BEXAR COUNTY HOSPITAL DISTRICT (A political subdivision of the State of Texas located in Bexar County, Texas)

Transcription

1 NEW ISSUE - Book-Entry-Only OFFICIAL STATEMENT Dated August 26, 2010 RATINGS: Fitch: "AAA" Moody s: "Aa1" S&P: "AA+" (See "OTHER INFORMATION Ratings" herein) Interest on the Series B Certificates (defined below) is not excludable from gross income under section 103 of the Code for federal income tax purposes (see FEDERAL INCOME TAX TREATMENT OF TAXABLE CERTIFICATES herein). BEXAR COUNTY HOSPITAL DISTRICT (A political subdivision of the State of Texas located in Bexar County, Texas) $204,885,000 CERTIFICATES OF OBLIGATION, TAXABLE SERIES 2010B (DIRECT SUBSIDY BUILD AMERICA BONDS) Dated Date: August 15, 2010 Due: February 15, as shown on page 2 hereof GENERAL DESCRIPTION... The Bexar County Hospital District Certificates of Obligation, Taxable Series 2010B (Direct Subsidy-Build America Bonds) (the Series B Certificates ) will be issued under and in conformity with the Constitution and laws of the State of Texas, including particularly Article IX, Section 4 of the Texas Constitution, Subchapter C of Chapter 271, Texas Local Government Code, as amended, Chapter 281, Texas Health and Safety Code, as amended, and Chapter 1371, Texas Government Code, as amended, and pursuant to the order (the Series B Order ) adopted on August 17, 2010 by the Commissioners Court (the Court ) of Bexar County, Texas (the County ) on behalf of the Bexar County Hospital District (the District ). In the Series B Order, the Court delegated the authority to certain designated officials of the County and the District to establish the final terms, as well as to effectuate the sale, of the Series B Certificates and to execute the approval certificate relating to the Series B Certificates evidencing such final terms of sale. This approval certificate was executed by a District official on August 26, On August 17, 2010, the County also approved an order authorizing the potential issuance of obligations designated as Bexar County Hospital District Certificates of Obligation, Series 2010A (the Series A Certificates ). The District decided on August 26, 2010 to only issue the Series B Certificates, as permitted by the express provisions of the Series B Order and the provisions of the order authorizing the issuance of the Series A Certificates. PAYMENT TERMS... The Series B Certificates are issuable only as fully registered obligations in denominations of $5,000 or any integral multiple thereof. Interest on the Series B Certificates will accrue from the date of their initial delivery to the initial purchasers thereof named below (the Underwriters ) and is payable on August 15 and February 15 of each year, commencing February 15, 2011, until stated maturity or prior redemption. The definitive Series B Certificates will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book- Entry-Only System described herein. Beneficial ownership of the Series B Certificates may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Series B Certificates will be made to the beneficial owners thereof. Principal of and interest on the Series B Certificates and any redemption premium for the Series B Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Series B Certificates (see "THE SERIES B CERTIFICATES - Book-Entry-Only System" herein). The initial Paying Agent/Registrar is Regions Bank, Houston, Texas (see "THE SERIES B CERTIFICATES - Paying Agent/Registrar"). SECURITY... The Series B Certificates are payable from a combination of (i) the collection of an annual ad valorem tax levied on all taxable property within the District, within the limits prescribed by law, and (ii) a lien on and pledge of the Surplus Revenues (as defined in the Series B Order) of the District s Hospital System (defined herein), as described herein and provided in the Series B Order (see "THE SERIES B CERTIFICATES - Authority for Issuance"). The Series B Order does not create a mortgage or other security interest on any real property of the Hospital System. The Series B Certificates are not obligations of the County, and the holders of the Series B Certificates are not entitled to demand payment from any ad valorem taxes, revenues, or any other assets of the County. PURPOSE... Proceeds from the sale of the Series B Certificates will be used for the purpose of making permanent public improvements and for other public purposes, to-wit: (1) acquiring, purchasing, constructing, reconstructing, improving, or equipping a building or buildings, purchasing technology equipment and related hardware and software, and the purchase and improvement of the necessary sites therefor, for constructing or improving District buildings at University Hospital and University Health Center Downtown, including parking garages, central utility plants, trauma tower, clinical services building, and an urgent care center and (2) the payment of professional services related to the design, construction, and financing of the aforementioned projects. MATURITY SCHEDULE, PRINCIPAL AMOUNTS, INTEREST RATES, INITIAL YIELDS CUSIP NUMBERS, AND REDEMPTION PROVISIONS See Schedule on Page 2 LEGALITY... The Series B Certificates are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinions of the Attorney General of the State of Texas and the approval of certain legal matters of Fulbright & Jaworski L.L.P. and Law Offices of William T. Avila, P.C., both of San Antonio, Texas, as Co-Bond Counsel ( Co-Bond Counsel ) (see Appendix C, "Form of Co-Bond Counsel's Opinion"). Certain legal matters will be passed upon for the Underwriters by their co-counsel Winstead PC and Shelton & Valadez, P.C., both of San Antonio, Texas. DELIVERY... It is expected that the Series B Certificates will be available for delivery through DTC on or about Thursday, September 2, SIEBERT BRANDFORD SHANK &CO., LLC STIFEL,NICOLAUS &COMPANY,INCORPORATED BOFAMERRILL LYNCH COASTAL SECURITIES, INC. LOOP CAPITAL MARKETS LLC RAMIREZ &CO., INC. STERNE,AGEE &LEACH,INC.

2 MATURITY SCHEDULE, PRINCIPAL AMOUNTS, INTEREST RATES, INITIAL YIELDS, CUSIP NUMBERS, AND REDEMPTION PROVISIONS CUSIP NO.PREFIX: (1) BEXAR COUNTY HOSPITAL DISTRICT (A political subdivision of the State of Texas located in Bexar County, Texas) $204,885,000 CERTIFICATES OF OBLIGATION, TAXABLE SERIES 2010B (DIRECT SUBSIDY BUILD AMERICA BONDS) Maturity Principal Interest Initial CUSIP No. Maturity Principal Interest Initial CUSIP No. (2/15) Amount Rate Yield Suffix (1) (2/15) Amount Rate Yield Suffix (1) 2011 $ 4,045, % 0.300% EP $ 5,265, % 3.302% EE ,415, % 0.942% EQ ,775, % 3.452% EF ,565, % 1.266% ER ,905, % 3.752% EG ,505, % 1.676% ES ,055, % 3.952% EH ,345, % 2.026% ET ,220, % 4.152% EJ ,735, % 2.465% EN ,390, % 4.302% EK ,675, % 2.765% EC ,575, % 4.452% EL ,250, % 3.102% ED9 $44,435, % Term Certificate Maturing February 15, 2031, Priced at Par CUSIP (1) EU1 $86,730, % Term Certificate Maturing February 15, 2040, Priced at Par CUSIP (1) EM9 (Interest to accrue from date of initial delivery to the Underwriters) REDEMPTION... The Series B Certificates are subject to redemption prior to stated maturity at the times and prices and in the amounts described herein (see THE SERIES B CERTIFICATES Redemption of the Series B Certificates herein). (1) CUSIP numbers are included solely for the convenience of the owners of the Series B Certificates. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor s Financial Services LLC on behalf of The American Bankers Association. None of the District, the County, the Co-Financial Advisors, nor the Underwriters, either individually or collectively, shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. 2

3 USE OF INFORMATION This Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon. The information set forth herein has been obtained from the District, the County, and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the District, the County, or the Co-Financial Advisors. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. THE SERIES B CERTIFICATES ARE EXEMPT FROM REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (the "SEC") AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE SERIES B CERTIFICATES IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THE SERIES B CERTIFICATES HAVE BEEN REGISTERED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the District or other matters described (see "CONTINUING DISCLOSURE OF INFORMATION" herein for a description of the District's undertaking to provide certain information on a continuing basis). NONE OF THE DISTRICT, ITS CO-FINANCIAL ADVISORS, THE COUNTY, NOR THE UNDERWRITERS MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK-ENTRY-ONLY SYSTEM. THIS OFFICIAL STATEMENT CONTAINS "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS TO BE DIFFERENT FROM FUTURE RESULTS, PERFORMANCE AND ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED THAT THE ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. IN CONNECTION WITH THE OFFERING OF THE SERIES B CERTIFICATES, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SERIES B CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. [The remainder of this page is intentionally left blank] 3

4 TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY... 5 ADMINISTRATION OF DISTRICT AFFAIRS... 7 BEXAR COUNTY HOSPITAL DISTRICT BOARD OF MANAGERS... 7 BEXAR COUNTY HOSPITAL DISTRICT STAFF... 7 BEXAR COUNTY COMMISSIONERS COURT... 8 CONSULTANTS AND ADVISORS... 8 INTRODUCTION... 9 PLAN OF FINANCE... 9 THE SERIES B CERTIFICATES TAX INFORMATION TABLE 1-VALUATION,EXEMPTIONS AND TAX DEBT TABLE 2-TAXABLE ASSESSED VALUATIONS BY CATEGORY TABLE 3-VALUATION AND TAX DEBT HISTORY TABLE 4-TAX RATE,LEVY AND COLLECTION HISTORY TABLE 5-TEN LARGEST TAXPAYERS TABLE 6-TAX ADEQUACY TABLE 7-ESTIMATED OVERLAPPING DEBT DEBT INFORMATION TABLE 8-TAX DEBT SERVICE REQUIREMENTS TABLE 9-AUTHORIZED BUT UNISSUED TAX DEBT TABLE 10 - OTHER OBLIGATIONS FINANCIAL INFORMATION TABLE 11 CONDENSED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN NET ASSETS 28 TABLE 12 - CURRENT INVESTMENTS FEDERAL INCOME TAX TREATMENT OF TAXABLE CERTIFICATES CONTINUING DISCLOSURE OF INFORMATION 33 OTHER INFORMATION APPENDICES GENERAL INFORMATION REGARDING THE DISTRICT AND THE COUNTY...A ANNUAL FINANCIAL REPORT... B FORM OF CO-BOND COUNSEL'S OPINION... C The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Official Statement. 4

5 OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Series B Certificates to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire Official Statement. THE DISTRICT... The District is a hospital district established under Article IX, Section 4 of the Texas Constitution and Chapter 281, as amended, of the Texas Health and Safety Code. It is a political subdivision of the State of Texas, independent and legally separate from the County, established to provide medical and hospital care, including to the needy and indigent of the County, trauma care to the 22 county surrounding area, and tertiary care to residents of South Texas. Its Board is composed of seven members appointed by the Commissioners Court of the County (the "Court") for staggered terms of two years (or until a successor is appointed and qualified). Board members are public officers under the Texas Constitution who, as a body, exercise sovereign functions of government largely independent of the control of others, and serve without pay (see "Appendix A - General Information Regarding the District and the County"). THE SERIES BCERTIFICATES... The Bexar County Hospital District Certificates of Obligation, Taxable Series 2010B (Direct Subsidy-Build America Bonds) (the Series B Certificates ) will mature on February 15 in each of the years and in the amounts specified on page 2 of this Official Statement. PAYMENT OF INTEREST... Interest on the Series B Certificates accrues from their date of initial delivery to the Underwriters, and is payable on February 15, 2011, and each August 15 and February 15 thereafter until stated maturity or prior redemption (see "THE SERIES B CERTIFICATES - Description of the Series B Certificates"). AUTHORITY FOR ISSUANCE... The Series B Certificates will be issued under and in conformity with the Constitution and laws of the State of Texas, including particularly Article IX, Section 4 of the Texas Constitution, Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, Chapter 281, Texas Health and Safety Code, as amended, and Chapter 1371, Texas Government Code, as amended, and pursuant to the Series B Order (defined herein) adopted on August 17, 2010 by the Court on behalf of the District. In the Series B Order, the Court has delegated the authority to each Designated Financial Officer (defined herein) to establish and to execute the Approval Certificate (defined herein) evidencing the final sale terms of the Series B Certificates. This Approval Certificate was executed by a Designated Financial Officer on August 26, SECURITY FOR THE SERIES BCERTIFICATES... The Series B Certificates constitute direct obligations of the District, payable from a combination of (i) the collection of an annual ad valorem tax levied on behalf of the District by the Court, within the limits prescribed by law, on all taxable property located within the District and (ii) a lien on and pledge of the Surplus Revenues (as defined in the Series B Order) of the District s Hospital System (see "THE SERIES B CERTIFICATES - Security and Source of Payment"). REDEMPTION... The Series B Certificates are subject to redemption prior to stated maturity at the times and prices and in the amounts described herein (see THE SERIES B CERTIFICATES Redemption of the Series B Certificates herein). TAXABLE OBLIGATIONS... The interest on the Series B Certificates is not excludable from gross income under section 103 of the Code for federal income tax purposes (see FEDERAL INCOME TAX TREATMENT OF TAXABLE CERTIFICATES herein). USE OF PROCEEDS... Proceeds from the sale of the Series B Certificates will be used for the purpose of making permanent public improvements and for other public purposes, to-wit: (1) acquiring, purchasing, constructing, reconstructing, improving, or equipping a building or buildings, purchasing technology equipment and related hardware and software, and the purchase and improvement of the necessary sites therefor, for constructing or improving District buildings at University Hospital and University Health Center Downtown, including parking garages, central utility plants, trauma tower, clinical services building, and an urgent care center and (2) the payment of professional services related to the design, construction, and financing of the aforementioned projects. 5

6 RATINGS... The Series B Certificates have been assigned ratings of AAA by Fitch Ratings ( Fitch ), Aa1 by Moody s Investors Service, Inc. ( Moody s ), and AA+ by Standard & Poor s Ratings Services, a Standard & Poor's Financial Services LLC business ( S&P ) (see "OTHER INFORMATION - Ratings"). BOOK-ENTRY-ONLY SYSTEM... The definitive Series B Certificates will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Series B Certificates may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Series B Certificates will be made to the beneficial owners thereof. Principal of and interest on the Series B Certificates and redemption provisions on the Series B Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Series B Certificates (see "THE SERIES B CERTIFICATES - Book-Entry-Only System"). PAYMENT RECORD... The District has never defaulted on the payment of its bonded indebtedness. Fiscal Year Ended 12/31 Estimated Population (1) Taxable Assessed Valuation (2) SELECTED FINANCIAL INFORMATION Taxable Assessed Valuation Per Capita Tax Debt Outstanding at End of Year Ratio Tax Debt to Taxable Assessed Valuation Tax Debt Per Capita ,579,414 $ 78,813,677,761 $ 49,901 $ % $ ,618,284 91,794,097,458 56, ,000, % ,612, ,628,327,587 63, ,700, % ,636, ,444,253,134 63, ,795,000 (4) 0.73% (4) 462 (4) ,660, ,526,361,790 (3) 61, ,835,000 (4) 0.73% (4) 449 (4) (1) Texas Department of State Health Services. (2) Bexar Appraisal District's Certified Totals, for the respective years as of supplemented dates. (3) Bexar Appraisal District's July 20, 2010 certified report; subject to change. (4) Includes the Series B Certificates. For additional information regarding the District, please contact: George B. Hernandez, Jr., JD or Christopher J. Janning or Donald J. Gonzales, CPA President/Chief Executive Officer First Southwest Company Tony Jaso Bexar County Hospital District 325 North St. Paul, Suite 800 Estrada Hinojosa & Company, Inc Medical Center Dallas, Texas W. Houston St., Suite 1400 San Antonio, Texas (214) San Antonio, Texas (210) chris.janning@firstsw.com (210) george.hernandez@uhs-sa.com dgonzales@ehmuni.com tjaso@ehmuni.com Peggy Deming, CPA Raul Villasenor Chief Financial Officer First Southwest Company Bexar County Hospital District 70 NE Loop 410, Suite Medical Center San Antonio, Texas San Antonio, Texas (210) (210) raul.villasenor@firstsw.com peggy.deming@uhs-sa.com 6

7 ADMINISTRATION OF DISTRICT AFFAIRS Policy-making and supervisory functions related to the District are the responsibility of, and are vested in, a Board of Managers (the "Board") consisting of seven voting members appointed by the Court. Each member serves for a term of two years beginning on September 1 and ending on August 31 or until a successor is appointed and qualified. BEXAR COUNTY HOSPITAL DISTRICT BOARD OF MANAGERS Term Name Occupation Position Expires Roberto L. Jimenez, MD Physician Chairman 2009 (1) James R. Adams Retired Corporate Executive Vice Chairman 2009 (1) Ira Smith, Jr. Retired City Public Service Energy Executive Secretary 2009 (1) Robert Engberg Retired Aviation, Real Estate & Construction Executive Chair, Budget & Finance Committee 2010 (2) Linda Rivas President, SER Jobs for Progress, Inc. Chair, Planning & Operations Committee 2009 (1) Alexander E. Briseño Retired City Manager of San Antonio Member 2011 Rebecca Q. Cedillo Retired Water Resources Executive & President, Strategic Initiatives Consulting Member 2009 (1) (1) Term expired on August 31, As stated above, each member continues to serve until reappointed or until a successor is appointed and qualified by the Bexar County Commissioners Court. (2) Term expires on August 31, As stated above, each member continues to serve until reappointed or until a successor is appointed and qualified by the Bexar County Commissioners Court. BEXAR COUNTY HOSPITAL DISTRICT STAFF Length in Length of Current Name Position Service Position George B. Hernandez, Jr., JD President/Chief Executive Officer 20 Years 5 Years Christann Vasquez Executive Vice President/Chief Operating Officer 11 Months 11 Months Peggy Deming, CPA Executive Vice President/Chief Financial Officer 11 Years 10 Years Gary McWilliams, MD Executive Vice President/Chief Ambulatory Services Officer 12 Years 6 Years Mary Ann Mote Senior Vice President Operations & Chief Revenue Officer 30 Years 9 Years Nancy Ray, RN, MA Senior Vice President/Chief Nursing Officer 21 Years 16 Years Theresa Scepanski Interim Chief Executive Officer/Community First Health Plans, Inc. 15 Years 3 Months Charles Kight President/Community First Health Plans, Inc. 20 Years 17 Years Karen McMurry Vice President Legal Services and Risk Management 13 Years 4 Years 7

