OFFICIAL STATEMENT. Dated Date: May 15, 2015

Transcription

1 NEW ISSUE BOOK-ENTRY-ONLY OFFICIAL STATEMENT Dated May 18, 2015 Rating: S&P: AA+ (Stable Outlook) (See OTHER INFORMATION - RATING herein) In the opinion of Bond Counsel, interest on the Bonds will be excludable from gross income for federal income tax purposes under statutes, regulations, published rulings and court decisions existing on the date thereof, subject to the matters described under TAX MATTERS herein, including the alternative minimum tax on corporations. $11,265,000 LIMITED TAX REFUNDING BONDS, SERIES 2015 Dated Date: May 15, 2015 Interest Accrues From the Date of Initial Delivery Due: February 15, as shown on the inside cover page PAYMENT TERMS... Interest on the $11,265,000 Bell County, Texas Limited Tax Refunding Bonds, Series 2015 (the Bonds ) will accrue from the date of initial delivery (identified below), will be payable on August 15 and February 15 of each year commencing August 15, 2015, until maturity or prior redemption, and will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The definitive Bonds 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 Bonds may be acquired in denominations of $5,000 or integral multiples thereof within a maturity. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Bonds 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 Bonds (see THE OBLIGATIONS BOOK-ENTRY-ONLY SYSTEM ). The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, National Association, Dallas, Texas (see THE OBLIGATIONS PAYING AGENT/REGISTRAR ). AUTHORITY FOR ISSUANCE... The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas (the State ), including particularly Chapter 1207, Texas Government Code, as amended, and an order (the Bond Order ) adopted by the Commissioners Court of the Bell County, Texas (the County ). The Bonds are direct obligations of the County payable from the levy and collection of a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the County as provided in the Bond Order (see THE OBLIGATIONS AUTHORITY FOR ISSUANCE THE OBLIGATIONS SECURITY AND SOURCE OF PAYMENT and TAX RATE LIMITATIONS ). PURPOSE... Proceeds from the sale of the Bonds will be used to refund certain of the County s outstanding obligations (the Refunded Obligations ) (see SCHEDULE I herein for a detailed description of the Refunded Obligations) for debt service savings and to pay the costs of issuance related thereto. See PLAN OF FINANCING PURPOSE. CUSIP PREFIX: MATURITY SCHEDULE & 9-DIGIT CUSIP Shown on the Next Page REDEMPTION... The County reserves the right, at its option, to redeem Bonds having stated maturities on February 15, 2026, in whole or from time to time in part, in principal amounts of $5,000 or any integral multiple thereof on February 15, 2025, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption (see THE OBLIGATIONS REDEMPTION ). LEGALITY... The Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Naman, Howell, Smith & Lee, PLLC, Bond Counsel, Waco, Texas (see APPENDIX C FORMS OF BOND COUNSEL S OPINIONS ). Certain matters will be passed upon for the Underwriters by their counsel, Norton Rose Fulbright US LLP, Dallas, Texas. DELIVERY... It is expected that the Bonds will be available for initial delivery through DTC on June 11, 2015 (the Date of Initial Delivery ). RAYMOND JAMES BOSC, INC. A SUBSIDIARY OF BOK FINANCIAL CORPORATION BAIRD

2 MATURITY SCHEDULE 2/15 Principal Interest Initial CUSIP Maturity Amount Rate Yield (1) Numbers (2) 2019 $ 1,205, % 1.470% RK ,255, % 1.700% RL ,310, % 1.960% RM ,375, % 2.210% RN ,440, % 2.420% RP ,500, % 2.600% RQ ,555, % 2.750% RR ,625, % 2.880% (3) RS9 (Interest Accrues from the Date of Initial Delivery) (1) Initial reoffering yield represents the initial offering yield to the public which has been established by the Underwriters for offers to the public and which may be subsequently changed by the Underwriters and is the sole responsibility of the Underwriters. (2) 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. This data is not intended to create a database and does not serve in any as a substitute for the CUSIP Services. None of the County, the Financial Advisor, nor the Underwriters shall be responsible for the selection or the correctness of the CUSIP numbers shown herein. (3) Yield calculated based on the assumption that the Bonds denoted and sold at a premium will be redeemed on February 15, 2025, the first optional call date for such Bonds, at a redemption price of par, plus accrued interest to the redemption date. SEPARATE ISSUES... The Bonds are being offered by the County concurrently with the Bell County, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2015 (the Certificates ), under a common Official Statement, and such Bonds and Certificates are hereinafter sometimes referred to collectively as the Obligations. The Bonds and the Certificates are separate and distinct securities offerings being issued and sold independently except for the common Official Statement, and, while the Obligations share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of the holders, the federal, state or local tax consequences of the purchase, ownership or disposition of the Obligations and other features. [The remainder of this page intentionally left blank.] 2

3 NEW ISSUE BOOK-ENTRY-ONLY OFFICIAL STATEMENT Dated May 18, 2015 Rating: S&P: AA+ (Stable Outlook) (See OTHER INFORMATION - RATING herein) In the opinion of Bond Counsel, interest on the Certificates will be excludable from gross income for federal income tax purposes under statutes, regulations, published rulings and court decisions existing on the date thereof, subject to the matters described under TAX MATTERS herein, including the alternative minimum tax on corporations. $31,105,000 COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2015 Dated Date: May 15, 2015 Interest Accrues From the Date of Initial Delivery Due: August 15, as shown on the next page hereof PAYMENT TERMS... Interest on the $31,105,000 Bell County, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2015 (the Certificates ) will accrue from the date of initial delivery (identified below), will be payable August 15 and February 15 of each year commencing August 15, 2015, until maturity or prior redemption, and will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The definitive 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 Certificates may be acquired in denominations of $5,000 or integral multiples thereof within a maturity. No physical delivery of the Certificates will be made to the owners thereof. Principal of, premium, if any, and interest on the 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 Certificates. See THE OBLIGATIONS BOOK-ENTRY-ONLY SYSTEM herein. The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, National Association, Dallas, Texas (see THE OBLIGATIONS PAYING AGENT/REGISTRAR ). AUTHORITY FOR ISSUANCE... The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, (the State ) particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), and constitute direct obligations of Bell County, Texas (the County ), payable from a continuing, direct ad valorem tax levied on all taxable property within the County, within the limits prescribed by law, as provided in the order authorizing the Certificates (the Certificate Order ) and are additionally secured by a limited pledge, not to exceed $10,000, of the revenues of the Bell County Juvenile Justice Center (see THE OBLIGATIONS AUTHORITY FOR ISSUANCE ). PURPOSE... Proceeds from the sale of the Certificates will be used for (i) technical equipment (including computer hardware, software, operating and storage equipment, communications lines and communications equipment and video equipment); (ii) office upgrades and office equipment; (iii) road and bridge equipment; (iv) parking lot renovation or expansion/new parking lots for county buildings; (v) building enlargement, improvements or repairs (including to the jail or jail annex, animal shelter, Expo Center, juvenile probation buildings, county annex buildings, help center and juvenile detention center) or new county buildings related to such facilities; and (vi) archives equipment; and the cost of professional services incurred in connection therewith. The Certificates and the Bonds are collectively referred to herein as the Obligations. See PLAN OF FINANCING PURPOSE. CUSIP PREFIX: MATURITY SCHEDULE & 9-DIGIT CUSIP Shown on the Next Page REDEMPTION... The County reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2025, in whole or from time to time in part, in principal amounts of $5,000 or any integral multiple thereof on August 15, 2024, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption (see THE OBLIGATIONS REDEMPTION ). LEGALITY... The Certificates are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Naman, Howell, Smith & Lee, PLLC, Bond Counsel, Waco, Texas (see APPENDIX C FORMS OF BOND COUNSEL S OPINIONS ). Certain matters will be passed upon for the Underwriters by their counsel, Norton Rose Fulbright US LLP, Dallas, Dallas, Texas. DELIVERY... It is expected that the Certificates will be available for delivery through DTC on June 11, 2015 (the Date of Initial Delivery ). RAYMOND JAMES BOSC, INC. A SUBSIDIARY OF BOK FINANCIAL CORPORATION BAIRD

4 MATURITY SCHEDULE 8/15 Principal Interest Initial CUSIP Maturity Amount Rate Yield (1) Numbers (2) 2016 $ 185, % 0.500% RT , % 0.930% RU , % 1.300% RV , % 1.560% RW , % 1.790% RX ,390, % 2.050% RY ,460, % 2.240% RZ ,535, % 2.450% SA ,610, % 2.620% SB ,690, % 2.760% (3) SC ,775, % 2.890% (3) SD ,855, % 3.000% (3) SE ,995, % 3.110% (3) SF ,145, % 3.180% (3) SG ,305, % 3.560% (3) SH ,435, % 3.320% (3) SJ ,610, % 3.380% (3) SK5 (Interest Accrues from the Date of Initial Delivery) (1) Initial reoffering yield represents the initial offering yield to the public which has been established by the Underwriters for offers to the public and which may be subsequently changed by the Underwriters and is the sole responsibility of the Underwriters. (2) 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. This data is not intended to create a database and does not serve in any as a substitute for the CUSIP Services. None of the County, the Financial Advisor, nor the Underwriters shall be responsible for the selection or the correctness of the CUSIP numbers shown herein. (3) Yield calculated based on the assumption that the Certificates denoted and sold at a premium will be redeemed on August 15, 2024, the first optional call date for such Certificates, at a redemption price of par, plus accrued interest to the redemption date. SEPARATE ISSUES... The Certificates are being offered by the County concurrently with the Bell County, Texas, Limited Tax Refunding Bonds, Series 2015 (the Bonds ), under a common Official Statement, and such Certificates and Bonds are hereinafter sometimes referred to collectively as the Obligations. The Certificates and the Bonds are separate and distinct securities offerings being issued and sold independently except for the common Official Statement, and, while the Obligations share certain common attributes, each issue is separate from the other and should be reviewed and analyzed independently, including the type of obligation being offered, its terms for payment, the security for its payment, the rights of the holders, the federal, state or local tax consequences of the purchase, ownership or disposition of the Obligations and other features. 4

5 No dealer, broker, salesman or other person has been authorized by the County or the Underwriters to give any information, or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the County, the Financial Advisor or the Underwriters. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy Obligations in any jurisdiction in which, or to any person to whom, it is unlawful to make such offer or solicitation. See CONTINUING DISCLOSURE OF INFORMATION for a description of the County s undertaking to provide certain information on a continuing basis. The cover page contains certain information for general reference only and is not intended as a summary of this offering. Investors should read the entire Official Statement, including all schedules and appendices attached hereto, to obtain information essential to making an informed investment decision. This Official Statement includes descriptions and summaries of certain events, matters and documents. Such descriptions and summaries do not purport to be complete and all such descriptions, summaries and references thereto are qualified in their entirety by reference to this Official Statement in its entirety and to each such document, copies of which may be obtained from the Financial Advisor. Any statements made in this Official Statement or the appendices hereto involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of such opinions or estimates 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 respective responsibilities 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 information set forth or included in this Official Statement has been provided by the County or obtained from other sources believed by the County to be reliable. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale hereunder shall create any implication that there has been no change in the financial condition or operations of the County described herein since the date hereof. This Official Statement contains, in part, estimates and matters of opinion that are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions or that they will be realized. IN CONNECTION WITH THE OFFERING OF THE OBLIGATIONS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE OBLIGATIONS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE OBLIGATIONS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE OBLIGATIONS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THE OBLIGATIONS HAVE BEEN REGISTERED, QUALIFIED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THE UNDERWRITERS, THE COUNTY, NOR ITS FINANCIAL ADVISOR, 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, AS SUCH INFORMATION HAS BEEN PROVIDED BY THE DEPOSITORY TRUST COMPANY. TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY... 6 COUNTY OFFICIALS, STAFF AND CONSULTANTS... 8 ELECTED OFFICIALS... 8 COUNTY OFFICIALS... 8 CONSULTANTS AND ADVISORS... 8 INTRODUCTION... 9 PLAN OF FINANCING... 9 THE OBLIGATIONS TAX INFORMATION TABLE 1 VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT TABLE 2 VALUATION AND GENERAL OBLIGATION DEBT HISTORY TABLE 3 TAX RATE, LEVY AND COLLECTION HISTORY TABLE 4 TEN LARGEST TAXPAYERS TABLE 5 TAX ADEQUACY TABLE 6 ESTIMATED OVERLAPPING DEBT DEBT INFORMATION TABLE 7 DEBT SERVICE REQUIREMENTS TABLE 8 INTEREST AND SINKING FUND BUDGET PROJECTION TABLE 9 OTHER OBLIGATIONS FINANCIAL INFORMATION TABLE 10 GENERAL FUND REVENUES AND EXPENDITURE HISTORY INVESTMENTS TABLE 11 CURRENT INVESTMENTS TAX MATTERS CONTINUING DISCLOSURE OF INFORMATION 29 OTHER INFORMATION SCHEDULE I SCHEDULE OF REFUNDED OBLIGATIONS APPENDICES GENERAL INFORMATION REGARDING THE COUNTY...A EXCERPTS FROM THE COUNTY S ANNUAL FINANCIAL REPORT... B FORMS OF BOND COUNSEL S OPINIONS... C The cover page hereof, this page, the appendices and schedule included herein and any addenda, supplement or amendment hereto, are part of the Official Statement. 5

6 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 Obligations 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 OBLIGATIONS THE OBLIGATIONS... The Bonds are being issued as $11,265,000 Limited Tax Refunding Bonds, Series The Bonds are issued as serial Bonds maturing on February 15 in the years 2019 through and including The Certificates are being issued as $31,105,000 Combination Tax and Revenue Certificates of Obligation, Series The Certificates are issued as serial Certificates maturing on August 15 in the years 2016 through and including 2032 (see THE OBLIGATIONS DESCRIPTION OF THE BONDS ). PAYMENT OF INTEREST... AUTHORITY FOR ISSUANCE... Interest on the Obligations accrues from the date of initial delivery and will be payable on August 15, 2015, and each February 15 and August 15 thereafter until maturity or prior redemption (see THE OBLIGATIONS DESCRIPTION OF THE OBLIGATIONS ). The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas (the State ), including particularly Chapter 1207, Texas Government Code, as amended, and an order (the Bond Order ) adopted by the Commissioners Court of Bell County, Texas (the County ). The Certificates are issued pursuant to the Constitution and general laws of the State, particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), as amended, and an order authorizing the Certificates adopted by the Commissioners Court of the County (the Certificate Order ). SECURITY... REDEMPTION... The Obligations constitute direct obligations of the County, payable from the levy and collection of a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property located within the County (see THE OBLIGATIONS SECURITY AND SOURCE OF PAYMENT and TAX RATE LIMITATIONS ). Additionally, the Certificates are secured by a limited pledge, not to exceed $10,000, of the revenues of the Bell County Juvenile Justice Center. The County reserves the right, at its option, to redeem Bonds having stated maturities on February 15, 2026, in whole or from time to time in part, in principal amounts of $5,000 or any integral multiple thereof on February 15, 2025, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption. The County reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2025, in whole or from time to time in part, in principal amounts of $5,000 or any integral multiple thereof on August 15, 2024, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption (see THE OBLIGATIONS REDEMPTION ). TAX EXEMPTION... In the opinion of Bond Counsel for the County, interest on the Obligations are excludable from gross income for federal income tax purposes under existing law subject to the matters described under TAX MATTERS herein, including the alternative minimum tax on corporations. See TAX MATTERS and APPENDIX C FORMS OF BOND COUNSEL S OPINIONS. GENERAL THE COUNTY... USE OF PROCEEDS... The County is a political subdivision of the State, located in Central Texas. The County covers approximately 1,055 square miles. The City of Belton is the County Seat (see PLAN OF FINANCING DESCRIPTION OF THE COUNTY ). Proceeds from the sale of the Bonds will be used to refund certain of the County s outstanding obligations for debt service savings and to pay the costs of issuance related thereto (the Refunded Obligations ) (see PLAN OF FINANCING REFUNDED 6

7 OBLIGATIONS for more detail and SCHEDULE I for a detailed description of the Refunded Obligations). Proceeds from the sale of the Certificates will be used for (i) technical equipment (including computer hardware, software, operating and storage equipment, communications lines and communications equipment and video equipment); (ii) office upgrades and office equipment; (iii) road and bridge equipment; (iv) parking lot renovation or expansion/new parking lots for county buildings; (v) building enlargement, improvements or repairs (including to the jail or jail annex, animal shelter, Expo Center, juvenile probation buildings, county annex buildings, help center and juvenile detention center) or new county buildings related to such facilities; and (vi) archives equipment; and the cost of professional services incurred in connection therewith. RATING... BOOK-ENTRY-ONLY SYSTEM... PAYMENT RECORD... The Obligations have been rated AA+ (stable outlook) by Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ). The presently outstanding limited ad valorem tax supported debt of the County is rated AA+ by S&P and Aa2 by Moody s Investors Service ( Moody s ). The County has not applied to Moody s for a rating on the Obligations. The County also has various outstanding tax supported debt issues which are insured by a financial guaranty insurance policy and also rated based on such insurance (see OTHER INFORMATION RATING ). The definitive Obligations 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 Obligations may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Obligations will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Obligations 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 Obligations (see THE OBLIGATIONS BOOK-ENTRY-ONLY SYSTEM ). The County has never defaulted in the payment of its general obligation tax debt. SELECTED FINANCIAL INFORMATION Ratio G.O. Fiscal Net Per Capita General Per Tax Debt Year Estimated Taxable Taxable Obligation Capita to Taxable % of Ended County Assessed Assessed (G.O.) G. O. Tax Assessed Total Tax 9-30 Population (1) Valuation Valuation Tax Debt Debt Valuation Collections ,000 $ 13,339,308,695 $ 42,347 $ 125,045,000 $ % 98.37% ,000 13,726,272,535 42, ,200, % 98.41% ,317 14,001,685,605 43, ,035, % 98.03% ,455 14,527,421,770 44, ,865, % 98.00% ,730 15,383,758,635 46, ,375,000 (2) 412 (2) 0.89% (2) 96.91% (3) (1) Source: The County and their audited financial reports. (2) Projected; includes the Obligations and excludes the Refunded Obligations. (3) Partial collections as of March 31,

8 COUNTY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS Commissioners Court Jon H. Burrows Judge Richard Cortese Commissioner, Precinct No. 1 Tim Brown Commissioner, Precinct No. 2 Bill Schumann Commissioner, Precinct No. 3 John Fisher Commissioner, Precinct No. 4 Length of Service Term Expires 17 Years December, Years December, Years December, Years December, Years December, 2018 COUNTY OFFICIALS Length of Name Position Service Donna Eakin County Auditor 18 Years Shelley Coston County Clerk 8 Years Charles Jones County Treasurer 32 Years CONSULTANTS AND ADVISORS Auditors... Brockway, Gersbach, Franklin & Niemeier, P.C. Temple, Texas Bond Counsel and County Attorney... Naman, Howell, Smith & Lee, PLLC Waco, Texas Financial Advisor... Specialized Public Finance Inc. Austin, Texas For additional information regarding the County, please contact: Donna Eakin County Auditor Bell County 101 East Central Avenue Belton, Texas (254) (254) Fax or Garry Kimball Managing Director Specialized Public Finance Inc. 248 Addie Roy Road, Suite B-103 Austin, Texas (512) (512) Fax 8

9 OFFICIAL STATEMENT RELATING TO $11,265,000 $31,105,000 LIMITED TAX REFUNDING BONDS, SERIES 2015 COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2015 INTRODUCTION This Official Statement, which includes the Schedule and Appendices hereto, provides certain information regarding the issuance of the $11,265,000 Bell County, Texas Limited Tax Refunding Bonds, Series 2015 (the Bonds ) and the $31,105,000 Bell County, Texas Combination Tax and Revenue Certificates of Obligation, Series 2015 (the Certificates ). The Bonds and the Certificates are collectively referred to as the Obligations. The order authorizing the Bonds (the Bond Order ) and the order authorizing the Certificates (the Certificate Order ) are sometimes collectively referred to herein as the Orders and were approved by the Commissioners Court on May 18, Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Orders, except as otherwise indicated herein. There follows in this Official Statement descriptions of the Obligations and certain information regarding the County 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 County s Financial Advisor, Specialized Public Finance Inc., Austin, Texas, by electronic mail or upon payment of reasonable copying, handling, and delivery charges. This Official Statement speaks only as to its date, and the information contained herein is subject to change. A copy of the Final Official Statement pertaining to the Obligations will be deposited with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access (EMMA) system. See CONTINUING DISCLOSURE OF INFORMATION herein for a description of the County s undertaking to provide certain information on a continuing basis. DESCRIPTION OF THE COUNTY... Bell County, Texas (the County ) was organized in 1850 and operates as specified under the Constitution of the State of Texas and Texas statutes which provide for a Commissioners Court consisting of the County Judge and four Commissioners, one from each of four geographical Commissioners Precincts. The County Judge is elected for a term of four years and the Commissioners are elected for four year staggered terms. Other major County elected officials include the County Clerk and County Treasurer. The County Auditor is appointed for a term of two years by and serves at the will of the District Judges whose courts are located in Bell County. The 2000 Census population for the County was 237,974, while the estimated 2015 population is 330,730. The County covers approximately 1,055 square miles. The City of Belton is the County Seat. PLAN OF FINANCING PURPOSE... Proceeds from the sale of the Bonds will be used to refund $11,200,000 of Limited Tax Refunding Bonds, Series 2008 (the Refunded Obligations ) for debt service savings and to pay costs associated with the issuance of the Bonds. See SCHEDULE I herein. Proceeds from the sale of the Certificates will be used for (i) technical equipment (including computer hardware, software, operating and storage equipment, communications lines and communications equipment and video equipment); (ii) office upgrades and office equipment; (iii) road and bridge equipment; (iv) parking lot renovation or expansion/new parking lots for county buildings; (v) building enlargement, improvements or repairs (including to the jail or jail annex, animal shelter, Expo Center, juvenile probation buildings, county annex buildings, help center and juvenile detention center) or new county buildings related to such facilities; and (vi) archives equipment; and the cost of professional services incurred in connection therewith. REFUNDED OBLIGATIONS... The principal of and interest due on the Refunded Obligations are to be paid on their scheduled interest payment dates and their maturity dates from funds and direct obligations of the United States of America (the Escrow Securities ) to be deposited pursuant to a certain Escrow Agreement (the Escrow Agreement ) between the County and The Bank of New York Mellon Trust Company, National Association, Dallas, Texas (the Escrow Agent ). The Bond Order provides that from the proceeds of the sale of the Bonds received from the Underwriters, together with other funds of the County, the County will deposit with the Escrow Agent cash and Escrow Securities in amounts necessary to accomplish the discharge and final payment of the Refunded Obligations on their maturity date. Grant Thornton LLP, independent certified public accountants, will verify that the cash and Escrow Securities in the Escrow Fund will mature and pay interest at the times and in the amounts that will be sufficient to pay principal and interest on the Refunded Obligations as the same became due (see OTHER INFORMATION VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS ). Such funds and Escrow Securities will be held by the Escrow Agent in a special escrow account (the Escrow Fund ). Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of the principal of and interest on the Refunded Obligations. The money and investments on deposit in the Escrow Fund will not be available to pay the Obligations. 9

