89.13% 94.18% 96.46% 97.16% * Based upon the adjusted tax levy at the time of the audit for the fiscal year in which the tax was levied. Maintenance Tax maintenance tax has been approved by voters. See accompanying independent auditor s report

66 HARRIS COUNTY WATER CONTROL AND LONG-TERM DEBT SERVICE REQUIREMENTS JUNE 30, 2010 SERIES Interest Due Due During Fiscal Principal Due September 15/ Years Ending June 30 September 15 March 15 Total 2011 $ 240,000 $ 132,775 $ 372, , , , , , , , , , ,000 96, , ,000 85, , ,000 73, , ,000 61, , ,000 49, , ,000 36, , ,000 22, , ,000 7, , $ $ $ 4,431,347 See accompanying independent auditor s report

67 - 59 HARRIS COUNTY WATER CONTROL AND LONGTERM DEBT SERVICE REQUIREMENTS JUNE 30, 2010 SERIES A Interest Due Due During Fiscal Principal Due September 15/ Years Ending June 30 September 15 March 15 Total 2011 $ 30,000 $ 25,890 $ 55, ,000 24,417 54, ,000 22,788 57, ,000 20,990 55, ,000 19,149 54, ,000 17,138 57, ,000 14,954 54, ,000 12,601 57, ,000 10,088 55, ,000 7,411 57, ,000 4,568 54, ,000 1,570 56, ,000 $ 181,564 $ 671,564 See accompanying independent auditor s report. -

68 HARRIS COUNTY WATER CONTROL AND LONG-TERM DEBT SERVICE REQUIREMENTS JUNE 30, 2010 SERIES Interest Due Due During Fiscal Principal Due September 15/ Years Ending June 30 September 15 March 15 Total 2011 $ 215,000 $ 57,064 $ 272, ,000 51, , ,000 45, , ,000 40, , ,000 33, , ,000 27, , ,000 21, , ,000 14, , ,000 7, , ,000 1, , $ 2,262,000 $ 300,219 $ 2,562,219 See accompanying independent auditor s report

69 HARRIS COUNTY WATER CONTROL AND LONG-TERM DEBT SERVICE REQUIREMENTS JUNE 30, 2010 SERIES Interest Due Due During Fiscal Principal Due September 15/ Years Ending June 30 September 15 March 15 Total 2011 $ 205,000 $ 111,690 $ 316, , , , , , , , , , ,000 98, , ,000 94, , ,000 90, , ,000 85, , ,000 79, , ,000 74, , ,000 67, , ,000 61, , ,000 54, , ,000 46, , ,000 39, , ,000 31, , ,000 22, , ,000 13, , ,000 4, ,620 $ 5,000,000 $ 1,293,436 $ See accompanying independent auditor s report

70 HARRIS COUNTY WATER CONTROL AND LONG-TERM DEBT SERVICE REQUIREMENTS JUNE 30, 2010 ANNUAL REQUIREMENTS FOR ALL SERIES Total Due During Fiscal Total Total Principal and Years Ending June 30 Principal Due Interest Due Interest Due 2011 $ 690,000 S 327,419 $ 1,017, , ,407 1,014, , ,203 1,020, , ,683 1,019, , ,882 1,017, , ,652 1,024, , ,014 1,025, , ,927 1,023, , ,360 1,026, , , , ,000 94, , ,000 70, , ,000 54, , ,000 46, , ,000 39, , ,000 31, , ,000 22, , ,000 13, , ,000 4, ,620 $ 11,272, , $ ,566 See accompanying independent auditor s report

71 HARRIS COUNTY WATER CONTROL AND ANALYSIS OF CHANGES IN LONG-TERM DEBT FOR THE YEAR ENDED JUNE 30, 2010 Original Bonds Outstanding Description Bonds Issued July 1, 2009 Harris County Water Control and Improvement District No. 36 Unlimited Tax Bonds Series 2001 $ 5,000,000 $ 3,750,000 Harris County Water Control and Improvement District No. 36 Unlimited Tax Bonds Series 2001A 690, ,000 Harris County Water Control and Improvement District No. 36 Unlimited Tax Bonds Series ,000,000 2,390,000 Harris County Water Control and Improvement District No. 36 Unlimited Tax Bonds Series ,000,000 5,000,000 TOTAL $ ,000 $11,660,000 Bond Authority: Tax Bonds* Refunding Bonds Amount Authorized by Voters $ 34,500,000 $ Amount Issued 16,967,000 Remaining to be Issued $ 17,533,000 $ * * Includes all bonds secured with tax revenues. Bonds in this category may also be secured with other revenues in combination with taxes. This authorization also includes bonds issued for refunding purposes. See accompanying independent auditor s report