8 BEXAR COUNTY COMMISSIONERS COURT Length of Term Name Position Service Expires Occupation Nelson W. Wolff County Judge 9 years 2014 Businessman/Attorney Sergio "Chico" Rodriguez Commissioner, Precinct 1 6 years 2012 Public Official Paul Elizondo Commissioner, Precinct 2 27 years 2014 Businessman Kevin A. Wolff Commissioner, Precinct 3 1 year 2012 Businessman Tommy Adkisson Commissioner, Precinct 4 11 years 2010 Attorney CONSULTANTS AND ADVISORS First Southwest Company Dallas, Texas and San Antonio, Texas Estrada Hinojosa & Company, Inc. San Antonio, Texas Fulbright & Jaworski L.L.P. San Antonio, Texas Law Offices of William T. Avila, P.C. San Antonio, Texas Ernst & Young LLP San Antonio, Texas Co-Financial Advisors Co-Financial Advisors Co-Bond Counsel Co-Bond Counsel Certified Public Accountants [The remainder of this page is intentionally left blank] 8

9 OFFICIAL STATEMENT RELATING TO BEXAR COUNTY HOSPITAL DISTRICT (A political subdivision of the State of Texas located in Bexar County, Texas) $204,885,000 CERTIFICATES OF OBLIGATION, TAXABLE SERIES 2010B (DIRECT SUBSIDY BUILD AMERICA BONDS) INTRODUCTION This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of the $204,885,000 Bexar County Hospital District Certificates of Obligation, Taxable Series 2010B (Direct Subsidy-Build America Bonds) (the Series B Certificates ) issued by Bexar County, Texas (the County ) on behalf of the Bexar County Hospital District (the District ) pursuant to the Series B Order (defined herein). Except as specified otherwise herein, capitalized terms used herein without definition have the respective meanings ascribed thereto in the Series B Order. On August 17, 2010, the County also approved an order authorizing the potential issuance of obligations designated as Bexar County Hospital District Certificates of Obligation, Series 2010A (the Series A Certificates ). The District decided on August 26, 2010 to only issue the Series B Certificates, as permitted by the express provisions of the Series B Order and the provisions of the order authorizing the issuance of the Series A Certificates. There follows in this Official Statement descriptions of the Series B Certificates and certain information regarding the District and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the District's Co-Financial Advisors, First Southwest Company, Dallas and San Antonio, Texas and Estrada Hinojosa & Company, Inc., San Antonio, Texas, upon request made to the persons listed on page 6 hereof by electronic mail or upon request and upon payment of reasonable handling, mailing, and delivery charges. This Official Statement speaks only as to its date, and the information contained herein is subject to change. An electronic copy of this Official Statement, in final form, will be filed with the Municipal Securities Rulemaking Board and will be available through its Electronic Municipal Markets Access ( EMMA ) system (see CONTINUING DISCLOSURE OF INFORMATION for a description of the District s undertaking to provide certain information on a continuing basis). DESCRIPTION OF THE DISTRICT... The District, currently doing business as the University Health System, is a hospital district established under Article IX, Section 4 of the Texas Constitution and Chapter 281, as amended, Texas Health and Safety Code. It is a political subdivision of the State of Texas, independently and legally separate from the County, providing medical and hospital care to all residents, including to the needy and indigent of the County, trauma care to the 22 county surrounding area and tertiary care to residents of South Texas. Its Board is composed of seven members appointed by the County Commissioners Court (the Court ) for staggered terms of two years (or until a successor is appointed and qualified). Board members are public officers under the Texas Constitution who, as a body, exercise sovereign functions of government largely independent of the control of others and serve without pay (see "Appendix A - General Information Regarding the District and the County"). PLAN OF FINANCE The District s plan of finance calls for three debt issuances. The Series B Certificates represent the third and final issuance under this financing plan (the "first" being the one series of obligations designated as Bexar County Hospital District Combination Tax and Revenue Certificates of Obligation, Series 2008 in the principal amount of $290,000,000 (the Series 2008 Certificates ) delivered on September 4, 2008 and the "second" being comprised of two series of obligations in the combined principal amount of $282,635,000, each delivered on August 18, 2009 and consisting of the Bexar County Hospital District Certificates of Obligation, Series 2009A in the principal amount of $36,240,000 (the Series 2009A Certificates) and the Bexar County Hospital District Certificates of Obligation, Taxable Series 2009B (Direct Subsidy Build America Bonds) in the principal amount of $246,395,000 (the Series 2009B Certificates)). As did the Series 2008, 2009A and 2009B Certificates, the Series B Certificates will address the costs associated with the first phase of the Master Facility Plan, as described and defined under the caption Project Description included in GENERAL INFORMATION REGARDING THE DISTRICT AND THE COUNTY attached hereto as Appendix A, being the costs of acquiring, purchasing, constructing, reconstructing, improving, or equipping a building or buildings, purchasing technology equipment and related hardware and software, and the purchase and improvements of the necessary sites therefor for constructing or improving District buildings at University Hospital or University Health Center Downtown, including parking garages, central utility plants, trauma tower, clinical services building, and an urgent care center. The District will contribute $120,000,000 from existing cash reserves as well as interest earnings on construction funds from debt proceeds issued under this financing plan to reduce the overall financing cost of the Master Facility Plan. 9

10 THE SERIES B CERTIFICATES DESCRIPTION OF THE SERIES BCERTIFICATES... The Series B Certificates are dated August 15, 2010, and mature on February 15 in each of the years and in the amounts and bear interest at per annum rates as shown on page 2 of this Official Statement which interest accrues from the date of initial delivery of the Series B Certificates to the Underwriters (the "Delivery Date"). Interest will be computed on the basis of a 360-day year of twelve 30-day months, and will be payable on February 15 and August 15 of each year, commencing February 15, 2011 until stated maturity or prior redemption. The definitive Series B Certificates will be issued only in fully registered form in any integral multiple of $5,000 for any one stated maturity. The definitive Series B Certificates will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. No physical delivery of the Series B Certificates will be made to the beneficial owners thereof. Principal of and interest on the Series B Certificates and any redemption premium on the Series B Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Series B Certificates (see "THE SERIES B CERTIFICATES - Book-Entry-Only System" herein). PURPOSE... Proceeds from the sale of the Series B Certificates will be used for the purpose of making permanent public improvements and for other public purposes, to-wit: (1) acquiring, purchasing, constructing, reconstructing, improving, or equipping a building or buildings, purchasing technology equipment and related hardware and software, and the purchase and improvement of the necessary sites therefor, for constructing or improving District buildings at University Hospital and University Health Center Downtown including parking garages, central utility plants, trauma tower, clinical services building, and an urgent care center and (2) the payment of professional services related to the design, construction, and financing of the aforementioned projects. AUTHORITY FOR ISSUANCE... The Series B Certificates are being issued pursuant to the Constitution and general laws of the State, including particularly Applicable Law, and an order adopted by the Court on August 17, 2010 (the Series B Order ). In the Series B Order, and as permitted by Chapter 1371, the Court has delegated to the County Judge, Budget Officer and/or County Auditor of the County, and the President/Chief Executive Officer and the Executive Vice President/Chief Financial Officer (each of the foregoing, a Designated Financial Officer ) the authority to establish the final terms of, as well as to effectuate the, sale of each series of the Series B Certificates and to execute an approval certificate relating thereto evidencing such final terms of sale (the Approval Certificate ). This Approval Certificate was executed by a Designated Financial Officer on August 26, SECURITY AND SOURCE OF PAYMENT... The Series B Certificates constitute direct obligations of the District payable from a combination of (1) the levy and collection of an annual ad valorem tax levied on behalf of the District by the Court, within the limits prescribed by law, on all taxable property located within the District and (2) a lien on and pledge of the Surplus Revenues of the District s Hospital System. The Series B Order does not create a mortgage or other security interest on any real property of the Hospital System. In the Series B Order, the District and/or the County (on behalf of the District) retains the right to issue Prior Lien Obligations, Junior Lien Obligations, Subordinate Lien Obligations, and Additional Parity Obligations without limitation as to principal amount but subject to any terms, conditions, or restrictions as may be applicable thereto under law or otherwise. The Prior Lien Obligations, Junior Lien Obligations, and Subordinate Lien Obligations will be payable, in whole or in part, by a lien on and pledged of the Net Revenues that is prior and superior to the lien on and pledge of the Surplus Revenues securing, in part, the payment of the Series B Certificates, the Outstanding Parity Obligations, and any Additional Parity Obligations hereafter issued. The District has no present plans to issue any obligations payable solely from the revenues generated from its Hospital System or the issuance of any debt payable from ad valorem taxes for the next twelve months. PERFECTION OF SECURITY INTEREST... Chapter 1208, as amended, Texas Government Code, applies to the issuance of the Series B Certificates and the pledge of ad valorem tax collections and Surplus Revenues of the District s Hospital System as security therefor, and such pledge is therefore, valid, effective and perfected. Should State law be amended while the Series B Certificates are outstanding and unpaid, the result of such amendment being that the aforementioned pledge is to be subject to the filing requirements of Chapter 9, Texas Business and Commerce Code, in order to preserve to the registered owners of the Series B Certificates a security interest in such pledge, the District has agreed to take such measures as it determines is reasonable and necessary to enable a filing of a security interest in said pledge to occur. REFUNDABLE TAX CREDIT BONDS The Series B Certificates, issued as obligations the interest on which is not excludable under section 103 of the Code for federal income tax purposes pursuant to the provisions of the Series B Order, qualify for and will be designated as build America bonds under and pursuant to the authority provided for in the federal American Recovery and Reinvestment Act of 2009, effective February 17, 2009 ( Stimulus Act ), and in accordance with the guidance released from time to time by the Internal Revenue Service (the "IRS"). In connection with the issuance of the Series B Certificates, and as permitted in the Stimulus Act, the County anticipates electing an option (which election is irrevocable pursuant to the provisions of the Stimulus Act) to treat the Series B Certificates as "qualified bonds" under section 54AA(g) of the Code entitling it to receive directly from the United States Department of the Treasury ( Department of the Treasury ) a refundable tax credit (the "Tax Credit") under section 6431 of the Code. The Code specifies that the Tax Credit will be in the amount equal to 35% of the taxable interest paid on the Series B Certificates to the holders thereof. See FEDERAL INCOME TAX TREATMENT OF TAXABLE CERTIFICATES herein for a description of the effects upon the holders of the Series B Certificates resulting from the County s designation of the Series B Certificates as taxable build America bonds and its election to directly receive the Tax 10

11 Credit relating thereto. In the Series B Order and Paying Agent/Registrar Agreement, the County has delegated to the District all administrative matters relating to the Tax Credit. In the IRS Form 8038-B to be filed on the Delivery Date and in the IRS Form 8038-CP to be filed with the IRS notifying the Department of the Treasury of its designation and election with respect to the Series B Certificates described above, the District, acting on behalf of the County, has provided for the Tax Credit to be delivered from the Department of the Treasury directly to the Paying Agent/Registrar, for further deposit and allocation to a special interest and sinking subaccount created on the books and records of the Paying Agent/Registrar relating solely to the Series B Certificates. The agreement between the District, the County, and the Paying Agent/Registrar relating to the Series B Certificates provides that the amount held in this special interest and sinking subaccount shall be used to reduce the amount of the regularly scheduled debt service payments on the Series B Certificates that the County, acting through the District, is required to make under the Series B Order by remitting the same to the Paying Agent/Registrar. The Tax Credit is not included in the calculation of gross revenues of the Hospital System and is not directly pledged to the payment of the Series B Certificates. It is, therefore, not required to be deposited to the Revenue Fund, or to flow through the flow of funds established under the Series B Order and does not become Surplus Revenues pledged to the payment of the Series B Certificates or any of the Outstanding Parity Obligations, or any Prior Lien Obligations, Junior Lien Obligations, Subordinate Lien Obligations, or Additional Parity Lien Obligations secured by and payable from, in whole or in part, revenues derived by the District from its operation of the Hospital System that are hereafter issued by the District (or the County on behalf of the District). Because of the foregoing, the County and the District anticipate that the entirety of the Tax Credit will be available to off-set the scheduled debt service payment requirements attributable solely to the Series B Certificates. The District s continued receipt of the Tax Credit is subject to various requirements under federal tax law. No assurances are provided that the District will receive the Tax Credit. The Tax Credit will only be paid by the Department of the Treasury if the Series B Certificates remain qualified for so long as the same remain outstanding in accordance with the provisions of the Code as provided above. For the Series B Certificates to be, and remain, "build America bonds" and "qualified bonds" for which the Tax Credit will be received, the District must comply with certain covenants and the District must establish certain facts and expectations with respect to the Series B Certificates, the use and investment of proceeds thereof, and the use of property financed therewith. Failure on the part of the District to comply with the conditions imposed by the Code and future guidance to be provided by the Department of the Treasury and the IRS, may cause the District to fail to receive the Tax Credit for the remaining term of the Series B Certificates and it could subject the District to a claim for refund of previously received Tax Credits. Moreover, the Tax Credit is subject to automatic offset against certain amounts that may, for unrelated reasons, be owed by the District to the United States of America or an agency thereof. In addition, see THE SERIES B CERTIFICATES Redemption of the Series B Certificates herein for more information concerning optional redemption of the Series B Certificates upon the occurrence of an Extraordinary Event. TAX RATE LIMITATION... All taxable property within the District is subject to the assessment, levy and collection by the County for the benefit of the District of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt, within the limits prescribed by law. Article IX, Section 4, of the Texas Constitution is applicable to county-wide hospital districts (such as the District), and limits the maximum ad valorem tax rate to $0.75 per $100 of taxable assessed valuation for all purposes. The election authorizing the creation of the District and the levy of this constitutional tax was held on June 28, REDEMPTION OF THE SERIES BCERTIFICATES... The Series B Certificates are subject to the following redemption provisions: Mandatory Redemption of the Series B Certificates. The Series B Certificates maturing on February 15, 2031 and February 15, 2040 (the Term Series B Certificates ) are subject to mandatory sinking fund redemption prior to their scheduled maturity and shall be redeemed by the District, in part, prior to their scheduled maturity, with the particular Term Series B Certificates or portion thereof to be redeemed to be selected and designated by the District (provided that a portion of a Term Series B Certificate may be redeemed only in an integral multiple of $5,000), at a redemption price equal to the par or principal amount thereof plus accrued interest to the date of redemption, on the dates, and in the principal amounts set forth below: [The remainder of this page is intentionally left blank] 11

12 $44,435,000 Term Certificates Maturing on February 15, 2031 Redemption Principal Date Amount 2/15/2026 $ 6,785,000 2/15/2027 7,025,000 2/15/2028 7,270,000 2/15/2029 7,520,000 2/15/2030 7,780,000 2/15/2031 * 8,055,000 $86,730,000 Term Certificates Maturing on February 15, 2040 Redemption Principal Date Amount 2/15/2032 $ 8,335,000 2/15/2033 8,635,000 2/15/2034 8,945,000 2/15/2035 9,265,000 2/15/2036 9,600,000 2/15/2037 9,940,000 2/15/ ,295,000 2/15/ ,665,000 2/15/2040 * 11,050,000 * Final Maturity The principal amount of the Term Series B Certificates required to be redeemed on each such redemption date pursuant to the foregoing operation of the mandatory sinking fund shall be reduced, at the option of the District, by the principal amount of any Term Series B Certificates having the same stated maturity, which, at least 45 days prior to the mandatory sinking fund redemption date, (1) shall have been acquired by the District and delivered to the Paying Agent/Registrar for cancellation, or (2) shall have been acquired and canceled by the Paying Agent/Registrar at the direction of the District, or (3) have been redeemed pursuant to the optional redemption provisions set forth below and not theretofore credited against mandatory sinking fund redemption. Optional Redemption of the Series B Certificates. The Series B Certificates are subject to redemption prior to stated maturity, at the option of the District, on any date from the Delivery Date through February 14, 2020, as a whole or in part, in principal amounts of $5,000 or any integral multiple thereof, at the Make-Whole Redemption Price or, upon the occurrence of an Extraordinary Event, at the Extraordinary Redemption Price. In addition, the Series B Certificates having stated maturities on and after February 15, 2021, are subject to redemption prior to stated maturity, at the option of the District, on February 15, 2020, or on any date thereafter, as a whole or in part in principal amounts of $5,000 or any integral multiple thereof (and if within a stated maturity at random and by lot by the Paying Agent/Registrar), at the redemption price of par plus accrued interest to the date of redemption. Definition of Terms. For purposes of this section, capitalized terms used herein have the following meanings: An Extraordinary Event will have occurred if a change has occurred to Sections 54AA or 6431 of the Code (as such Sections were added by Section 1531 of the Stimulus Act, pertaining to build America bonds) or any other law, administrative proceeding or regulation, pursuant to which the Tax Credit is reduced or eliminated. Extraordinary Redemption Price means an amount equal to the greater of: (1) the principal amount of the Series B Certificates to be redeemed or (2) the sum of the present value of the remaining scheduled payments of principal and interest to the maturity date of the Series B Certificates to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date on which the Series B Certificates are to be redeemed, discounted to the date on which the Series B Certificates are to be 12