10 By the deposit of such funds and Escrow Securities with the Escrow Agent pursuant to the Escrow Agreement, the County will have effected the defeasance of all the Refunded Obligations in accordance with applicable law. It is the opinion of Bond Counsel that as a result of such defeasance and in reliance on the report of Grant Thornton LLP, the Refunded Obligations will be outstanding only for the purpose of receiving payments from the cash and investments held for such purpose by the Escrow Agent and such Refunded Obligations will not be deemed as being outstanding obligations of the County payable from taxes nor for the purpose of applying any limitation on the issuance of debt. The County has covenanted in the Escrow Agreement to make timely deposits to the Escrow Fund, from lawfully available funds, of any additional amounts required to pay the principal of an interest on the Refunded Bonds, if for any reason, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund are insufficient to make such payment. SOURCES AND USES OF PROCEEDS... The proceeds from the sale of the Obligations, together with other lawfully available funds of the County, will be applied approximately as follows: Sources: The Bonds The Certificates Principal Amount $ 11,265, $ 31,105, Transfer from Prior Issue Debt Service Funds 189, Reoffering Premium 1,411, ,261, Total Sources $ 12,865, $ 35,366, Uses: Deposit to the Escrow Fund $ 12,664, $ 0.00 Deposit to Construction Fund ,000, Deposit to Debt Service Fund Underwriters Discount 73, , Costs of Issuance 127, , Total Uses $ 12,865, $ 35,366, THE OBLIGATIONS DESCRIPTION OF THE OBLIGATIONS... The Obligations are dated May 15, 2015 (the Dated Date ) and mature on February 15 or August 15 in each of the years and in the amounts shown on pages 2 and 4 hereof. Interest on the Obligations will accrue from the date of initial delivery, will be computed on the basis of a 360-day year of twelve 30-day months, and will be payable on August 15 and February 15, commencing August 15, 2015, until maturity or prior redemption. The definitive Obligations will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and 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 Obligations will be made to the owners thereof. Principal of, premium, if any, and interest on the Obligations 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 Obligations. See THE OBLIGATIONS BOOK-ENTRY-ONLY SYSTEM herein. AUTHORITY FOR ISSUANCE... The Bonds are issued pursuant to the Constitution and the general laws of the State, including particularly Chapter 1207, Texas Government Code, as amended, and the Bond Order. The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, (the State ) particularly Subchapter C of Chapter 271, Texas Local Government Code (the Certificate of Obligation Act of 1971), and the Certificate Order. SECURITY AND SOURCE OF PAYMENT... The Obligations are direct obligations of the County, payable from a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the County, as provided in the respective Order. Additionally, the Certificates are secured by a limited pledge, not to exceed $10,000, of the revenues of the Bell County Juvenile Justice Center. REDEMPTION... The County reserves the right, at its option, to redeem Bonds having stated maturities on February 15, 2026, in whole or from time to time in part, in principal amounts of $5,000 or any integral multiple thereof on February 15, 2025, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption. The County reserves the right, at its option, to redeem Certificates having stated maturities on and after August 15, 2025, in whole or from time to time in part, in principal amounts of $5,000 or any integral multiple thereof on August 15, 2024, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption. NOTICE OF REDEMPTION... Not less than 30 days prior to a redemption date for the Obligations, a notice of redemption will be sent by United States mail, first class postage prepaid, in the name of the County and at the County s expense, by the Paying Agent/Registrar to each registered owner of an Obligation 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 10

11 date of mailing such notice, and any notice of redemption so mailed will be conclusively presumed to have been duly given irrespective of whether received by the registered owner. With respect to any optional redemption of the Obligations, unless certain prerequisites to such redemption required by the respective Order have been met and money sufficient to pay the principal of and premium, if any, and interest on the Obligations to be redeemed will have been received by the Paying Agent/Registrar prior to the giving of such notice of redemption, such notice will state that said redemption may, at the option of the County, be conditional upon the satisfaction of such prerequisites and receipt of such money by the Paying Agent/Registrar on or prior to the date fixed for such redemption or upon any prerequisite set forth in such notice of redemption. If a conditional notice of redemption is given and such prerequisites to the redemption are not fulfilled, such notice will be of no force and effect, the County will not redeem such Obligations, and the Paying Agent/Registrar will give notice in the manner in which the notice of redemption was given, to the effect that such Obligations have not been redeemed. ANY NOTICE SO MAILED WILL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, AND ANY CONDITIONS STATED IN THE NOTICE HAVING BEEN MET, THE OBLIGATIONS CALLED FOR REDEMPTION WILL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY OBLIGATION OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH OBLIGATION OR PORTION THEREOF WILL CEASE TO ACCRUE. DEFEASANCE... The Orders provide that any Obligations will be deemed paid and shall no longer be considered to be outstanding within the meaning of the respective Orders when payment of principal of and interest on such Obligation to its stated maturity or redemption has been made or provided for by depositing with a paying agent, in trust, any combination of (1) money in an amount sufficient to make such payment and/or (2) Government Securities having such maturities and interest payment dates and bearing such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment. The Orders provide 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 any agency or instrumentality of the United States of 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 no 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. Upon such deposit as described above, such Obligations shall no longer be regarded to be outstanding or unpaid for purposes of applying any limitation or indebtedness. After firm banking and financial arrangements for the discharge and final payment of the Obligations have been made as described above, all rights of the County to initiate proceedings to call the Obligations for redemption or take any other action amending the terms of the Bonds are extinguished; provided, however, that the right to call the Obligations for redemption following their defeasance is not extinguished, if the County (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Obligations for redemption, (ii) gives notice of the reservation of that right to the owners of the Obligations 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 Bonds are to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company ( DTC ), New York, New York, while the Bonds are registered in its nominee s 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 County and the Underwriters believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The County and the Underwriters cannot and do not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, 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 Bonds), 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 United States Securities and Exchange Commission, 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 Bonds. The Bonds will be issued as fully-registered Bonds registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities 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 issues, corporate and municipal debt issues, and money market instruments (from over

12 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 for 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 a Standard & Poor s rating of AA+. 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 Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( 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. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds 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 Bonds 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 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect 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. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s MMI 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). All payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the County or the Paying Agent/Registrar, on payable date 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 is the case with Bonds 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 County, subject to any statutory or regulatory requirements as may be in effect from time to time. All payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) are the responsibility of the County or the Paying Agent/Registrar, 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 depository with respect to the Bonds at any time by giving reasonable notice to the County or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The County may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. USE OF CERTAIN TERMS IN OTHER SECTIONS OF THIS OFFICIAL STATEMENT... In reading this Official Statement it should be understood that while the Obligations 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 Obligations, but (i) all 12

13 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 each respective 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 County, the Financial Advisor, or the Underwriters. PAYING AGENT/REGISTRAR... The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, National Association, Dallas, Texas. In each respective Order, the County retains the right to replace the Paying Agent/Registrar. The County covenants to maintain and provide a Paying Agent/Registrar at all times until the Obligations are duly paid and any successor Paying Agent/Registrar shall be a commercial bank or trust company organized under the laws of the State of Texas or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Obligations. Upon any change in the Paying Agent/Registrar for the Obligations, the County agrees to promptly cause a written notice thereof to be sent to each registered owner of the Obligations by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. TRANSFER, EXCHANGE AND REGISTRATION... In the event the Book-Entry-Only System should be discontinued, the Obligations will be printed and delivered to the registered owners thereof and the Obligations may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar and such transfer or exchange shall 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. Obligations may be assigned by the execution of an assignment form on the respective Obligations or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Obligations will be delivered by the Paying Agent/Registrar, in lieu of the Obligations 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 Obligations issued in an exchange or transfer of Obligations 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 Obligations 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 Obligations registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate principal amount as the Obligations surrendered for exchange or transfer. See THE OBLIGATIONS Book-Entry-Only System herein for a description of the system to be utilized initially in regard to ownership and transferability of the Obligations. Neither the County nor the Paying Agent/Registrar shall be required to transfer or exchange any Obligation called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of an Obligation. RECORD DATE FOR INTEREST PAYMENT... The record date ( Record Date ) for the interest payable on the Obligations on any interest payment date means the close of business on the last business day of the preceding month. 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 County. Notice of the Special Record Date and of the scheduled payment date of the past due interest ( Special Payment Date, which shall be 15 days after the Special Record Date) shall 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 Holder of an Obligation appearing 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. REGISTERED OWNERS REMEDIES... If the County defaults in the payment of principal, interest, or redemption price on the Obligations when due, or if it fails to make payments into any fund or funds created in the Order, or defaults in the observation or performance of any other covenants, conditions, or obligations set for in the Order, the registered owners may seek a writ of mandamus to compel County officials to carry out their legally imposed duties with respect to the Obligations, if there is no other available remedy at law to compel performance of the Obligations or Orders and the County s obligations are not uncertain or disputed. The issuance of a writ of mandamus is controlled by equitable principles, and rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Obligations in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Orders do not provide for the appointment of a trustee to represent the interest of the Obligationholders upon any failure of the County to perform in accordance with the terms of the Orders, 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. Texas counties are generally immune from suits for money damages for breach of contracts under the doctrine of sovereign immunity. On June 30, 2006, the Texas Supreme Court ruled in Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006) that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in clear and unambiguous language. Because it is unclear whether the Texas legislature has effectively waived the County s sovereign immunity from a suit for money damages, Obligationholders may not be able to bring such a suit against the County for breach of the Obligations or the respective Order covenants. Even if a judgment against the County could be obtained, it could not be enforced by direct levy and execution against the County s property. Further, the registered owners cannot themselves foreclose on property within the County or sell property within the County to enforce the tax lien on taxable property to pay the principal of and interest on the Obligations. Furthermore, the County 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, the pledge of ad valorem taxes in support of a general obligation of a bankrupt entity is not specifically 13

14 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 Obligationholders of an entity which has sought protection under Chapter 9. Therefore, should the County 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 Bond Counsel will note that all opinions relative to the enforceability of the Orders and the Obligations are qualified with respect to the customary rights of debtors relative to their creditors. AMENDMENTS TO THE ORDERS... The County may amend the Orders 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. In addition, the County may, with the written consent of the holders of a majority in aggregate principal amount of the Bonds or Certificates, as the case may be, then outstanding affected thereby, amend, add to, or rescind any of the provisions of the Orders; except that, without the consent of the registered owners of all of the Bonds or Certificates, as the case may be, affected, 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 Bond or Certificate, as the case may be, is due and payable, reduce the principal amount thereof, or the rate of interest thereon, change the place or places at or the coin or currency in which any Bond or Certificate, as the case may be, or interest thereon is payable, or in any other way modify the terms of payment of the principal of or interest on the Bonds or Certificates, as the case may be, (2) give any preference to any Obligation over any other Obligation, or (3) reduce the aggregate principal amount of Bonds or Certificates, as the case may be, required for consent to any amendment, addition, or waiver. TAX INFORMATION AD VALOREM TAX LAW... The appraisal of property within the County is the responsibility of the Bell County Appraisal District (the Appraisal District ). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Texas 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 the market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. 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. 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 for the most recent tax year that the market value was determined by the appraisal office or (2) the sum of (a) 10% of the appraised value of the property for the preceding tax year, (b) the appraised value of the property for the preceding tax year and (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property with the Appraisal District at least every three years. The County may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the County by petition filed with the Appraisal Review Board. Reference is made to the Texas 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, 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, 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 and the disabled from all ad valorem taxes thereafter levied by the political subdivision. Once authorized, such exemption may be repealed or decreased or increased in amount (i) by the governing body of the political subdivision or (ii) by a favorable vote of a majority of the qualified voters at an election called by the governing body of the political subdivision, which election must be called upon receipt of a petition signed by at least 20% of the number of qualified voters who voted in the preceding election of the political subdivision. In the case of a decrease, the amount of the exemption may not be reduced to less than $3,000 of the market value. The surviving spouse of an individual who qualifies for the foregoing exemption for the residence homestead of a person 65 or older (but not the disabled) is entitled to an exemption for the same property in an amount equal to that of the exemption for which the deceased spouse qualified if (i) the deceased spouse died in a year in which the deceased spouse qualified for the exemption, (ii) the surviving spouse was at least 55 years of age at the time of the death of the individual s spouse and (iii) the property was the residence homestead of the surviving spouse when the deceased spouse died and remains the residence homestead of the surviving spouse. 14

15 In addition to any other exemptions provided by the Property Tax Code, 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 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 depending upon the degree of disability or whether the exemption is applicable to a surviving spouse or children; provided, however, that beginning in the 2009 tax year, a disabled veteran who receives from the from the United States Department of Veterans Affairs or its successor 100 percent disability compensation due to a service-connected disability and a rating of 100 percent disabled or of individual unemployability is entitled to an exemption from taxation of the total appraised value of the veteran s residence homestead. Furthermore, effective January 1, 2012, surviving spouses of a deceased veteran who had received a disability rating of 100% will be entitled to receive a residential homestead exemption equal to the exemption received by the deceased spouse until such surviving spouse remarries. Under Article VIII, Section 1-b(h) and State law, a county at its option may provide a prohibition on increasing the total ad valorem tax, except for increases attributable to certain improvements, on the residence homestead of a disabled person or person 65 years of age or older above the amount of tax imposed in the later of (1) the year such residence qualified for an exemption based on the disability or age of the owner or (2) the year the county chooses to establish the tax limitation. The above-referenced tax limitation is transferable to (1) a different residence homestead within the county and (2) to a surviving spouse of a taxpayer who qualifies for the freeze on ad valorem taxes so long as the property was the residence homestead of the surviving spouse when the deceased spouse died and remains the residence homestead of the surviving spouse and the surviving spouse was at least 55 years of age at the time of the death of such individual s spouse. On the receipt of a petition signed by five percent of the registered voters of the County, the County shall call an election to determine by majority vote whether to establish such a tax limitation. If improvements (other than repairs or improvements required to comply with governmental requirements) 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 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 Section 1-d-1. 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 Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. In addition, effective for tax years 2008 and thereafter, Article VIII, Section 1-n of the Texas Constitution and Section of the Texas Tax Code provides for an exemption from taxation for goods-in-transit, which are defined as personal property acquired or imported into the state and transported to another location inside or outside the state within 175 days of the date the property was acquired or imported into the state. 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. After holding a public hearing, a taxing unit may take action by January 1 of the year preceding a tax year to tax goods-in-transit during the following tax year. A taxpayer may obtain only a Freeport exemption or a goods-in-transit exemption for items of personal property. In the 2011 Special Session, the Texas Legislature adopted S.B.1 which nullified all prior decisions to tax goods in transit. For calendar year 2012, the County was required to take action to tax goods in transit between October 1, 2011 and December 31, Article VIII, Section 1-L, provides for the exemption from ad valorem taxation of certain property used to control the pollution of air, water, or land. A person is entitled to an exemption from taxation of all or part of real and personal property that the person owns and that is used wholly or partly as a facility, device or method for the control of air, water or land pollution. A county or a municipality may utilize tax increment financing ( TIF ), pursuant to the Tax Increment Financing Act, Texas Tax Code, Chapter 311, to encourage development and redevelopment within a designated reinvestment zone. Taxes collected from increases in valuation above the base value (the captured appraised value ) by each taxing unit that levies ad valorem taxes on real property in the reinvestment zone may be used to pay costs of infrastructure or other public improvements in the reinvestment zone and to supplement or act as a catalyst for private development in the defined area of the reinvestment zone. The tax increment base value for a taxing unit is the total appraised value of all real property taxable by the taxing unit and located in the reinvestment 15

16 zone as of January 1 of the year in which the county or municipality created the reinvestment zone. Each taxing unit can choose to dedicate all, any portion or none of its taxes collected from the captured appraised value to the costs of improvements in the reinvestment zone. The amount of a taxing unit s tax increment for a year is the amount of property taxes levied by the taxing unit for that year on the captured appraised value of real property taxable by the taxing unit and located in the reinvestment zone, multiplied by the taxing unit s percentage level of participation. In addition, the County may enter into tax abatement agreements with owners of property pursuant to Chapter 312, Texas Tax Code, as amended. Prior to entering into a tax abatement agreement, each taxing entity must adopt guidelines and criteria for establishing tax abatement, which each entity with taxing authority over the property will follow in granting tax abatement to owners of property. The tax abatement agreement may exempt from ad valorem taxation by each of the applicable taxing jurisdictions, including the County, for a period of up to ten (10) years, all or any part of any increase in the assessed valuation of property covered by the agreement over its assessed valuation in the year in which the agreement is executed, on the condition that the property owner make specified improvements or repairs to the property in conformity with the terms of the tax abatement. The County is authorized, pursuant to Chapter 381, Texas Local Government Code, as amended ( Chapter 381 ), to establish programs to promote state or local economic development and to stimulate business and commercial activity in the County. In accordance with a program established pursuant to Chapter 381, and the County may make loans or grants of public funds for economic development purposes, however no obligations secured by ad valorem taxes may be issued for such purposes unless approved by voters of the County. The County may contract with the federal government, the State of Texas, another political subdivision, a nonprofit organization or any other entity, including private entities, for the administration of such a program. EFFECTIVE TAX RATE AND ROLLBACK TAX RATE... The Commissioners Court is required to adopt the annual tax rate for the County before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the County. If the Commissioners 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 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 must annually calculate and publicize its effective tax rate and rollback tax rate. A tax rate cannot be adopted by the Commissioners 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 Commissioners 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 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. 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 effect of rollback is that County taxes for operations are subject to rollback if they exceed the rollback tax rate, but County taxes to pay County indebtedness, including the Bonds, are not subject to rollback. The Property Tax Code provides that certain cities and counties 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. 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. PROPERTY ASSESSMENT AND TAX PAYMENT... Property within the County 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 15 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 15 of each year and the final installment due on August

17 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, the penalty remains at 12%, and interest accrues at a rate of one percent (1%) for each month or portion of a month the tax remains unpaid. A delinquent tax continues to accrue interest as long as the tax remains unpaid, regardless of whether a judgment for the delinquent tax has been rendered. The purpose of imposing such interest penalty is to compensate the taxing unit for revenue lost because of the delinquency. In addition, if an account is delinquent in July, an attorney s collection fee of up to 20% may be added to the total tax penalty and interest charge. 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 County 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 postpetition 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. COUNTY APPLICATION OF TAX CODE... The County grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $16,670; the disabled are also granted an exemption of $10,000. The County has not granted an additional exemption of 20% of the market value of residence homesteads; minimum exemption of $5,000. See Table 1 for the total amount of exemptions granted by the County for the 2014/15 fiscal year. Ad valorem taxes are not levied by the County against the exempt value of residence homesteads for the payment of debt. The County does not tax nonbusiness personal property. The Appraisal District collects taxes for the County. The County does not permit split payments. Discounts are allowed for early payments as follows: Payment Discount October 31 3% November 30 2% December 31 1% The County does tax freeport property; and, the County has taken action to tax goods-in-transit. The County does collect the additional one-half cent sales tax for ad valorem taxes. The County has voted to freeze the taxes on residence homesteads of persons aged 65 or older or the disabled beginning in tax year Taxes on such homesteads are frozen in the year the taxpayer qualified for the exemption. A property tax exemption for 100% disabled veterans and their surviving spouses, HB3613, was passed by the Texas legislature during the spring of 2009 and became effective on September 1, In addition, effective January 1, 2012, subject to certain conditions, surviving spouses of a deceased veteran who had received a disability rating of 100% are entitled to receive a residential homestead exemption equal to the exemption received by the deceased spouse until such surviving spouse remarries. Based upon estimates provided by the Tax Appraisal District of Bell County Appraisal District, the 2014 fiscal impact was approximately $449,467,053 (calculated on 3,355 filed applications). To be eligible for the exemption, an applicant must have been approved to receive 100% disability compensation from the United States Department of Veteran s Affairs. TAX ABATEMENT POLICY... The County has adopted a tax abatement policy. The County is committed to the attraction of high quality development in all parts of the County to expand and diversify the tax base. Generally, the County will, on a case by case basis, give consideration to providing financial incentives as a stimulus for economic development within the County. The tax abatement agreements to which the County is a party apply to an estimated total appraised value for tax year 2015 of $62,351,

18 TAX INCREMENT FINANCING DISTRICTS... In tax increment financing districts, the property in each such district (or reinvestment zone ) is taxed but the taxes on the incremental value of such property beyond a baseline year ( capture appraised value ) are dedicated solely to improvements within such zone, and would not be available for payment of the Bonds. The County has not adopted a formal policy for the creation of or participation in reinvestment zones. However, the County has agreed to participate in reinvestment zones created by the City of Belton, the City of Temple, and the City of Killeen. The County has agreed to contribute 100% of its ad valorem taxes for the zone in the City of Temple, and its taxes levied for County constitutional funds (but not road and bridge taxes) for the zones in the City of Belton or City of Killeen. The County s obligation to participate in these zones expires at different times, with the longest participation period extending to December 13, The captured appraised value of property currently subject to these agreements is approximately $577,303,238. TABLE 1 VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2014/15 Market Valuation Established by Bell County Appraisal District (excluding totally exempt property and exempt agricultural use value) $ 17,886,348,151 Less Exemptions/Reductions 2,502,589, /15 Net Taxable Assessed Valuation (before freeze) $ 15,383,758,635 Debt Payable from Ad Valorem Taxes (as of ) General Obligation Debt $ 94,675,000 (1) The Bonds 11,265,000 The Certificates 31,105,000 Debt Payable from Ad Valorem Taxes $ 137,045,000 Interest and Sinking Fund (as of ) $ 5,136,103 Ratio Net Tax Supported Debt to Taxable Assessed Valuation 0.89% 2015 Estimated Population - 330,730 Per Capita Net Taxable Assessed Valuation (before freeze) - $46,515 Per Capita Debt Payable from Ad Valorem Taxes - $414 (1) Excludes the Refunded Obligations. TABLE 2 VALUATION AND GENERAL OBLIGATION DEBT HISTORY Ratio Funded G.O. Fiscal Net Per Capita Debt Tax Debt Year Taxable Taxable Outstanding to Taxable Funded Ended Estimated Assessed Assessed at End Assessed Debt Per 9-30 Population (1) Valuation Valuation of Year Valuation Capita ,000 $ 13,339,308,695 $ 42,347 $ 125,045, % $ ,000 13,726,272,535 42, ,200, % ,317 14,001,685,605 43, ,035, % ,455 14,527,421,770 44, ,865, % ,730 15,383,758,635 46, ,375,000 (2) 0.89% (2) 412 (1) Source: The County and their audited financial reports. (2) Projected; includes the Obligations, excludes the Refunded Obligations. 18

19 TABLE 3 TAX RATE, LEVY AND COLLECTION HISTORY Fiscal Year Distribution Ended 9-30 Tax Rate General Fund (1) Interest and Sinking Fund Tax Levy (2) % Current Collections % Total Collections 2011 $ $ $ $ 53,839, % 98.37% ,910, % 98.41% ,692, % 98.03% ,683, % 98.00% ,066, % (3) 96.91% (3) (1) Includes special road and bridge tax levied for the County s special Road and Bridge Fund, which amount was equal to $ for 2011 fiscal year and $ for fiscal years (2) Based on Total Tax Rate including road and bridge tax. (3) Partial collections as of March 31, TABLE 4 TEN LARGEST TAXPAYERS 2014/15 % of Total Taxable Freeze- Assessed Adjusted Name of Taxpayer Valuation TAV Panda Temple Power LLC $ 320,034, % Oncor Electric Delivery Co., LLC 258,500, % Wal-Mart Real Estate Business Trust 152,428, % McLane Company Inc. 128,191, % Pactiv Corporation 86,257, % Wilsonart International 71,576, % Burlington Northern Santa Fe Railway 61,051, % Sam's East Inc. # ,684, % HEB Grocery Company 55,067, % HH/Killeen Health System LLC 51,271, % $ 1,244,062, % The District is a participant in certain tax increment financing districts (collectively, the TIRZ ). The property of Panda Temple Power LLC detailed above is located within the TIRZ. (See herein, TAX INFORMATION Tax Increment Financing Districts for a description of the tax impact on the County for its participation in the TIRZ. GENERAL OBLIGATION DEBT LIMITATION... Limited Tax Debt Payable from the $0.80 Constitutional Tax Rate... Section of the Texas Government Code limits the amount of bonds that may be issued for certain purposes as follows: Courthouse Bonds - 2% of Assessed Valuation Jail Bonds - 1 ½% of Assessed Valuation Courthouse and Jail Bonds - 3 ½% of Assessed Valuation Road and Bridge Bonds - 1 ½% of Assessed Valuation However, courthouse, jail and certain other types of bonds may be issued under the authority of Subchapter D of Chapter 1473, Texas Government Code, which removes the above limitations, and authorizes the tax limit under Article VIII, Section 9. Article VIII, Section 9, of the Texas Constitution, imposes a tax rate limit of $0.80 per $100 Assessed Valuation for all constitutional purposes, including the General Fund, Permanent Improvement Fund, Road and Bridge Fund and Jury Fund, and debt service of bonds, warrants, anticipation notes and certificates of obligation issued against such funds. Administratively, the Attorney General of the State of Texas will permit allocation of $0.40 of the $0.80 constitutional tax rate for debt service of limited tax obligations issued by counties as calculated at the time of issuance and based on a 90% collection rate. The Bonds are limited tax obligations payable from the County s $0.80 constitutional tax rate. The current County tax rates for debt are shown in Table 3 TAX RATE, LEVY AND COLLECTION HISTORY under INTEREST AND SINKING FUND. Unlimited Tax Road Bonds... Article III, Section 52, Texas Constitution, authorizes the County to levy a separate tax, without legal limit as to rate, to pay debt service on County road bonds issued pursuant to such authority upon approval by a majority of 19