72 Current Year Transactions Retirements Bonds Outstanding Bonds Sold Principal Interest June 30, 2010 Paying Agent Wells Fargo Bank $ $ 230,000 $ 140,475 $ 3,520,000 Houston, TX Wells Fargo Bank 30,000 27, ,000 Houston, TX Wells Fargo Bank 77, ,000 61,325 2,262,000 Houston, TX Wells Fargo Bank 113,022 5,000,000 Houston, TX $ 77,000 $ 465,000 $ 342,155 $ Debt Service Fund cash and investment balances as of June 30, 2010: $ 1,163,754 Average annual debt service payment (principal and interest) for remaining term of all bond debt: $ 734,661 See Note 3 for interest rates, interest payment dates and maturity dates. See accompanying independent auditor s report

73 - 65 HARRIS COUNTY WATER CONTROL AND COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES GENERAL FUND - FIVE YEARS Amounts REVENUES Water Service $ 2,634,729 $ 2,370,427 $ 2,316,191 Wastewater Service 731, , ,026 Solid Waste Revenue 511, , ,983 Penalty and Interest 45,826 39,415 53,734 Tap Connection and Inspection Fees 89,353 78,900 70,210 Investment Revenues 16,188 62, ,535 Grant Revenues 2,044,908 1,498,122 7,137 Sales Tax Revenues 428, , ,339 Miscellaneous Revenues 61, ,659 TOTAL REVENUES $ 6, $ 5,809,974 $ 4.515,814 EXPENDITURES Service Operations: Personnel $ 1,165,311 $ 1,036,836 $ 995,978 Professional Fees 500, ,425 83,285 Contracted Services 695, , ,647 Purchased Water Service 653, , ,474 Purchased Wastewater Service 334, , ,531 Repairs and Maintenance 67, ,491 82,434 Utilities 192, , ,634 Contractual Payment to Water Authority 89,310 90,399 89,876 Other 276, , ,384 Capital Outlay 2,325,418 1,994, ,383 TOTAL EXPENDITURES $ 6,299,778 $ 5,393,986 $ 3,836,626 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ 264,351 $ $ 679,188 OTHER FINANCING SOURCES (USES) Proceeds from Sale of Assets/Capacity $ $ 7,102 $ Contributed by Other Governmental Entity TOTAL OTHER FINANCING SOURCES (USES) $ -0- $ 7,102 $ -0- NET CHANGE IN FUND BALANCE $ 264,351 $ 423,090 $ 679,188 BEGINNING FUND BALANCE 4,379,302 3,956,212 3,277,024 ENDINGFUND BALANCE $ $ $ See accompanying independent auditor s report. -

74 Percent of Total Revenue $ 1,918,079 $ 1,924, % 40.8% 51.3% 41.7% 45.9% 663, , , , ,763 46, , , , , , , , , ,264 40, $ 4,596,456 $ 4,191, % 100.0% 100.0% 100.0% 100.0% $ 918,728 $ 794, % 17.8% 22.1% 20.0% 19.0% 126, , , , , , , , ,659 92, , , ,499 89, , , , $ 5,160,847 $ 3,914, % 92.8% 84.8% 112.3% 93.3% $ (564,391) $ 277, % 7.2% 15.2% )% 6.7% $ 4,251 $ 199,133 $ 203,384 $ -0- $ (361,007) $ 277, , $ $ See accompanying independent auditor s report