13 redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate, plus 100 basis points, plus, in each case, accrued and unpaid interest on the Series B Certificates to be redeemed to the redemption date. Make-Whole Redemption Price means an amount equal to the greater of: (1) the principal amount of the Series B Certificates to be redeemed or (2) the sum of the present value of the remaining scheduled payments of principal and interest to the maturity date of the Series B Certificates to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date on which the Series B Certificates are to be redeemed, discounted to the date on which the Series B Certificates are to be redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate, plus 35 basis points, plus, in each case, accrued and unpaid interest on the Series B Certificates to be redeemed to the redemption date. Treasury Rate means, with respect to any redemption date for a particular Series B Certificate, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (excluding inflation indexed securities) (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to the maturity date of the Series B Certificate to be redeemed; provided, however, that if the period from the redemption date to such maturity date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used. SELECTION OF SERIES BCERTIFICATES FOR REDEMPTION... If less than all of the Series B Certificates are to be redeemed, the District may select the stated maturities of Series B Certificates within such series to be redeemed. If less than all the Series B Certificates of any stated maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Series B Certificates are in Book-Entry-Only form) will determine by lot the Series B Certificates, or portions thereof, within such stated maturity to be redeemed. If a Series B Certificate (or any portion of the principal sum thereof) has been called for redemption and notice of such redemption has been given, such Series B Certificate (or the principal amount thereof to be redeemed) will become due and payable on such redemption date and interest thereon will cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. NOTICE OF REDEMPTION OF SERIES BCERTIFICATES... Not less than 30 days prior to a redemption date for the Series B Certificates, the District will cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Series B Certificates to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED WILL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. If a Series B Certificate (or any portion of its principal sum) has been duly called for redemption and notice of such redemption duly given, then upon the redemption date such Series B Certificate (or the portion of its principal sum to be redeemed) becomes due and payable, and, if money for the payment of the redemption price and the interest accrued on the principal amount to be redeemed to the date of redemption is held for the purpose of such payment by the Paying Agent/Registrar, interest ceases to accrue and be payable from and after the redemption date on the principal amount redeemed. AMENDMENTS... The District may amend the Series B Order without the consent of or notice to any registered owners in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein and, with respect to the Series B Certificates, the provisions of the Series B Order may be amended at any time to ensure that the Series B Certificates continue to qualify as build America bonds and qualified bonds, pursuant to the provisions of the Series B Order and the BAB Agreement (as defined in the Series B Order). In addition, the District may, with the written consent of the owners of a majority in aggregate principal amount of the series of Series B Certificates then outstanding affected thereby, amend, add to, or rescind any of the provisions of the Series B Order; except that, without the consent of the registered owners of all of the Series B Certificates, no such amendment, addition, or rescission may (1) change the date specified as the date on which the principal of or any installment of interest on any Series B Certificate is due and payable, reduce the principal amount thereof, or the rate of interest thereon, the redemption price therefor, change the place or places at or the coin or currency in which any Series B Certificate or interest thereon is payable, or in any other way modify the terms of payment of the principal of or interest on the Series B Certificates, (2) give any preference to any Series B Certificate over any other Series B Certificate, or (3) reduce the aggregate principal amount of Series B Certificates required for consent to any amendment, addition, or waiver. DEFEASANCE... The Series B Order provides for the defeasance of the Series B Certificates when the payment of the principal of the Series B Certificates, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption (or otherwise), is provided by irrevocably depositing with a paying agent, in trust (1) money sufficient to make such payment and/or (2) Government Securities, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation and expenses of the paying agent for the Series B Certificates (unless such deposit is made to affect a gross defeasance of the identified Series B Certificates, in which case no such certification of independent public accounting firm is required). The Series B Order provides that "Government Securities" means (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States of 13

14 America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The District has additionally reserved the right, subject to satisfying the requirements of (1) and (2) above, to substitute other Government Securities for the Government Securities originally deposited, to reinvest the uninvested money on deposit for such defeasance, and to withdraw for the benefit of the District money in excess of the amount required for such defeasance. Upon such deposit as described above, such Series B Certificates will no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment of the Series B Certificates have been made as described above, all rights of the District to initiate proceedings to call the Series B Certificates for redemption or take any other action amending the terms of the Series B Certificates are extinguished; provided, however, that, in addition to the District s continuing obligation to fund, from lawfully available funds, any shortfall in amounts held in trust for the defeasance of the Series B Certificates as described above, which continuing obligation is memorialized in the Series B Order, the District s right to redeem Series B Certificates defeased to stated maturity is not extinguished if the District has reserved the option, to be exercised at the time of the defeasance of the Series B Certificates, to call for redemption, at an earlier date, those Series B Certificates which have been defeased to their stated maturity date, if the District: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Series B Certificates for redemption; (ii) gives notice of the reservation of that right to the owners of the Series B Certificates immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. BOOK-ENTRY-ONLY SYSTEM... This section describes how ownership of the Series B Certificates are to be transferred and how the principal of and interest on the Series B Certificates and redemption provisions on the Series B Certificates are to be paid to and credited by The Depository Trust Company ("DTC"), New York, New York, while the Series B Certificates are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The District and the County believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The District and the County cannot and do not give any assurance that (1) DTC will distribute payments of debt service on the Series B Certificates, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Series B Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the SEC, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Series B Certificates. The Series B Certificates will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee). One fully registered Certificate will be issued for each maturity of the Series B Certificates in the aggregate principal amount of each such maturity and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instrument (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC, is the holding company of DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the United States Securities and Exchange Commission. More information about DTC can be found at and Purchases of Series B Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series B Certificates on DTC s records. The ownership interest of each actual purchaser of each Series B Certificate ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owners entered into the transaction. Transfers of ownership interest in the Series B 14

15 Certificates are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive Series B Certificates representing their ownership interests in the Series B Certificates, except in the event that use of the book-entry system for the Series B Certificates is discontinued. To facilitate subsequent transfers, all Series B Certificates deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series B Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series B Certificates; DTC s records reflect only the identity of the Direct Participant to whose account such Series B Certificates are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices with respect to the Series B Certificates will be sent to DTC. If less than all of the Series B Certificates within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to the Series B Certificates unless authorized by a Direct Participant in accordance with DTC s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the County as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Series B Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds of the Series B Certificates and principal and interest payments on the Series B Certificates will be made to DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from the District or the Paying Agent/Registrar on payable dates in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as in the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent/Registrar or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, with respect to the Series B Certificates, and principal of and interest on the Series B Certificates to DTC is the responsibility of the District, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series B Certificates at any time by giving reasonable notice to the District and the Paying Agent/Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, securities certificates representing each stated maturity of the Series B Certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, securities certificates representing each maturity of the Series B Certificates will be printed and delivered. Use of Certain Terms in Other Sections of this Official Statement... In reading this Official Statement it should be understood that while the Series B Certificates are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Series B Certificates, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Series B Order will be given only to DTC. Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the District, the County, the Co-Financial Advisors, or the Underwriters. Effect of Termination of Book-Entry-Only System... In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry-Only System is discontinued by the District, printed Series B Certificates will be issued to the owners and the Series B Certificates will be subject to transfer, exchange, and registration provisions as set forth in the Series B Order and summarized under "THE SERIES B CERTIFICATES - Transfer, Exchange, and Registration" below. PAYING AGENT/REGISTRAR... The initial Paying Agent/Registrar is Regions Bank, Houston, Texas. In the Series B Order, the District retains the right to replace the Paying Agent/Registrar. The District covenants to maintain and provide a Paying Agent/Registrar at all times until the Series B Certificates are duly paid and any successor Paying Agent/Registrar will be a commercial bank, trust company, financial institution, or other entity duly qualified and legally authorized to serve as and 15

16 perform the duties and services of Paying Agent/Registrar for the Series B Certificates. Upon any change in the Paying Agent/Registrar for the Series B Certificates, the District agrees to promptly cause a written notice thereof to be sent to each registered owner of the Series B Certificates by United States mail, first class, postage prepaid, which notice will also give the address of the new Paying Agent/Registrar. Interest on the Series B Certificates will be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (hereinafter defined), and such interest will be paid (i) by check sent United States mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal of the Series B Certificates will be paid to the registered owner at their stated maturity or, with respect to the Series B Certificates, earlier redemption upon presentation to designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Series B Certificates will be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/Registrar is located are authorized to close, then the date for such payment will be the next succeeding day which is not such a day, and payment on such date will have the same force and effect as if made on the date payment was due. So long as Cede & Co. is the registered owner of the Series B Certificates, payments of principal and interest on the Series B Certificates will be made as described in "THE SERIES B CERTIFICATES - Book-Entry-Only System" herein. TRANSFER, EXCHANGE AND REGISTRATION... In the event the Book-Entry-Only System should be discontinued, printed certificates will be issued to the owners of the Series B Certificates and thereafter the Series B Certificates may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender of such printed certificates to the Paying Agent/Registrar and such transfer or exchange will be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Series B Certificates may be assigned by the execution of an assignment form on the respective Series B Certificates or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Series B Certificates will be delivered by the Paying Agent/Registrar, in lieu of the Series B Certificates being transferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Series B Certificates issued in an exchange or transfer will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Series B Certificates to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Series B Certificates registered and delivered in an exchange or transfer will be in any integral multiple of $5,000 for any one maturity and for a like kind and aggregate principal amount as the Series B Certificates surrendered for exchange or transfer (see "THE SERIES B CERTIFICATES - Book-Entry-Only System" herein for a description of the system to be utilized initially in regard to ownership and transferability of the Series B Certificates). Neither the District nor the Paying Agent/Registrar will be required to transfer or exchange any Series B Certificate (i) during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or (ii) with respect to any Series B Certificate or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date, provided, however, such limitation of transfer will not be applicable to an exchange by the registered owner of the uncalled balance of a Series B Certificate. RECORD DATE FOR INTEREST PAYMENT... The record date ("Record Date") for determining the person entitled to the receipt of the interest payable on the Series B Certificates on any interest payment date means the close of business on the last business day of the month next preceding such interest payment date. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the District. Notice of the Special Record Date and of the scheduled payment date of the past due interest ("Special Payment Date", which will be 15 days after the Special Record Date) will be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each registered owner of a Series B Certificate to be paid on the Special Payment Date that appears on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. SERIES BCERTIFICATE OWNER REMEDIES... If the District defaults in the payment of principal, interest, or redemption price on the Series B Certificates when due, or if it fails to make payments into any fund or funds created in the Series B Order, or defaults in the observation or performance of any other covenants, conditions, or obligations set forth in the Series B Order, the registered owners may seek a writ of mandamus to compel County and District officials to carry out their legally imposed duties with respect to the Series B Certificates if there is no other available remedy at law to compel performance of the Series B Certificates or the Series B Order and the District s obligations are not uncertain or disputed. The issuance of a writ of mandamus is controlled by equitable principles, so it rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Series B Certificates in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Series B Order does not provide for the appointment of a trustee to represent the interest of the owners of the Series B Certificates upon any failure of the District or the County to perform in accordance with the terms of the Series B Order, or upon any other condition and accordingly all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by, the registered owners. On June 30, 2006, the Texas Supreme Court ruled 16

17 in Tooke v. City of Mexia 197 S.W.3 rd 325 (Tex. 2006) that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in clear and unambiguous language. Chapter 1371, which pertains to the issuance of public securities by issuers such as the County, permits the County to waive sovereign immunity in the proceedings authorizing the issuance of the Series B Certificates. Notwithstanding its reliance upon the provisions of Chapter 1371 in connection with its issuance of the Series B Certificates (as further described in THE SERIES B CERTIFICATES Authority for Issuance herein), neither the County nor the District has waived the defense of sovereign immunity with respect thereto. Because it is unclear whether the Texas legislature has effectively waived the District s sovereign immunity from a suit for money damages outside of Chapter 1371, owners of the Series B Certificates may not be able to bring such a suit against the District for breach of the Series B Certificates or Series B Order covenants. Even if a judgment against the District could be obtained, it could not be enforced by direct levy and execution against the County or the District's property. Further, the registered owners cannot themselves foreclose on property within the County or the District or sell property within the County or the District to enforce the tax lien on taxable property to pay the principal of and interest on the Series B Certificates. Furthermore, the District is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code ( Chapter 9 ). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, such as the Surplus Revenues, such provision is subject to judicial discretion. In addition, the pledge of ad valorem taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or owners of debt of an entity which has sought protection under Chapter 9. Therefore, should the District avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Co-Bond Counsel will note that all opinions relative to the enforceability of the Series B Order and the Series B Certificates are qualified with respect to the customary rights of debtors relative to their creditors and principles of equity that permit the exercise of judicial discretion. SOURCES AND USES OF PROCEEDS... Proceeds from the sale of the Series B Certificates are expected to be expended as follows: Sources Principal Amount of the Series B Certificates $ 204,885, Total Sources of Funds $ 204,885, Uses Deposit to Project Construction Fund $ 202,961, Costs of Issuance 765, Underwriters' Discount 1,158, Total Uses of Funds $ 204,885, [The remainder of this page is intentionally left blank] 17

18 TAX INFORMATION AD VALOREM TAX LAW... The appraisal of property within the District is the responsibility of the Bexar Appraisal District (the "Appraisal District"). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, and other special appraisal rules applicable to certain specified types of property, the Appraisal District is required under the Texas Tax Code, as amended (herein the "Property Tax Code"), to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. Effective January 1, 2010, State law requires the appraised value of a residence homestead to be based solely on the property's value as a residence homestead, regardless of whether residential use is considered to be the highest and best use of the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The District may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the District by petition filed with the Appraisal Review Board. Reference is made to the Property Tax Code for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open-space lands at productivity value, other special appraisal rules, and the exemption of certain personal property from ad valorem taxation. Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option or by election called by petition of at least 20% of the voters, may grant an exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older or disabled from all ad valorem taxes thereafter levied by the political subdivision. In addition, the governing body of a political subdivision at its option may grant an exemption of up to 20% of the market value of residence homesteads, with a minimum exemption under provision of $5,000. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. House Bill 3613, enacted by the 81 st Texas Legislature during its Regular Session, added Section to the Texas Tax Code. This law, effective January 1, 2009, states that a disabled veteran who receives from the United States Department of Veterans Affairs or its successor 100% disability compensation due to a service-connected disability and a rating of 100% disabled or of individual unemployability is entitled to an exemption from taxation of the total appraised value of the veteran s residence homestead. Under Article VIII and State law, the governing body of a county, municipality or junior college district, may freeze the total amount of ad valorem taxes levied on the residence homestead of a disabled person or persons 65 years of age or older to the amount of taxes imposed in the year such residence qualified for such exemption. Also, upon receipt of a petition signed by five percent of the registered voters of the county, municipality or junior college district, an election must be held to determine by majority vote whether to establish such a limitation on taxes paid on residence homesteads of persons 65 years of age or who are disabled. Upon providing for such exemption, such freeze on ad valorem taxes is transferable to a different residence homestead and to a surviving spouse living in such homestead so long as (i) the taxpayer died in a year in which he qualified for the exemption, (ii) the surviving spouse was at least 55 years of age when the taxpayer died and (iii) the property was the residence homestead of the surviving spouse when the taxpayer died and the property remains the residence homestead of the surviving spouse. If improvements (other than maintenance or repairs) are made to the property, the value of the improvements is taxed at the then current tax rate, and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following years. Once established, the tax rate limitation may not be repealed or rescinded. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open-space land (Section 1-d-1), including open-space land devoted to farm or ranch purposes or open-space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-1. 18

19 Certain property of the State of Texas and its political subdivisions; the United States of America and certain of its instrumentalities; charitable organizations; schools and other specified organizations; property exempt by federal law; and other property specified by the Texas constitution, the Property Tax Code, and other Texas law are exempt in whole or in part from taxation. Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1-j, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in the State for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Notwithstanding such exemption, counties, school districts, junior college districts and cities may tax such tangible personal property provided official action to tax the same was taken before April 1, Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. Article VIII, Section 1-n of the Texas Constitution provides for the exemption from taxation of goods-in-transit. Goods-intransit, defined by a provision to the Property Tax Code effective for tax years 2008 and thereafter, as personal property acquired or imported into Texas and transported to another location in the State or outside of the State within 175 days of the date the property was acquired or imported into Texas. The exemption excludes oil, natural gas, petroleum products, aircraft and special inventory, including motor vehicle, vessel and out-board motor, heavy equipment and manufactured housing inventory. The Property Tax Code provision permits local governmental entities, on a local option basis, to take official action by January 1 of the first year in which goods-in-transit are proposed to be taxed, and after holding a public hearing, to take official action to tax goods-in- transit during the following tax year and to continue to tax those goods until the action authorizing such taxation is rescinded or repealed. A taxpayer may receive only one of the freeport exemptions or the goods-in-transit exemptions for items of personal property. Subject to the discussion in Appendix A General Information Regarding the District and the County: Tax Increment Reinvestment Zones, the District may agree to participate in one or more tax increment financing districts ("TIFD") established by a city or the County for the financing of the costs of specific public improvements within a TIFD or for the purpose of enabling grants for economic development. The District and other taxing units levying taxes on property in a TIFD may agree to contribute all or part of the taxes collected on the increased value of property within the TIFD over its base value. The "base value" is the value of all property in the district in the year the TIFD is established. Taxes received on the base value continue as revenue to the taxing entities general fund. Taxes received on the increment, or value in excess of the base value, are deposited into a special TIFD fund for financing of public projects within the TIFD and are not available for general District use. Subject to the discussion in Appendix A General Information Regarding the District and the County: Tax Increment Reinvestment Zones, and other applicable laws, the District also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The District in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. The Texas Property Tax Code provides that certain cities, counties and hospital districts (including the District) in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year (see TAX INFORMATION Effective Tax Rate and Rollback Tax Rate herein). EFFECTIVE TAX RATE AND ROLLBACK TAX RATE... By each September 1 or as soon thereafter as practicable, the Court, acting for the District, adopts a tax rate per $100 taxable assessed value for the current year. The Court will be required to adopt the annual tax rate for the District before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the District. If the Court does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the County for the benefit of the District for the preceding tax year. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. Under the Property Tax Code, the County for the benefit of the District must annually calculate and publicize its "effective tax rate" and "rollback tax rate". Under current law, a tax rate cannot be adopted by the Court that exceeds the lower of the rollback tax rate or the effective tax rate until two public hearings are held on the proposed tax rate following a notice of such public hearings (including the requirement that notice be posted on the County s website if the County owns, operates or controls an internet website and public notice be given by television if the County has free access to a television channel) and the Court has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the County by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable assessed values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. 19