20 participating voters in an election held to approve the issuance of such bonds. Article III, Section 52, of the Texas Constitution also provides that unlimited tax road bond debt may not exceed 25% of the County s assessed valuation of real estate. Road Maintenance... Under Section , Texas Transportation Code, a county may adopt an additional ad valorem tax not to exceed $0.15 on the $100 assessed valuation of property provided by Article VIII, Section 9 of the Texas Constitution, for the further maintenance of county roads. This additional tax may be established by the Commissioners Court only upon approval by a majority of participating voters in an election held to approve such additional tax. The additional tax may not be used for debt service. The voters of the County have approved the adoption of the additional county road maintenance tax. Farm-to-Market and/or Flood Control... Under Section , Texas Transportation Code, a county may adopt an additional ad valorem tax not to exceed $0.30 on the $100 assessed valuation, after exemption of homesteads up to $3,000, provided by Article VIII, Section 9 of the Texas Constitution, for the construction and maintenance of farm-to-market and lateral roads or for flood control. This additional tax may be established by the Commissioners Court only upon approval by a majority of participating voters in an election held to approve such additional tax. No allocation is prescribed by statute between debt service and maintenance. Therefore, all or part may be used for either purpose. The voters of the County have not approved the adoption of the additional farm-to-market road tax. TABLE 5 TAX ADEQUACY (1) 2015 Principal and Interest Requirements $ 12,990,068 $ Tax Rate at 98% Collection Produces $ 12,995,584 Average Annual Principal and Interest Requirements, $ 10,601,913 $ Tax Rate at 98% Collection Produces $ 10,613,563 Maximum Annual Principal and Interest Requirements, 2019 $ 15,001,338 $ Tax Rate at 98% Collection Produces $ 15,015,779 (1) Calculated using net taxable value. Includes the Obligations and excludes the Refunded Obligations. (The remainder of this page intentionally left blank.) 20

21 TABLE 6 ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the County are paid out of ad valorem taxes levied by such entities on properties within the County. Such entities are independent of the County and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax debt ( Tax 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 County, the County 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 reflects the estimated share of overlapping Tax Debt of the County. County's Total Overlapping Tax Supported Estimated % Tax Supported Taxing Jurisdiction Debt Applicable Debt as of 3/31/15 Bell County $ 137,045,000 (1) % $ 137,045,000 School Districts: Academy ISD $ 21,770, % $ 21,770,000 Bartlett ISD 1,275, % 510,765 Belton ISD 127,704, % 127,704,996 Bruceville-Eddy ISD 6,640, % 80,344 Copperas Cove ISD 26,638, % 1,680,890 Florence ISD 6,574, % 886,967 Gatesville ISD 17,900, % 28,640 Holland ISD 5,678, % 5,375,032 Killeen ISD 69,600, % 69,600,000 Lampasas ISD 38,639, % 255,024 Moody ISD 10,673, % 2,906,405 Rogers ISD 12,651, % 11,558,232 Rosebud-Lott ISD % - Salado ISD 19,295, % 19,295,000 Temple ISD 82,630, % 82,630,035 Troy ISD 18,325, % 17,689,133 Cities: Bartlett $ 1,115, % $ 461,610 Belton 20,195, % 20,195,000 Copperas Cove 77,915, % - Harker Heights 51,515, % 51,515,000 Holland 180, % 180,000 Killeen 217,890, % 217,890,000 Morgan's Point Resort 2,780, % 2,780,000 Nolanville 2,195, % 2,195,000 Rogers 593, % 593,000 Temple 111,640, % 111,640,000 Troy 1,460, % 1,460,000 Special Districts: Bell County WCID #1 $ % $ - Bell County WCID # % - Colleges: Central Texas College District $ % $ - Temple College District 21,710, % 21,710,000 Total Direct and Overlapping Tax Supported Debt $ 929,636,074 Ratio of Direct and Overlapping Tax Supported Debt to Taxable Assessed Valuation 6.04% Per Capita Overlapping Tax Supported Debt $ 2,811 (1) Includes the Obligations and excludes the Refunded Obligations. 21

22 DEBT INFORMATION TABLE 7 DEBT SERVICE REQUIREMENTS Fiscal Year Total Ending Outstanding Debt (1) The Bonds (2) The Certificates (3) Debt Service 9/30 Principal Interest Total Principal Interest Total Principal Interest Total Requirements 2015 $ 8,960,000 $ 3,679,748 $ 12,639,748 $ - $ 86,498 $ 86,498 $ - $ 263,822 $ 263,822 $ 12,990, ,915,000 3,135,200 12,050, , , ,000 1,484,000 1,669,000 14,205, ,160,000 2,856,684 12,016, , , ,000 1,480,300 2,055,300 14,558, ,180,000 2,560,044 12,740, , ,550 80,000 1,468,800 1,548,800 14,775, ,880,000 2,268,288 11,148,288 1,205, ,450 1,667, ,000 1,465,600 2,185,600 15,001, ,170,000 1,985,381 11,155,381 1,255, ,250 1,668, ,000 1,436,800 2,176,800 15,000, ,425,000 1,703,622 9,128,622 1,310, ,675 1,668,675 1,390,000 1,407,200 2,797,200 13,594, ,770,000 1,446,851 8,216,851 1,375, ,825 1,669,825 1,460,000 1,337,700 2,797,700 12,684, ,015,000 1,205,742 8,220,742 1,440, ,450 1,664,450 1,535,000 1,264,700 2,799,700 12,684, ,270, ,240 8,223,240 1,500, ,950 1,665,950 1,610,000 1,187,950 2,797,950 12,687, ,000, ,468 5,721,468 1,555, ,350 1,667,350 1,690,000 1,107,450 2,797,450 10,186, ,220, ,605 5,727,605 1,625,000 40,625 1,665,625 1,775,000 1,022,950 2,797,950 10,191, ,565, ,149 3,881, ,855, ,200 3,789,200 7,670, ,725, ,340 3,880, ,995, ,450 3,786,450 7,666, ,000 54, , ,145, ,700 3,786,700 4,676, ,000 18, , ,305, ,450 3,789,450 4,683, ,435, ,250 3,787,250 3,787, ,610, ,500 3,790,500 3,790,500 $ 102,965,000 $ 23,568,887 $ 126,533,887 $ 11,265,000 $ 3,618,723 $ 14,883,723 $ 31,105,000 $ 18,311,822 $ 49,416,822 $ 190,834,432 (1) Excludes the Refunded Obligations. (2) Interest on the Bonds calculated at a final true interest cost of 2.55%. (3) Interest on the Certificates calculated at a final true interest cost of 3.49%.

23 TABLE 8 INTEREST AND SINKING FUND BUDGET PROJECTION Estimated Tax Supported Debt Service Requirements, Fiscal Year Ending $ 12,990,068 Interest and Sinking Fund, $ 2,474,800 Fiscal 2015 Interest and Sinking Fund Tax 100% Collections 14,029,988 16,504,788 Estimated Balance, $ 3,514,720 AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS... None ANTICIPATED ISSUANCE OF ADDITIONAL GENERAL OBLIGATION DEBT... The County does not anticipate the issuance of additional general obligation debt within the next twelve months. TABLE 9 OTHER OBLIGATIONS... The County has no unfunded debt outstanding as of April 1, PENSION FUND... The County provides retirement, disability and death benefits for all of its full-time employees through a nontraditional, joint contributory, defined benefit plan in the State-wide Texas County and District Retirement System (TCDRS). Members can retire at ages 60 and above with 8 or more years of service, with 30 years of service regardless of age, or when the sum of their age and years of service equals or exceeds 75. Members are vested after 8 years of service but must leave their accumulated contributions in the plan to receive any employer-financed benefits. Members who withdraw their personal contributions in a lump sum are not entitled to any amounts contributed by their employer. The plan provisions are adopted by the Commissioners Court, within the options available under the State laws governing TCDRS. The County has elected the annually determined contribution rate plan provisions of the TDCRS. The plan is funded by monthly contributions from employee members and the County based on the covered payroll of employee members. The contribution rate of the County is actuarially determined annually. Using actuarially determined rates, the County contributed 12.14% for the months of the accounting year in 2013 and 12.87% for the months of the accounting year in The contribution rate payable by employees is 7% for the calendar years 2013 and However, the plan of benefits adopted by the employer at the time of plan inception and when benefit increases are adopted is limited by statute to what the actuary determines can be adequately financed by the commitment of the employer to contribute the same amount as the employee. The statute specifies that the actuary s determination is based on a maximum period for amortizing the unfunded pension benefit obligation of 30 years. As of September 30, 2013, the most recent actuarial valuation date, the plan was 83 percent funded. The actuarial accrued liability for benefits was $165,111,105. The actuarial value of assets was $137,037,498 resulting in an unfunded actuarial accrued liability (UAAL) of $28,073,607. The covered payroll (annual payroll of active employees covered by the plan) was $45,281,752 and the ratio of the UAAL to the covered payroll was percent. (For more detailed information concerning the retirement plan, see APPENDIX B EXCERPTS FROM THE, ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014 Note #P.) DEFERRED COMPENSATION PLAN... The County offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. In 1998, the County implemented the requirements of GASB No. 32, Accounting and Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans. In accordance with this statement and recent tax law changes, the County has amended their trust agreement which establishes that all assets and income of the trust are for the exclusive benefit of eligible employees and their beneficiaries. Due to the implementation of these changes, the County does not have any fiduciary responsibility or administrative duties relating to the deferred compensation plan other than remitting employees contributions to the trustee. Accordingly, the County has not presented the assets and income from the plan in their financial statements. See Note Q, Deferred Compensation Plan, in APPENDIX B EXCERPTS FROM THE, ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, OTHER POST-EMPLOYMENT BENEFITS... In addition to providing pension benefits through TCDRS, the County provides postretirement group health care benefits to retired employees (the Retiree Health Plan ). For fiscal year 2014, the County contributed $180 for health insurance and $9 for dental insurance for each participating retired employee. Additional family health coverage is available if paid for by the retired employee. As of September 2014, there were 64 retirees participating in the Retiree Health Plan, 166 active employees who were fully eligible to participate upon retirement, and 846 active employees who were not eligible to participate. The funding rates for the Retiree Health Plan are set annually by the Commissioners Court, and the Retiree Health Plan fund is funded on a pay-as-you-go basis. For the fiscal year ended September 30, 2014, the County contributed $86,713 and the retirees contributed $152,911 for a total contribution of $239,624. Based on an actuarial study commissioned by the County, the County is considering strategies to manage the impact of the required future liability reporting. The magnitude of OPEBs depends on a variety of factors, including whether the County elects to continue to use pay-as-you-go funding to fund the costs associated with OPEBs. 23

24 Chapter 2264 of the Texas Government Code, which was passed during the Regular Session of the 80th Texas Legislature ( Chapter 2264 ), establishes an alternative, statutorily-based comprehensive basis for Texas governmental entities to account for OPEB obligations. Chapter 2264 permits political subdivisions to elect whether to report retiree health benefits (i) on a pay-as-you-go basis or (ii) per the methodology established by GASB 45. Governmental entities that elect to report on a pay-as-you go-basis pursuant to Chapter 2264, would have the option of reporting the information required by GASB 45 in the footnotes to their financial statements. However, governmental entities that elect to report OPEB liabilities in accordance with Chapter 2264 (in lieu of GASB 45) may receive qualified and/or adverse opinions from outside auditors and their bond ratings could be adversely affected. The County has determined its annual OPEB cost to be $314,885, which consists entirely of the actuarially defined annual required contribution. The actual dollar amount contributed by the County during fiscal 2014 was $86,713. At September 30, 2014, the County had a net OPEB obligation of $1,128,250. In addition, as of September 30, 2014, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $3,394,272 and the County s actuarial value of assets was $0, and therefore the Retiree Health Plan was 0% funded. See Note R, Post-Employment Benefits, in APPENDIX B EXCERPTS FROM THE BELL COUNTY, TEXAS, ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, FINANCIAL INFORMATION TABLE 10 GENERAL FUND REVENUES AND EXPENDITURE HISTORY Fiscal Years Ended September 30, Revenues: Ad Valorem Taxes $ 41,343,727 $ 39,397,802 $ 37,198,172 $ 32,455,263 $ 32,605,732 Sales Tax 16,997,993 15,801,778 15,009,917 14,113,598 13,902,661 Inmate Lodging 298, , , , ,081 Fees 10,288,530 10,523,779 10,002,736 9,599,967 9,506,392 Fines and Forfeitures 2,668,410 3,046,208 3,022,093 3,139,404 3,300,203 Intergovernmental 1,397,827 1,237,042 1,206,110 1,260,151 1,450,515 Licenses and Permits 2,835,603 2,755,454 2,374,535 2,320,734 2,147,419 Interest and Other 2,772,020 2,957,642 2,826,102 2,870,572 2,905,177 Total Revenues $ 78,602,230 $ 76,294,583 $ 72,291,492 $ 66,353,863 $ 66,373,180 Expenditures: General Administration $ 19,330,315 $ 18,863,686 $ 18,430,959 $ 17,207,676 $ 17,920,646 Judicial and Legal 14,769,428 14,311,284 14,146,393 13,542,916 12,938,155 Public Safety 29,410,773 28,770,413 27,021,234 26,559,328 26,191,970 Health and Welfare 1,735,134 1,688,444 1,598,456 1,665,512 1,121,695 County Road and Bridges 5,236,513 5,368,376 5,169,163 5,032,432 4,957,548 Conservation 777, , , , ,844 Total Expenditures $ 71,259,304 $ 69,730,173 $ 67,070,115 $ 64,801,372 $ 63,845,858 Excess (Deficiency) of Revenues Over Expenditures $ 7,342,926 $ 6,564,410 $ 5,221,377 $ 1,552,491 $ 2,527,322 Operating Transfers In $ 86,469 $ - $ 281 $ 37,458 $ 65,758 Operating Transfers Out (3,893,127) (3,796,810) (3,785,003) (3,259,708) (3,866,616) Net Transfers $ (3,806,658) $ (3,796,810) $ (3,784,722) $ (3,222,250) $ (3,800,858) Deficiency of Revenues Over Expenditures and Other Sources $ 3,536,268 $ 2,767,600 $ 1,436,655 $ (1,669,759) $ (1,273,536) Beginning Fund Balance 34,509,735 31,742,135 30,305,480 31,975,239 (1) 32,899,111 Ending Fund Balance $ 38,046,003 $ 34,509,735 $ 31,742,135 $ 30,305,480 $ 31,625,575 Source: County s audited financial statements. (1) Restated. FINANCIAL POLICIES... For a summary of accounting policies, please see Note A, Summary of Significant Accounting Policies in APPENDIX B EXCERPTS FROM THE, ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30,

25 INVESTMENTS The County invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the Commissioners Court of the County. Both State law and the County s investment policies are subject to change. LEGAL INVESTMENTS... Under Texas law, the County 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, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States; (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 and share certificates meeting the requirements of the Public Funds Investment Act, Chapter 2256, Texas Government Code, as amended (the PFIA ), (i) that are issued by an institution that has its main office or a branch office 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 County deposits, or (ii) that are invested by the County through a depository institution that has its main office or a branch office in the State of Texas and otherwise meet the requirements of the PFIA; (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by a combination of cash and obligations described in clause (1) which are pledged to the County, held in the County s name, and deposited at the time the investment is made with the County or with a third party selected and approved by the County and are placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in the State; (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 Securities and Exchange Commission 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 Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in 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 below. A political subdivision such as the County 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 County, held in the County s name and deposited at the time the investment is made with the County or a third party designated by the County; (iii) a loan made under the program is placed 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. The County 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 County 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 County retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the County must do so by order or resolution. The County 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) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Under Texas law, the County 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 County funds, the maximum allowable stated maturity of any individual investment, the maximum average dollar-weighted maturity allowed for pooled fund groups, methods to monitor the market price of investments acquired with public funds, a requirement for settlement of all transactions, except investment pool funds and mutual funds, on a delivery versus payment basis, and procedures to monitor rating changes in investments acquired 25

26 with public funds and the liquidation of such investments consistent with the Public Funds Investment Act. All County 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. Under Texas law, the County s investments must be made with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person s own affairs, not for speculation, but for investment considering the probable safety of capital and the probable income to be derived. At least quarterly the County s investment officers must submit an investment report to the Commissioners Court detailing: (1) the investment position of the County, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, the ending market value and the fully accrued interest during the reporting period of each pooled fund group, (4) the book value and market value of each separately listed asset at the 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 County funds without express written authority from the Commissioners Court. Under Texas law, the County is additionally required to: (1) annually review its adopted policies and strategies; (2) adopt a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order, ordinance or resolution; (3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the County to disclose the relationship and file a statement with the Texas Ethics Commission and the County Commissioners Court; (4) require the qualified representative of firms offering to engage in an investment transaction with the County to: (a) receive and review the County s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the County and the business organization that are not authorized by the County s investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the County s entire portfolio or requires an interpretation of subjective investment standards), and (c) deliver a written statement in a form acceptable to the County and the business organization attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the County s investment policy; (6) provide specific investment training for the Treasurer, chief financial officer and investment officers; (7) 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 purchase agreement; (8) restrict the investment in no-load mutual funds in the aggregate to no more than 15% of the County s monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; and (10) at least annually review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the County. TABLE 11 CURRENT INVESTMENTS As of March 31, 2015, the County s investable funds were invested in the following categories: Description Book Value Market Value Percentage Federal Agency $ 500,000 $ 500, % Money Market/Checking 17,640,000 17,671, % TexPool 33,145,362 33,145, % Investment Checking 40,000,000 40,000, % Total $ 91,285,362 $ 91,316, % No funds of the County are invested in derivative securities, i.e., securities whose rate of return is determined by reference to some other instrument, index, or commodity. (The remainder of this page intentionally left blank.) 26

27 TAX MATTERS TAX EXEMPTION... In the opinion of Naman, Howell, Smith & Lee, PLLC, Bond Counsel, (i) interest on the Obligations is excludable from gross income for federal income tax purposes under existing law, (ii) interest on the Certificates is not (A) a specific preference item subject to the alternative minimum tax on individuals and corporations or (B) included in a corporation s adjusted current earnings for purposes of the alternative minimum tax and (iii) the Bonds are not private activity bonds under the Internal Revenue Code of 1986, as amended (the Code ), and, as such, interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations. The Code imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Obligations, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of proceeds and the source of repayment, limitations on the investment of proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of proceeds be paid periodically to the United States and a requirement that the Issuer file an information report with the Internal Revenue Service (the Service ). The Issuer has covenanted in the Orders that it will comply with these requirements. Bond Counsel s opinion will assume continuing compliance with the covenants of the Orders pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Obligations for federal income tax purposes and, in addition, will rely on representations by the Issuer, the Issuer s Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the Issuer, the Issuer s Financial Advisor and the Underwriters, respectively, which Bond Counsel has not independently verified. If the Issuer should fail to comply with the covenants in the Orders or if the foregoing representations or report should be determined to be inaccurate or incomplete, interest on the Obligations could become includable in gross income from the date of delivery of the Obligations, regardless of the date on which the event causing such includability occurs. The Code also imposes a 20% alternative minimum tax on the alternative minimum taxable income of a corporation if the amount of such alternative minimum tax is greater than the amount of the corporation s regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S corporation, regulated investment company, REIT, or REMIC), includes 75% of the amount by which its adjusted current earnings exceeds its other alternative minimum taxable income. However, interest on tax-exempt obligations issued in 2009 and 2010 for new money projects or to refund tax-exempt bonds originally issued anytime between 2004 through 2008, inclusive, is not includable in the adjusted current earnings of a corporation for purposes of computing its alternative minimum tax liability. Therefore, interest on the Certificates is not includable in the adjusted current earnings of a corporation for purposes of computing its alternative minimum tax liability, but interest on the Bonds (which are refunding other obligations issued before 2003) is so included and, as such, could subject a corporation investing in the Bonds to alternative minimum tax consequences. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership or disposition of, the Obligations. Bond Counsel s opinions are based on existing law, which is subject to change. Such opinions are further based on Bond counsel s knowledge of facts as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel s attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, Bond Counsel s opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent Bond Counsel s legal judgment based upon its review of existing law and in reliance upon the representations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given as to whether or not the Service will commence an audit of the Obligations. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer and the Owners may not have a right to participate in such audit. Public awareness of any future audit of the Obligations could adversely affect the value and liquidity of the Obligations regardless of the ultimate outcome of the audit. FEDERAL INCOME TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT... The initial public offering price to be paid for one or more maturities of the Obligations (the Original Issue Discount Obligations ) may be less than the principal amount thereof. In such event, the difference between (i) the amount payable at the maturity of each Original Issue Discount Obligation, and (ii) the initial offering price to the public of such Original Issue Discount Obligation would constitute original issue discount with respect to such Original Issue Discount Obligation in the hands of any owner who has purchased such Original Issue Discount Obligation in the initial public offering of the Obligations. Under existing law, such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Obligation equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Obligation continues to be owned by such owner. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Obligation prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Obligation in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Obligation was held by such initial owner) is includable in gross income. 27

28 Under existing law, the original issue discount on each Original Issue Discount Obligation is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Obligations and ratably within each such six-month period) and the accrued amount is added to an initial owner s basis for such Original Issue Discount Obligation for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Obligation. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Obligations which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Obligations should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Obligations and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Obligations. COLLATERAL FEDERAL INCOME TAX CONSEQUENCES... The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Obligations. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed earned income credit, owners of an interest in a FASIT, certain S corporations with Subchapter C earnings and profits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt Obligations. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE OBLIGATIONS. Interest on the Obligations will be includable as an adjustment for adjusted current earnings to calculate the alternative minimum tax imposed on corporations by section 55 of the Code. Section 55 of the Code imposes a tax equal to 20 percent for corporations, or 26 percent for non-corporate taxpayers (28 percent for taxable excess exceeding $175,000), of the taxpayer s alternative minimum taxable income, if the amount of such alternative minimum tax is greater than the taxpayer s regular income tax for the taxable year. Interest on the Obligations may be subject to the branch profits tax imposed by section 884 of the Code on the effectively connected earnings and profits of a foreign corporation doing business in the United States. Under section 6012 of the Code, holders of tax-exempt obligations, such as the Obligations, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax-exempt obligation, such as the Obligations, if such obligation was acquired at a market discount and if the fixed maturity of such obligation is equal to or exceeds, one year from the date of issue. Such treatment applies to market discount obligations to the extent such gain does not exceed the accrued market discount of such Obligations, although for this purpose, a de minimis amount of market discount is ignored. A market discount obligation is one which is acquired by the holder at a purchase price which is less than the stated redemption price or, in the case of an obligation issued at an original issue discount, the revised issue price (i.e., the issue price plus accrued original issue discount). The accrued market discount is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the Obligation bears to the number of days between the acquisition date and the final maturity date. The Obligations are not bank qualified obligations under Section 265 of the Code. STATE, LOCAL AND FOREIGN TAXES... Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Obligations under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons. 28

29 CONTINUING DISCLOSURE OF INFORMATION In the Orders, the County has made the following agreement for the benefit of the holders and beneficial owners of the Obligations. The County is required to observe the agreement for so long as it remains obligated to advance funds to pay the Obligations. Under the agreement, the County will be obligated to provide certain updated financial information and operating data annually, and timely notice of certain specified events, to the Municipal Securities Rulemaking Board (the MSRB ). ANNUAL REPORTS... The County will provide certain updated financial information and operating data to the MSRB annually. The information to be updated includes all quantitative financial information and operating data with respect to the County of the general type included in this Official Statement in Tables 1 through 5 and 7 through 11 and in APPENDIX B. The County will update and provide this information to the MSRB within 6 months after the end of each fiscal year ending in and after The financial information and operating data to be provided may be set forth in full in one or more documents or may be included by specific reference to any document available to the public on the MSRB s Internet Web site or filed with the Securities and Exchange Commission (the SEC ), as permitted by SEC Rule 15c2-12 (the Rule ). The updated information will include audited financial statements, if the County commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the County will provide unaudited financial statements 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 County may be required to employ from time to time pursuant to State law or regulation. The County s current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the County changes its fiscal year. If the County changes its fiscal year, it will notify the MSRB. EVENT NOTICES... The County will also provide notices of certain events to the MSRB. The County will provide notice of any of the following events with respect to the Bonds to the MSRB in a timely manner and not more than 10 business days after occurrence of the event: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (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, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) Bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership, or similar event of the County, which shall occur as described below; (13) the consummation of a merger, consolidation, or acquisition involving the County or the sale of all or substantially all of its assets, other than in the ordinary course of business, the entry into of a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. For these purposes, any event described in the immediately preceding clause (12) is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the County in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the County, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the County. Neither the Bonds nor the Order make any provision for debt service reserves, credit enhancement or liquidity enhancement. In addition, the County will provide timely notice of any failure by the County to provide information, data, or financial statements in accordance with its agreement described above under Annual Reports. The County will provide each notice described in this paragraph to the MSRB. AVAILABILITY OF INFORMATION FROM MSRB... In connection with its continuing disclosure agreement entered into with respect to the Obligations, the County will file all required information and documentation 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 at LIMITATIONS AND AMENDMENTS... The County has agreed to update information and to provide notices of specified events only as described above. The County 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 County makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Obligations at any future date. The County 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 or beneficial owners of Obligations may seek a writ of mandamus to compel the County to comply with its agreement. The County may amend its continuing disclosure agreement 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 County, if (1) the agreement, as amended, would have permitted an underwriter to purchase or sell Obligations in the offering described herein in compliance 29