75 HARRIS COUNTY WATER CONTROL AND COMPARATIVE SCHEDULE OF REVENUES AND EXPENDITURES DEBT SERVICE FUND - FIVE YEARS Amounts REVENUES PropertyTaxes $ 648,764 $ 646,895 $ 592,531 Penalty and Interest 47,618 41,509 45,255 Investment Revenues 2,624 18,419 37,355 Miscellaneous Revenue 11,148 9,961 TOTAL REVENUES $ 710,154 $ 716,784 $ 675,141 EXPENDITURES Tax Collection Expenditures $ 77,656 $ 74,035 $ 76,147 Debt Service Principal 465, , ,000 Debt Service Interest and Fees 344, , ,996 TOTAL EXPENDITURES $ 886,711 $ 658,529 $ 513,143 NET ChANGE IN FUND BALANCE $ (176,557) $ 58,255 $ 161,998 BEGINNING FUND BALANCE 1,332,997 1,274,742 1,112,744 ENDING FUND BALANCE $ 1,156,440 $ $ 1,274,742 TOTAL ACTIVE RETAIL WATER CONNECTIONS 3, TOTAL ACTIVE RETAIL WASTEWATER CONNECTIONS 3,235 3, See accompanying independent auditor s report

76 Percent_of Total_Revenues $ 511,676 $ 495, % 90.9% 87.8% 88.6% 90.8% 47,215 34, ,675 15, $ 577,594 $ 546, % 100.0% 100.0% 100.0% 100.0% $ 80,724 $ 67, % 10.3% 11.3% 14.0% 12.3% 240, , $ 513,304 $ 496, % 91.9% 7&0% 88.9% 90.9% $ 64,290 $ 49,328 4)% &i% 24Q% iij% 9i% 1,048, ,126 $ $ See accompanying independent auditor s report

77 HARRIS COUNTY WATER CONTROL AND BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS JUNE 30, 2010 District Mailing Address - District Telephone Number - Harris (713) County Water Control and Improvement District No Hollywood Street Houston, TX Expense Fees of Office Reimbursements Term of Office for the for the (Elected or year ended year ended Board Members Appointed) June 30, 2010 June 30, 2010 Title Gerry Parra 05/08 $ 5,700 $ 2,415 President 05/12 (Elected) Ola Mae Watts 05/08 $ 5,850 $ 2,362 Vice President/ 05/12 Investment (Elected) Officer Gerardo Leal 05/08 $ 4,800 $ 2,454 Secretary 05/12 (Elected) Ronald Holder 05/10 $ 5,550 $ 2,195 Assistant 05/14 Secretary (Elected) Maria Koukoulakis 05/10 $ 5,850 $ 1,778 Director 05/14 (Elected) Note: No Director has any business or family relationships (as defined by the Texas Water Code) with major landowners in the District, with the District s Developer or with any of the District s consultants. Submission Date of most recent District Registration Form (TWC Sections and ): May 27, The limit on Fees of Office that a Director may receive during a fiscal year is $7,200 as set by Board Resolution (TWC Section ) on July 14, Fees of office are the amount actually paid to a Director during the District s current fiscal year. See accompanying independent auditor s report

78 - 70 HARRIS COUNTY WATER CONTROL AND BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS JUNE 30, 2010 Fees/Compensation for the fiscal year ended Employees: Date Hired June 30, 2010 Title Billie Vasquez $ 101,857 General 903 Hollywood Manager Houston, TX Regina DuRee $ 56,585 Office 903 Hollywood Manager Houston, TX Consultants: Johnson Radcliffe Petrov & Bobbitt PLLC 1998 $ 263,817 Attorney 1001 McKinney, Suite 1000 Houston, TX McCall Gibson Swedlund Barfoot PLLC 06/23/99 $ 26,500 Auditor Wortham Center Drive, Suite 235 Houston, TX Harris County Appraisal District Legislative $ 5,491 Central Northwest Freeway Action Appraisal Houston, TX District Perdue, Brandon, Fielder, Collins & Mott, L.L.P. 0 1/25/96 $ 15,636 Delinquent 1235 North Loop West, Suite 600 Tax Attorney Houston, TX SAMCO Capital Markets 01/10/01 $ 200,710 Financial 6805 Capital of Texas Hwy., Suite 350 Advisor Austin, TX CMA Engineering, Inc $ 828,946 Prior West Hwy., 290 Bldg. 600 to Engineer Austin, TX /07/10 MA Engineers, Inc. 05/07/10 $ 170,213 Engineer 505 Leisurewoods Dr. Buda,TX Bob Leared RTA 1998 $ 52,890 Tax Collector Katy Freeway, Suite 725 Houston, TX See accompanying independent auditor s report. -