20 "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities, counties and hospital districts in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. The District has not submitted such a proposition to its voters, but it may do so in the future. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. ROLLBACK PETITION... Section of the Property Tax Code provides voters desiring to roll back the tax levy with the guidelines for a valid petition and provides for 90 days for the collection of signatures of at least 7 % of the registered voters in the jurisdiction according to the most recent official list of registered voters if the tax rate adopted for the current tax year would impose taxes for maintenance and operation expenses of $5 million, or more or at least 10% if the current year's tax rate is for maintenance and operation expenses of less than $5 million. The petition must be presented to the governing body of the jurisdiction on or before the 90th day after the tax levy. The governing body then has 20 days from the presentation of the petition to determine the validity of the petition and pass a resolution stating its finding. If the governing body determines that the petition is valid or it fails to act on the petition within such 20-day period an election must be called not less than 30 or more than 90 days on the question of rolling back the tax rate. PROPERTY ASSESSMENT AND TAX PAYMENT... Property within the District is generally assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October 1 of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March April May June July After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, a taxing unit may contract with an attorney for the collection of delinquent taxes and the amount of compensation as set forth in such contract may provide for a fee up to 20% of the amount of delinquent tax, penalty, and interest collected. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the District's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. APPLICATION OF PROPERTY TAX CODE... The District does not grant an exemption to the market value of the residence homestead of persons 65 years of age or older or the disabled; The District has not granted an additional exemption of 20% of the market value of residence homesteads; minimum exemption of $5,000. The District has not adopted the tax freeze for citizens who are disabled or are 65 years of age or older, which became a local option and subject to local referendum on January 1, Ad valorem taxes are not levied by the District against the exempt value of residence homesteads for the payment of debt. The District does tax nonbusiness personal property; and Bexar County Tax Assessor-Collector collects taxes for the District. 20

21 The District does permit split payments, and discounts are not allowed. The District does not tax freeport property. On December 18, 2007, the Court adopted a resolution authorizing the continued taxation of goods-in-transit by the District for the 2008 tax year and beyond. The District does not collect the additional one-half cent sales tax for reduction of ad valorem taxes. The District has not adopted a tax abatement policy which is a prerequisite to grant a tax abatement pursuant to Chapter 312, as amended, Texas Tax Code. The District does not have an abatement policy. Under law, the Court has the sole authority to establish abatement policies and procedures, along with other forms of ad valorem tax relief, that apply to the District's tax roll. The value of property subject to abatement is shown in Table 1. The District has participated in the TIRZs as described in Appendix A General Information Regarding the District and the County: Tax Increment Reinvestment Zones. See Table 1 for a listing of the amounts of the exemptions described above. TABLE 1-VALUATION,EXEMPTIONS AND TAX DEBT 2010 Taxable Market Valuation (Fiscal Year 2011) Bexar Appraisal District July 20, 2010 certified tax roll; subject to change $ 106,928,098,091 Less Exemptions/Reductions at 100% Market Value: Veterans Exemptions $ 871,712,724 Freeport Exemptions 513,348,607 Productivity Loss 2,422,353,436 Abatement Loss 71,498,821 Polution Control Loss 66,136,583 Leased Vehicles 218,553,727 Low Income Housing 23,408,506 Homestead Cap 214,723,897 4,401,736, /11 Taxable Assessed Valuation $ 102,526,361,790 Tax Debt Payable From Ad Valorem Taxes ("Tax Debt") Certificates of Obligation (as of 12/31/10) $ 551,910,000 The Series B Certificates 204,885,000 $ 756,795,000 Interest and Sinking Fund (estimated as of 12/31/11) $ 42,283,942 Net Tax Debt $ 714,511,058 Ratio Tax Debt to Taxable Assessed Valuation 0.74% 2011 Estimated Population - 1,660,689 (1) Per Capita Taxable Assessed Valuation - $61,737 Per Capita Tax Debt - $456 Per Capita Net Tax Debt - $430 (1) Texas Department of State Health Services. 21

22 TABLE 2-TAXABLE ASSESSED VALUATIONS BY CATEGORY Taxable Appraised Value for Fiscal Year Ended December 31, Category Assessed Valuation (1) % of Total Assessed Valuation % of Total Assessed Valuation % of Total Real Estate: Single Family Residential $ 61,638,156, % $ 61,655,905, % $ 61,461,703, % Multi-Family Residential 6,539,101, % 6,627,829, % 6,182,927, % Vacant - Platted Lots/Tracts 2,115,771, % 2,189,550, % 2,226,275, % Acreage (Land Only) 3,589,870, % 3,785,599, % 4,011,552, % Farm & Ranch Improvements 326,024, % 329,419, % 341,890, % Commercial and Industrial 21,843,061, % 22,249,779, % 20,951,059, % Oil, Gas and Other Mineral Reserves 9,217, % 7,059, % 7,322, % Personal: Utilities 651,879, % 671,196, % 693,077, % Commercial 7,332,699, % 7,709,922, % 7,547,314, % Industrial 1,842,426, % 1,989,438, % 2,141,055, % Mobile Homes 277,020, % 279,619, % 283,542, % Residential Inventory 443,195, % 538,308, % 581,707, % Special Inventory 319,673, % 357,606, % 404,946, % Total Valuation $ 106,928,098, % $ 108,391,236, % $ 106,834,375, % Less: Total Exemptions & Exclusions 4,401,736,301 4,946,983,173 5,206,047,470 Taxable Assessed Value $ 102,526,361,790 $ 103,444,253,134 $ 101,628,327,587 Taxable Appraised Value for Fiscal Year Ended December 31, Category Assessed Valuation % of Total Assessed Valuation % of Total Assessed Valuation % of Total Real Estate: Single Family Residential $ 56,813,531, % $ 48,767,119, % $ 42,574,400, % Multi-Family Residential 5,541,717, % 4,606,562, % 3,872,150, % Vacant - Platted Lots/Tracts 1,928,786, % 1,617,849, % 1,186,881, % Acreage (Land Only) 3,222,524, % 2,449,497, % 1,708,460, % Farm & Ranch Improvements 341,407, % 304,396, % 270,735, % Commercial and Industrial 17,826,924, % 15,275,241, % 13,335,822, % Oil, Gas and Other Mineral Reserves 5,784, % 4,868, % 3,747, % Personal: 0.00% Utilities 752,577, % 706,649, % 725,015, % Commercial 6,918,064, % 6,231,425, % 5,673,078, % Industrial 2,112,318, % 1,522,109, % 1,382,253, % Mobile Homes 295,972, % 297,891, % 294,850, % Residential Inventory 536,336, % 389,050, % 332,124, % Special Inventory 371,758, % 334,878, % 312,991, % Total Valuation $ 96,667,705, % $ 82,507,539, % $ 71,672,512, % Less: Total Exemptions & Exclusions 4,873,607,912 3,693,861,934 2,506,793,856 Taxable Assessed Value $ 91,794,097,458 $ 78,813,677,761 $ 69,165,718,351 (1) Tax Roll certified as of July 20, 2010 by the Bexar Appraisal District. All other years per the Bexar Appraisal District Certified Totals for the respective years as of Supplement 80 dated June 23, Certified values are subject to change throughout the year as contested values are resolved and the Bexar Appraisal District updates records. [The remainder of this page is intentionally left blank] 22

23 TABLE 3-VALUATION AND TAX DEBT HISTORY Tax Ratio Fiscal Taxable Debt Tax Debt Tax Year Taxable Assessed Outstanding to Taxable Debt Ended Estimated Assessed Valuation at End Assessed Per Population (1) Valuation (2) Per Capita of Year Valuation Capita ,579,414 $ 78,813,677,761 $ 49,901 $ % $ ,618,284 91,794,097,458 56, ,000, % ,612, ,628,327,587 63, ,700, % ,636, ,444,253,134 63, ,795,000 (4) 0.73% (4) ,660, ,526,361,790 (3) 61, ,835,000 (4) 0.73% (4) (1) Texas Department of State Health Services. (2) Bexar Appraisal District's Certified Totals, for the respective years as of supplemented dates. (3) Bexar Appraisal District's July 20, 2010 certified report; subject to change. (4) Includes the Series B Certificates. 462 (4) 449 (4) TABLE 4-TAX RATE,LEVY AND COLLECTION HISTORY % Total Collections net of Fiscal Tax Increment Year Distribution Finance Zone and Ended Local Interest and % Current % Total Bexar Appraisal 12/31 Tax Rate Maintenance Sinking Fund Tax Levy (2) Collections Collections District 2006 $ $ $ - $ 169,127, % 99.86% 99.06% ,761, % 99.79% 99.09% ,706, % 99.69% 98.98% ,034, % 99.10% 98.33% ,562, % (1) 89.17% (1) 88.73% (1) Collections for part year only, through May 30, (2) Bexar County Tax Assessors TC 168 Report as of September 30, in respective years. TABLE 5-TEN LARGEST TAXPAYERS 2009/2010 % of Total Taxable Taxable Assessed Assessed Name of Taxpayer Nature of Property Valuation (1) Valuation (2) H.E.B. Grocery Company LP Retail $ 914,766, % Toyota Motor MFG. Texas Inc Manufacturing 484,887, % Methodist Healthcare System SA Medical 451,593, % AT&T Telecommunications 408,853, % Wal Mart Stores Inc Retail 392,639, % VHS San Antonio Parnters LP Medical 375,476, % USAA Finance/Insurance 340,749, % Microsoft Corporation Services 285,517, % La Cantera Retail Ltd Partnership Retail 263,640, % Frost National Bank Bank 209,948, % $ 4,128,072, % (1) Bexar Appraisal District (2) 2009 Taxable Property. 23

24 TAX DEBT LIMITATION... The District s ability to issue debt payable from taxes is limited by tax rate limitations imposed on the District by the State Constitution. The District's ad valorem tax rate for all purposes cannot exceed $0.75 per $100 of taxable assessed valuation (see "THE SERIES B CERTIFICATES - Tax Rate Limitation"). TABLE 6-TAX ADEQUACY* 2011 Principal and Interest Requirements for Tax Debt $ 42,630,208 $ I&S Tax Rate at 98.25% Collection Produces $ 42,686,271 Average Annual Principal and Interest Requirements for Tax Debt, $ 44,024,951 $ I&S Tax Rate at 98.25% Collection Produces $ 44,109,147 * Includes the Series B Certificates. [The remainder of this page is intentionally left blank] 24

25 TABLE 7-ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the District are paid out of ad valorem taxes levied by such entities on properties within the District. Such entities are independent of the District and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping Tax Debt (being debt supported by an ad valorem tax with or without legal limitation as to amount, as applicable dependent upon issuing entity and type of debt) was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the District, the District has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional Tax Debt since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional Tax Debt, the amount of which cannot be determined. The following table depicted as of May 1, 2010 reflects the estimated share of overlapping Tax Debt. Tax Debt Outstanding Taxing Body As of 5/01/2010 Percent Tax Debt Alamo CCD $ 411,718, % $ 411,718,778 City of Alamo Heights 6,865, % 6,865,000 Alamo Heights ISD 66,748, % 66,748,702 City of Balcones Heights 1,229, % 1,229,000 Bexar County 883,040, % 883,040,000 Bexar Co. WC&ID # % - Bexar Co. WC&ID # % - Boerne ISD 114,175, % 30,496,276 Cibolo Creek Municipal Authority % - Cibolo Canyons Special Imp. District 22,520, % 22,520,000 Comal ISD 536,942, % 80,165,561 City of Converse 3,770, % 3,770,000 East Central ISD 90,994,996 (a) % 90,994,996 Edgewood ISD 101,350,000 (a) % 101,350,000 City of Elmendorf % - City of Fair Oaks Ranch 2,485, % 1,689,055 Floresville ISD 80,154,984 (a) 0.12% 96,186 City of Grey Forest 405, % 405,000 Harlandale ISD 214,597,183 (a) % 214,597,183 City of Helotes 9,950, % 9,950,000 City of Hill Country Village 1,275, % 1,275,000 Town of Hollywood Park % - Judson ISD 398,516,646 (a) % 398,516,646 City of Kirby 3,325, % 3,325,000 Lackland ISD - (a) % - City of Leon Valley 3,370, % 3,370,000 City of Live Oak 18,270, % 18,270,000 City of Lytle 1,035, % 14,180 Medina Valley ISD 62,786,518 (a) 27.12% 17,027,704 North East ISD 1,255,012,166 (a) % 1,255,012,166 Northside ISD 1,534,795,000 (a) 99.55% 1,527,888,423 City of Olmos Park 4,625, % 4,625,000 Randolph Field ISD - (a) % - City of St. Hedwig 980, % 980,000 San Antonio ISD 464,587,560 (a) % 464,587,560 San Antonio MUD #1 1,165, % 1,165,000 San Antonio RA 42,015, % 42,015,000 City of San Antonio 1,089,420, % 1,089,420,000 City of Schertz 59,165, % 1,964,278 Schertz-Cibolo-Universal City ISD 282,285,514 (a) 10.47% 29,555,293 City of Selma 12,215, % 8,755,712 City of Shavano Park 6,082, % 6,082,665 Somerset ISD 25,579,991 (a) 75.21% 19,238,711 City of Somerset 125, % 125,000 South San Antonio ISD 141,472, % 141,472,061 Southside ISD 63,390,000 (a) % 63,390,000 Southwest ISD 132,169,999 (a) % 132,169,999 City of Terrell Hills 3,235, % 3,235,000 City of Universal City 11,635, % 11,635,000 City of Windcrest 2,155, % 2,155,000 Total Overlapping $ 7,172,906,133 Bexar County Hospital District 756,795,000 (1) % 756,795,000 Total Direct & Overlapping $ 7,929,701,133 (a) Certain bonds issued by Texas Independent School Districts are eligible for payment from the State of Texas "Instructional Facilities Allotments" and from "Existing Debt Allotments." These bonds, while obligations of the district, are payable in whole or in part from district allocations of state funds. Such funding may vary between districts and from year to year depending upon the state's contributions. (1) Includes the Series B Certificates. 25

26 DEBT INFORMATION TABLE 8-TAX DEBT SERVICE REQUIREMENTS Less The Series B Certificates (1) Year Outstanding Debt Service Series 2009B Total Less Series B Total % of Ending Certificates Net Debt Certificates Debt Principal 12/31 Principal Interest (2) Total (2) Subsidy Service Principal Interest (2) Subsidy Total Service (2) Retired 2010 $ 7,790,000 $ 30,762,661 $ 38,552,661 $ 5,690,173 $ 32,862,488 $ - $ - $ - $ - $ 32,862, ,915,000 30,695,511 38,610,511 5,737,989 32,872,522 4,045,000 8,788,748 3,076,062 9,757,686 42,630, ,070,000 30,484,473 35,554,473 5,737,989 29,816,484 6,415,000 9,188,360 3,215,926 12,387,434 42,203, ,170,000 30,271,011 37,441,011 5,737,989 31,703,022 4,565,000 9,129,249 3,195,237 10,499,012 42,202, ,990,000 29,972,001 38,962,001 5,737,989 33,224,012 3,505,000 9,070,981 3,174,843 9,401,138 42,625, % ,215,000 29,582,155 40,797,155 5,737,989 35,059,165 2,345,000 9,017,854 3,156,249 8,206,605 43,265, ,205,000 29,103,942 41,308,942 5,737,989 35,570,953 2,735,000 8,960,390 3,136,137 8,559,254 44,130, ,760,000 28,548,742 41,308,742 5,737,989 35,570,753 3,675,000 8,875,875 3,106,556 9,444,318 45,015, ,725,000 27,919,783 41,644,783 5,673,398 35,971,385 4,250,000 8,759,150 3,065,703 9,943,448 45,914, ,285,000 27,226,860 41,511,860 5,540,687 35,971,173 5,265,000 8,606,308 3,012,208 10,859,100 46,830, % ,900,000 26,474,078 41,374,078 5,399,329 35,974,750 5,775,000 8,419,706 2,946,897 11,247,809 47,222, ,560,000 25,661,226 41,221,226 5,247,393 35,973,833 5,905,000 8,209,252 2,873,238 11,241,014 47,214, ,255,000 24,798,683 41,053,683 5,084,847 35,968,837 6,055,000 7,978,827 2,792,589 11,241,238 47,210, ,975,000 23,909,262 40,884,262 4,912,359 35,971,903 6,220,000 7,730,053 2,705,519 11,244,534 47,216, ,725,000 22,963,512 40,688,512 4,719,238 35,969,274 6,390,000 7,463,477 2,612,217 11,241,260 47,210, % ,565,000 21,916,728 40,481,728 4,505,507 35,976,221 6,575,000 7,179,668 2,512,884 11,241,785 47,218, ,455,000 20,797,013 40,252,013 4,282,132 35,969,881 6,785,000 6,854,762 2,399,167 11,240,595 47,210, ,395,000 19,623,926 40,018,926 4,048,695 35,970,231 7,025,000 6,491,352 2,271,973 11,244,379 47,214, ,380,000 18,395,761 39,775,761 3,804,661 35,971,100 7,270,000 6,115,179 2,140,313 11,244,866 47,215, ,415,000 17,103,233 39,518,233 3,547,638 35,970,595 7,520,000 5,725,980 2,004,093 11,241,887 47,212, % ,510,000 15,741,812 39,251,812 3,276,940 35,974,872 7,780,000 5,323,360 1,863,176 11,240,184 47,215, ,650,000 14,314,711 38,964,711 2,993,799 35,970,912 8,055,000 4,906,662 1,717,332 11,244,330 47,215, ,850,000 12,818,876 38,668,876 2,697,669 35,971,207 8,335,000 4,469,108 1,564,188 11,239,920 47,211, ,110,000 11,250,830 38,360,830 2,387,947 35,972,884 8,635,000 4,009,815 1,403,435 11,241,380 47,214, ,430,000 9,607,099 38,037,099 2,064,028 35,973,071 8,945,000 3,534,012 1,236,904 11,242,108 47,215, % ,810,000 7,884,158 37,694,158 1,725,249 35,968,909 9,265,000 3,041,159 1,064,406 11,241,753 47,210, ,265,000 6,078,062 37,343,062 1,370,884 35,972,178 9,600,000 2,530, ,702 11,244,875 47,217, ,785,000 4,184,786 36,969,786 1,000,269 35,969,517 9,940,000 2,001, ,605 11,241,123 47,210, ,385,000 2,200,134 36,585, ,678 35,972,456 10,295,000 1,454, ,924 11,240,144 47,212, ,155, ,191 17,747, ,267 17,539,924 10,665, , ,375 11,241,410 28,781, % ,050, , ,674 11,244,394 11,244, % $ 559,700,000 $ 600,883,221 $ 1,160,583,221 $ 120,958,711 $ 1,039,624,510 $ 204,885,000 $ 185,021,510 $ 64,757,529 $ 325,148,982 $ 1,364,773,492 (1) Interest on the Series B Certificates has been calculated at the rates shown on page 2 herein. (2) Includes that portion of interest offset by the refundable tax credit to be received by the District from the Department of Treasury as a result of the related obligations being designated as "build America bonds." (See "THE SERIES B CERTIFICATES Refundable Tax Credit Bonds" herein.) 26