30 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 (2) either (a) the holders of a majority in aggregate principal amount of the outstanding Obligations consent or (b) any person unaffiliated with the County (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the beneficial owners of the Obligations. The County may also repeal or amend these provisions if the SEC amends or repeals the applicable provisions of the Rule or any court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but in either case only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Obligations in the primary offering of the Obligations giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. If the County amends its agreement, it must 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 information and data provided. COMPLIANCE WITH PRIOR UNDERTAKINGS... During the past five years, the County has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule. OTHER INFORMATION RATING... The Obligations have been rated AA+ (stable outlook) by Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ). The presently outstanding limited ad valorem tax supported debt of the County is rated AA+ by S&P and Aa2 by Moody s Investors Service ( Moody s ). The County has not applied to Moody s for a rating on the Obligations. The County also has various outstanding tax supported debt issues which are insured by a financial guaranty insurance policy and also rated based on such insurance. An explanation of the significance of such rating may be obtained from the company furnishing the rating. The rating reflects only the respective view of such organization and the County makes no representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by such rating company, if in the judgment of such company, circumstances so warrant. Any such downward revision or withdrawal of any of such rating may have an adverse effect on the market price of the Obligations. LITIGATION... It is the opinion of the County Attorney and County Staff that there is no pending litigation against the County that would have a material adverse financial impact upon the County or its operations. REGISTRATION AND QUALIFICATION OF OBLIGATIONS FOR SALE... The sale of the Obligations 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 Obligations have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Obligations been qualified under the securities acts of any jurisdiction. The County assumes no responsibility for qualification of the Obligations under the securities laws of any jurisdiction in which the Obligations may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Obligations shall 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) provides that the Obligations are negotiable instruments, investment securities 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 of Texas. With respect to investment in the Obligations by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act, Chapter 2256, Texas Government Code, requires that the Obligations be assigned a rating of at least A or its equivalent as to investment quality by a national rating agency. See OTHER INFORMATION - Rating herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Obligations are legal investments for state banks, savings banks, trust companies with capital of one million dollars or more, and savings and loan associations. The Obligations 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 County has been made of the laws in other states to determine whether the Obligations are legal investments for various institutions in those states. LEGAL MATTERS... The County will furnish complete transcripts of proceedings incident to the authorization and issuance of the Obligations, including the approving legal opinions of the Attorney General of the State of Texas to the effect that the initial Certificate and the initial Bond are a valid and binding obligations of the County, and based upon examination of such transcript of proceedings, the approving legal opinions of Bond Counsel to the effect that the Certificates and Bonds issued in compliance with the provisions of the respective Orders therefor are valid and legally binding obligations of the County and the interest on such Obligations is excludable from gross income for federal income tax purposes under existing law and the Obligations are not private activity bonds, subject to the matters described under TAX MATTERS herein. The forms of such opinions are attached hereto as APPENDIX C. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Obligations in the Official Statement under the captions PLAN OF FINANCING, THE OBLIGATIONS (except for the 30

31 subcaption Book-Entry-Only System ), TAX MATTERS, CONTINUING DISCLOSURE OF INFORMATION (except under the subcaption Compliance with Prior Undertakings ) and the subcaptions Registration and Qualifications of Obligations for Sale, Legal Investments and Eligibility to Secure Public Funds in Texas, and Legal Matters under the caption OTHER INFORMATION and in APPENDIX C and is of the opinion that the information relating to the Obligations and the Orders contained therein fairly and accurately describes the provisions thereof and is correct as to matters of law. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Obligations are contingent on the sale and delivery of the Obligations. The respective legal opinions will accompany the Obligations deposited with DTC or will be printed on the Obligations in the event of the discontinuance of the Book-Entry-Only System. Certain legal matters will be passed upon for the Underwriters by their counsel, Norton Rose Fulbright US LLP, Dallas, Texas, whose legal fee is contingent on the issuance and delivery of the Obligations. The legal opinions to be delivered concurrently with the delivery of the Obligations express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of that 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. NO-LITIGATION CERTIFICATE... The County will furnish to the Underwriters a certificate, dated as of the date of delivery of the Obligations, executed by both the County Judge and County Clerk of the County, to the effect that no litigation of any nature has been filed or is then pending or threatened, either in state or federal courts, contesting or attacking the Obligations; restraining or enjoining the issuance, execution or delivery of the Obligations; affecting the provisions made for the payment of or security for the Obligations; in any manner questioning the authority or proceedings for the issuance, execution, or delivery of the Obligations; or affecting the validity of the Obligations. NO MATERIAL ADVERSE CHANGE... The obligations of the Underwriters to take and pay for the Obligations, and of the County to deliver the Obligations, are subject to the condition that, up to the time of delivery of and receipt of payment for the Obligations, there shall have been no material adverse change in the condition (financial or otherwise) of the County from that set forth or contemplated in the Official Statement. FINANCIAL ADVISOR... Specialized Public Finance Inc. is employed as Financial Advisor to the County in connection with the issuance of the Obligations. The Financial Advisor s fee for services rendered with respect to the sale of the Obligations is contingent upon the issuance and delivery of the Obligations. Specialized Public Finance Inc., in its capacity as Financial Advisor, has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Obligations, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the County has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the County and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. FORWARD-LOOKING STATEMENTS... The statements contained in this Official Statement, and in any other information provided by the County, that are not purely historical, are forward-looking statements, including statements regarding the County 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 County on the date hereof, and the County assumes no obligation to update any such forward-looking statements. The forward-looking statements 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, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate. VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS... The accuracy of the mathematical computations of (i) the adequacy of the maturing principal of and interest earned on the Escrow Securities together with other available funds held in the escrow account, to provide for the payment of the Refunded Bonds, and (ii) the yield on the Escrow Securities and on the Bonds, will be verified by Grant Thornton LLP, a firm of independent certified public accountants. These computations will be based upon information and assumptions supplied by Specialized Public Finance Inc. on behalf of the County. Grant Thornton LLP will restrict its procedures to examining the arithmetical accuracy of the computations and will not evaluate or audit the assumptions or information used in the computations. Such verification will be relied upon by Bond Counsel in rendering its 31

32 opinions with respect to the exclusion from gross income of interest on the Bonds for federal income tax purposes and with respect to the defeasance of the Refunded Bonds. UNDERWRITING... The Underwriters have agreed, subject to certain conditions, to purchase the Bonds from the County, at prices equal to the initial offering prices as set forth on page 2 of this Official Statement, less an underwriting discount of $73, The Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Underwriters have also agreed, subject to certain conditions, to purchase the Certificates from the County, at prices equal to the initial offering prices as set forth on page 4 of this Official Statement, less an underwriting discount of $205, The Underwriters will be obligated to purchase all of the Certificates if any Certificates are purchased. 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 respective responsibilities 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. One of the Underwriters is BOSC, Inc., which is not a bank, and the Bonds are not deposits of any bank and are not insured by the Federal Deposit Insurance Corporation. MISCELLANEOUS... The financial data and other information contained herein have been obtained from 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 and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. The Orders authorizing the issuance of the Obligations approved the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorized its further use in the reoffering of the Obligations by the Underwriters. This Official Statement was approved by the Commissioners Court of the County for distribution in accordance with the provisions of the Securities and Exchange Commission s rule codified at 17 C.F.R. Section c2-12, as amended. /s/ JOHN H. BURROWS County Judge Bell County, Texas ATTEST: /s/ SHELLEY COSTON County Clerk Bell County, Texas 32

33 SCHEDULE I SCHEDULE OF REFUNDED OBLIGATIONS Limited Tax Refunding Bonds, Series 2008 Amount Maturity Coupon $ 1,155,000 2/15/ % 1,220,000 2/15/ % 1,285,000 2/15/ % 1,355,000 2/15/ % 1,425,000 2/15/ % 1,505,000 2/15/ % 1,585,000 2/15/ % 1,670,000 2/15/ % $ 11,200,000 Redemption Date: 2/15/2018 Redemption Price: 100% 33

34 THIS PAGE LEFT INTENTIONALLY BLANK

35 APPENDIX A GENERAL INFORMATION REGARDING THE COUNTY

36 THIS PAGE LEFT INTENTIONALLY BLANK

37 LOCATION... Bell County, covering an area of 1,055 square miles, lies in central Texas between McLennan, Falls, Coryell and Burnet Counties. Major cities (wholly within) the County are Belton, Harker Heights, Temple and Killeen. The County is at the division point of the Balcones Fault and the beginning of the Blacklands Belt of Central Texas. The County is located 65 miles north of Austin, 40 miles southwest of Waco, and 140 miles south of the Fort Worth-Dallas area. The County encompasses the junction points of IH 35, U.S. 190 and U.S. 81. A number of state highways and farm-to-market roads traverse the County. ECONOMY... Bell County is the site of five major hospitals which include (i) the Scott and White Memorial Hospital, King s Daughters Hospital, Olin E. Teague Veterans Center in Temple, (ii) Metroplex Hospital in Killeen and (iii) Carl R. Darnall Army Medical Center at Fort Hood. The Scott and White Hospital and Clinic and the Olin E. Teague Veterans Center serve as a teaching hospital for Texas A&M University, College of Medicine. The County s economy is centered on manufacturing, agricultural and railroad related industries. The major employer of the County is Fort Hood, a federal military base located adjacent to the City of Killeen and a short distance west of the City of Belton. See page A-2 for a complete description of Fort Hood. UTILITIES... Utility services for the County are provided by the Southwestern Bell Telephone Company, Mid-Texas Telephone Company, TXU and Lone Star Gas. Water and sewer services are provided by the cities and various utility districts throughout the County. TRANSPORTATION... The County is served by Burlington Northern Santa Fe Railway and Amtrak (Temple). Seven motor freight carriers have daily routes. Bus lines include Southwestern Transit, Greyhound and Kerrville. Draughon-Miller Municipal Airport also serves the area from its site in Temple and commercial air service is provided at the Killeen Fort Hood Regional Airport. RECREATION... Lake Belton and Stillhouse Hollow are located within the County and provide numerous camping areas. These lakes are well known as excellent fishing and boating lakes. There are also numerous golf courses and athletic playing fields throughout the County. LABOR MARKET PROFILE Bell County March 2015 March 2014 Total Civilian Labor Force 134, ,682 Total Unemployment 6,213 8,254 Percent Unemployed 4.6% 6.1% Total Employment 128, ,428 Killeen/Temple/Fort Hood March 2015 March 2014 Total Civilian Labor Force 168, ,110 Total Unemployment 7,766 10,413 Percent Unemployed 4.6% 6.1% Total Employment 16, ,697 State of Texas March 2015 March 2014 Total Civilian Labor Force 13,087,881 13,073,389 Total Unemployment 554, ,510 Percent Unemployed 4.2% 5.4% Total Employment 12,533,321 12,367,879 Source: Texas Workforce Commission A-1

38 MILITARY FACILITIES FORT HOOD GENERAL... Fort Hood is the Army s premier armored force installation and strategic power projection platform. In 2001, Fort Hood was authorized 41,000 Soldiers. Since the inception of the Global War on Terrorism, Fort Hood has increased and maintained a current assigned strength of over 46,000 Soldiers with a peak in assigned troop strength of 55,800 Soldiers in March One out of every 10 active duty Soldiers in the Army is assigned to Fort Hood. Located 60 miles north of Austin and 50 miles south of Waco, the fort occupies 342 square miles (over 218,000 acres) of Bell and Coryell Counties. There are more than 196,000 acres of maneuver area on post with 62,605 acres identified for live fire impact. With 2 airfields and 6 Air Strips, Fort Hood has more than 770 miles of paved roads and 471 miles of tank trails. There are currently 6,275 active buildings on post with more than 34 million square feet of floor space. Supported Population approximately 396,242 Post Population 84,746: o Military, On Post Family Members, Civilian Employees, Contractors, Other Employees. Off Post Family Members 60,827 Retirees, Survivors & Family Members is 250,669 ECONOMIC IMPACT... Seven surrounding cities are partnered with and provide substantial quality of life support to Fort Hood. Almost 98 percent of the 46,000-plus Soldiers assigned and their family members live within 10 miles of the installation. These Soldiers are complemented by more than 20,000 civilian employees at the Central Texas post, making Fort Hood the largest single site employer in the state and directly inserting nearly $6 billion annually into the Texas economy. As of 2012, the direct economic impact of Fort Hood on the Texas economy was $4.4 billion dollars, with a total statewide impact of $10.98 billion dollars. Mission of III Corps and Fort Hood Prepare Soldiers and Units for Combat and Take Care of Soldiers, Families, and Civilians at the Great Place Since 2005, Fort Hood has deployed 135,738 Soldiers in support of Operation Iraqi Freedom (OIF) & Operation Enduring Freedom (OEF). A-2

39 Tactical Units Assigned to Fort Hood Tenant Units Assigned to Fort Hood III Corps Headquarters 1 st Army Division West Headquarters 1 st Cavalry Division Operational Test Command 13 th Sustainment Command (E) U.S. Army Garrison Ft Hood 3 rd Armored Cavalry Regiment MEDCOM 15 th Sustainment Brigade 407 th AFSB & CTSF 4 th Sustainment Brigade 57 th SIG BN (E)/62 nd SIG BN (E) 1 st Medical Brigade 69 th Air Defense Artillery BDE 41 st Fires Brigade 120 th TSB 36 th Engineer Brigade 15 th MI BN 89 th MP Brigade 21 st CAV BDE 504 th Battlefield Surveillance BDE 48 th Chemical BDE 13 th Finance Management Center 11 th CID BN 4 th Combat Aviation Brigade 166 th AVN BDE RESERVE COMPONENT (RC) MOBILIZATION... Fort Hood is one of the Army s six Enduring Mobilization Training Centers (EMTC) for Army National Guard and Army Reserve. It serves as the home of First Army Division West Headquarters and three of its Training Support Brigades. North Fort Hood serves as Fort Hood s principal location for all Reserve Component post-mobilization training. The primary mission sets trained at Fort Hood in support of overseas contingency operations are: aviation operations, transportation operations, and Division and Brigade level Command and Control operations. The Directorate of Plans, Training, Mobilization, and Security (DPTMS) has overall responsibility for mobilization on Fort Hood. The Mobilization Division of DPTMS manages the execution of installation support with the Hood Mobilization Brigade providing Command and Administrative Control of mobilizing units. Since October 2001, 44,676 Soldiers have mobilized through Fort Hood with over 15,000 soldiers being from Texas. The ability of Fort Hood to sustain this extremely high volume of mobilized Soldiers is due in large part to newly expanded facilities on the north side of Post. North Fort Hood provides facilities and resources which support an overall capacity of 2,636 mobilizing troops. Facilities and services which support both mobilization and nonmobilization training at NFH include; billeting, dining facilities, troop medical services, vehicle maintenance, supply and services support, fuel operations, airfield (2) support, Fitness Center, and many other critical support services. CAPACITY UTILIZATION... The Army has consistently recognized the unique ability of Fort Hood and Central Texas to house, support and sustain 50,000 Soldiers and their Families in whatever formations today s and tomorrow s forces will find themselves. The Government Accounting Office (GAO) also supports the Army s contention that on a per capita basis, Soldier training at Fort Hood continues to be more economically accomplished than at any other major Army installation. Fort Hood is fully capable to support current and future Army, joint and combined force mission requirements. The post s largest single on-post training segment is called the Western Maneuver Area (WMA) which stretches 20 miles from north to south and from the western boundary of the installation eastward to the live fire impact area. The WMA easily accommodates a full-up, modern, digitally equipped heavy battalion task force exercising in multiple scenarios over several weeks at a time. Direct access to Lake Belton provides training in all phases of water obstacle and river crossing operations, from small unit to division level. The Army s largest Battle Command Training Center is located at Fort Hood. The largest combat aviation training area in the free world, comprised of 15,900 square miles, begins on Fort Hood and continues west from Bell and Coryell Counties to Runnels and Tom Green Counties. This allows U.S. and allied military helicopter crews to train in a realistic environment that affords the distances and depths required in combat aviation operations. COMMUNITY PARTNERSHIPS... Fort Hood s ability to preserve its world-class training capability requires fostering productive partnerships with our surrounding communities that address the preservation of Economic, Environmental, and Land Initiatives within surrounding communities. The Central Texas Sustainable Communities Partnership, a regional alliance for the long term sustainability of our Central Texas Community, was started at the Earth Fest celebration in April This alliance has direct involvement by the cities of Killeen, Harker Heights, Copperas Cove, and Gatesville, with Fort Hood as the 5th partner. The primary purpose of this partnership is to foster long term sustained economic growth, improve quality of life for the region, and improve the environmental quality of the region. Since 1998, assisted by The Nature Conservancy, the Texas Parks and Wildlife Department, Texas Agrilife Research A-3

40 (Institute for Renewable Natural Resources), and the State of Texas Fort Hood has made substantial progress in restoring the state s populations of the Black Capped Vireo and the Golden Cheeked Warbler after both faced extinction. Fort Hood has identified 800 sites with possible sensitive cultural ties to early Native Americans or western settlers who occupied the area prior to the 1942 founding of Fort Hood. The installation is working with the Texas State Historical Preservation Office under the Alternative Procedures Program to identify the sites which are historically significant. In late 2008, Fort Hood partnered with Gatesville to begin the collection and treatment of sanitary sewage from the ever-growing North Fort Hood cantonment area, replacing a very old and labor-intensive lagoon system that had been operated by the Installation for many years. CAPITAL INVESTMENT... The Army has consistently demonstrated its commitment to long term infrastructure improvements at Fort Hood. These include new or renovated barracks, state of the art command and control facilities, the 21st century Krueger Soldier Development & Education Center, the one-stop Copeland Soldier Service Center, an aggressive range modernization program and modern installation support facilities. Ft. Hood Capital Investment 2006 $60M 2007 $79M 2008 $182M 2009 $1.044B 2010 $43M HEALTH INFRASTRUCTURE... Fort Hood s Carl R. Darnall Army Medical Center (CRDAMC) is a teaching hospital affiliated with Scott & White Memorial Hospital, the Dept. of Veterans Affairs (VA) Central Texas Health Care System in Temple, and with Texas A&M University Health Science Center College of Medicine in Bryan-College Station. CRDAMC has residency programs in Emergency Medicine and Family Practice, and combined graduate medical programs in obstetrics and gynecology, pediatrics and medicine with Wilford Hall Air Force and Brooke Army Medical Centers in San Antonio. Darnall serves more than 172,000 military beneficiaries in a 40 mile radius of Fort Hood. The Fort Hood leadership, in conjunction with federal assistance, is moving forward with the construction of a new Carl R. Darnall Army Medical Center on Fort Hood with an estimated cost of 1 billion dollars. There is no question the need exists. CRDAMC lacks specialists to provide comprehensive care and refers patients to local civilian hospitals for advanced diagnostics and healthcare. Recent and future projects to expand medical services to our military community include: Construction of a Traumatic Brain Injury Center A 46,000 Square foot Women s Health Clinic Addition Renovation of three Dental Clinics Construction of West and North Fort Hood Primary Care Clinics Intensive Outpatient Addiction Treatment Facility MCA CONSTRUCTION... Military Construction Army (MCA) is the primary funding program to reduce large square foot deficits while improving facility conditions. Fort Hood has nine MCA projects for a total of $161M under construction, and 12 projects for a total of $1.13B under design that will reduce our deficits in the critical facilities by 1.15M square feet, or approximately 22 percent. These projects are scheduled for completion between Fiscal Year 2010 and Fiscal Year Fort Hood currently has 6 Child Development Centers, one Youth Center, and one Kids On Site Center scheduled to be constructed between FY10 and FY13. Fort Hood is scheduled to activate two Thermal High Altitude Aerial Defense (THAAD) Battery s in FY13 and FY14. Additionally, one Unmanned Aerial System (UAS) Company is scheduled to activate in FY11 and a second anticipated in FY13. WARRIORS IN TRANSITION... Fort Hood s Warriors in Transition Unit (WTU) provides Soldiers and their families with a receptive, hassle-free and supportive environment where they can focus on their primary mission of healing. To further enhance the investment in infrastructure for the personnel assigned to the unit, Fort Hood has begun construction of a 320-person barracks facility, a Soldier and Family Assistance Center, and two administrative buildings. Ft. Hood is pursuing the construction of a Warrior Transition Brigade Physical Fitness Center, which will provide a more private and conducive atmosphere for the warriors faced with physical challenges, and a WTU Dining Facility, to provide the Soldiers with a closer, more centralized location for meals. The total cost for the Physical Fitness Center is estimated at $12.6 million, and $17.5 million for the WTU Dining Facility. Both are unfunded for the current year. ARMY FAMILY COVENANT (AFC)... The Fort Hood leadership is committed to providing Soldiers and their families a strong and supportive environment where they can thrive. These efforts include: AFC has injected over $3.622 million to increase Soldier and Family Services A-4

41 Increased Army Community Services Staff by 41 people Discounting full/part day child care fees by 20% Provide Free registration to all Child, Youth and School Services eligible youth Implementing the Survivor Outreach Services program which provides support services to survivors of loved ones who have died while on Active Duty. SOLDIER AND FAMILY HOUSING... Fort Hood has 96 barracks that house approximately 14,880 Soldiers and 6,408 family quarters that house about 30 percent of the active duty population. The family quarters are managed through Actus Lend Lease, the Residential Community Initiative (RCI) housing partner. Under this program more than 4,500 sets of quarters have been renovated and 1,186 new units have been built with 212 (eventually 232) built with new green energy efficient materials. The RCI Partnership has provided the absolute highest quality of housing for our Soldiers and their families on post with a noticeable difference in quality of maintenance compared to previously worn and outdated housing provided by Army Installations. Fort Hood understands the community impact of On Post housing, and is committed to keeping our volume the same to avoid any negative economic impacts to the local housing market. PRIVATIZATION OF ARMY LODGING (PAL)... PAL, an Army-wide program, was established as a means of revitalizing on-post transient housing facilities. The program is a natural extension of the success achieved in the privatization of Family housing through the Residential Communities Initiative (RCI). Fort Hood s partners for PAL are Actus Lend Lease and the InterContinental Hotels Group. The Keith L. Ware Hall transient lodging facility is currently being renovated to Holiday Inn Express standards and will be completed within the year. One 139-room Candlewood Suites hotel will be built on Fort Hood at Battalion Ave. and 37th Street during Phase II, years 6-8 following the 15 August 2009 closing. This public/private initiative will provide a significant improvement in quality and service and a unique off-post atmosphere to these buildings. SECOND RUNWAY... A second runway at Robert Gray Army Air Field (RGAAF) as part of the Killeen Fort Hood Regional Airport (KFHRA) Master Plan would provide safety and redundancy, additional opportunities for airfield operations, and facilitate future joint training and basing options for military personnel to train airfield operations. It would also significantly enhance commercial aviation capabilities for the airport. KFHRA currently receives 42 flights daily and manifested more than 200,000 passengers last year. The 1 st step to developing the 2 nd runway would be the construction of the 4,000 ft. Assault Landing Strip (ALS) on West Fort Hood that has been approved by the City of Killeen 2nd Runway Task Force to be built using Army troop construction personnel. After the ALS is finished, construction will move forward on the completion of a second runway at RGAAF that would support civilian and military commercial airliners. Both projects have a total estimated cost of $230 million that is unfunded. TEXAS A&M UNIVERSITY-CENTRAL TEXAS... Fort Hood and Texas A&M share the vision to establish an upper level college on 672 acres of Fort Hood land that has transferred to the Texas A&M University System (TAMUS). TAMUS is establishing a stand-alone university named Texas A&M University-Central Texas. and will reimburse Fort Hood for the cost of the land by providing classroom space as in-kind consideration. By establishing Texas A&M-CT, Soldiers and Family Members will be able to earn their academic degrees from a nationally recognized university offering programs tailored to the local population needs. In-state tuition rates would apply to Soldiers and Family Members, even when the sponsor leaves the state. In May 2009 the Texas Legislature authorized the Texas A&M University System to issue Tuition Revenue Bonds (TRB) to begin construction of a Central Texas campus. TEXAS HIGHWAYS & BYWAYS... State officials have been extremely gracious and patient in the funding of our major roadway projects. These projects have strengthened the strategic projection capability of forces from Fort Hood to and through Gulf Coast seaports. The Texas Department of Transportation (TXDOT) has embarked on a $161.7 million dollar initiative to widen Highway 195 from Fort Hood to Georgetown. Scheduled for completion by 2020, this expansion will provide an uninterrupted four lane divided highway from Fort Hood to IH-35 and on to the ports. The State of Texas also committed more than $39.1 million in local highway infrastructure construction, which has nominally improved regional mobility by improving traffic flow on and off-post. The money has funded projects such as: Hwy. 195 extension and Access Control Point was completed December 2009, Tank Destroyer Rd. improvements from Clarke Rd. to FM 116, Hwy. 190 dedicated military vehicle overpass to be completed Fall of 2010, Hwy. 201 & Mohawk Ave. intersection improvements to be completed Fall of Even with these enormous improvements our largest problem is now congestion at the intersection of our main entrance and Hwy 190. Traffic continues to be Fort Hood s largest issue in terms of effect on quality of life, safety, and community relations. INDEPENDENT SCHOOL DISTRICTS (ISDS)... On post, Fort Hood has 9 schools: 2 middle schools and 7 elementary with a total enrollment of almost 5,916 students and a total operating budget of more than $37 million. DFMWR coordinates A-5

42 the Adopt-A-School (AAS) program through the Child, Youth & School (CYS) Services, School Liaison Office (SLO). AAS contributes military resources and services to schools in order to nurture the intellectual, emotional, social, and physical growth of children in the greater Fort Hood area, to increase public awareness of the Army s mission and to foster good relations. AAS s focus is on providing Soldier resources to teach, coach, mentor, and inspire students. INSTALLATION NEEDS... Fort Hood is especially grateful for the cooperation, support, and influence the community, state, regional and federal partners have given to address our infrastructure and expansion shortfalls. Our success as the premier deployment platform for the Army is in large part due to the capabilities that our training lands, infrastructure, and personnel offer Soldiers that are training to fight overseas. That capability can be directly linked to our monetary augmentation and political support of programs by state and federal legislative assistance. The Future of Fort Hood is constantly being molded by the requirements that we are presented with as a leading training installation in the Army. Because of the growth and expansion of our infrastructure to support these future requirements our Garrison has developed a deliberate process to rank potential projects that would improve our capabilities. This process is the Installation Planning Board, and takes into consideration the opinions of our Soldiers, commanders, Soldier s families, the community, and our immediate needs as an installation. A list of projects is developed according to how money should be allocated in an order of merit. This will provide everyone on post a look into how we see our infrastructure projects developing, and a clear picture of how outside funding sources can be applied using an analytical approach. This planning process allows us to gain a strategic perspective into how we want to develop our infrastructure and improve the installation. Through this process we have also identified potential issues that need the attention once more of our state and federal partners to bring to fruition. The following initiatives are where Fort Hood sees an opportunity for state and federal agencies to influence our installation and the community for the better: CONGESTION ON HWY. 190 (MAIN GATE TO FM 2410)... Solving this one issue would immediately improve the lives of hundreds of thousands in our surrounding area. In early 2010, over 80 percent of assigned Soldiers were physically at Fort Hood for the first time since the Global War on Terrorism began. Expansion and repaving of roads into Copperas Cove were completed during 2009, but funding has not been approved to address the largest congestion issue from the Fort Hood main gate east to FM 2410 (where traffic counts exceed 90,000 per day.). Any citizen in the area can tell you that the congestion is big city and our civilians, military, and families waste millions of hours waiting in unnecessary lines of traffic due to unnecessary congestion. The traffic volume at Fort Hood has surpassed the capacity of our local roadways and is a serious issue for our regions quality of life, safety, and workforce utilization. TEXAS A&M CENTRAL TEXAS... The influence of a major university would no doubt change the dynamics of our local economy and workforce. The university would bring jobs, students, opportunities for higher education, research and development opportunities in the defense and health care/bioscience clusters, and revenue to Fort Hood and the Community. The university s construction has recently broken ground, and the plans are moving forward. This monumental addition to our area and a unique opportunity to raise the education level in our surrounding communities carries large financial and political hurdles. Supporting this project is the right thing to do to enhance quality of life, improve the workforce, and generate needed dollars. CENTEX SUSTAINABILITY PARTNERSHIP... This partnership is the newest advancement in a regional alliance aimed at improving our local areas economic and environmental progress. Five local cities and Fort Hood have teamed up to improve the Quality of Life, implement better environmental practices, and develop a sustainable regional community. All participants realize the symbiotic relationship necessary to properly support the future growth our community will experience. This regional partnership is in its infancy and conducted its first major step in solidifying a useful entity by holding a Centex Sustainability Conference in Jan 2010 with participation by local governments, community citizens, and sustainability experts. Any monetary and legislative help that could be offered from state or federal agencies could act as a catalyst to create a Regional agency that could have some serious influence on the improvement in our local area. CONCLUSION... Fort Hood will remain a model Army installation, with outstanding infrastructure, ranges and power projection capabilities. On a per capita basis, Soldier training is accomplished more economically at Fort Hood than at any other Army installation. The Army has consistently recognized the unique ability of Fort Hood and Central Texas to house, support and sustain upwards of 50,000 Soldiers and their families in whatever formations today s and tomorrow s forces might find themselves. A-6

43 APPENDIX B EXCERPTS FROM THE ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2014 The information contained in this APPENDIX consists of excerpts from the Bell County, Texas Annual Financial Report for the Year Ended September 30, 2014, and is not intended to be a complete statement of the County s financial condition. Reference is made to the complete Report for further information

44 THIS PAGE LEFT INTENTIONALLY BLANK

45 BROCKWAY GERSBACH FRANKLIN & NIEMEIER,P.C. CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT The Honorable County Judge and Commissioners of Commissioners' Court Bell County, Texas Belton, Texas We have audited the accompanying financial statements of the governmental activities, the aggregate discretely presented component unit, each major fund, and the aggregate remaining fund information of Bell County, Texas (the County) as of and for the year ended September 30, 2014, and the related notes to the financial statements, which collectively comprise the County's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit pinions. - I SW H.K. DODGEN LOOP TEMPLE, TEXAS FAX

46 INDEPENDENT AUDITORS' REPORT (CONTINUED) Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the aggregate discretely presented component unit, each major fund, and the aggregate remaining fund information of Bell County, Texas, as of September 30, 2014, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison for the general fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note A, 22 to the financial statements, in 2014 the County adopted new accounting guidance, GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 5 through 28 and the schedule of funding progress on page 79 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Iriformation Our audit was conducted for the purpose of forming optmons on the financial statements that collectively comprise the County's basic financial statements. The introductory section on pages i-xiii, the comparative general fund balance sheet and schedules on pages 83 through 116, the combining and individual nonmajor fund financial statements and schedules on pages 117 through 235 and the statistical section on pages are presented for purposes of additional analysis and are not a required part of the basic financial statements

47 INDEPENDENT AUDITORS' REPORT (CONTINUED) The comparative general fund balance sheet and schedules and the combining and individual nonmajor fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the comparative general fund balance sheet and schedules and the combining and individual nonmajor fund financial statements are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 20, 2015, on our consideration of the County'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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards m considering County's internal control over financial reporting and compliance. Temple, Texas March 20,

48 -4-

49 MANAGEMENT'S DISCUSSION AND ANALYSIS September 30,2014 This discussion and analysis of the County of Bell's (County) financial performance provides an overview of the County's financial activities for the fiscal year ended September 30, The Management's Discussion and Analysis, (MD&A) should be read in conjunction with the accompanying transmittal letter, the basic financial statements and the accompanying notes to those financial statements. The discussion and analysis includes comparative data for the prior year. FINANCIAL HIGHLIGHTS The County's net position of governmental activities was $ 199,696,955 at September 30, Of this amount, $ 49,339,909 is unrestricted and may be used to meet the County's future obligations. The $ million of unrestricted net assets includes the General Fund. The County's total net position of governmental activities increased$ 6,730,906 during the current fiscal year. The majority of the increase is attributable to the net amount from several factors including: the payment of long term debt increasing net position by $ 8.2 million which was offset with a $ 2.1 million decrease due to depreciation of $ 11.8 million exceeding capital asset purchases of $ 9.6 million. Other factors that had a smaller impact to the net position included: governmental fund balances remaining flat due to continued payments for projects of $ 3. 7 million from Capital Projects funds which offset the General Fund balance increase of$ 3.5 million. In contrast to the government-wide statements, the fund statements reported a combined fund balance of $ 61,919,573, a net decrease of$ 594 comparison with the prior fiscal year. There was a decrease in Capital Project Funds in the amount of$ 3,718,082 for the continued payments to contractors and payments for purchases of vehicles and equipment. This was offset with increases in fund balances for General Fund of $ 3,536,268, Special Revenue Funds $ 112,871 and Debt Service Funds $ 68,349. The General Fund unassigned fund balance of $ 34,288,137 equals 48 percent of total General Fund expenditures including transfers out. The County's budgetary fund balance policy adopted in 2008 and amended in requires adequate reserves for operating expenditures in the amount of not less than three months reserve or 25 percent. The County's total bonded debt had a decrease of$ 8,170,000. The decrease is due to reduction in debt through principal payments. In conjunction with the issuance of debt in 2010, the County's bond credit rating was upgraded by Standard & Poor's to AA+ from AA. The bond credit rating of AA+ was reaffirmed with the review in June According to Standard & Poor's the rating reflects the County's diversifying and rapidly expanding economic base, with a significant military presence, historically strong financial performance with very high general fund reserves that are consistently above the County's formally adopted reserve level requirements, and competitive ad valorem tax rate, providing the County with potential revenue-raising flexibility

50 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the County's basic financial statements. The County's basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to financial statements. This report also contains other required supplementary information in addition to the basic financial statements. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the County's finances in a manner similar to a private sector business. They present the financial picture of the County from an economic resources measurement focus using the accrual basis of accounting. These statements include all assets of the County (including infrastructure) as well as liabilities (including long-term debt). Additionally, certain eliminations have occurred as prescribed by GASB Statement No. 34 in regards to interfund activity, payables, and receivables. The statement of net position presents information on all of the County's assets, deferred outflows or resources, liabilities, and deferred inflows of resources, with the difference between the two reported as net position. Increases or decreases in net position over time may serve as a useful indicator of whether the financial position of the County is improving or deteriorating. The statement o(activities presents information showing how net position changed during the most recent fiscal year using the full accrual basis of accounting. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (i.e., earned but unused compensatory time). The government-wide financial statements distinguish functions of the County that are principally supported by taxes and intergovernmental revenues (governmental activities) from other business functions that are intended to recover all or a significant portion of their costs through user fees and charges. The governmental activities of the County include general administration, judicial and legal, public safety, health and human services, countywide road and bridge, law library, and conservation. Component unit. The discretely presented component unit uses the same basis of accounting as the primary government. The County includes one separate legal entity in its report - The Bell County Expo, Inc. Although legally separate, this "component unit" is included because the County is financially accountable for the entity. - 6-

51 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The County, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the County can be divided into two categories: governmental funds and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. Unlike the governmentwide financial statements, however, governmental funds financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the County's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government's near-term financing decisions. Both the governmental funds balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate the comparison between governmental funds and governmental activities. The County maintains seventy-two individual governmental funds, fifty-two special revenue funds, six capital projects funds, thirteen debt service funds and the General Fund. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the General Fund. Data from the other nonmajor governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The County adopts an annual appropriated budget as a management control device during the year for the General Fund, Special Revenue Funds, and Debt Service Funds. A budgetary comparison schedule (original versus final) has been provided for the General Fund to demonstrate compliance with the budget. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. The County's fiduciary activities are reported in a separate Statement of Fiduciary Net Assets. These activities are excluded from the County's other financial statements since the County cannot use these assets to finance its own operations. The County is responsible for ensuring that the assets reported in these funds are used for their intended purposes. Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS Comparative analysis of government-wide data is presented for 2014 and

52 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30, 2014 Of the County's total assets of $ 328,360,797, the largest components are: 1) cash and investments of $ 64,683,140 or 20 percent and 2) capital assets, net of accumulated depreciation of$ 256,612,227 or 78 percent. Out of the total liabilities of$ 130,497,818, the majority are non-current liabilities or general obligation debt. The County's assets plus deferred charges exceeded liabilities by$ 199,696,955 at the close of the most recent fiscal year. The largest portion of the County's net position (78 percent) reflects its investment in capital assets (e.g. land, infrastructure, buildings, vehicles, furniture and equipment, and machinery and equipment); less any related debt used to acquire those assets that is still outstanding. The County uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the County's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The County's net position for fiscal years ended September 30, 2014 and 2013 are summarized as follows: Table I Summary of Statement of Net Position As of September 30, 2014 and 2013 Governmental Activities Current and other assets $ 71,748,570 $ 70,254,564 Capital assets (net of depreciation) 256,612, ,789,618 Total assets 328,360, ,044,182 Deferred Charges 1,833,976 2,304,458 Total Deferred Outflows of resources 1,833,976 2,304,458 Current and other liabilities 11,356,934 10,757,949 Long-term liabilities 119,140, ,624,642 Total liabilities 130,497, ,382,591 Net Position: Net investments in capital assets 147,882, ,065,810 Restricted 2,474,800 2,406,451 Unrestricted 49,339,909 45,493,788 Total net position $ 199,696,955 $ 192,966,049 Approximately 1.24 percent or $ 2,4 74,800 of the County's net position represents restricted net position which is resources that are subject to external restrictions on how they may be used. The balance of unrestricted net position,$ 49,339,909 may be used to meet the County's ongoing obligations to citizens and creditors

53 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30, 2014 Governmental Activities Governmental activities increased the County's net assets by$ 6, 730,906. The County's net assets for fiscal years ended September 30, 2014 and 2013 are summarized as follows: Table II Statement of Activities Changes in Net Position Governmental Activities For the fiscal years ended September 30, 2014 and 2013 Governmental Activities Revenues: Program Revenues: Charges for services Operating grants and contributions Capital grants and contributions General Revenues: Property taxes Sales taxes Mixed beverage taxes Other taxes Investment income Miscellaneous income Total Revenues $ ,553,700 $ 26,288,898 5,096,489 5,107, , ,395 62,841,989 59,514,252 16,997,993 15,801, , , , , , ,333 1,571,691 2,361,918 Ill,976,292 Ill,625, 724 Expenses: General administration Judicial and legal Public safety Health and human services Countywide road and bridge Conservation Law library books and services Interest and fiscal charges Total Expenses Changes in net position Net Position at Beginning of Year, as restated Net Position at End of Year $ 21,914,081 21,537,849 15,280,444 15,091,706 44,328,688 42,616,937 6,561,110 6,429,852 11,379,826 12,530, , ,775 85,201 80,431 4,932,521 5,784, ,245, ,853,213 6,730,906 6,772, ,966, ,193, ,696,955 $ 192,966,

54 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30, 2014 Key elements of the analysis of government-wide revenues and expenses reflect the following: For fiscal year 2014, revenues from governmental activities totaled$ 111,976,292. Property taxes and sales taxes are the largest components of revenues at 71 percent. Charges for services account for 21 percent of total governmental revenue. For program revenues the charges for services decreased in 2014 over $ 2 million compared to In 2013, over$ 2 million was received from insurance reimbursement for repairs on the main dome ofthe Expo Center due to weather related damage. For fiscal year 2014, expenses for governmental activities totaled$ 105,245,386. The County's five largest funded programs are for public safety, general administration, judicial and legal, countywide road and bridge, and health and human services. For governmental activities, the Statement of Activities on page 32 shows that$ 23,553,700 was financed by those receiving services, $ 5,096,489 from operating grants and contributions, $ 201,153 from capital grants and contributions, with the County's general revenues financing $ 83,124,950 of the remaining program expenses. The debt service fund has a total fund balance of$ 2,474,800, all of which is reserved for the payment of debt service. The increase of $ 68,349 in the debt service fund balance during the fiscal year 2014 was attributable to the total revenue collections of property tax and interest earnings over debt service payments. The capital projects fund has a total fund balance of $ 9,352,870. The fund balance decreased by $ 3,718,082 during the fiscal year The use of the funds was for the continued payments for construction and renovation of buildings and purchase of equipment from the issuance of debt in prior years. The 2013 amounts have been restated by $ 1,380,273 to reflect the change in accounting principles to expense the cost of issuing debt versus deferring such cost and amortizing it over the life of the corresponding debt. FINANCIAL ANALYSIS OF GOVERNMENTAL FUNDS As noted earlier, the County uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Fund accounting and budget controls has been the framework of the County's strong fiscal management and accountability. The County had maintained Aa3/AA- bond rating since 2001, and in 2008 the County's bond rating was upgraded by Standard & Poor's to AA from AA-. Moody's Investors Service maintained the County's rating previously assigned of AA3. In 2010, in conjunction with issuance of debt in May 2010, the County's bond rating was upgraded by Standard & Poor's to AA+ from AA and the County has continued to maintain the AA+ rating

55 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 Governmental Funds. The general government functions are reported in the General, Special Revenue, Debt Service, and Capital Projects Funds. The focus of the County's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the County's annual financing and budgeting requirements. Unassigned balances indicate financial stability, which is especially important when the County issues bonds. Additionally, by maintaining an appropriate unassigned balance at September 30, operations can continue without requiring debt until taxes are received. Local property taxes are received primarily from early October through the end of January. The Commissioners' Court approved a resolution initiating discounts for prompt payments. Tax statements are mailed by the Tax Appraisal District on October 1 and payments received by October 31 receive a 3 percent discount; those received by November 30 receive a 2 percent discount; and those received by December 31 receive a 1 percent discount. As of the end of the current fiscal year, the County's governmental funds reported combined ending fund balances of$ 61,919,573 a net decrease of$ 594 in comparison with the prior year. The small net decrease was due to two major components: 1) the General Fund balance grew over$ 3.5 million and 2) the expenditures in the Capital Project funds had continued payments totaling $ 3. 7 million for construction, renovation of buildings and purchase of equipment from issuance of debt in prior years. Special Revenue and Debt Service also had small increases in fund balance. Approximately $ 36,804,002 or 59 percent of the combined fund balance represents assigned/unassigned fund balance, which is available for spending at the County's discretion. The remainder of fund balance is reserved to indicate that it is not available for spending because it is nonspendable for inventories of$ 23,834 and prepaid expenditures $ 1,345,450; has already been restricted 1) to pay debt service, $ 2,474,800; 2) to fund capital projects$ 9,342,343; 3) to pay for museum,$ 178,538; 4) to pay for judicial and legal$ 1,249,541; 5) to pay for public safety,$ 2,679,566; 6) to pay for health and welfare, $ 388,143; 7) to pay for countywide road and bridge, $ 3,314,996; 8) to pay for law library books and services, $ 974,550; 9) to pay for voter registration $ 43,033; 10) to pay for animal control$ 21,727; 11) to pay for miscellaneous amounts restricted by statute$ 2,348,971; or committed for conservation in the amount of$ 730,079. The General Fund is the chief operating fund of the County. At the end of the current fiscal year, unassigned or unrestricted fund balance of the General Fund was$ 34,288,137 while total fund balance reached$ 38,046,003. As a measure of the General Fund's liquidity, we compare both unrestricted fund balance and total fund balance to total fund expenditures. Unassigned fund balance represents 44 percent of total fund expenditures including transfers out, while total fund balance represents 48 percent of total fund expenditures and transfers out. The County's General Fund balance policy adopted in 2008 and amended in 2011 requires adequate reserves for operating expenditures in the amount of not less than three months reserve or 25 percent in its General Fund, which compares favorably to rating agencies recommended reserves for governments

56 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 The County's General Fund balance increased by$ 3,536,268 for fiscal year Key factors for 2014 are as follows: Ad valorem taxes increased over $ 1.9 million due to the property assessed valuation growth of$ 740 million. The increase in property values was a result in growth from new construction which continues to be an indicator of moderate economic growth. Sales tax for Bell County increased $ 1,196,215 or 7.57 percent over This is the fifth consecutive year with an increase in sales tax collections since In 2009, the County had the first decrease in sales tax since the County began collections in 1988, which was less than one percent or $ 114,966 decrease over This follows a period of when the average increase each year was 10 percent. This was an indicator of the growth in Bell County from many factors including continued increase in population; increase in residential, commercial and retail construction; and a younger market with disposable income. Due to these growth factors, Bell County was able to sustain the downturn in the national economy in with only a small decrease in sales tax revenue and now has begun a rebound with more sales tax collected each year since General Fund expenditures increased over $ 1.5 million or 2 percent. The majority of the increase was related to personnel. The expenditures included a two percent salary increase for employees and several new positions including one deputy clerk for Justice of the Peace, one bondsman for Pretrial Services, a data technician for District Attorney's Office, one Assistant Auditor, and two deputy Constables. In addition, new positions for the Jail include eight jailers for the Loop Jail, twenty-three jailers for reopening ofthe Central Jail, and ten part-time jailers. Also, there was a reduction in vacant positions which included fifteen Juvenile detention officers. The Special Revenue Funds have a total fund balance of$ 12,045,900, a small increase of$ 112,871 as compared with the prior year. The most significant changes are as follows: Road & Bridge Precinct Funds increased $ 316,843. The weather or road project cost can dictate the amount of expenditures in one fiscal year; therefore, any remaining balances are used for future fiscal years. Community Relief Fund decreased $ 296,797. A planned use or distribution of the fund balance from prior years was used to assist eligible households in need of rent, utilities and other emergency services. The majority of the funds that are awarded or donated to the Temple and Killeen Help Centers are from the local United Way, TXU Electric, Reliant Energy and City ofkilleen and City of Temple Community Development Block Grants. The Debt Service Funds have a total fund balance of$ 2,474,800, an increase of$ 68,349 as compared with the prior year. The increase is a result of total revenue collections of property tax and interest earnings over debt service payments

57 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 The Capital Projects Funds have a total fund balance of $ 9,352,870. The fund balance had a decrease by $ 3, 718,082 for construction and renovation of buildings and purchase of equipment from the issuance of debt in prior years and from reimbursements. Key factors for the change are as follows: Capital Projects County Construction Fund- In 2012, roof repairs were begun on the Bell County Expo Center with repairs on buildings that surround the main dome of the Expo Center. The cost for these repairs in 2012 was a total of$ 878,232. In 2013, the main dome repair was begun for a total cost of over $ 2.2 million with completion in The final payment was made in 2014 for$ 140,500. Bell County received an insurance reimbursement in excess of$ 3 million for the repairs. In addition for 2014, parking lot improvements were completed for a cost of$ 90,000. Capital Projects 2013 Fund- In July 2013, the County authorized the issuance of$ 10,095,000 in Limited Tax Notes, Series The proceeds will be used for technical equipment; office upgrades and office equipment; road and bridge equipment; parking lot renovation or expansion/new parking lots for county buildings; building improvements; and vehicles and patrol equipment for the Sheriffs Office. In 2014 the total payments for projects were$ 1.7 million. The purchases included$ 363,000 for Sheriff's patrol vehicles, $ 691,000 for Road and Bridge heavy equipment, $ 301,000 for Expo Center renovations, $ 280,000 for architect costs for Equestrian Arena, and $ 96,000 for Juvenile Detention Center renovations. Capital Projects 2010 Fund- In May 2010, the County authorized the issuance of$ 10,000,000 in Combination Tax & Revenue Certificates of Obligation, Series The proceeds will be used for the acquisition, construction, renovation and equipping of County facilities; acquisition of land and right of way; repairs or improvements to the County jail and Expo Center; maintenance, improvements and extensions to roads and bridges and transportation improvements; acquisition or construction of an animal control facility; and acquisition of computer hardware and software, communications equipment, public safety equipment, vehicles and construction equipment. In 2014 the total payments for projects were $ 1.6 million. These projects included the continued implementation of a new jail system and a new county court system; technology equipment; and Road and Bridge heavy equipment. Prior expenditures from the Capital Projects 2010 Fund for projects include a total of$ 7.8 million. In 2011, construction was begun on the animal shelter which was opened in February 2012 for a total cost of $ 1.8 million. In 2012, a contribution to the City of Killeen of$ 2 million for the purchase of right of way for Highway 190 expansion and several building repairs and renovations. The on-going projects and expenditures since 2010 include the technology new systems and Road and Bridge heavy equipment. Capital Projects 2008 Fund- In July 2008, the County authorized the issuance of$ 36,605,000 in Limited Tax Notes, The proceeds will be used for construction or repairs to County buildings, the acquisition of land, and purchase of equipment, including construction of a new County Courts Building. Payments for fiscal years 2013 were $ 2.2 million and 2014 $ 192,000. New projects included the construction of a storage area for the Building Maintenance department for a total of $ 185,200 and construction on a truck wash/lube bay at Engineers yard in the amount of$ 974,100. Other costs were related to purchase oftechnology equipment and building renovations