27 PAYMENT RECORD... The District has never defaulted on the payment of its bonded indebtedness. TABLE 9-AUTHORIZED BUT UNISSUED TAX DEBT The District does not have any voter authorized but unissued Tax Debt. In addition to these types of debt obligations, however, the District is authorized to issue additional certificates of obligation, personal property finance contractual obligations, and tax anticipation notes payable from ad valorem taxes, as well as obligations payable from the revenues of its Hospital System. ANTICIPATED ISSUANCE OF TAX DEBT... The Series B Certificates represent the third and final issuance under the District s Plan of Finance (see "PLAN OF FINANCE" herein). After the issuance of the Series B Certificates, the District does not anticipate issuing any additional debt for this project and no additional debt for the next twelve months. The County can issue debt obligations payable from ad valorem taxes on substantially the same property as the District's debt without consent of or notice to the District. The County recently issued two series of certificates of obligation, in a combined principal amount of $127,780,000, and a series of limited tax general obligation bonds, in a principal amount of $24,020,000, for the purpose of financing public improvements throughout the County. These obligations, which were delivered in August 2010, will be primarily payable from the County's collection of ad valorem taxes levied and assessed upon property located within both the County and the District. TABLE 10 - OTHER OBLIGATIONS Other than the Series 2008 Certificates, the Series 2009A Certificates and the Series 2009B Certificates and, upon their issuance, the Series B Certificates, the District has no long term outstanding indebtedness payable from either its collection of ad valorem taxes or the revenues derived from its Hospital System (see PLAN OF FINANCE ). PENSION FUND... The pension fund plan (the Plan ) is a single-employer defined benefit pension plan covering substantially all of the District s employees who work at least 20 hours per week or at least 1,000 hours annually. Employer contributions to the Plan amounted to $10,993,000 and $10,159,000 for the years ended December 31, 2009 and 2008, respectively (for more detailed information concerning the Plan (see Appendix B, "Annual Financial Report"). OTHER POST-EMPLOYMENT BENEFIT FUND... The Other Post-Employment Benefit Trust ( OPEB Trust ) is a single-employer defined benefit health care plan covering employees eligible to retire from the District. Eligible employees may elect to continue medical benefits, currently at the same contribution rates and schedule of benefits as active employees. The District s annual OPEB cost is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB (herein after defined) 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. As of January 1, 2009, the most recent actuarial valuation date, the actuarial accrued liability for benefits was approximately $32,303,000, and the actuarial value of assets was $6,783,000, resulting in an unfunded actuarial accrued liability (UAAL) of approximately $25,520,000 (for more detailed information concerning the District s OPEB liabilities, see Appendix B, Annual Financial Report ). [The remainder of this page is intentionally left blank] 27

28 FINANCIAL INFORMATION TABLE 11 CONDENSED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN NET ASSETS Fiscal Year Ended December 31 (in thousands) Operating Revenue: Net patient service revenue, net of provision for bad debt $ 366,257 $ 339,017 $ 331,164 $ 304,917 $ 317,893 Premium revenue 258, , , , ,359 Other revenue 42,828 44,014 36,713 35,459 21,827 Total operating revenue $ 667,092 $ 607,636 $ 573,022 $ 498,408 $ 470,079 Operating expenses: Employee compensation $ 289,376 $ 280,854 $ 260,775 $ 231,106 $ 211,191 Supplies 108, ,986 97,886 95,364 85,984 Purchased services 100,963 98,088 86,085 81,001 72,613 Medical services 115, , , ,959 89,666 Medical claims expense 239, , , , ,498 Depreciation and amortization 33,705 31,054 25,615 23,901 24,153 Other 1,541 1,140 1,115 1,102 1,117 Total operating expenses $ 889,417 $ 824,616 $ 760,029 $ 683,190 $ 596,222 Operating loss $ (222,325) $ (216,980) $ (187,007) $ (184,782) $ (126,143) Nonoperating revenue: Property taxes $ 266,981 $ 220,354 $ 194,071 $ 170,810 $ 157,529 Investment income 4,853 21,894 24,049 17,818 8,248 Proceeds from tabacco settlement 9,778 8,267 7,266 6,312 4,809 Premium deficiency reserve (1,582) Total nonoperating revenue $ 280,030 $ 250,515 $ 225,386 $ 194,940 $ 170,586 Excess of revenues over expenses before contributions 57,705 33,535 38,379 10,158 44,443 Capital contributions received (used), net (1,286) 58 (22) Increase in net assets $ 58,221 $ 33,780 $ 37,093 $ 10,216 $ 44,421 Total net assets - beginning of year 611, , , , ,457 Total net assets - end of year $ 670,188 $ 611,967 $ 578,187 $ 541,094 $ 530,878 Health Care Reform Legislation On March 23, 2010, President Barack Obama signed the Patient Protection and Affordable Care Act. A week later, on March 30, 2010, President Obama signed a package of amendments under the Health Care and Education Reconciliation Act. Together, the two bills mark an historic reform of the United States health care system, providing coverage to millions of Americans, and authorizing sweeping changes to the health insurance industry and delivery system. The District does not expect that the legislation will have an adverse impact to the financial results of its operations. This is because the State of Texas ranks first in the percentage of uninsured persons among the fifty States with 25% of its residents being uninsured. Moreover, the current structure of the Texas Indigent Health Care and Treatment Act does not effectively or equitably address the uninsured problem in Texas. As a result, the District and other urban hospital districts in the State of Texas currently disproportionately support the uninsured through higher health care ad valorem taxes for maintenance and operations purposes. Given that 57% of Texas uninsured reside in ten Texas hospital districts, and that best estimates to date predict that the impact of health care reform will reduce the uninsured percentage to 8% in Texas, the District like other hospital districts should see significantly less need for ad valorem tax support for maintenance and operations purposes for the uninsured as health care reform is implemented. The official 2005 pre-recession estimate of the number of uninsured in Bexar County is 410,593 or 25.3% of the population. If the 8% estimate is correct, Bexar County uncompensated care, that is the number of uninsured in Bexar County after health care reform, drops below 130,000. Conversely, this also means that there will be an additional 280,000 insured people in Bexar County. The District believes it will be well positioned in 2014 to aggressively compete to be a provider of choice for the newly insured. 28

29 While the health reform legislation cuts Disproportionate Share Hospital payments in the Medicaid and Medicare programs to reflect lower levels of uncompensated care, the health care reform legislation also requires the remaining payments be targeted on providers of high volumes of uncompensated care, like the District. Nevertheless, the full impact of the health care reform legislation cannot be completely known in any of the 50 States until final regulations are adopted and the federal courts resolve pending challenges to the health care reform legislation by certain States. Although the Series B Certificates are primarily payable from ad valorem tax revenue for debt service that should not be affected by the health care reform legislation, the District s overall financial condition and the ratings assigned to and the value of the Series B Certificates could be adversely affected by changes in the District s financial results of operations. The financial results of operations of the District summarized above and in Appendices A and B to the Official Statement were realized before the effective date of the health care reform legislation. FINANCIAL POLICIES... The District s basic financial statements are prepared in accordance with Statement No. 34 of the Governmental Accounting Standards Board ("GASB"), Basic Financial Statements- and Management s Discussion and Analysis-for State and Local Governments, which established standards for external financial reporting for all state and local governmental entities, which include a balance sheet, a statement of revenue, expenses, and changes in net assets, and a direct method statement of cash flows. It requires the classification of net assets into three components invested in capital assets, net of related debt; restricted; and unrestricted. Additionally, the financial statements of the District are prepared on the accrual basis of accounting, whereby revenues are recognized when earned and expenses are recognized when incurred. Pursuant to GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the District has elected not to apply the provisions of all relevant pronouncements of the Financial Accounting Standards Board issued after November 30, INVESTMENTS... The District invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the Board of Managers. Both State law and the District s investment policies are subject to change. INVESTMENT AUTHORITY AND INVESTMENT PRACTICES OF THE DISTRICT... Under State law, the District is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for District deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency, (10) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no-load money market mutual funds registered with and regulated by the SEC that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (12) no-load mutual funds registered with the SEC that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph. The District may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The District may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the District retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the District must do so by order, or resolution. The District is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) 29

30 collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. A political subdivision such as the District may enter into securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (10) through (12) above, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the District, held in the District s name and deposited at the time the investment is made with the District or a third party designated by the District; (iii) a loan made under the program through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less. Under State law, the District is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for District funds, the maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All District funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each fund's investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. State law requires that investments 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 probable income to be derived." At least quarterly the District's investment officers must submit an investment report to the Board of Managers detailing: (1) the investment position of the District, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest District funds without express written authority from the Board. ADDITIONAL INVESTMENT PROVISIONS... Under State law, the District is additionally required to: (1) annually review its adopted policies and strategies, (2) require any investment officers with personal business relationships or family relationships with firms seeking to sell securities to the District to disclose the relationship and file a statement with the Texas Ethics Commission and the District, (3) require the registered principal of firms seeking to sell securities to the District to: (a) receive and review the District's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) in conjunction with its annual financial audit, perform a compliance audit of the management controls on investments and adherence to the District's investment policy, (5) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement, (6) restrict the investment in no-load mutual funds in the aggregate to no more than 15% of the District's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, (7) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements and (8) provide specific investment training for the Treasurer, the chief financial officer (if not the Treasurer) and the investment officer. 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31 TABLE 12 - CURRENT INVESTMENTS (1) As of June 30, 2010, the District s investible funds were invested in the following categories: Type of Investment Book Balance Fair Value Percent Money Market $ $275,448, $ $275,448, % U.S. Government U.S. Treasuries 11,987, ,540, % FNMA 324,141, ,810, % FNMA Pool $1, $1, % FHLMC 409,190, ,972, % FHLMC Pool $15, $16, % GNMA Pool $11, $12, % Farm Credit 38,452, ,632, % Total U.S. Government $ 783,800, $ 789,985, % $ 1,059,249, $ 1,065,434, % (1) Unaudited and based upon the District s Investment Report for the quarter ended June 30, FEDERAL INCOME TAX TREATMENT OF TAXABLE CERTIFICATES GENERAL The following is a general summary of certain United States federal income tax consequences of the purchase and ownership of the Series B Certificates. The discussion is based upon laws, Treasury Regulations, rulings and decisions now in effect, all of which are subject to change (possibly, with retroactive effect) or possibly differing interpretations. No assurances can be given that future changes in the law will not alter the conclusions reached herein. The discussion below does not purport to deal with United States federal income tax consequences applicable to all categories of investors. Further, this summary does not discuss all aspects of United States federal income taxation that may be relevant to a particular investor in the Series B Certificates in light of the investor s particular personal investment circumstances or to certain types of investors subject to special treatment under United States federal income tax laws (including insurance companies, tax exempt organizations, financial institutions, broker-dealers, and persons who have hedged the risk of owning the Series B Certificates). The summary is therefore limited to certain issues relating to initial investors who will hold the Series B Certificates as capital assets within the meaning of section 1221 of the Code, and acquire such Series B Certificates for investment and not as a dealer or for resale. This summary addresses certain United States federal income tax consequences applicable to beneficial owners of the Series B Certificates who are United States persons within the meaning of section 7701(a)(30) of the Code ( United States persons ) and, except as discussed below, does not address any consequences to persons other than United States persons. Prospective investors should note that no rulings have been or will be sought from the IRS with respect to any of the United States federal income tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SERIES B CERTIFICATES. INTERNAL REVENUE SERVICE CIRCULAR 230 NOTICE...You should be aware that: (i) the discussion with respect to United States federal tax matters in this Official Statement was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer; (ii) such discussion was written to support the promotion or marketing (within the meaning of IRS Circular 230) of the transactions or matters addressed by such discussion; and (iii) each taxpayer should seek advice based on his or her particular circumstances from an independent tax advisor. This notice is given solely for purposes of ensuring compliance with IRS Circular 230. STATED INTEREST ON THE SERIES BCERTIFICATES The stated interest on the Series B Certificates will be included in the gross income, as defined in section 61 of the Code, of the beneficial owners thereof and be subject to United States federal income taxation when paid or accrued, depending on the tax accounting method applicable to the beneficial owners thereof. 31

32 ORIGINAL ISSUE DISCOUNT...If a substantial amount of the Series B Certificates of any stated maturity is purchased at original issuance for a purchase price (the Issue Price ) that is less than their face amount by more than one quarter of one percent times the number of complete years to maturity, the Series B Certificates of any stated maturity will be treated as being issued with original issue discount. The amount of the original issue discount will equal the excess of the principal amount payable on such Series B Certificates at maturity over their Issue Price, and the amount of the original issue discount on such Series B Certificates will be amortized over the life of Series B Certificates using the constant yield method provided in the Treasury Regulations. As the original issue discount accrues under the constant yield method, the beneficial owners of such Series B Certificates, regardless of their regular method of accounting, will be required to include such accrued amount in their gross income as interest. This can result in taxable income to the beneficial owners of the Series B Certificates that exceeds actual cash distributions to the beneficial owners in a taxable year. The amount of any original issue discount that accrues on the Series B Certificates each year will be reported annually to the IRS and to the beneficial owners. The portion of the original issue discount included in each beneficial owner s gross income while the beneficial owner holds the Series B Certificates will increase the adjusted tax basis of the Series B Certificates in the hands of such beneficial owner. DISPOSITION OF SERIES BCERTIFICATES AND MARKET DISCOUNT A beneficial owner of Series B Certificates will generally recognize gain or loss on the redemption, sale or exchange of the Series B Certificates equal to the difference between the redemption or sales price (exclusive of the amount paid for accrued interest) and the beneficial owner s adjusted tax basis in the Series B Certificates. Generally, the beneficial owner s adjusted tax basis in the Series B Certificates will be the beneficial owner s initial cost, increased by any original issue discount previously included in the beneficial owner s income to the date of disposition. Any gain or loss generally will be capital gain or loss and will be long-term or short-term, depending on the beneficial owner s holding period for the Series B Certificates. Under current law, a purchaser of Series B Certificates who did not purchase the Series B Certificates in the initial public offering (a subsequent purchaser ) generally will be required, on the disposition of the Series B Certificates, to recognize as ordinary income a portion of the gain, if any, to the extent of the accrued market discount. In general, market discount is the amount by which the price paid for the Series B Certificates by a subsequent purchaser is less than the principal amount payable at maturity (or, in the case of Series B Certificates issued with original issue discount, the sum of the Issue Price and the amount of original issue discount previously accrued on the Series B Certificates), except that market discount is considered to be zero if it is less than one quarter of one percent of the principal amount times the number of complete remaining years to maturity. The Code also limits the deductibility of interest incurred by a subsequent purchaser on funds borrowed to acquire Series B Certificates with market discount. As an alternative to the inclusion of market discount in income upon disposition, a subsequent purchaser may elect to include market discount in income currently as it accrues on all market discount instruments acquired by the subsequent purchaser in that taxable year or thereafter, in which case the interest deferral rule will not apply. The recharacterization of gain as ordinary income on a subsequent disposition of Series B Certificates could have a material effect on the market value of the Series B Certificates. BACKUP WITHHOLDING...Under section 3406 of the Code, a beneficial owner of the Series B Certificates who is a United States person, may, under certain circumstances, be subject to backup withholding of current or accrued interest on the Series B Certificates or with respect to proceeds received from a disposition of the Series B Certificates. This withholding applies if such beneficial owner of Series B Certificates: (i) fails to furnish to the payor such beneficial owner s social security number or other taxpayer identification number ( TIN ); (ii) furnishes the payor an incorrect TIN; (iii) fails to report properly interest, dividends, or other reportable payments as defined in the Code; or (iv) under certain circumstances, fails to provide the payor with a certified statement, signed under penalty of perjury, that the TIN provided to the payor is correct and that such beneficial owner is not subject to backup withholding. Backup withholding will not apply, however, with respect to payments made to certain beneficial owners of the Series B Certificates. Beneficial owners of the Series B Certificates should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedures for obtaining such exemption. WITHHOLDING ON PAYMENTS TO NONRESIDENT ALIEN INDIVIDUALS AND FOREIGN CORPORATIONS Under sections 1441 and 1442 of the Code, nonresident alien individuals and foreign corporations are generally subject to withholding at the current rate of 30% (subject to change) on periodic income items arising from sources within the United States, provided such income is not effectively connected with the conduct of a United States trade or business. Assuming the interest income of such a beneficial owner of the Series B Certificates is not treated as effectively connected income within the meaning of section 864 of the Code, such interest will be subject to 30% withholding, or any lower rate specified in an income tax treaty, unless such income is treated as portfolio interest. Interest will be treated as portfolio interest if: (i) the beneficial owner provides a statement to the payor certifying, under penalties of perjury, that such beneficial owner is not a United States person and providing the name and address of such beneficial owner; (ii) such interest is treated as not effectively connected with the beneficial owner s United States trade or business; (iii) interest payments are not made to a person within a foreign country which the IRS has included on a list of countries having provisions inadequate to prevent United States tax evasion; (iv) interest payable with respect to the Series B Certificates is not deemed contingent interest within the meaning of the portfolio debt provision; (v) such beneficial owner is not a controlled foreign corporation, within the meaning of section 957 of the Code; and (vi) such beneficial owner is 32