58 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30, 2014 Prior expenditures from the Capital Projects 2008 Fund between fiscal years 2008 and 2012 include a total of$ 36.2 million. In 2009, the construction began on the county courts addition with completion in June, The county courts addition expenditures totaled $ 25.8 million. Planning for renovation of the vacated central jail began in with actual construction beginning in late The central jail renovation expenditures were a total of$ 5.9 million from the Capital Projects 2008 Fund (note additional expenditures of$ 870,000 for the central jail are included in the Capital Projects 2007 Fund). In addition, the Expo projects totaled $ 1. 7 million and included the repavement of the parking lot and the purchase of land and construction of a boulevard entrance. The entrance was completed in January Other projects included restoration and repair of all exterior windows and doors at the Museum, formerly the Carnegie Library, for a total cost of$ 190,000; and purchases of technology equipment and replacement of fiber cables totaling over $ 2 million. Capital Projects 2007 Fund- In July 2007, the County authorized the issuance of $ 6,100,000 in Certificates of Obligation. The proceeds will be used for acquiring, constructing, renovating and equipping of County facilities and the purchase of County equipment. In 2014, expansion to the Engineers Office Building was completed and total expended for the project was$ 343,500. Also, $ 166,000 in road and bridge equipment was purchased in The majority of this issue has been used to purchase heavy equipment for the Road and Bridge department for a total expended to date of$ 3.8 million. In prior years, other payments included equipment for the Expo Center and Technology Services for a total of $ 1.5 million. In addition repairs and renovations to buildings totaled $ 1.1 million. The following table presents a summary of the amount of revenues from various sources for the fiscal year ended September 30, 2014, and the amount and percentage of increases and decreases in relation to prior year revenues. Governmental Funds - Revenues Classified by Source Increase Percentage Percent (Decrease) Increase Revenues Amount of Total From2013 (Decrease) Ad valorem taxes $ 61,896, % $ 2,382, % Sales tax 16,997, % I, 196, % Leased inmate housing 298, % (276,758) % Fees of office 11,186, % (224,304) -1.97% Fines and forfeiture 2,785, % (344,538) % Intergovernmental revenue 8,113, % (41,262) -0.51% Licenses and permits 2,835, % 80, % Adult probation program payments 2,051, % (10,607) -0.51% Interest and other 4,014, % (3,032,779) % Contributions for assistance programs 149, % {246, % $ 110,328, % $ ~518, % - 14-

59 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 The revenues for the County's general governmental functions decreased$ 518,361 from The majority of this net decrease is related to the insurance reimbursement of$ 2.1 million received in 2013 for hail damage to the Expo Center dome. This decrease was offset with continued growth in property values due to new construction and growth in sales tax. The above revenue variances that exceed $ 500,000 occurred due to the following: Local property taxes for the County are based on real and personal property values assessed by the Tax Appraisal District of Bell County as of January 1. The certified appraisal rolls grew$ 740 million in the County compared to the rolls. The property assessed valuations increased from $ 15,621,696,008 to $ 16,361,859,029. For the majority of the increase in property values was due to growth from new construction resulting in a revenue increase of$ 2,382,1 04. The total property tax rate for 2014 was$ which remained the same as The property tax rate for General Fund (maintenance and operations) and the Debt Service (for the payment of principal and interest on general obligation long-term debt) was$ The tax rate for the Road District for 2014 was$ Effective January 1, 2004, a new state law allowed a county, city or junior college district to limit taxes for homeowners who are either disabled or 65 or older, commonly called tax ceiling. In June 2004, the Bell County Commissioners' Court adopted the tax ceiling for disabled and 65 or older. For Bell County, the ceiling was established with the 2004 taxes billed in the fall of As a result, starting with the taxes billed in the fall of 2005, those property owners eligible for the limitation did not receive an increase in property taxes due to either reappraisals or a tax rate increase. Based upon approved applications of 16,213 the loss property tax revenue associated with this exemption was$ 1,386,166 for fiscal year A new property tax exemption for 100 percent disabled veterans, HB 3613, was passed by the Texas legislature during the spring of 2009 and became effective on September 1, To be eligible for the exemption, an applicant must have been approved to receive 100 percent disability compensation from the United States Department of Veterans Affairs. Based upon approved applications of 2,759 the loss of property tax revenue associated with this new exemption was over$ 1,633,109 for fiscal year Sales tax for Bell County increased$ 1,196,215 or 7.57 percent over The increase in 2014 did include a one-time adjustment of$ 600,000 due to a state audit. Fiscal year 2013 also increased$ 791,861 or 5.28 percent. For the last five consecutive years, the sales tax rebates has continued to increase which indicates a moderate growth and a rebound from the 2009 rebate that decreased by less than one percent or $ 114,966 compared to Interest and other revenue decreased from 2013 by$ 3,032,779. The decrease is the result of several transactions recorded in capital projects in 2013 including proceeds from the buyback options with vendors for heavy equipment in Road & Bridge in the amount of $ 820,000 and $ 2.1 million insurance reimbursement for hail damage to the Expo Center dome

60 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 The following table presents expenditures by function compared to prior year amounts. Expenditures by Function - Governmental Funds Increase Percent (Decrease) Function Amount of Total From 2013 General administration $ 19,611, % $ 562,687 Judicial and legal 15,269, % 193,538 Public safety 42,066, % 730,165 Health and human services 6,555, % 128,588 Countywide road and bridge 9,171, % 133,478 Conservation 848, % 72,569 Law library books and service 85, % 4,768 Debt service 12,747, % 695,412 Capital outlay 3,972, % {4,459,3772 $ 110,328, % $ {1,938,1722 Percentage Increase (Decrease) 2.95% 1.28% 1.77% 2.00% 1.48% 9.35% 5.93% 5.77% % -1.73% The expenditures for the County's general governmental functions decreased by 1.73 percent for a total of $ 1,93 8, 172 compared to the prior year. The majority of the decrease is related to more expenditures in capital projects in the prior year than in This was offset with a two percent salary increase for all employees, the addition of new positions in several departments including thirty-one new jailer positions. Non-personnel increases included public safety operating costs and an increase in operation cost for Bell County Communication Center. General administration increased by $ 562,687 over the prior year. The majority of the increase was for scanning and indexing of Bell County land records from 1987 back to In addition, there was a two percent salary increase for all full time employees. Public safety increased$ 730,165 over A combination of the two percent salary increase and thirty-one new jailer positions was the majority of the increase for public safety. Twenty-three positions were for the planned re-opening of the Central Jail and eight positions were for the Loop Jail. In addition, nine vehicles were approved for public safety which included both Constable's and Sheriffs Offices. Debt Service increased$ 695,412 in 2014 compared to a decrease of$ 490,077 in The change in the two fiscal years was a result of the restructure ofthe debt service from the issuance of Limited Tax Refunding Bonds, Series and The refunding did not extend the maturity of the original issued obligation. The tax rate to cover the debt service for 2014 was$ compared to the 2013 rate of$ Capital Outlay decreased over$ 4.4 million in 2014 due to construction projects that were paid in Projects completed in 2013 included the replacement of the Expo Center roof of $ 2.2 million paid with insurance reimbursement, $ 253,000 for Engineer's Office remodel, $ 841,000 for new construction of a Vehicle Maintenance Building, and $ 175,000 for Maintenance Storage Building. Other major purchases were for motor graders for Road and Bridge in the amount of $ 1.2 million which was offset with a buyback of existing motor graders

61 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30, 2014 General Fund Budgetary Highlights The budget is prepared by the County Judge and County Auditor and approved by the Commissioners' Court following a public hearing. Appropriated budgets are approved and employed as a management control device during the year. The County maintains budgetary controls at the department level. Appropriation transfers between departments or reserve transfers must be approved by the Commissioners' Court. The original General Fund Budget of$ 78,585,296 represented a 4.3 percent increase in expenditures compared to the prior year budget. The revenues were projected at$ 77,085,296 with a planned use of$ 1,500,000 of reserves. Due to the increased revenues over expenditures$ 3,536,268 was added to reserves. General Fund budget amendments for fiscal year 2014, approved by the Commissioners' Court, amount to a $ 3,257,610 net decrease from the original budget. The total decrease for the year included amendments during the year and the final amendment. During fiscal year 2014 there were several budget amendments that totaled$ 246,144 increase. They included the approval of adjustments to several positions, replacement ofthree vehicles for Sheriff's Office and one vehicle for Juvenile Probation, purchase of food kiosk for Justice Center, and a new Pitney Bowes mail machine. The final amendment included a decrease of over $ 3.5 million in projected expenditures. The majority of the final amendment was for departments that did not expend their total operating budget. The General Fund's actual revenues were higher than budget by$ 1,516,934. The majority ofthe increase was in sales tax of$ 1,466,518 and fees of office of$ 192,655. These increases are indicators of a moderate economic growth. Another increase was intergovernmental revenue of $ 318,441 with the majority for additional funding for indigent defense. Due to the increase in revenues over projections and expenditures less than original budget, the actual net increase in the General Fund balance was$ 3,536,268 compared to the projected planned use of$ 1,500,000. DEBT ADMINISTRATION AND CAPITAL ASSETS Long-Term Debt Debt Service requirements for the bonds outstanding on September 30, 2014 totaled$ 113,865,000. As of the end of the fiscal year, the County requires $ 143,369,295 (including principal, interest due and accrued interest) through 2030 to retire its outstanding bonds. The debt service funds have $ 2,474,800 in reserves for retirement of funded indebtedness. The County levied a debt service tax rate of$ for the 2014 fiscal year to fund the principal and interest payments. Under current state statutes, the County's bonded debt issuances are subject to a legal limitation based on 25 percent of total assessed value of real property. As of September 30, 2014, the County's net bonded debt, which equaled $ 353 per capita, was a fraction of the legal limit of$ 3,631,855,443. The current ratio of taxsupported debt to assessed value of all taxable property is percent

62 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 A recap of the most recent debt issues is as follows: In July 2006, the County authorized the issuance of Limited Tax Refunding Bonds, Series 2006 in the amount of $ 24,435,000 financed at a net interest cost of 4.79 percent. These bonds were used to refund$ 24,160,000 of the Series 2004 Limited Tax Notes. The proceeds have been used to construct and equip a new District Courts Building including acquisition of the site and the sheriffs office/annex renovation (the former District Courts Building). Also, in July 2006, the County authorized the issuance of$ 46,695,000 in Limited Tax Notes, 2006, financed at a net interest cost of 4.36 percent for seven years. The County restructured this issuance and extended payments through a refunding issuance during The majority of the proceeds have been used to construct and equip jail facilities, renovate the Bell County Expo Center, and construct and equip the Multipurpose Facility. In July 2007, the County authorized the issuance of$ 6,100,000 in Certificate of Obligation Series 2007, financed at an interest cost of 4.17 percent for ten years. The proceeds will be used for acquiring, constructing, renovating and equipping of County facilities (including storage facilities, maintenance facilities and multipurpose facilities), and the purchase of County equipment, including road and public safety equipment. In July 2008, the County authorized the issuance of Limited Tax Refunding Bonds, Series 2008 in the amount of $ 29,495,000 financed at a net interest cost of 4.59 percent. These bonds were used to refund$ 28,650,000 of the Series 2006 Limited Tax Notes. In July 2006, the County authorized the issuance of$ 46,695,000 in Limited Tax Notes. Proceeds from the sale of the Notes have been used to construct and equip jail facilities, acquire and renovate existing buildings for County administrative purposes, and renovate the Bell County Expo Center. Also, in July 2008, the County authorized the issuance$ 36,605,000 in Limited Tax Notes, 2008, financed at a net interest cost of 4.12 percent for seven years. The County restructured this issuance and extended payments through refunding issuances during 2010 and The proceeds will be used for construction or repairs to county buildings, the acquisition of land for county purposes, and purchase of equipment and computer technology. The main project will be the construction and equipping of the new County Courts. In May 2010, the County authorized the issuance of Limited Tax Refunding Bonds, Series 2010 in the amount of $ 23,650,000 financed at a net interest cost of 3.64 percent. These bonds were used to refund $ 17,480,000 in principal from a 2008 Series of Limited Tax Notes and another$ 6,125,000 in combined principal from a 2001 Series of Certificates of Obligation and 2006 Series of Limited Tax Refunding Bonds. Also in May 2010, the County authorized the issuance of $ 10,000,000 in Combination Tax & Revenue Certificates of Obligation, Series 2010, financed at a net interest cost of 3.94 percent for 20 years. The proceeds will be used for the acquisition, construction, renovation and equipping of County facilities; acquisition of land and right of way; repairs or improvement to the County jail and Expo Center; maintenance, improvements and extensions to roads and bridges and transportation improvements, acquisition or construction of an animal control facility; and acquisition of computer hardware and software, communications equipment, public safety equipment, vehicles and construction equipment. In October 2011, the County authorized the issuance of Limited Tax Refunding Bonds, Series 2011 in the amount of$ 13,150,000 financed at a net interest cost of3.43 percent. These bonds were used to refund$ 13,160,000 in principal from a 2008 Series of Limited Tax Notes

63 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30, 2014 In October 2012, the County authorized the issuance of Limited Tax Refunding Bonds, Series 2012 in the amount of$ 8,385,000 financed at a net interest cost of 1.59 percent. These bonds were used to refund $ 5,195,000 in principal from Series 2006 Limited Tax Notes and $ 3,430,000 in principal from Series 2003 Limited Tax Refunding Bonds. In June 2013, the County authorized the issuance of Limited Tax Refunding Bonds, Series 2013 in the amount of $ 14,535,000 financed at a net interest cost of 1.78 percent. These bonds were used to refund $ 12,065,000 Limited Tax Notes and$ 3,430,000 in principal from Series 2003 Limited Tax Refunding Bonds. Also in July 2013, the County authorized the issuance of Limited Tax Notes, Series 2013 in the amount of $ 10,095,000 financed at a net interest cost of 1.59 percent. The proceeds will be used for technical equipment; office upgrades and office equipment; road and bridge equipment; parking lot renovation or expansion/new parking lots for county buildings; building improvements; and vehicles and patrol equipment for the Sheriffs Office. In conjunction with issuance of debt in May 2010, the County's bond credit rating was upgraded by Standard & Poor's to AA+ from AA. The bond credit rating of AA+ was reaffirmed in June According to Standard & Poor's the rating reflects the County's diversifying and rapidly expanding economic base, with a significant military presence, historically strong financial performance with very high general fund reserves that are consistently above the County's formally adopted reserve level requirements, and competitive ad valorem tax rate, providing the County with potential revenue-raising flexibility. Additional information on the County's long term debt is presented in the Notes to the Financial Statements. See Note J- Changes in Long Term Debt and Note K- Long Term Debt on pages Capital Assets The capital assets of the County are those assets (land, buildings, improvements, roads, bridges, vehicles and heavy equipment, and machinery and equipment), which are used in the performance ofthe County's functions including infrastructure assets. As of September 30, 2014, the cost of capital assets of the governmental activities totaled $ 418,626,375. Depreciation on capital assets, including infrastructure, is recognized in the governmentwide financial statements. Accumulated depreciation for buildings, improvements and equipment totaled $ 162,014,148. A Capital Asset Policy was adopted by the Commissioners' Court with the purpose to provide County Departments with guidance for the appropriate classification and processing of capital asset transactions. The policy covers related items such as acquisition, recording, accounting and management, software, infrastructure, depreciation and useful lives. The County has elected to use the straight-line depreciation method for reporting infrastructure assets, which includes 885 miles of roads and 146 bridges

64 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 The following information outlines the process used by the County to establish infrastructure assets and costs: The County created a master road list based on historical files and existing road management system maintained by the Engineer's Office for the establishment of all road and bridge infrastructure data. The master roads data includes details of road names, date placed in service, road surface type, sub-grade and base data, road length and road width. Right of way width was initially established using historical records with information validated and additional data collected by physically driving each road and establishing the average width through measurements. Condition assessment was completed on all paved roads. Information was established using an independent engineering firm utilizing their automated distress data collection system. The overall condition of the roadways in Bell County was determined to be very good resulting in OCI (overall condition index) of The County will use the straight-line depreciation method to value the road system. Road values were established as follows: 1. The County estimated historical cost of general infrastructure assets by calculating the current replacement cost of a similar asset and deflating the cost through the use of price-level indexes to the acquisition year. Replacement value was established for each road by using current private construction bid proposals on subdivision roads taken over by the County. 2. The County Engineer established a methodology or formula for each calculation (length, sub-grade, base and surface type). The validated master road data was adjusted by this formula and a total current replacement value was established for all County roads. 3. Right of way values were provided by the County Tax Appraisal District at the average cost per acre by Precinct. This information was used to update the master data for Right of Ways and a value was established for all County roads. Only bridges and culverts exceeding 20 feet in width were documented and used in calculations. Initial information on bridges and culverts exceeding 20 feet in width was established utilizing data from the existing road management system and historical records maintained in the Engineer's Office. Data collected includes name and location, date built, type of construction, estimated historical cost, and condition rating. The condition rating data was established using Texas Department of Transportation bridge inspection reports and this inspection is conducted every two years. Only regulatory signs were included in the total value of an individual road. These include stop, yield, and speed limit signs. The Engineer's Office conducted a physical inventory of all regulatory signs of each county road and used current purchase history plus average installation cost to establish the average purchase cost of a sign. The County Engineer's Office has established a process that ensures that the surface of all gravel roads in the County are brought back to original condition at least every four years. All gravel roads in the County are divided between four full time blade crews; these full time crews are augmented by three additional blade crews in the winter months. -20-

65 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 For fiscal year 2014, the County expended over$ 9.1 million for road maintenance, improvements and new road construction. The following presents a summary of the County's capital assets: Governmental Activities: Land Infrastructure Buildings Vehicles Furniture and equipment Machinery and equipment Total County's Capital Assets (net of depreciation) 2014 $ 3,202,904 84,656, ,654,952 4,131,025 12,542,034 8,424,429 $256,612,227 Total% 2013 Change $ 3,202, % 85,765, % 145,596, % 3,391, % 11,977, % 8,856, % $258,789, % Additional information on the County's capital assets is presented in the Notes to the Financial Statements. See Note G- Capital Asset Activity on page 58. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The County's management has determined that the following are significant matters that have a potential impact on the County's financial position or changes in financial position. Forecast Highlights Texas, a large consumption and production state, currently ranks behind only California in the area of state GDP, and is almost double that of the nation. The economy, heavily influenced by both manufacturing and high-tech job markets, continues to perform better than other states, and is bolstered by having led the nation in number of jobs added for four consecutive years. Bell County has contributed significantly to this economic growth, and coupled with above average employment and low tax rates, should continue on this track well into the future. Other factors leading to a positive economic environment within Bell County are: Fort Hood- America's Army is in the midst of the most dramatic restructuring of its forces in more than 60 years. The process of cutting the number of soldiers from 570,000 to 490,000 is targeted to be completed by 2017, all based on a recent Base Realignment and Closure Commission goal. However, Fort Hood is expected to fare well during this realignment phase, largely based on the number of major construction projects currently underway within its boundaries. With spending cutbacks, the Army's decision to shift some of its construction budget to build a new Army hospital at Fort Hood, seems to strengthen this fact. Coupled with other major infrastructure projects currently underway, Fort Hood appears to be solidly positioned to withstand any realignment

66 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 Fort Hood is the largest single location employer in the State of Texas and the largest in Bell County with more than 40,000 enlisted soldiers, over 5,000 civilian employees, and over 12,000 contractor personnel. More than 53,000 family members of these soldiers reside and work in the Bell County area producing an estimated annual direct and indirect economic impact $ billion for the area and $ 25.3 billion statewide During 2014, the base had construction projects underway totaling nearly$ 850 million, but none quite as large as the new Darnall Army Medical Center. The $ 534 million, 947,000 square feet project is the largest Department of Defense contract financed with funds from the American Recovery and Reinvestment Act of2009. The project is set to last through summer 2015 and it is estimated that 1,000 workers will be working on-site, at the peak of construction, many from firms located in the county. Steady Housing Market - The Killeen-Temple-Ft. Hood MSA never saw the hyper-appreciation in its housing market and has largely been spared from the housing bust. The in-migration at Fort Hood has helped stabilize the housing markets too. Affordability is another important factor in a housing market and Bell County meets that criteria. The average price for a single-family in the MSA is $ 157,053 which is well under the state average of$ 188,900 and national median existing home price of$ 217,300. Growing Population- The Perryman Group forecasts that the Temple metropolitan area will grow faster than any other second-tier Texas region other than those on the border. The population in the Temple Killeen-Fort Hood MSA will outpace most all other non-border regions by as much as 27 percentage points, and in 2011 was named as best in the nation for generating new jobs. This will result in an estimated 32,310 additional citizens calling Bell County home by 203 5, an increase of over 41 percent. Retail and commercial development follow the consumer which means a more varied market place and more sales tax revenue. Sales tax revenue for Bell County experienced a 7.57 percent increase in 2014 over the prior year. The tri-city area of Killeen/Temple/Belton had sales tax revenue collections totaling $ 45.8 million which continues to indicate a moderate growth for the Bell County area. Additional factors contributing to the growth in the area include: Area listed as 13th best in the country in economic strength by Policom in 2014 Area ranked 15th in employment growth in the state in 2014 Temple ranked as 9th most affordable city in the nation by Kiplinger's Personal Finance in 2014 Manufacturing & Distribution- With over$ 289 billion in exports of goods and services in 2014, Texas is the nation's top exporting state. This is also a key strength in the Bell County economy with Temple being considered the Distribution Center ofthe South. Located on the IH-35 corridor and the central link in the states' rail lines puts Temple at an advantage for freight distribution with over 17.8 million people located less than three hours drive away. Manufacturing also tends to favor the same strength seen in distribution, which is, required materials being readily obtained via the freight lines. And the steadily increasing population in the area provides the necessary employment base for a growing company. H.E.B. Grocery Company, the largest privately held company in Texas and the 27th largest retailer in the United States, sees the advantages of Bell County and in 2010 built a 516,000 square foot warehouse and transportation facility. This facility will provide stock for the more than 50 stores located between Dallas and Austin. -22-

67 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 Demonstrating further evidence of the commitment and confidence in the area, construction has been completed on the seventh H.E.B. store within the County. The new 43,000 square foot store in Belton opened in late 2011 and is a "Plus" store which has expanded feature and services offerings. Additionally, H.E.B. has recently completed construction on a $ 20 million, 300,000 square foot cold storage building, adjacent to the 516,000 square foot warehouse that was completed in Future plans include construction of a $350 million manufacturing facility used for dairy, bakery, and snack production. Panda Energy has completed construction on a $ 300 million power plant that went online in This?58-megawatt natural gas-fueled power plant will generate electricity for 900,000 homes in Central and North Texas. An additional plant is currently under construction and will be built adjacent to the first. This new $ 372 million plant will power an additional 600,000 homes and together with the first plant, will contribute to a combined estimated$ 3.2 billion boost in the area economy through Scheduled completion for the second Panda plant is summer Infrastructure - With Bell County being divided by one of the state's major thoroughfares, the necessity for adequate roads to keep up with commerce becomes readily apparent. The Texas Department of Transportation is currently in a multi-year construction upgrade to IH-35 through the county at an estimated cost of nearly $ 550 million. A similar construction project is also underway on the major US Highway 190 East/West thoroughfare in the county, with an estimated cost of$ 250 million. Medical - Health-care services, one of the few sectors in the country to add jobs during the recent recession, are highly concentrated in the area. There are currently six major hospital systems located within Bell County providing almost 15,000 jobs. The Seton Family of Hospitals, the largest hospital system in Central Texas, recently completed construction on a $ 100 million facility in Harker Heights. When fully staffed the hospital will employ an estimated Bell County residents. Scott and White Healthcare, headquartered out of Temple, is a fully integrated health system. It is the largest multi-specialty practice in the State, and the sixth largest group practice in the nation. Being a partner in, or managing 10 hospitals and 60 clinical sites in Central Texas, contributes to a significant impact on the local economy. Since the beginning of the decade when Scott and White set a goal to be the premier medical facility in the nation, the system has: Completed a $ 140 million dollar expansion on the main hospital and clinic. This was the largest non-military construction project in Bell County history and provided the most sophisticated technology and state-of-the-art equipment in Central Texas. Opened two new facilities: $ 15.6 million Center for Diagnostic Medicine and the Continuing Care Hospital for long-term acute care totaling $ 13 million. Completed construction on a $ 133 million dollar Surgical Sciences Building in 2011, containing 18 new operating rooms, pre/post patient rooms, and a new central processing department. Targeted $ 32 million towards the purchase and renovation of a local medical facility, converting it to the County's first freestanding children's hospital. The McLane Children's Hospital contains 64 beds, 24 private surgical beds, and a 16-bed pediatric ICU. Completed construction on a 100,000 square foot pediatric specialty clinic on the site of the McLane Children's Hospital after receiving a$ 40 plus million dollar donation. -23-