33 not a bank receiving interest on the Series B Certificates pursuant to a loan agreement entered into in the ordinary course of the bank s trade or business. Assuming payments on the Series B Certificates are treated as portfolio interest within the meaning of sections 871 and 881 of the Code, then no withholding under section 1441 and 1442 of the Code and no backup withholding under section 3406 of the Code is required with respect to beneficial owners or intermediaries who have furnished Form W-8 BEN, Form W-8 EXP or Form W-8 IMY, as applicable, provided the payor does not have actual knowledge or reason to know that such person is a United States person. REPORTING OF INTEREST PAYMENTS Subject to certain exceptions, interest payments made to beneficial owners with respect to the Series B Certificates will be reported to the IRS. Such information will be filed each year with the IRS on Form 1099 which will reflect the name, address, and TIN of the beneficial owner. A copy of Form 1099 will be sent to each beneficial owner of a Series B Certificate for United States federal income tax purposes. CONTINUING DISCLOSURE OF INFORMATION In the Series B Order, the District has made the following agreements for the benefit of the holders and beneficial owners of the Series B Certificates. The District is required to observe the agreement for so long as it remains obligated to advance funds to pay the Series B Certificates. Under the agreement, the District will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to the Municipal Securities Rulemaking Board (the MSRB ), who will make such information available to investors through its Electronic Municipal Markets Access ( EMMA ) system, free of charge, at The District has engaged FSC Disclosure Services to assist in providing such information. FSC Disclosure Services is a division of First Southwest Company, a Co-Financial Advisor, and will be compensated annually for its services. ANNUAL REPORTS... The District will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the District of the general type included in this Official Statement under Tables numbered 1 through 6 and 8 through 12 and in Appendix B. The District will update and provide this information within six months after the end of each fiscal year ending in or after The District will provide the updated information to the MSRB through its EMMA system. The District may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12 (the "Rule"). The updated information will include audited financial statements, if the District commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the District will provide unaudited financial information and operating data which is customarily prepared by the District by the required time, and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the District may be required to employ from time to time pursuant to state law or regulation. The District s current fiscal year end is December 31. Accordingly, it must provide updated information by June 30 in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify the MSRB. MATERIAL EVENT NOTICES... The District will also provide timely notices of certain events to the MSRB. The District will provide notice of any of the following events with respect to the Series B Certificates, if such event is material to a decision to purchase or sell Series B Certificates: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the federal income tax treatment of interest on the Series B Certificates; (7) modifications to rights of owners of the Series B Certificates; (8) Series B Certificate calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Series B Certificates; and (11) rating changes. Neither the Series B Certificates nor the Series B Order makes any provision for debt service reserves, credit enhancement, or liquidity enhancement. In addition, the District will provide timely notice of any failure by the District to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." The District will provide each notice described in this paragraph to the MSRB. AVAILABILITY OF INFORMATION... Effective July 1, 2009 (the EMMA Effective Date ), the SEC implemented amendments to the Rule which approved the establishment by the MSRB of EMMA, which is now the sole successor to the national municipal securities information repositories with respect to filings made in connection with undertakings made under the Rule after the EMMA Effective Date. Commencing with the EMMA Effective Date, all information and documentation filing required to be made by the District in accordance with its undertaking made for the Series B Certificates will be made with the MSRB in electronic format in accordance with MSRB guidelines. Access to such filings will be provided, without charge to the general public, by the MSRB. With respect to debt of the District issued prior to the EMMA Effective Date, the District remains obligated to make annual required filings, as well as notices of material events, under its continuing disclosure obligations relating to those debt 33

34 obligations (which includes a continuing obligation to make such filings with the Texas state information depository (the SID )). Prior to EMMA Effective Date, the Municipal Advisory Council of Texas (the MAC ) had been designated by the State and approved by the SEC staff as a qualified SID. Subsequent to the EMMA Effective Date, the MAC entered into a Subscription Agreement with the MSRB pursuant to which the MSRB makes available to the MAC, in electronic format, all Texas-issuer continuing disclosure documents and related information posted to EMMA s website simultaneously with such posting. Until the District receives notice of a change in this contractual agreement between the MAC and EMMA or of a failure of either party to perform as specified thereunder, the District has determined, in reliance on guidance from the MAC, that making its continuing disclosure filings solely with the MSRB will satisfy its obligations to make filings with the SID pursuant to its continuing disclosure agreements entered into prior to the EMMA Effective Date. LIMITATIONS AND AMENDMENTS... The District has agreed to update information and to provide notices of material events only as described above. The District has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The District makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Series B Certificates at any future date. The District disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Series B Certificates may seek a writ of mandamus to compel the District to comply with its agreement. The District may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the District, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Series B Certificates in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the owners of a majority in aggregate principal amount of the outstanding Series B Certificates consent to the amendment or (b) any person unaffiliated with the District (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the owners of the Series B Certificates. The District may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Series B Certificates in the primary offering of the Series B Certificates. If the District so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS... The District has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule. On April 23, 2010, the unenhanced ad valorem tax-supported indebtedness of the District was recalibrated from Aa2 to Aa1 by Moody s and on April 30, 2010 recalibrated from AA+ to AAA by Fitch (see "OTHER INFORMATION Ratings"). On July 8, 2010, the District filed notices of these recalibrations with the MAC, a Texas State Information Depository, and the MSRB in compliance with its existing continuing disclosure obligations. OTHER INFORMATION RATINGS... The Series B Certificates have been assigned a rating of AAA, Aa1 and AA+ by Fitch, Moody s and S&P, respectively, which ratings represent recent upgrades from Fitch and S&P (see CONTINUING DISCLOSURE OF INFORMATION Compliance with Prior Undertakings herein). An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations, and none of the District, the County, the Co-Financial Advisors, nor the Underwriters make any representation as to the appropriateness of the ratings. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies, and assumptions of its own. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by any or all of the rating companies, if in the judgment of such companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series B Certificates. Both Fitch and Moody's have completed a recalibration of municipal credit ratings which resulted in a rating change to the District's unenhanced ad valorem tax supported indebtedness from "Aa2" to "Aa1" by Moody's (on April 23, 2010) and from "AA+" to "AAA" by Fitch (on April 30, 2010) (see "CONTINUING DISCLOSURE OF INFORMATION Compliance with Prior Undertakings"). LITIGATION AND REGULATORY MATTERS... The District is a defendant in various lawsuits and is aware of pending claims arising in the ordinary course of functioning as a hospital system, certain of which seek substantial damages. In addition, unasserted, but potential, claims exist for known and unknown incidents. Pending litigation includes claims related primarily to personal injury and employment related claims under federal and state labor and employment laws. As a political subdivision, the District s liability for torts is governed by the limited waiver of immunity contained in the Texas Tort Claims Act and the corresponding limits of liability it provides (being $100,000 for each person and $300,000 for each single occurrence for bodily injury/death and $100,000 for each single occurrence for injury to or destruction of property). This limitation on liability does 34

35 not extend to other causes of action, such as employment related claims (the District is currently a defendant in several of such claims). The District maintains a litigation reserve that is sufficient in the opinion of senior management to the District to satisfy reasonable outcomes concerning the aforementioned pending claims and litigation. Information regarding these litigation reserves can be found in Note 2, entitled Significant Accounting Policies and Note 14, entitled, Commitments and Contingencies of the District s Basic Financial Statements, Other Financial Information and Required Supplementary Information for the Years ended December 31, 2009 and 2008, attached hereto in its entirety as Appendix B. The District intends to vigorously defend against the lawsuits, to include the pursuit of all appeals to the extent District staff believes meritorious; however, no prediction can be made, as of the date hereof, with respect to the liability of the District for such claims or the outcome of such lawsuits. In the opinion of the District s general counsel, it is improbable that the lawsuits now outstanding against the District could become final in a timely manner so as to have a material adverse financial impact upon the District or the Hospital System. In addition to the litigation described in the District s financial statements, the District, on April 30, 2008, received a document subpoena from the United States Department of Justice s Antitrust Division (the Department ) for a grand jury proceeding related to the United States criminal investigation of potential antitrust violations in the United States healthcare industry. Except for a recent request by the Department to interview a District employee, the District has had no involvement in these proceedings for almost 1½ years. The Department has indicated that the District is not a target of the investigation at this time and the District has been fully cooperating. At this point, the District has not been advised as to the specific nature or allegations that are being investigated by the Department; however, it is believed that the matter primarily involves issues regarding compensation paid to nurses. As this matter is in a very preliminary stage neither its applicability to the District nor the range of potential loss can be determined. REGISTRATION AND QUALIFICATION OF SERIES BCERTIFICATES FOR SALE... The sale of the Series B Certificates has not been registered under the federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Series B Certificates have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Series B Certificates been qualified under the securities acts of any jurisdiction. The District assumes no responsibility for qualification of the Series B Certificates under the securities laws of any jurisdiction in which the Series B Certificates may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Series B Certificates will not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS... Section of the Public Security Procedures Act (Chapter 1201, Texas Government Code, as amended) and Section , as amended, Texas Local Government Code, provide that the Series B Certificates are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State. With respect to investment in the Series B Certificates by municipalities or other political subdivisions or public agencies of the State, the Public Funds Investment Act, Chapter 2256, Texas Government Code, as amended, requires that the Series B Certificates be assigned a rating of at least "A" or its equivalent as to investment quality by a national rating agency (see "OTHER INFORMATION - Ratings" herein). In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Series B Certificates are legal investments for state banks, savings banks, trust companies with capital of one million dollars or more, and savings and loan associations. The Series B Certificates are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the District has been made of the laws in other states to determine whether the Series B Certificates are legal investments for various institutions in those states. LEGAL MATTERS... The District will furnish the Underwriters with a complete transcript of proceedings had incident to the authorization and issuance of the Series B Certificates, including the unqualified approving legal opinions of the Attorney General of the State approving the initial Series B Certificates and to the effect that the Series B Certificates are valid and legally binding obligations of the District, and based upon examination of such transcript of proceedings, the approval of certain legal matters by Co-Bond Counsel, concerning the validity, legality, and enforceability of the Series B Order. Though they each represent the Co-Financial Advisors, the Underwriters, and the County from time to time in matters unrelated to the issuance of the Series B Certificates, Co-Bond Counsel have been engaged by and only represent the District in connection with the issuance of the Series B Certificates. Co-Bond Counsel were not requested to participate, and did not take part, in the preparation of Official Statement, and such firms have not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in their capacity as Co-Bond Counsel, such firms have reviewed the information describing the Series B Certificates in this Official Statement under the captions "THE SERIES B CERTIFICATES" (except for the subcaptions "Book-Entry-Only System" (and all sub-subcaptions thereunder), "Sources and Uses of Proceeds" and Payment Record, as to which no opinion is expressed), "TAX MATTERS", "FEDERAL INCOME TAX TREATMENT OF TAXABLE CERTIFICATES," the subcaptions "Legal Investments and Eligibility to Secure Public Funds in Texas," and "Legal Matters" (except for the last sentence of the first paragraph thereof, as to which no opinion is expressed) under the caption "OTHER INFORMATION", and "CONTINUING DISCLOSURE OF INFORMATION" (except for the subcaption 35

36 "Compliance with Prior Undertakings") and are of the opinion that the information relating to the Series B Certificates and the legal issues contained under such captions and subcaptions represent an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Series B Certificates, such information conforms to the Series B Order. The legal fees to be paid Co-Bond Counsel for services rendered in connection with the issuance of the Series B Certificates are contingent on the sale and delivery of the Series B Certificates. The legal opinion of Co-Bond Counsel will accompany the Series B Certificates deposited with DTC or will be printed on the Series B Certificates in the event of the discontinuance of the Book- Entry-Only System. Certain legal matters will be passed upon for the Underwriters by Winstead PC and Shelton & Valadez, P.C., both of San Antonio, Texas, co-counsel to the Underwriters, whose fees are contingent upon the sale and delivery of the Series B Certificates. The legal opinion to be delivered concurrently with the delivery of the Series B Certificates expresses the professional judgment of the attorneys rendering the opinion as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorneys do not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. CO-FINANCIAL ADVISORS... First Southwest Company and Estrada Hinojosa & Company, Inc. are employed as Co-Financial Advisors to the District in connection with the issuance of the Series B Certificates. The Co-Financial Advisors' fees for services rendered with respect to the sale of the Series B Certificates are contingent upon the issuance and delivery of the Series B Certificates. In the normal course of business, the Co-Financial Advisors may from time to time sell investment securities to the District for the investment of bond proceeds or other funds of the District upon the request of the District. The Co-Financial Advisors to the District have provided the following sentence for inclusion in this Official Statement. The Co- Financial Advisors have reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the District and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Co-Financial Advisors do not guarantee the accuracy or completeness of such information. UNDERWRITING... The Underwriters have agreed, subject to certain conditions, to purchase the Series B Certificates from the District, at the prices indicated on page 2 of this Official Statement, less an underwriting discount of $1,158,477.23, and no accrued interest. The Underwriters will be obligated to purchase all of the Series B Certificates if any Series B Certificates are purchased. The Series B Certificates to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Series B Certificates into investment trusts) at prices lower than the public offering prices of such Series B Certificates, and such public offering prices may be changed, from time to time, by the Underwriters. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibility to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. FORWARD-LOOKING STATEMENTS DISCLAIMER... The statements contained in this Official Statement, and in any other information provided by the District, that are not purely historical, are forward-looking statements, including statements regarding the District's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the District on the date hereof, and the District assumes no obligation to update any such forwardlooking statements. The District's actual results could differ materially from those discussed in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the District. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION; MISCELLANEOUS... The financial data and other information contained herein have been obtained from the District's and the County s records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents, resolutions, and orders contained in this Official Statement are made subject to all of the provisions of such statutes, documents, resolutions and orders. These summaries do not purport to be complete statements of such provisions and reference is made to such statutes, documents and resolutions for further information. Reference is made to original documents in all respects. 36

37 The Series B Order will approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize its use in the reoffering of the Series B Certificates by the Underwriters, in accordance with the Rule. ATTEST: /s/ Robert L. Jimenez, M.D. Chairman, Board of Managers Bexar County Hospital District /s/ Ira Smith, Jr. Secretary, Board of Managers Bexar County Hospital District 37

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39 APPENDIX A GENERAL INFORMATION REGARDING THE DISTRICT AND THE COUNTY

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41 THE DISTRICT The District, d/b/a currently as University Health System, is a hospital district established under Article IX, Section 4 of the Texas Constitution and Chapter 281, as amended, Texas Health and Safety Code. It is a political subdivision of the State of Texas, independently and legally separate from the County, providing medical and hospital care to the residents, including to the needy and indigent of the County, and trauma care to the 22 county surrounding area and tertiary care to other residents of South Texas. Its Board is composed of seven members appointed by the Commissioners Court of the County for staggered terms of two years (or until a successor is appointed and qualified). Board members are public officers under the Texas Constitution who as a body exercise sovereign functions of government largely independent of the control of others, and serve without pay. The District is the fourth largest public health system in the State of Texas. Its staff of about 4,700 health care employees and 331 medical school residents operates University Hospital (San Antonio's only civilian Level 1 Trauma Center), the University Center for Community Health (which is home to the world renowned Texas Diabetes Institute devoted to the prevention and treatment of diabetes), the University Health Center-Downtown, four University Family Health Centers, the University Dialysis- Southeast, South Dialysis, nine preventive health service clinics, and a health care program at Bexar County's correctional facilities. Its network of community outpatient and inpatient facilities provides primary care and specialty outpatient care throughout the County. On February 4, 2008 the City of San Antonio/Metropolitan Health District (SAMHD) transferred the operation of clinical preventive health services to the District. The transfer includes staff and the use of eight SAMHD clinic facilities and the clinic operations of one clinic owned by the San Antonio Housing Authority. Effective June 6, 2000, the District and the County became the sole sponsors for the Center for Health Care Services (CHCS). The terms of the relationship are governed by a Sponsorship Agreement with the County dated May 2, CHCS is a community center established under Chapter 534, as amended, Texas Health and Safety Code to provide a comprehensive array of mental health, mental retardation, and drug and alcohol abuse services throughout the County. The Texas Department of Aging and Disability Services (DADS) required CHCS to divest its dual roles as a local authority and provider of mental retardation services, which it did by transferring its responsibility for mental retardation authority (MRA) to the Alamo Area Council of Governments (AACOG) effective September 1, The District entered into a memorandum of understanding with AACOG to connect the sponsorship obligations for mental retardation from CHCS to AACOG. Community First Health Plans, Inc. (CFHP) was established in 1994 to assist the District to provide and arrange health care services in accordance with the Texas Health Maintenance Organization Act (Chapter 20A, as amended, Texas Insurance Code). In June of 1996, the District established Community Medicine Associates (CMA), a Texas nonprofit health organization certified by the Texas State Board of Medical Examiners pursuant to Section 5.01(a) of the Texas Medical Practice Act, now codified at Section , as amended, Texas Occupations Code. CMA was activated by the District on April 1, 2000, to provide primary care physician services at the District's Family Health Centers. The District and Vanguard Health (VHS) (as the successor organization to Baptist Health System), mutually control Texas AirLife, Inc. d/b/a San Antonio AirLife, Inc. (AirLife), a Texas nonprofit corporation, which provides air ambulance services to the County and South Texas. In 1992, the District entered into a 20-year affiliation agreement with The University of Texas Health Science Center at San Antonio ("UTHSCSA") which provides that the District s facilities will be available to UTHSCSA for teaching and research. Under the agreement and other sub agreements, UTHSCSA supervises and directs professional services to patients of the District. The District's facilities serve as the major teaching facilities for many of the UTHSCSA health care programs including the graduate medical education program. In 1994, UTHSCSA established University Physicians Group (UPG), a Texas nonprofit corporation organized under Section 5.01 (a) of Article 4495b of the Texas Medical Practice Act, now codified at Section , as amended, Texas Occupations Code. UPG serves as a contracting vehicle for physician services with the District and other payors, including managed care organizations. PROJECT DESCRIPTION... The District developed the master facility plan (the Master Facility Plan or MFP ) over a three year period. In 2005, Kurt Salmon Associates was engaged to prepare an initial needs and demand analysis for the District and to articulate strategic options for addressing these needs. Subsequently, in November of 2006 Broaddus & Associates was engaged to develop a comprehensive MFP to include an extensive site and facility assessment. In June 2008, the Board approved the MFP and recommended moving forward with a plan of finance (see PLAN OF FINANCE in the Official Statement). The MFP recommends modernizing and expanding the capacity of the District s two largest and oldest facilities, University Hospital (UH) located in the South Texas Medical Center with patient towers built in 1968 and 1981 and the University Health Center Downtown (UHCD) located in downtown San Antonio with historical buildings dating back to the turn of the 1900 s. These recommendations are based on the extensive needs and demand study. Key drivers of need and demand include population growth and the unique role of UH as the only civilian Level I regional trauma center for South Texas. A-1

42 While the District has significantly expanded its outpatient capacity in the past decade, the last expansion of the inpatient capacity was completed 18 years ago. The result of the imbalance between the outpatient and inpatient programs has resulted in an overcrowded emergency department operating at 200 percent saturation and the inability to support and grow core and revenue generating services. The MFP is aimed at addressing these challenges. In the first phases of the MFP, the plan for UH calls for the construction of a new trauma tower with expanded emergency department and surgical capacity resulting in replacing and adding inpatient rooms, increasing the bed complement from 498 beds to 717 total beds and construction of expanded parking and modernization of the central utility plant infrastructure. The estimated completion date of the trauma tower is the fourth quarter of Parking and central utility plant improvements will be completed in the third quarter of At the UHCD, the plan calls for the construction of a clinical services and urgent care center to expand diagnostic and acute care treatment capabilities, renovations to the outpatient pharmacy and new parking improvements. The estimated completion date for these projects is the fourth quarter of The second phase of the MFP calls for renovating existing UH materials management and clinical support services and for renovating UHCD s existing facilities. The UH renovations have an estimated completion date of the third quarter of 2015 and the UHCD renovations have an estimated completion date of the first quarter of MEDICAL STAFF... The Medical Staff is composed of Active, Courtesy, Consulting, Associate, Provisional, Affiliate and Honorary categories. Active Staff physicians hold appointment to the faculty of the UTHSCSA and have at least 25 patient contacts (admission, consultation or outpatient contact) per year. Courtesy Staff physicians hold appointment to the faculty of the UTHSCSA and have fewer than 25 patient contacts (admission, consultation, or outpatient contact) per year. Consulting Staff are physicians allowed to consult with a Medical Staff member, at such member s request, concerning providing medical services to a patient. Associate Staff members hold appointment to the faculty of the UTHSCSA and consist of physicians, dentists and podiatrists who are active in the teaching or research activities of the UTHSCSA and do not admit or attend patients. Provisional Staff membership is a prerequisite for Active Staff membership. Practitioners who have received or are qualified to seek Board Certification in the specialty in which practitioner seeks clinical privileges will be appointed to the Provisional Staff during the term of the initial appointment and observation or until the practitioner becomes Board Certified (not to exceed four years). Affiliate Staff consists of limited healthcare practitioners who hold appointment to the faculty of the UTHSCSA and consult on patients by special invitation of an Active Staff member in relation to patients on whom their specific skills may be useful. Honorary Staff consists of physicians, dentists, and podiatrists who are recognized for their outstanding reputation, their noteworthy contributions to the health and medicine sciences, or their previous long-standing service as an Active Staff member. CURRENT MEDICAL STAFF (AS OF MAY 17, 2010) Specialty Number of Physicians Number of Active Physicians Board Certified Anesthesiology Family & Community Medicine Hospital Dentistry Medicine Neurology Neurosurgery Obstetrics/Gynecology Ophthalmology Oral Maxillofacial Surgery Orthopaedics Otolaryngology Pathology Pediatrics Psychiatry Radiation Oncology Radiology Rehabilitation Medicine Surgery Urology Total Source: District Medical Staff Service Department. A-2

43 UNIVERSITY HEALTH SYSTEM NURSING TURNOVER REPORT Total Total Total Fiscal Number Number Number New New % % % Year of of all of Hires Hires Term Term Turnover Turnover Total 12/31 RNs/LVNs Other Employees Nurses Other Nurses Others Nurses Others Turnover ,043 3,029 4, % 15.0% 14.5% ,094 3,146 4, % 16.2% 15.1% ,160 3,274 4, % 15.5% 14.6% ,210 3,424 4, % 14.5% 14.5% ,201 3,497 4, % 12.0% 12.5% Source: Human Resources Department UTILIZATION STATISTICS Fiscal Year Ended December 31, Beds Operated Inpatient Discharges 20,812 20,625 21,869 22,069 21,801 Patient Days 128, , , , ,199 Average Length of Stay (days) Hospital OP Visits 274, , , , ,579 Ambulatory Clinic Visits 573, , , ,892 (1) 475,557 Detention Health (2) 380, , ,776 (2) 101,149 99,871 Preventive Clinic Visits 48,750 46,205 (3) Outpatient Pharmacy Visits 416, , , , ,064 (1) In 2006 the Medicine, OB/GYN and Family Health Clinics were transferred from UT Medicine to UHS. (2) In 2007 Juvenile activity added at two new facilites. (3) In 2008 UHS acquired the Preventive Health Care Services from the City of San Antonio. Source: District Fiscal Services Department [The remainder of this page is intentionally left blank] A-3

44 INCOME STATEMENT Condensed Statements of Revenue, Expenses, and Changes in Net Assets (In Thousands) Fiscal Year Ended December 31, Net patient service revenue $ 366,227 $ 339,017 $ 331,164 Premium revenue 258, , ,145 Other operating revenue 42,828 44,014 36,713 Total operating revenue 667, , ,022 Maintenance and operation expenses 616, , ,309 Medical claims expense 239, , ,105 Depreciation expense 33,705 31,054 25,615 Total operating expenses 889, , ,029 Operating loss (222,325) (216,980) (187,007) Nonoperating revenue 280, , ,386 Income before contributions 57,705 33,535 38,379 Capital contributions received (used), net (1,286) Change in net assets 58,221 33,780 37,093 Total net assets - beginning of year 611, , ,094 Total net assets - end of year $ 670,188 $ 611,967 $ 578,187 BALANCE SHEET Condensed Balance Sheets (In Thousands) Fiscal Year ended December 31, Current and other assets $ 1,400,685 $ 1,074,282 $ 707,994 Capital assets 250, , ,992 Total Assets $ 1,650,842 $ 1,300,550 $ 922,986 Long-term debt outstanding $ 553,008 $ 276,398 $ - Other liabilities 427, , ,799 Total Liabilities $ 980,654 $ 688,583 $ 344,799 Invested in capital assets, net of related debt $ 217,776 $ 226,268 $ 214,992 Restricted 1, Unrestricted 451, , ,923 Total net assets $ 670,188 $ 611,967 $ 578,187 PAYOR MIX BY PERCENTAGE Fiscal Year Ended December 31, Medicare 19% 19% 21% 20% 21% Medicaid 21% 18% 18% 21% 21% Self-pay 41% 44% 42% 41% 40% Commercial Insurance 18% 18% 18% 17% 17% Other 1% 1% 1% 1% 1% Total 100% 100% 100% 100% 100% A-4

45 TAX INCREMENT REINVESTMENT ZONES Under an amendment to the Texas Health and Safety Code, effective September 1, 2001, the District may not enter into a contract or agreement to pay into a tax increment fund any of the District's tax increment produced from property located in a reinvestment zone under Chapter 311, Texas Tax Code. This subsection does not affect the validity of an agreement entered into by the District before September 1, 2001, to pay a portion of the District's tax increment into a tax increment fund under Chapter 311, Texas Tax Code. Tax Increment Reinvestment Zones ("TIRZ") that the District participates in that were committed to prior to this legislative change, include the Rosedale, Highland Heights, New Horizons, Mission Del Lago and the Houston Street Redevelopment. Tax Revenue Contribution by Year TIRZ # Highland Heights M ission Del Lago Name Tax Year Houston St. Redevelopment Total 2009 (1) $ 20,220 $ 99,452 $ 399,213 $ 518, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,795 $ 289,004 $ 7,113,896 $ 1,632,920 $ 9,035,820 (1) Actual taxes collected July 1, 2009 through June 30, 2010 per City of San Antonio invoice. Source: All other years and all projects, per City of San Antonio, Housing and Neighborhood Services Department finance Plan Annual Reports December 31, [The remainder of this page is intentionally left blank] A-5

46 SELECTED INFORMATION FOR BEXAR COUNTY, TEXAS This Appendix contains a brief discussion of certain economic and demographic characteristics of the area in which the County is located. Information in this Appendix has been obtained from the sources noted. They are believed to be reliable, although no investigation has been made to verify the accuracy of such information by the District. Information concerning the City of San Antonio, Texas (the City) and its operations and the County are included in this Appendix solely for general information; the City and County are not obligated in any way to support payment of the Series B Certificates, other than the Bexar County Commissioners Court levies the District's annual ad valorem taxes and appoints the District's Board of Managers among other matters. CREATION AND LOCATION OF BEXAR COUNTY Bexar County, Texas (the County ) was organized in 1836 as one of the original counties of the Republic of Texas and is now the fourth most populous of the 254 counties in the State of Texas. The County is located in south central Texas and is a component of the San Antonio Metropolitan Statistical Area. The County is one of the nation s largest Metropolitan Statistical Areas and the third in Texas. According to the United State Economic Development Intelligence System (IDES), the 2008 population of the County was 1,641,170. The County has an area of approximately 1,248 square miles, and contains 21 other incorporated cities within its boundaries. The principal city within the County is San Antonio, the county seat. The City covers approximately 430 square miles. The City was founded in the early eighteenth century and was incorporated by the Republic of Texas in The City s 2009 population estimate of 1,645,301 makes it the second largest in Texas and the seventh largest in the United States. The following table provides, at the dates show, the population of the City, the County, and the Area MSA, which includes Bexar, Comal, Wilson and Guadalupe Counties. Calendar City of Bexar San Antonio Year San Antonio County MSA , , , , , , , , , , , , , , , , , , , ,870 1,071, ,933 1,185,394 1,337, ,144,646 1,392,931 1,592,383 Source: U.S. Census of Population, as of April 1 of the year shown. ECONOMIC FACTORS The County has a diversified economic base which is composed of agribusiness, manufacturing, construction, tourism, medicine and the military. The County s proximity to Mexico provides favorable conditions for international business relations in the areas of agriculture, tourism, manufacturing, wholesale and retail markets. Approximately fifty percent (50%) of U.S. exports to Mexico and fifty percent (50%) of Mexican exports to the U.S. pass through the City. Trade between the United States and Mexico was valued at $45.84 billion annually in 1995 and was expected to exceed $98.00 billion in The increase in trade is largely attributed to the passage of the North American Free Trade Agreement (NAFTA) in The City is also the headquarters for the North American Development Bank (NADBank), a bi-national institution created by NAFTA. The intended purpose of NADBank is to help finance environmental infrastructure within 60 to 100 miles (approximately) of the US/Mexican border. With a lending capacity of $3 billion, NADBank finances projects including water, wastewater and solid waste programs. Industries in the County range from the manufacturing of apparel, food products, aircraft, electronics and pharmaceuticals to iron and steel products and oil well equipment. San Antonio is a major insurance center in the southwest, serving as the headquarters for several insurance companies, including United Services Automobile Association, the nation's 6th largest private automobile insurer and the 10th largest homeowner s insurer. The medical and bio-medical industry is now the number one economic generator in the County, having an economic impact of nearly $16.3 billion on the local economy in 2007, maintained a $4.8 billion payroll and employed 116,417 persons. One of every seven City employees works in the health care and bio-medical industry. The key components of the health care industry are three major military medical centers, the South Texas Medical Center (which includes five University of Texas health professional schools, nine major hospitals and 80 health-related facilities), the Southwest Foundation for Biomedical Research, and the Southwest Research Institute. A-6

47 The military presence in the County continues to be a principal component of the area economy. The active military installations in the County include Fort Sam Houston and the Lackland and Randolph Air Force Bases, as well as the "privatized" installation of Brooks City-Base. These facilities provide over 72,500 defense-related jobs and an estimated $5 billion annual direct economic impact. Although the military mission of Kelly Air Force Base concluded in 2001 as a result of the last round of base closure and realignment process in 1995, the Air Force still retains over 2 million square feet of lease space at the facility now known as Port San Antonio. The County also is home to Camp Bullis which offers nearly 28,000 acres of unparalleled training infrastructure to ensure the readiness of military and government agencies. The demand for training at Camp Bullis is strong, particularly in light of the ongoing global war on terror and its capacity to support joint military operations and homeland security missions. San Antonio stands to gain both military and civilian positions with the addition of a satellite campus of the National Security Agency and additional missions added to existing bases. In 2005, a fifth round of base closures and realignments over the last 18-years was initiated by the U.S. Department of Defense. Final recommendations of the 2005 Defense Base Closure and Realignment Commission are recognized to have profound effects on many communities and the people who bring them to life as well as on the uniformed men and women embodying our Armed Forces. Recommendations were made to strategically transform the military infrastructure to meet current and future missions of the United States of America. For the County, key recommendations are the closure of a Defense Finance and Accounting Service field site and Brooks City-Base, as well as the realignment of Lackland Air Force Base. Despite the closure of military missions at Brooks City-Base, several of its missions are recommended to be relocated to Fort Sam Houston and the Lackland and Randolph Air Force Bases so as to maximize existing technical synergies and co-locate similar research and development activities. The recommendations also significantly expand Fort Sam Houston to become the nation's premier military medical training base and the future home of Army installation management, and management of family support activities and community programs. The County is supportive of tax phase-in incentives and other economic development programs to extensively market and encourage the commercial redevelopment of properties previously used by the military at Brooks-City Base and Port San Antonio (formerly known as Kelly USA). As a result of the Base Realignment and Closure Commission, San Antonio will see a net increase of military employment of about 9,700 and an estimated increase in investment of about $2.5 billion by While many of the military missions are being relocated from Brooks City-Base, private development is increasing with the continued expansion of Port San Antonio, the expansions of DPT Laboratories, and the recent announcement by Southeast Baptist Hospital System of plans to build a hospital at Brooks City-Base. Agribusiness is still a leading industry in the County. The agricultural industry is not limited to farmers and ranchers, but includes storage, processing and distribution of farm commodities and products made from them. The cornerstone of the manufacturing sector is the new Toyota Tundra manufacturing facility. In November 2006, the first Toyota Tundra rolled off the assembly line in the City. Toyota expects to produce 200,000 trucks per year and have a payroll exceeding $37 million for 2,000 jobs. The facility covers 2,000 acres and represents an investment of $850 billion. The 21 onsite suppliers will employ 2,100 people and represent an additional investment of over $300 million (Source: Toyota). As the trucks roll off the line, the jobs also spin off, possibly adding 5,300 to 13,000 new jobs to Bexar County in associated industries (Source: Texas Workforce Commisson). Union Pacific's new intermodal railroad facility near the Toyota plant will open in 2008, and the company is investing in infrastructure improvements to railways in and around Bexar County (Source: United Pacific). In July 2008, Toyota announced that the plant would shut down production for 90 days. During this temporary cessation of the Toyota Tundra production, all 2,000 permanent employees remained at the plant with a focus on training and non-manufacturing duties. The 21 Toyota suppliers at the site, providing another 2,000 jobs, also remained and retained the majority of their workforce with expectations that the plant would resume production in November Production resumed on November 10, 2008, at which time the plant assumed production responsibilities for all domestic Toyota Tundras. Toyota's presence in San Antonio increased in August 2009 when Toyota confirmed it was moving the production of the Tacoma pickup to its San Antonio facility. The move could add as many as 1,100 new jobs and return the plants on-site suppliers to full capacity employing hundreds more. The addition of a second vehicle, estimated to be 100,000 Tacoma pickups yearly, returns the plant to two shifts and means that 80% of Toyota's pickups will be made in San Antonio. The financial services sector is growing faster in the City than any other metropolitan area at an annual rate of 4.7 percent. The financial industry has become an important component of the Bexar County economy. There are eight financial institutions headquartered in San Antonio and four regional headquarters located in the city. The financial industry is the third largest employer with over 50,000 employees, and has the highest employee pay with an average salary of $52,614, over $18,000 higher than the area average salary (Source: City of San Antonio). In June 2005, Washington Mutual announced its selection of San Antonio as the location of its new regional operations center and the purchase of the former MCI San Antonio campus located at Stone Oak, a three-building campus with 405,000 square feet of prime office space that can accommodate as many as 2,250 employees, and can be expanded to accommodate as many as 4,200 employees. In one of the largest job creation announcements in the United States so far this year, Washington A-7