68 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30, 2014 Completed a $ 3.7 million, 14,000 square foot clinic located in west side of Temple that includes 24 exam rooms, a lab, an allergy room, and in-house X-ray facilities. Completed construction on a$ 25 million, 75,000 square foot, Bone & Joint Institute located on the main hospital campus in Temple. In late 2013, Scott & White Healthcare announced that it had completed a merger with the Baylor Health Care System, creating the largest not-for-profit health system in the state. The new Baylor Scott & White Health system includes 43 hospitals, more than 500 patient care sites, more than 6,000 physicians and over 34,000 employees statewide. Education - Bell County is fortunate to be the home of four institutions of higher learning with two being full, 4-year universities: Texas A&M University-Central Texas located in Killeen, and the University of Mary Hardin-Baylor in Belton. Construction Projects Justice Complex/Jail Addition Texas A&M University-Central Texas was founded on September 1, 1999 as Tarleton Central Texas and became a stand-alone university on May 27, 2009 as part of the Texas A&M University system. Part of the transformation into the A&M system called for the construction of a new central campus to be located on 662 acres of land that was transferred to the University from the U.S. Army in A $ 40 million construction project was completed and open for classes in An additional $ 38 million, 125,000 square foot multipurpose and library building was completed in the spring of The University of Mary Hardin Baylor, founded on February 1, 1845 as part of the Baylor University system, became a stand-alone female college in Belton in After numerous transformations and becoming coeducational in 1971, the current name was adopted in Having grown substantially over the years, the university is now in the construction phase of a$ 100 million campus expansion. Included is a Center for Visual Arts completed in 2012, a Nursing Education Center and a joined 8,500 spectator football stadium and student union building, completed in fall Future plans include the addition of a 39,000 square foot Performing Arts Center. The Bell County Commissioners' Court called a bond election for September 13, 2003 on a proposed $ 61.1 million Justice Complex proposal. The Commissioners' Court originally planned to construct the project through the issuance of certificates of obligation. This decision was changed in favor of a bond election after a petition drive was completed but failed to secure the required number of signatures. The bond election, calling for a tax increase of 2.5 cents, failed to win voter approval. -24-

69 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30, 2014 On September 22, 2003, the Commissioners' Court created a JaiVCourts Task Force. The purpose of the task force was to involve the public in determining what actions the Commissioners' Court should pursue in addressing existing conditions and growth projections for its jail and court systems. The task force was to study the county jail and courts systems and to recommend viable solutions to meet present and future needs. On December 16, 2003, the task force presented its recommendations which included the new district courthouse, county jail addition, and remodeled current district courthouse building be completed at a cost not to exceed $ 46 million including bond issuance costs. This recommendation was downsized compared to the original plans. The task force plans did not include relocation of the County Courts, County Attorney, or County Clerk functions to the new complex which was a part of the original$ 61.1 million proposal. Also, the county jail addition was downsized from housing 470 inmates to 438. The task force recommended that the Commissioners' Court call a bond election to be held on this matter in spring On February 23, 2004, the Commissioners' Court called a bond election for May 15, The proposed bond issue for $ 46 million requiring a 1 cent tax increase also failed to win voter approval. Following the two failed bond votes, County Commissioners approved more than $ 27 million in Limited Tax Notes in June The Limited Tax Notes offered short-term financing for seven years and did not raise current taxes. The County restructured this issuance in July 2006 with a refunding of the Limited Tax Notes, Series 2006 in the amount of$ 24,435,000. Proceeds from the issuance have been used to build a new District Courts building including the acquisition of a 76-acre site purchased from the Economic Development Corporation of Belton on Loop 121 south of U.S. Highway 190. The District Courts building houses five District Judges and their courtrooms, the District Attorney's Office and the District Clerk's Office. In addition, the current District Courts building has been renovated to expand the Sheriff's Office and one of the courtrooms is used for child protective services cases and one courtroom for child support cases. Construction began on the new District Courts building in January 2005 and the complex was finished by May The dedication was held on October 21, 2006 with U.S. Rep. John Carter officially opening the Bell County Justice Center. In July 2006, the County Commissioners approved the issuance of $ 46,695,000 in Limited Tax Notes to construct the new 658-bed jail facility estimated at a total project cost of$ 43.1 million and to renovate the Bell County Expo Center estimated at $ 2.6 million. The balance of the proceeds, net of issuance cost, may be used to renovate existing buildings for County administrative purposes. The net increase to the tax rate was 3.5 cents for the fiscal year. Construction on the new jail began in February 2007 with completion in late A dedication was held on January 17, 2009 with guest speaker Mr. Adam Munoz Jr., executive director of Texas Commission on Jail Standards, officially opening the new facility. Inmates were moved into the new jail on February 20, The final phase of the Justice Complex began in January 2009 with the construction of the new County Courts addition which is located at the 76-acre Justice Complex, joining the District Courts Building and the new County Jail. The County Courts Building houses three county Court-at-Law Judges and their courtrooms, the County Attorney's Office, the County Clerk's Office and the Justice of the Peace Office and courtroom for Precinct One. The plans included two auxiliary courtrooms to accommodate future growth. The project was completed and offices were relocated to the new County Courts Building in June of The project cost a total of$ 25.4 million and was paid from the 2008 Limited Tax Notes. -25-

70 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 Other Construction Projects Projects completed in 2014 include the following renovations: Engineer's Office Expansion Due to a need for more office space and additional conference area, an expansion was added to the Engineer's Office Building in downtown Belton. The building is part of the City of Belton's historical district and approval was given for the expansion by the committee members. The project was awarded in February 2013 and completed in November The total cost for the expansion was$ 343,500. Bell County Expo Center- Roof Project An inspection of the Bell County Expo Center roof was conducted and the results determined the need for roof replacement due to hail damage. Bell County received an insurance reimbursement in excess of $ 3 million for the repairs. The buildings that surround the main dome of the Expo Center were replaced during 2012 for a total cost of $ 878,232 and the main dome repair was begun in 2013 for a total cost of over $ 2.2 million. The roof project was completed in November Future project for the Bell County Expo Center The Bell County Commissioners Court is planning an expansion of the Expo Center for a Livestock/Equestrian Facility. The facility would include a new 100,000 sf, 1,000 seat equestrian arena for equestrian competitions, livestock shows and rodeo events. The concourse of the arena is designed for exhibitor's booths as well as local specialty exhibits and shows that will support the activities on the arena floor. Food service is provided with concessions and a club grille that includes restaurant and bar searing for 200. In addition to the new arena, new 75,000 sf, supporting facilities, include a warm-up arena, stall barns, and a central plant. Existing exhibit facilities are planned to be renovated and air conditioned to provide quality exhibit space year around. Since opening in 1987 the Expo Center and Dome Arena have hosted equestrian and livestock events, rodeos, conventions, high school and college graduations, concerts and trade shows. The new building, renovations and site enhancements will provide purposefully-designed facilities for equestrian events which include delivery and stabling of livestock, areas for exercise and warm-up, an arena for competitions, livestock shows, rodeo and performances. New parking areas, truck and RV spaces, and outdoor public spaces provide full amenities for all types of livestock and equestrian events. The site's topography is carefully considered for its effect upon building placement, vehicular and pedestrian circulation, and storm water control and detention. The site's physical constraints and opportunities are considered in the development of the project to provide a complex that works well for multiple events including the annual county fair, youth fair, rodeo and a variety of events throughout the year. The total estimated cost for the project is$ 35 million to be funded by future debt issue. Annual Budget Update for The annual budget is developed to provide efficient, effective, and economic uses of the County's resources; as well as, a means to accomplish the highest priority objectives. Through the budget, the County Commissioners set the direction of the County, allocate its resources, and establish its priorities. -26-

71 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30, 2014 The total combined budget for all operating funds including General Fund, Road and Bridge, Lateral Road, Law Library, Indigent Health Care, Debt Service, and Jury Fund is $ 104,552,164. This represents a 4.2 percent increase from the Adopted Budget. The Commissioners' Court approved a total tax rate including maintenance and operations, debt service, and road district for for Bell County of$ The tax rate for 2015 is the same rate as the prior year tax rate. A new property tax exemption for 100 percent disabled veterans, HB 3613, was passed by the Texas legislature during the spring of 2009 and became effective on September 1, To be eligible for the exemption, an applicant must have been approved to receive 100 percent disability compensation from the United States Department of Veterans Affairs. Based upon approved applications of 3,355 the loss of property tax revenue associated with this exemption is $ 2 million for the fiscal year Effective January 1, 2004, a new state law allowed a county, city or junior college district to limit taxes for homeowners who are either disabled or 65 or older commonly called tax ceiling. In June 2004, the Bell County Commissioners' Court adopted the tax ceiling for disabled and 65 or older. For Bell County, the ceiling was established with the 2004 taxes billed in the fall of As a result, starting with the taxes billed in the fall of 2005, those property owners eligible for the limitation did not receive an increase in property taxes due to either reappraisals or future tax rate increase. Based upon 16,676 owners that were eligible the loss of property tax revenue associated with this exemption will be over$ 1.3 million for the fiscal year The General Fund Budget of$ 82,981,672 represents a 4.8 percent increase in expenditures compared to the prior year original budget. The revenues are projected at$ 78,981,672 with a planned use of$ 4,000,000 of reserves. While the use of reserves has been budgeted, in prior years the trends have resulted in revenues exceeding expenditures or actual expenditures less than amount budgeted. As a result, the actual reserves may not be used to the full amount budgeted. The General Fund's largest revenue sources for the budget, as in prior budgets, are property taxes at 53 percent, sales tax at 20 percent, and fees of office at 13 percent of total revenues. Increases in General Fund revenue projections included property taxes due to an increase in the tax base of $ 723,361,276 which adds approximately $ 1 million in revenue net of exemptions and tax increment reinvestment zone. Again for 2015, the property values increased 4.9 percent with the only growth coming from new construction. One cent on the tax rate generates approximately $ 1,270,000 in property tax revenue. The amount of the tax rate allocated for maintenance and operations is $ which is recorded in the General Fund. Sales tax is forecast for an increase of$ 613,627 or 4 percent. Since the County began collecting sales tax in 1988, sales tax has increased each year except for 2009 which recorded a small decrease of less than one percent over Fees of Office are projected for an increase from $ 10 million to $ 10.1 million or one percent. Fees include collections from sales tax on car sales, filings of legal records, and collection of fees from justices of the peace and constables. Collection of fines and forfeitures remain flat. -27-

72 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) September 30,2014 The General Fund budget included a three percent salary increase for employees and several new positions including one deputy clerk for Justice of the Peace, one bondsman for Pretrial Services, an assistant County Attorney, legal assistant for District Attorney, one District Court coordinator, a Veteran's Service Officer, a deputy Constable, and one computer technician for Technology Services. Non-personnel expenditures increased $ 1.5 million. The increases included 18 vehicles for the Sheriff's Office; 2 motor graders, 2 pickups, and 2 shredders for the Road & Bridge Department, and 8 additional vehicles for other departments. Other increases included: $ 100,000 for repairs to buildings and utility cost; $ 153,500 for maintenance and service contracts for Technology Services; $ 84,000 for mental health program related to indigent defense; $ 203,990 for Communication Center operations; and $ 360,000 for contract services for imaging land documents for County Clerk's Office. CONTACTING THE COUNTY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the County's finances and to show the County's accountability for the money it receives. If you have questions about this report or need additional information, contact the County Auditor, at Bell County, 101 East Central Ave., Belton, Texas

73 COMPREHENSIVE ANNUAL FINANCIAL REPORT BASIC FINANCIAL STATEMENTS - 29-

74 COMPREHENSIVE ANNUAL FINANCIAL REPORT -30-

75 STATEMENT OF NET POSITION September 30, 2014 Primary Government Component Unit Governmental Bell County Activities Expo, Inc. ASSETS Cash $ 24,439,592 $ 958,921 Investments 40,243,548 Accounts receivable, net of estimated uncollectible 4,590, ,112 Delinquent taxes receivable, net of estimated uncollectible 1,105,308 Inventories 23,834 70,169 Prepaid expenses 1,345,450 Capital assets not being depreciated: Land 3,202,904 Capital assets, net of accumulated depreciation: Infrastructure 84,656,883 Buildings 143,654,952 Vehicles 4,131,025 Furniture and equipment 12,542,034 Machinery and equipment 8,424,429 TOTAL ASSETS 328,360,797 1,170,202 DEFERRED OUTFLOWS OF RESOURCES Deferred charges 1,833,976 TOTAL DEFERRED OUTFLOWS OF RESOURCES 1,833,976 LIABILITIES Accounts payable 3,637, ,453 Restitution payable 275,759 Accrued expenses payable and other 2,467,522 91,975 Court cost deposits 69,521 Due to other governmental units and others 4,086,083 Unearned revenue 273, ,092 Accrued interest payable 547,366 Premium-bonds payable Noncurrent liabilities: Due within one year 9,226,508 Due in more than one year 109,914,376 TOTAL LIABILITIES 130,497, ,520 NET POSITION Net investment in capital assets 147,882,246 Restricted for: Debt Service 2,474,800 Capital Projects 84,436 Unrestricted net position 49,339,909 91,246 TOTAL NET POSITION $ 199,696,955 $ 175,682 The accompanying notes are an integral part of the financial statements

76 STATEMENT OF ACTIVITIES For the Year Ended September 30,2014 Program Revenues Expenses FUNCTIONS/PROGRAMS Primary government: Governmental activities: General administration $ 21,914,081 Judicial and legal Public safety Health and human services Countywide road and bridge Conservation Law library books and services Interest and fiscal charges Total governmental activities 15,280,444 44,328,688 6,561,110 11,379, ,515 85,201 4,932,521 $ 105,245,386 Charges for Services $ 9,030,207 4,176,517 7,477, ,174 2,735,999 $ 23,553,700 Operating Grants and Contributions $ 45, ,004 4,231, ,377 61,344 12,014 $ 5,096,489 Capital Grants and Contributions $ 1,000 15,630 59, ,578 1,500 $ 201,153 Component unit: Bell County Expo, Inc. Total component unit $ 4,508,938 $ 4,508,938 $ 2,559,616 $ 2,559,616 $ 1,717,765 $ 1,717,765 $ 250,000 $ 250,000 GENERAL REVENUES Property taxes Sales tax Mixed beverage taxes Other taxes Investment income Miscellaneous income Total general revenues Change in Net Position Net Position at Beginning of Year, as restated (Note A 22) Net Position at End of Year The accompanying notes are an integral part of the financial statements

77 Net (Expense) Revenue and Changes in Net Position Primary Government Component Unit Governmental Bell County Activities Expo, Inc. $ ( 12,837,564) (10,657,293) (32,560,000) (6,112,559) (8,458,905) (750,001) (85,201) (4,932,521) $ (76,394,044) $ $ $ $ $ 18,443 $ 18,443 62,841,989 16,997, , , ,563 1,571,691 83,124,950 6,730, ,966,049 $ 199,696, , ,912 $ 175,

78 BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2014 Schedule A-1 Capital Projects Capital County Projects Construction 2013 Nonmajor ASSETS General Fund Fund Governmental Total Cash $ 16,000,685 $ $ 8,400,000 $ 38,907 $ 24,439,592 Investments 23,093, , ,029 16,556,866 40,243,548 Accounts receivable 4,331,281 1, ,790 4,590,838 Delinquent taxes receivable, net 807, ,433 1,105,308 Due from other funds 844, , ,540 Inventories 23,834 23,834 Prepaid expenditures 1,344,135 1,315 1,345,450 TOTAL ASSETS $ 46,422,302 $ 383,925 $ 8,610,796 $ 17,319,087 $ 72,736,110 LIABILITIES Accounts payable $ 2,695,855 $ $ 192,954 $ 748,638 $ 3,637,447 Restitution payable 275, ,759 Accrued expenditures payable and other 465,854 75, ,318 Court cost deposits 69,521 69,521 Due to other governmental units and others 4,086, ,086,083 Due to other funds 376, , , ,540 Deferred revenue 783, ,559 1,218,869 TOTAL LIABILITIES 8,376, , ,185 1,747,284 10,816,537 FUND BALANCES Nonspendable 1,344,135 25,149 1,369,284 Restricted 2,413,731 8,294,611 12,307,866 23,016,208 Committed 730, ,079 Assigned 7,156 2,508,709 2,515,865 Unassigned 34,288,137 34,288,137 TOTAL FUND BALANCES 38,046,003 7,156 8,294,611 15,571,803 61,919,573 TOTAL LIABILITIES AND FUND BALANCES $ 46,422,302 $ 383,925 $ 8,610,796 $ 17,319,087 $ 72,736, 110 The accompanying notes are an integral part of the financial statements. -34-

79 Schedule A-2 RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION September 30,2014 Total Fund Balances - Governmental Funds $ 61,919,573 Amounts reported for Governmental Activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. These assets consist of: Land Infrastructure Building Vehicles Furniture and equipment Machinery and equipment Accumulated depreciation Total capital assets $ 3,202, ,081, ,112,993 7,871,869 16,318,061 32,038,630 (162,014,148) $ 256,612, ,612,227 Revenues in the Statement of Activities that do not provide current financial resources in the funds. These revenues consist of: Property taxes not collected $ 945,633 Total deferred revenue reclassified $ 945, ,633 Other long-term assets are not available to pay for current period expenditures and, therefore, are deferred in the funds. Those assets consist of: Deferred charges Total long-term assets $ 1,833,976 $ 1,833,976 1,833,976 Some long-term liabilities are not due and payable in the current period and, therefore, are not reported in the funds. Those liabilities consist of: Accrued interest Payroll liabilities OPEB liabilities Long-term debt, including premium/discounts Total long-term liabilities Net Position of Governmental Activities $ 547,366 1,926,204 1,128, ,012,634 $ 121,614,454 (121,614,454) $ 199,696,955 The accompanying notes are an integral part of the financial statements

80 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES- GOVERNMENTAL FUNDS Year Ended September 30,2014 Schedule A-3 Capital Projects Capital County Projects Construction 2013 Nonmajor General Fund Fund Governmental Total Revenues: Ad valorem taxes $ 41,343,727 $ $ $ 20,552,629 $ 61,896,356 Sales tax 16,997,993 16,997,993 Leased inmate housing 298, ,120 Fees of office 10,288, ,539 11,186,069 Fines and forfeits 2,668, ,909 2,785,319 Intergovernmental 1,397,827 6,715,554 8,113,381 Licenses and permits 2,835,603 2,835,603 Adult probation program payments 2,051,451 2,051,451 Interest and other 2,772, ,532 23, ,014 4,014,152 Contributions for assistance programs 149, ,573 TOTAL REVENUES 78,602, ,532 23,586 31,471, ,328,017 Expenditures: Current: General administration 19,330, ,336 19,611,651 Judicial and legal 14,769, ,741 15,269,169 Public safety 29,410,773 12,656,042 42,066,815 Health and human services 1,735,134 4,820,016 6,555,150 Countywide road and bridge 5,236,513 3,935,241 9,171,754 Conservation 777,141 71, ,583 Law library books and services 85,200 85,200 Debt Service: Principal retirement 8,170,000 8,170,000 Interest and fiscal charges 4,577,373 4,577,373 Capital outlay: Capital outlay 230,532 1,732,360 2,010,024 3,972,916 TOTAL EXPENDITURES 71,259, ,532 1,732,360 37,106, ,328,611 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 7,342,926 (1,708,774) (5,634,746) (594) Other financing sources (uses): Transfers in 86,469 4,869,172 4,955,641 Transfers out (3,893, 127) ( 1,062,514) (4,955,641) NET OTHER FINANCING SOURCES (USES) (3,806,658) 3,806,658 NET CHANGE IN FUND BALANCES 3,536,268 (1,708,774) (1,828,088) (594) FUND BALANCES AT BEGINNING OF YEAR 34,509,735 7,156 10,003,385 17,399,891 61,920,167 FUND BALANCES AT END OF YEAR $ 38,046,003 $ 7,156 $ 8,294,611 $ 15,571,803 $ 61,919,573 The accompanying notes are an integral part of the financial statements

81 Schedule A-4 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES Year Ended September 30,2014 Net Change in Fund Balances - Total Governmental Funds $ (594) Amounts reported for Governmental Activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period: Capital outlay expenditures Donation of capital assets Net effects of various miscellaneous transactions involving capital assets Depreciation expense Net adjustment $ 9,601, ,708 (127,869) (11,811,589) $ (2,177,391) (2, 177,391) Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the fund statements. This adjustment is to recognize the net change in "unavailable" revenues. Under the modified accrual basis of accounting, revenues are not recognized unless they are deemed "available" to finance the expenditures of the current period; accrual-basis recognition is not limited to availability, so certain revenues need to be reduced by the amounts that were unaviliable at the beginning of the year and increased by the amounts that were unavilable at the end of the year. Property taxes Net adjustment $ 945,633 $ 945, ,633 The issuance of long-term debt provides current financial resources to governmental funds, but issuing debt increases long-term liabilities in the Statement of Net Position. Repayment of long-term debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Assets. Also, Governmental Funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued whereas these amounts are deferred and amortized in the Statement of Activities. This amount is the net effect of these differences in the treatment of longterm debt and related items: Debt issued: Accreted Premium on Issuance Premium on issuance, net of amortization Total proceeds Repayments: To bondholders Bond issuance cost Total repayments Net adjustment $ (541,930) (541,930) (8, 170,000) 470,482 (7,699,518) $ (8,241,448) 8,241,448 Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in Governmental Funds: Accrued interest on debt Increase in payroll liabilities Increase in OPEB liabilities Total adjustment Change in Net Position of Governmental Activities $ (115,331) 165, ,172 $ 278,190 (278,190) $ 6,730,906 The accompanying notes are an integral part of the financial statements

82 Schedule A-5 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL - GENERAL FUND Year Ended September 30,2014 Variance Budgeted Amounts With Final Original Final Actual Budget Revenues: Ad valorem taxes $ 41,292,680 $ 41,292,680 $ 41,343,727 $ 51,047 Sales tax 15,531,475 15,531,475 16,997,993 1,466,518 Leased inmate housing 600, , ,120 (301,880) Fees of office 10,095,875 10,095,875 10,288, ,655 Fines and forfeits 3,090,000 3,090,000 2,668,410 (421,590) Intergovernmental 1,079,386 1,079,386 1,397, ,441 Licenses and permits 2,774,000 2,774,000 2,835,603 61,603 Interest and other 2,621,880 2,621,880 2,772, ,140 TOTAL REVENUES 77,085,296 77,085,296 78,602,230 1,516,934 Expenditures: General administration 20,365,697 19,426,831 19,330,315 96,516 Judicial and legal 15,263,768 14,808,965 14,769,428 39,537 Public safety 30,823,067 29,433,817 29,410,773 23,044 Health and human services 1,881,495 1,744,108 1,735,134 8,974 Countywide road and bridge 5,569,206 5,240,019 5,236,513 3,506 Conservation 915, , ,141 1,653 TOTAL EXPENDITURES 74,818,263 71,432,534 71,259, ,230 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 2,267,033 5,652,762 7,342,926 1,690,164 Other financing uses: Transfers in 86,469 86,469 Transfers out (3,767,033) (3,895,152) (3,893, 127) 2,025 NET OTHER FINANCING SOURCES (USES) (3,767,033) (3,808,683) (3,806,658) 2,025 NET CHANGE IN FUND BALANCE $ (1,500,000) $ 1,844,079 3,536,268 $ 1,692,189 FUND BALANCE AT BEGINNING OF YEAR 34,509,735 FUND BALANCE AT END OF YEAR $ 38,046,003 The accompanying notes are an integral part of the financial statements

83 STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS September 30,2014 Schedule A-6 Private Purpose Trust Fund Agency Funds ASSETS Cash Investments Accounts receivable $ 924,884 $ 11,803,564 2,388,735 Total Assets 924,884 $ 14,192,299 LIABILITIES Accounts payable 2 Restitution payable Due to other governmental units and others 741,605 Total Liabilities 741,607 88,254 14,104,045 $ 14,192,299 NET POSITION Restricted for bail bondsman $ 183,277 The accompanying notes are an integral part of the financial statements. -39-