48 Mutual committed to bringing as many as 4,200 jobs to Texas over the next seven years with up to 3,000 of those jobs based in San Antonio. In September 2008, the federal Office of Thrift Supervision closed Washington Mutual ( WAMU ), and the Federal Deposit Insurance Corporation ( FDIC ) then became the receiver of WAMU. FDIC then sold the assets and most of WAMU s liabilities to JP Morgan Chase Bank ( Chase ). Both Chase and WAMU have major customer service centers in the City along with retail banking operations, each employing about 2,000 people. Each of these customer service centers serves a different set of customers. While there may be some closure and consolidation of WAMU banking operations, the City has stated that it does not expect WAMU s customer service center to close nor does the City expect to lose a significant number of WAMU jobs in the community. On October 3, 2008, Wells Fargo announced its acquisition of Wachovia, which operates a major customer service center in the City. Based on available information, it does not appear this back office operation will be affected by this acquisition and integration of the two major financial institutions. Wachovia currently has a major presence in the City, employing approximately 3,300 people. Headquartered in the City, Rackspace Managed Hosting is the fastest growing manage hosting specialist in the world. The company was founded in San Antonio in 1998 and currently manages more than 22,000 servers in seven data centers in Europe and the U.S. Rackspace was awarded a $22 million grant from the Texas Enterprise Fund as part of an incentive package to help Rackspace relocate within Bexar County and create up to 4,000 new jobs. The company is spending more than $100 million to convert a 1.2 million square foot mall located on a 68 acre-tract and has already converted over 600,000 square feet of the former mall. Rackspace could increase its local employment from nearly 2,000 to as much as 6,000 over the next 5 years with an annual payroll of approximately $300 million. In May 2009, Medtronic, Inc. announced San Antonio as its home of its new Diabetes Therapy Management and Education Center, which is expected to hire nearly 1,400 professionals during a five-year period to staff the new 150,000-square-foot facility. Based on analyses made by the San Antonio Economic Development Foundation, when fully staffed the new operations is expected to generate more than $750 million in economic benefit for San Antonio and Texas each year, which includes an investment of more than $23 million in capital improvements. Also in May 2009, the Air Force selected San Antonio as its preferred location for its new cyber command. Lackland Air Force Base will be the center for the new unit, known formerly as the 24 th Air Force Command. The unit is slated to have up to a $1 billion budget, create up to 400 military and civilian jobs, and have an annual payroll of $40 million to $45 million once fully funded. The selection further bolsters San Antonio as a military community and strengthens its economy. The San Antonio River Improvement Project, an investment by the City, the County, and the U.S. Army Corps of Engineers with the San Antonio River Authority providing project and technical management, recently completed the northern portion of its flood control, amenities, ecosystem restoration and recreational improvements to the San Antonio River. The Museum Reach, as the northern portion is known, extends from the downtown area north to the San Antonio Museum of Art and the 125-year old Pearl Brewery building, where shopping, dining, and entertainment venues are planned. The southern portion, known as the Mission Reach, is already underway and will connect the downtown river area to the historic missions in the southern part of San Antonio. The National Security Agency (NSA) has a formidable presence in South Texas employing over 2,000 people in San Antonio. In 2007, the NSA announced the establishment of a new facility at an old Sony microchip plant that is now known as the Texas Cryptology Center. The 470,000-square-foot facility represents an investment of over $100 million by the NSA to renovate the old plant which will house a data center geared toward cybersecurity. [The remainder of this page is intentionally left blank] A-8

49 The City is one of the top convention cities in the country. The City is proactive in attracting convention business through its management practices and marketing efforts. The following table shows both overall City performance as well as convention activity booked and hosted by the City's Convention & Visitors Bureau for the years indicated: Estimated Delegate Calendar Expenditures Year (a) Attendance Room Nights ($ Millions) , , , , , , , , , , , , , , , , , , , , (a) Figures based on expenditures per Convention delegate party. EMPLOYMENT STATISTICS The following table indicates the total civilian employment in the County for the period 2006 through May May 2010 Annual 2009 Annual 2008 Annual 2007 Annual 2006 Civilian Labor Force 776, , , , ,670 Total Employment 720, , , , ,573 Total Unemployment 55,972 52,047 35,746 30,597 34,907 Unemployment Rate 7.2% 6.8% 4.8% 4.2% 4.7% Texas Unemployment Rate 8.0% 7.6% 4.9% 4.4% 4.9% Source: Texas Workforce Commission. EDUCATION The County encompasses 19 independent school districts, which includes over 400 schools. Enrollment ranges anywhere from nearly 900 in Lackland ISD to over 91,000 in Northside ISD, the fourth largest independent school district in Texas. Students attend school districts in which they reside with no busing in effect. In addition, San Antonio has over 150 private and parochial schools at all education levels. San Antonio has 20 institutions of higher learning offering degrees in all major fields of study, many at the graduate level. Among universities, the University of Texas at San Antonio (UTSA) has over 28,000 students enrolled and has represented many first-time college students within their family. In May of 2009, The Texas A&M University San Antonio became the newest four-year college in San Antonio. Among junior colleges, Alamo Colleges includes five colleges, San Antonio, Palo Alto, Saint Phillips, Northeast Lakeview, and Northwest Vista, totaling over 53,000 students enrolled. [The remainder of this page is intentionally left blank] A-9

50 2009 FIFTEEN LARGEST EMPLOYERS Firm Total Category Fort Sam Houston 30,793 Government Lackland AFB/37th Training Wing (1) 28,100 Government H.E.B. Grocery Company 20,500 Retail Northside Independent School District 15,925 Government USAA 14,589 Finance/Insurance Randolph Air Force Base 10,700 Government City of San Antonio 9,000 Government Northeast Independent School District 8,507 Government San Antonio Independent School District 7,547 Government Methodist Healthcare System 7,154 Medical UT Health Science Center At San Antonio 6,217 Medical Baptist Health System 6,190 Medical University Health System 5,322 Medical Tesoro Corporation 5,620 Gas and Oil/Retail Bexar County 4,711 Government 180,875 Source: San Antonio Business Journal Book of Lists 2010, Greater San Antonio Chamber of Commerce and confirmation from individual corporate human resource offices. (1) Includes military personnel and their dependents and civilian personnel. GROWTH INDICES (CITY OF SAN ANTONIO) CPS Energy (a) As Of Electric Gas Water 12/31 Customers Customers Customers (b) , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,059 (a) Source: CPS Energy. (b) Source: San Antonio Water System. A-10

51 PROPERTY TAX LEVIES AND COLLECTIONS (UNAUDITED) County Tax Rate General and Debt Collected Within the Fiscal Year of the Levy Subsequent Collections (3) Total Collections to Date Receivable Taxes Levied Taxes from Outstanding Fiscal for Percent Prior Year Percent of Taxes from Year (1) Fiscal Year (2) Amount of Levy Levy Amount Current Prior Years (4) 2000 $ 142,444,278 $ 139,401, % $ 1,875,176 $ 141,276, % $ 10,174, ,348, ,869, % 3,022, ,891, % 10,873, ,860, ,028, % 3,376, ,405, % 11,264, ,857, ,685, % 3,659, ,345, % 11,498, ,983, ,297, % 3,090, ,387, % 12,058, ,334, ,860, % 2,823, ,683, % 11,616, ,309, ,851, % 2,708, ,559, % 11,880, ,729, ,355, % 2,630, ,715, % 11,142, (5) 253,356, ,567, % 2,064, ,631, % 11,415, ,433, ,493, % 1,752,429 (6) 270,493, % 12,359,490 Source: Bexar County Tax Assessor-Collector TC-168 Reports. (1) Figures for Fiscal Year totals are estimated. TC-168 Reports were not available. (2) Taxes Levied can increase or decrease based on the number of tax cases settled during the fiscal years. Figures for fiscal years tax cases were not included. (3) Subsequent collections consist of prior tax year collections during the fiscal year. Figures for fiscal years are estimated. (4) Outstanding taxes from prior years consist of all delinquent taxes from tax year for the County, and tax year for the flood. (5) Total tax rate the County assesses is split between flood and general and debt. While to total tax rate for FY 2008 remained unchanged, the portion allocated to flood was significantly increased. (6) Amount of taxes from prior year levy as of June 30, County Tax Rate Flood and Debt Collected Within the Fiscal Year of the Levy Subsequent Collections (3) Total Collections to Date Receivable Taxes Levied Taxes from Outstanding Fiscal for Percent Prior Year Percent of Taxes from Year (1) Fiscal Year (2) Amount of Levy Levy Amount Current Prior Years (4) 2000 $ 8,011,667 $ 7,840, % $ 98,293 $ 7,938, % $ 524, ,689,519 8,494, % 168,083 8,662, % 583, ,451,822 8,247, % 177,990 8,425, % 603, ,967,649 8,741, % 195,582 8,937, % 622, ,633,579 7,480, % 124,556 7,604, % 607, ,040,185 7,888, % 119,860 8,008, % 586, ,691,424 8,538, % 114,917 8,653, % 588, ,837,333 9,685, % 101,173 9,786, % 560, (5) 26,805,988 26,407, % 223,031 26,630, % 827, ,968,389 34,354, % 225,279 (6) 34,354, % 1,100,234 Source: Bexar County Tax Assessor-Collector TC-168 Reports. (1) Figures for Fiscal Year totals are estimated. TC-168 Reports were not available. (2) Taxes Levied can increase or decrease based on the number of tax cases settled during the fiscal years. Figures for fiscal years tax cases were not included. (3) Subsequent collections consist of prior tax year collections during the fiscal year. Figures for fiscal years are estimated. (4) Outstanding taxes from prior years consist of all delinquent taxes from tax year for the County, and tax year for the flood. (5) Total tax rate the County assesses is split between flood and general and debt. While the total tax rate for FY 2008 remained unchanged, the portion allocated to flood was significantly increased. (6) Amount of taxes from prior year levy as of June 30, A-11

52 TAXPAYERS BY CLASSIFICATION Property Valuations by Category Assessed Percent Assessed Percent Assessed Percent Classification Valuation of Total Valuation of Total Valuation of Total Real Estate: $ 61,668,472, % $ 61,470,072, % $ 56,854,414, % Single Family Residential 6,528,581, % 6,415,000, % 5,623,822, % Multi-Family Residential 2,192,622, % 2,252,352, % 1,937,526, % Vacant - Platted Lots/Tracts 3,801,861, % 3,997,999, % 3,235,596, % Acreage (Land Only) 329,625, % 342,964, % 348,898, % Commercial & Industrial 22,341,075, % 21,198,041, % 17,979,504, % Oil, Gas & Other Mineral Res. 7,060, % 7,324, % 5,802, % Personal: Utilities 684,497, % 704,619, % 763,879, % Commercial 7,713,126, % 7,579,896, % 6,707,350, % Industrial 1,995,759, % 2,158,497, % 2,118,386, % Mobile Homes 278,635, % 281,277, % 298,168, % Residential Inventory 538,479, % 586,413, % 537,826, % Special Inventory 357,614, % 405,040, % 371,943, % Total Valuation $ 108,437,413, % $ 107,399,502, % $ 96,783,121, % Less Exemptions 9,867,565,863 10,087,124,343 9,571,280,243 Net Taxable Assessed Valuation $ 98,569,847,507 $ 97,312,377,954 $ 87,211,840,894 Source: Comptroller of Public Accounts Property Tax Assistance Division - County Reports of Property Value. EXEMPTIONS AND REDUCTIONS TO APPRAISED VALUES Fiscal Year Ending September and Over Exemptions or Homestead (a) $ 4,426,863,084 $ 4,404,017,548 $ 4,234,076,559 $ 4,104,719,699 $ 3,864,326,984 Veterans Exemption 635,168, ,264, ,111, ,929, ,427,384 Freeport Loss 585,674, ,810, ,783, ,287, ,086,810 Productivity Loss 2,545,401,123 2,517,811,598 1,996,236,944 1,481,159,905 1,108,039,348 Abatement Loss 1,133,917,332 1,125,785, ,338, ,635, ,649,050 Solar 15,742,308 38,306,758 11,754,892 15,930,706 - Other 87,397, ,137, ,845,266 75,506,813 1,796,347,097 Value Lost to 10% Cap 437,401,766 1,038,990,200 1,451,132, ,717, ,932,958 $ 9,867,565,863 $ 10,087,124,343 $ 9,571,280,243 $ 7,613,886,836 $ 8,082,809,631 (a) The County currently offers an exemption of $50,000 to property owners that qualify as disabled persons and/or persons 65 years of age or older. The County has studied the effects to the property tax base and tax revenues of raising that exemption to levels between $60,000 and $100,000. The exact extent to which such an increase in the current exemption would negatively impact the County s future tax revenues is unknown. A number of studies, however, have been undertaken to measure the extent of the impact of an increase in the current exemption, and these studies have concluded that such an increase in the current exemption would cause a decrease in the rate of growth of future tax revenues to the County. Source: Comptroller of Public Accounts - County Reports of Property Value. A-12

53 TEN LARGEST TAXPAYERS AND THEIR VALUATIONS The following table lists the ten taxpayers with the largest assessed values in the County as of September 30, 2009: Percent of Total Taxpayer Type of Business Market Value Taxable Value H.E. Butt Grocery Company Retail $ 926,841, % Methodist Healthcare System SA Medical 459,806, % AT&T Telecommunications 408,854, % Wal-Mart Stores, Inc. Retail 392,639, % Baptist Hospital Sys (VHS San Antonio Partners LP) Medical 375,476, % USAA Finance/Insurance 343,756, % La Cantera Retail LTD Partnership Real Estate 263,640, % Frost National Bank Bank 209,948, % Frankel Family Trust Real Estate 199,812, % SA Real Estate LLLP Real Estate 171,986, % Total $ 3,752,763, % Source: Bexar Appraisal District. A-13

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55 APPENDIX B BEXAR COUNTY HOSPITAL DISTRICT d/b/a UNIVERSITY HEALTH SYSTEM ANNUAL FINANCIAL REPORT For the Year Ended December 31, 2009

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57 B ASIC F INANCIAL S TATEMENTS, O THER F INANCIAL I NFORMATION, AND R EQUIRED S UPPLEMENTARY I NFORMATION University Health System Bexar County, Texas Years Ended December 31, 2008 and 2007 With Report of Independent Auditors

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59 University Health System Bexar County, Texas Basic Financial Statements, Other Financial Information, and Required Supplementary Information Years Ended December 31, 2008 and 2007 Contents Report of Independent Auditors... i Management s Discussion and Analysis... iii Report of Management Responsibility... xiv Basic Financial Statements University Health System Balance Sheets...1 University Health System Statements of Revenue, Expenses, and Changes in Net Assets...3 University Health System Statements of Cash Flows...4 University Health System Pension Plan Statements of Plan Net Assets...6 University Health System Pension Plan Statements of Changes in Plan Net Assets...7 University Health System Retiree Health Trust Statement of Plan Net Assets...8 University Health System Retiree Health Trust Statement of Changes in Plan Net Assets...9 Notes to Basic Financial Statements...10 Required Supplementary Information Schedule of Funding Progress...40 Other Financial Information Schedule of Expenditures of Federal Awards...41

60 Ernst & Young LLP Frost Bank Tower Suite West Houston Street San Antonio, Texas Tel: Fax: Report of Independent Auditors The Board of Managers University Health System San Antonio, Texas We have audited the accompanying basic financial statements of the Bexar County Hospital District d/b/a University Health System (the System), a component unit of Bexar County, Texas, and its discretely presented component units, as of December 31, 2008 and 2007, and for the years then ended, which collectively comprise the System s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the System s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the University Health System Pension Plan (the Pension Plan), a discretely presented component unit of the System. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Pension Plan, is based on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States 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. We were not engaged to perform an audit of the System s internal control over financial reporting. Our audits included 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 System s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinions. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Bexar County Hospital District d/b/a University Health System and its discretely presented component units as of December 31, 2008 and 2007, and the respective changes in financial position and, where applicable, cash flows, thereof for the years then ended, in conformity with accounting principles generally accepted in the United States. A member firm of Ernst & Young Global Limited i

61 As discussed in Note 12 to the basic financial statements, in 2007, the System adopted GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployement Benefits Other Than Pensions. In accordance with Government Auditing Standards, we have also issued our report dated April 15, 2008 on our consideration of the System s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Management s discussion and analysis on pages iii through xiii and schedule of funding progress on page 40 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. The accompanying schedule of expenditures of federal and state awards on pages 41 through 43 is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information 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. April 13, 2009 A member firm of Ernst & Young Global Limited ii