84 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS Year Ended September 30, 2014 Schedule A-7 ADDITIONS: Deposits from Bail Bond Agencies Interest and other Total Additions DEDUCTIONS: Other operating costs Total Deductions Change in Net Assets Total Net Position at beginning of year Total Net Position at end of year Private Purpose Trust Fund $ 5, , , ,866 $ 183,277 The accompanying notes are an integral part of the financial statements. -40-

85 NOTES TO FINANCIAL STATEMENTS September 30,2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Bell County, Texas (the County) was formed in October 1850 and operates using a commission form of government under the laws and statutes of the constitution of the State of Texas. The financial statements of the County have been prepared in accordance with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the standard setting body for governmental accounting and financial reporting. The GASB periodically updates its codification of the existing Governmental Accounting and Financial Reporting Standards, which along with subsequent GASB pronouncements (Statements and Interpretations), constitutes GAAP for governmental units. The more significant of these accounting policies are described below. I. FINANCIAL REPORTING ENTITY The County provides various services to advance the welfare, health, morals, comfort, safety, and convenience of the County and its inhabitants. In evaluating how to define the County, for financial reporting purposes, management has considered all potential component units. The decision to include a potential component unit in the financial reporting entity was made by applying the criteria set forth in GASB Statement No. 14. The following legally separate entity is noted as a discretely presented component unit of the County in a separate column in the government-wide financial statements to emphasize that it is legally separate from the government. Discretely presented component units are entities that are legally separate from the County, but for which the County is financially accountable or whose relationship with the County are such that exclusion would be misleading or incomplete. 2. DISCRETELY PRESENTED COMPONENT UNITS Bell County Expo, Inc. The Bell County Expo, Inc. (Expo) is a facility that was established by the County. For the following reasons, the Expo is presented as a component unit. The Expo manages operations for the benefit of the County's citizens similar to other government operations. The County's annual budget provides for reimbursement of the Expo's operating and capital expenditures. Extraordinary and unusually expensive repairs and maintenance or capital improvements are submitted to the County for approval prior to funding. All such improvements approved and made to the Expo become the property of the County. All physical assets under the control of the Expo including all cash on hand or in banks are property of the County. The County has entered into a management agreement with the Expo, a private non-profit, non-stock, nonmember corporation that was incorporated by direction of the Commissioners of the Court of Bell County. The Directors of the Expo are appointed by the Commissioners of the Court of Bell County. This agreement, a contract for services, specifies that Expo is an independent contractor managing the premises and other assets that are the County's property. Expo collects revenue for the County and remits collections on a monthly basis. Expo provides the County with estimates of expenditures and receives advances from the County to fund these expenditures on a quarterly basis. Expo issues annual financial statements that are audited. These financial statements depict the operations and financial condition of the Expo Center including County Funds that in essence are being held in a fiduciary capacity

86 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. DISCRETELY PRESENTED COMPONENT UNITS (CONTINUED) Bell County Expo, Inc. (Continued) These financial statements can be obtained by contacting Expo, P. 0. Box 206, Belton, Texas The Expo's fund balances are restricted to be used only for expenses of operations, maintenance and repair payments or the construction of new buildings and facilities. Due to this component unit's financial accountability and because this component unit does not serve the County exclusively or almost exclusively, Bell County Expo, Inc. has been included in the reporting entity as a discretely presented component unit. 3. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The Statement of Net Position and the Statement of Activities are government-wide financial statements. They report information on all of the Bell County nonfiduciary activities of the primary government and its component unit with most of the interfund activities removed. Governmental activities include programs supported primarily by taxes, and other intergovernmental revenues. Likewise, the primary government is reported separately from component units for which the primary government is financially accountable. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. Interfund activities between governmental funds appear as due to/due from on the governmental fund balance sheet. All interfund transactions between governmental funds are eliminated on the government-wide statements. The fund financial statements provide reports on the fmancial condition and results of operations for two fund categories-governmental and fiduciary. Since the resources in the fiduciary funds cannot be used for County operations, they are not included in the government-wide statements. The County considers some governmental funds major and reports their financial condition and results of operations in a separate column. 4. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The government-wide financial statements use the economic resources measurement focus and the accrual basis of accounting as do the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. -42-

87 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 4. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION (CONTINUED) Governmental fund financial statements use the current financial resources measurement focus and the modified accrual basis of accounting. The modified accrual basis of accounting recognizes revenues in the accounting period in which they become both measurable and available, and it recognizes expenditures in the accounting period in which the fund liability is incurred, if measurable, except for unmatured interest and principal on longterm debt, which is recognized when due. The expenditures related to certain compensated absences and claims and judgments are recognized when the obligations are expected to be liquidated with expendable available financial resources. County revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the County considers revenues to be available ifthey are collected within 60 days of the end ofthe fiscal period. Property taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. 5. FUND ACCOUNTING The government reports the following major governmental funds: The General Fund is the government's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Capital Projects County Construction Fund accounts for capital projects financed through grants, insurance proceeds and/or transfers in from the General Fund. The Capital Projects 2013 Fund accounts for projects financed by Limited Tax Notes, Series Projects to include technical equipment (including computer hardware, software, operating and storage equipment, communications lines and equipment and video equipment), office upgrades and office equipment, road and bridge equipment, parking lot renovations or expansion/new parking lots for county buildings, building enlargement, improvements or repairs (including to the jail annex, animal shelter, Expo Center, juvenile probation building, county annex buildings, help center and juvenile detention center), vehicles and patrol equipment for the Sheriff's office, and archive equipment. Additionally the County reports the following fund types: Nonmajor Governmental Fund Types - Governmental funds are those through which most governmental functions of the County are financed. The acquisition, use and balances of the County's expendable financial resources and the related current liabilities (except those, if any, which should be accounted for in proprietary or fiduciary funds) are accounted for through governmental funds. The measurement focus is upon determination of financial position and changes in financial position, rather than upon net income determination. The following nonmajor governmental fund types are maintained by the County: Special Revenue Funds - To account for the proceeds of specific revenue sources (other than debt service and capital projects) that are legally restricted or committed to expenditures for specified purposes. -43-

88 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 5. FUND ACCOUNTING (CONTINUED) Capital Projects Funds - To account for financial resources to be used for the acquisition or construction of major capital facilities. Debt Service Funds- To account for the accumulation of resources for, and the payment of general longterm debt principal, interest, and related costs. Fiduciary Fund Type The County's fiduciary funds consist of trust and agency funds as follows: Trust and Agency Funds - To account for assets held by the County in a trustee capacity or as an agent for individuals, private organizations, other governments, and other funds. These include Private Purpose Trust and Agency Funds. Private Purpose Trust Fund is accounted for using the accrual basis of accounting, whereby revenues are recognized when earned, and expenses are recognized when incurred. All assets and all liabilities associated with the operation of these funds are included on the balance sheet and accounted for using the flow of economic resources measurement focus. The following is the private purpose trust fund and its respective activity: Bail Bond Fund- To account for the deposits made by various bail bonding firms in order for such firms to operate in the county. Agency Funds are custodial in nature, are maintained on the accrual basis, and do not include measurement of results of operations. The following is a list of the agency funds and their respective activities: Housing Finance Fund- To account for funds received by the Housing Finance Board in connection with the issuance of bonds for low income housing. District Clerk Fund/County Clerk Fund - To account for monies held in trust in connection with litigation in progress in the County and District Courts and to account for funds held in trust for minors and estates. County Attorney For:feiture Escrow Fund- To account for monies confiscated by the County Attorney's office during drug or gambling-related raids, arrests, and investigations until such monies are awarded by the Court to local, State or Federal authorities or returned to the defendant. Domestic Relations Fund- To account for the collection and payment of child support and alimony monies processed by the District Clerk. -44-

89 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 5. FUND ACCOUNTING (CONTINUED) Fiduciary Fund Type (Continued) Juvenile Probation and Welfare Fund- To account for the collection and payment of restitution pursuant to court decrees processed for juvenile cases within the County and the collection and payment of monies received for the benefit of indigent juveniles within the County. Restitution Fund- To account for the collection and payment of restitution on behalf of the Adult Probation Department of the State of Texas. Central Texas Housing Fund- To account for funds received by the Central Texas Housing Board in connection with the issuance of bonds for housing. County Treasurer Hot Check Fund - To account for funds collected to cover hot checks and disbursed to claimants. Advance Payment Fund- To account for funds collected and remitted directly to the State. Central Texas Narcotics Seizure Fund- To account for monies confiscated by the Central Texas Narcotics Task Force during drug-related raids, arrests, and investigations until such monies are awarded by the Court to State or Federal authorities or returned to the defendant. District Attorney Drug Seizure Fund #2- To account for monies confiscated by the District Attorney's Office during drug-related arrests and investigations in 1990 and thereafter, until such monies are awarded by the Court to local, State or Federal authorities or returned to the defendant. Bell County Health Facility Development Corporation Fund- To account for commissions and other revenue generated as a product of the County acting as a conduit for low interest rate, tax exempt bonds for the development of health facilities. Bell County Industrial Development Corp Fund- To account for revenue generated as a product of the County acting as a conduit for low interest rate bonds for development of industrial corporations. DHS Restitution Fund- To account for the collection and payment of restitution to Department of Human Services for welfare fraud cases. BelVLampasas Restitution Fund- To account for the collection and payment of restitution pursuant to court decrees for juvenile cases within the Lampasas County for the Bell/Lampasas Juvenile Court. Land Records Escrow- To account for monies held in escrow in connection with the recording of documents. Discretely Presented Component Unit The discretely presented component unit uses the same basis of accounting as the primary government. -45-

90 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 5. FUND ACCOUNTING (CONTINUED) Fiduciary Fund Type (Continued) Budgeting Budgets are adopted for the General Fund, Debt Service Funds and all Special Revenue Funds with the exception of the following: 1) Adult Probation Civil Fund, 2) Pretrial Diversion Program, 3) Bell County Organized Crime Federal Forfeiture Fund, 4) Disaster Emergency Relief Fund, 5) Election Equipment Services. An operating budget is legally adopted each year at the object level within each department on the same modified accrual basis used to reflect actual revenues and expenditures. The Commissioners' Court is authorized to transfer budgeted amounts between departments or accounts. Expenditures may not legally exceed appropriations on a departmental level; however, this is not strictly enforced by the Commissioners' Court. Budgeted amounts are as originally adopted or as amended by the Commissioners' Court. Commissioners' Court approval is sought and obtained for all budget amendments; no amendments can be made without the approval of the Commissioners' Court. During the year ended September 30, 2014, the amendment that was material in relation to the original budget was the final amendment that decreased budget expenditures by $ 3.5 million. The majority of the final amendment was for departments that did not expend their total operating budget. Encumbrances Encumbrance accounting, whereby purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve a portion of the applicable appropriation, and is employed during the fiscal year as an extension of the formal budgetary control in the General, Special Revenue, and any Capital Projects Funds. Although appropriations lapse at year end, it is the County's intention to honor such commitments. The amounts of these commitments are included in the appropriate classification of fund balance depending on the restrictions of the revenue that will be used for the expenditure. Encumbrances by major funds and nonmajor funds in the aggregate are shown below: Encumbrances Major Funds: General Fund $ 65,583 Nonmajor Funds: 290,284 Totals $ 355, CASH AND CASH EQUIVALENTS Cash and cash equivalents include all cash available upon demand or having a maturity date of less than three months. -46-

91 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 7. DEPOSITS AND INVESTMENTS The County's depository agreement requires collateralization of all demand deposits and time deposits (certificates of deposit). State statutes require that the collateral be governmental securities. Substantially all of the pledged collateral of the depository bank for the County's demand deposits and time deposits are U.S. Government Securities. This collateral is held in trust by another bank and is pledged to Bell County. Collateral cannot be released without the permission of the Bell County Treasurer. Investments are stated at fair value in accordance with GASB 31. U. S. Treasury and Agency obligations that have a remaining maturity at the time of purchase of one year or less are stated at amortized cost. Methods used to determine fair value are as follows: Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates, mortgages are valued on the basis of future principal and interest payments, and are discounted at prevailing interest rates for similar instruments. Investments that do not have an established market are reported at estimated fair value. Security transactions and any resulting gains or losses are accounted for by the specific identification method. The investment policies of the County are governed by the State. 8. ACCOUNTS RECEIVABLE AND CREDIT RISK Substantially all accounts receivable as of September 30, 2014 are due from other governmental units for inmate lodging, sales taxes, and other governmental services. Receivables of the County are generally from the State of Texas and other governmental units that are collected within 60 days of year end. 9. INVENTORIES AND PREPAID ITEMS Inventories which are expended as they are consumed are stated at cost. Cost is determined for inventories of Road & Bridge supplies using the FIFO method. Prepaid balances are for payments made by the County in the current year to provide services occurring in the subsequent fiscal year and are recorded as prepaid items in both government-wide and fund financial statements. Reported inventories and prepaid items in governmental funds are offset by a fund balance reserve which indicates that they do not constitute available spendable resources even though they are a component of net current position. 10. CAPITALASSETS Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $ 5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. -47-

92 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 10. CAPITAL ASSETS (CONTINUED) The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the useful life are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Property, plant and equipment of the primary government, as well as the component unit, are depreciated using the straight line method over the following estimated useful lives: Assets Infrastructure Building Vehicles Furniture and equipment Machinery and equipment Years FEDERAL AND STATE GRANTS Revenues from Federal and State grants are recognized on the basis of actual expenditures incurred, limited to the amount of the total grant award. Shared revenues are recognized based on the fiscal period to which the entitlements received apply. 12. VACATIONANDSICKPAY Full-time employees accumulate two weeks (three weeks with over five years of service) of vacation which must be used by December 31 each year. Sick leave benefits are earned by full-time employees at a rate of ten hours per month and may be accumulated up to 960 hours. In the event of termination, an employee with at least one year but less than five years continuous service is paid for all accumulated vacation days up to the amount of vacation accrued as of January 1 of the year of termination, less any hours taken between January 1 and the date of termination up to two weeks. Likewise, an employee with over five years of service is paid for all accumulated vacation days up to the amount of vacation accrued as of January 1 of the year of termination, less any hours taken between January 1 and the date of termination up to three weeks. There is no liability accrued as all vacation lapses on December 31 of each year and the amount would not be material. Sick leave is not paid in the event of termination. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. 13. PENSION PLAN It is the policy ofthe County to fund annual pension costs which are composed of normal cost and amortization of unfunded prior service cost. -48-

93 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I4. OTHER POST-EMPLOYMENT BENEFITS It is the policy of the County to fund a portion of the cost for post-retirement health and dental insurance for participating retired employees. The amount funded is capped at $ 180 per month for health insurance and $ 9 per month for dental insurance. The retired employees may no longer participate when they become eligible for Medicare. IS. LONG-TERMOBLIGATIONS In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the governmental activities Statement of Net Position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. I6. DEFERRED OUTFLOWS/INFLOWS OF RESOURCES In addition to assets, the statement of financial position and/or balance sheet will sometimes report a separation section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The County only has one item that qualifies for reporting in this category. It is the deferred amount on refunding reported in the government-wide statement of net position. A deferred amount on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of financial position and/or balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The County does not have any items that quality for reporting in this category. I7. NET POSITION In the government-wide statements, net position are restricted when there are limitations imposed on their use either through the enabling legislations adopted by the County or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. -49-

94 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 17. NET POSITION (CONTINUED) The categories of net position are presented as: 18. FUND EQUITY 1. Investment in capital assets - capital assets, net of accumulated depreciation, reduced by: a) the outstanding balances of any borrowing used for the acquisition, construction or improvement of those assets, and b) increased by unspent bond proceeds. 2. Restricted for Debt Service- restricted for the retirement of debt. 3. Restricted for Capital Projects- funds which are restricted for future capital improvements. 4. Unrestricted- no limitations are imposed on the use of net position. The County implemented GASB Statement 54 for the year ending September 30, GASB statement 54 requires analysis and presentation of fund balance in five categories. The new fund balance categories are: Non-spendable- Includes amounts that are not in spendable form or are required to be maintained intact. Restricted - Includes amounts that are restricted by external creditors, grantors or contributors, or restricted by legal constitutional provisions. Committed- includes amounts committed by the County Commissioners' Court, by resolution of the Court. Commitments may be modified or rescinded by similar resolution. Assigned- Includes amounts assigned by specific uses, authorized by the County Commissioners' Court. The Court establishes these assignments by passage of a resolution either through adoption or amendment of the budget as intended for specific purposes. Unassigned - This is the residual classification used for those amounts not assigned to another category in the General Fund. Deficit fund balances in other governmental funds are also presented as unassigned. The County is committed to maintaining a prudent level of financial resources in order to maintain a high bond rating and to protect the county from the effects of fluctuations in revenues and unpredicted expenditures. The County's Minimum Fund Balance Policy for General Fund requires a reserve to be maintained at a minimum amount equal to three (3) months current operating expenditures. Because amounts in the non-spendable, restricted, committed, and assigned categories are subject to varying constraints on their use, the reserve consists of balances that are otherwise unassigned. The County's current Minimum Fund Balance Policy was adopted on September 12, When both restricted and unrestricted resources are available for use, it is the County's policy to use restricted resources first, with unrestricted resources utilized as needed. When unrestricted resources are needed, the County's policy is to use committed amounts first, followed by assigned amounts and then unassigned amounts as needed. -50-

95 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 19. TRANSACTIONS BETWEEN FUNDS Short-term advances between funds are accounted for in the appropriate interfund receivable and payable accounts. Transfers of a recurring or routine nature that have been legally authorized are treated as transfers and are included in the results of operations. 20. COMPARATIVE DATA Comparative total data for the prior year have been presented in selected sections of the accompanying financial statements in order to provide an understanding of changes in the County's financial position and operations. However, comparative data has not been presented in all statements since their inclusion would make the statements unduly complex and difficult to understand. 21. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Specifically, the actuarial calculations used to determine the annual required contributions and related liabilities of the County's retirement plan and other post-employment obligations are base on assumptions about the possibility of events far in to the future. Accordingly, actual results could differ from those estimates. 22. NEW AND FUTURE FINANCIAL REPORTING REQUIREMENTS The GASB has issued the following statement which became effective in fiscal year Statement No. 65, Items Previously Reported as Assets and Liabilities. The objective of Statement No. 65 is to either properly classify certain items that were previously reported as assets and liabilities as deferred outflows of resources or deferred inflows of resources or to recognize certain items that were previously reported as assets and liabilities as outflows of resources or inflows ofresources. The implementation of Statements No. 65 resulted in the reclassification of the beginning net position of the governmental activities in the government-wide financial statements. Issuance costs, previously amortized over the life of the debt issuance, are not expensed at the time of issue

96 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 22. NEW AND FUTURE FINANCIAL REPORTING REQUIREMENTS (CONTINUED) Retroactively applying this change results in the adjustment below: Net position at September 30, 2013, as previously reported Change in reporting for debt issuance costs Net position at September 30, 2013, as restated Governmental Activities $ 194,346,322 (1,380,273) $ 192,966,049 Statement No. 65 implementation also resulted in deferred charges on refunding being reclassified to Deferred Outflow of Resources instead of a reduction of the debt liability. The deferred charges continue to be amortized as interest expense over the life of the bonds. The GASB has issued the following statement which will become effective in future years. Statement No. 68, Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27, is effective for period beginning after June 15, This standard changes the focus of pension accounting for employers from whether they are responsibility funding their plan over time to a point-in-time liability that is reflected in the employer's financial statements for any actuarially unfunded portion of pension benefits earned to date. This statement will become effective for the County in fiscal year Management has not yet determined the effect of these statements on the financial statements; however, the impact of Statement No. 68 is expected to be significant as they will now reflect a previously unrecorded liability. The County also expects the largest deferred inflow and outflow to be pension related. NOTE B- RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS A summary reconciliation of the difference between total fund balances as reflected on the governmental funds balance sheet and total net assets for governmental activities as shown on the government-wide statement of net assets is presented in an accompanying schedule to the governmental funds balance sheet. The asset and liability elements which comprise the reconciliation difference stem from governmental funds using the current financial resources measurement focus and the modified accrual basis of accounting while the government-wide financial statements use the economic resources measurement focus and the accrual basis of accounting. A summary reconciliation of the difference between net changes in fund balances as reflected on the governmental funds statement of revenues, expenditures, and changes in fund balances and change in net assets for governmental activities as shown on the government-wide statement of activities is presented in an accompanying schedule to the governmental funds statement of revenues, expenditures, and changes in fund balances. The revenue and expense elements which comprise the reconciliation difference stem from governmental funds using the current financial resources measurement focus and the modified accrual basis of accounting while the government-wide financial statements use the economic resources measurement focus and the accrual basis of accounting. -52-

97 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE C- STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY BUDGETARY DATA The Commissioners adopt an "appropriated budget" for the General Fund. The County is required to present the adopted and final amended budgeted revenues and expenditures for this fund. The County compares the final amended budget to actual revenues and expenditures. The General Fund Budget report appears in Schedule A-5 The following procedures are followed in establishing the budgetary data reflected in the financial statements: 1. Prior to September 30 the County prepares a budget for the next succeeding fiscal year beginning October 1. The operating budget includes proposed expenditures and the means of financing them. 2. A meeting of the Commissioners is then called for the purpose of adopting the proposed budget. At least ten days public notice of the meeting must be given. 3. Prior to October 1, the budget is legally enacted through passage of a resolution by the Court. Once a budget is approved, it can only be amended at the function and fund level by approval of a majority of the members of the Commissioners' Court. Amendments are presented to Commissioners at its regular meetings. Each amendment must have Court approval. As required by law, such amendments are made before the fact, are reflected in the official minutes of the Court, and are not made after fiscal year end. Because the Court has a policy of careful budgetary control, several amendments were necessary during the year. Amendments were made throughout the year for transfers to and from other funds and for transfers to and from other functions. The following amendments were significant: amendment for adjustments to several positions; amendment for a new position for Vehicle Registration and three new vehicles for Sheriffs Office; amendment for one new vehicle for Juvenile Probation; amendment for overtime in public safety; and an amendment to record a decrease in various departments for operating budgets not expended. 4. Each budget is controlled by the official or department head of each department. Budgeted amounts are as amended by the court. All budget appropriations lapse at year end. NOTE D- DEPOSITS AND INVESTMENTS 1. DEPOSIT Legal and Contractual Provisions Governing Deposits and Investments The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies. Among other things, it requires the County to adopt, implement, and publicize an investment policy. That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar-weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, (9) and bid solicitation preferences for certificates of deposit. Statutes authorize the County to invest in (1) obligations of the U.S. Treasury, certain U.S. agencies, and the State of Texas; (2) certificates of deposit, (3) certain municipal securities, ( 4) money market savings accounts, (5) repurchase agreements, (6) bankers acceptances, (7) mutual funds, (8) investment pools, (9) guaranteed investment contracts, (1 0) and common trust funds. The Act also requires the County to have independent auditors perform test procedures related to investment practices as provided by the Act. The County is in substantial compliance with the requirements of the Act and with local policies

98 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE D- DEPOSITS AND INVESTMENTS (CONTINUED) 1. DEPOSITS (CONTINUED) Legal and Contractual Provisions Governing Deposits and Investments (Continued) The funds of the County must be deposited and invested under the terms of a contract, contents of which are set out in the Depository Contract Law. The depository bank places approved pledged securities for safekeeping and trust with the County's agent bank in an amount sufficient to protect County funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation ("FDIC') insurance. As of September 30, 2014, the County's deposit balances were as follows: Total Primary Component Reporting Government Unit Entity Total Bank Balance Deposits $ 24,866,764 $ 980,558 $ 25,847,322 Carrying Amount $ 24,439,592 $ 958,921 $ 25,398,513 Foreign Currency Risk- The County's deposits are not exposed to foreign currency risk. Custodial Credit Risk- The County's policy is to be collateralized. The County was fully collateralized during the year for deposits. The policies of the Bell County Expo, Inc., a discretely presented component unit, also requires full collateralization. As of September 30,2014 the Bell County Expo, Inc. was fully insured. 2. INVESTMENTS As of September 30, 2014, the County had the following investments: Carrying Amount Fair Value Primary Government Federal Agency obligations $ 1,000,000 $ 1,000,000 Certificates of Deposits 14,700,000 14,700,000 Investment pool: TexPool 24,543,548 24,543,548 Total investments $ 40,243,548 $ 40,243,548 Funds of Bell County are invested in accordance with federal and state laws and Bell County's investment policy. The County invests according to the investment strategies for each fund as they are adopted by Commissioners Court. Investments include restricted unspent proceeds in capital project funds and restricted investments in debt service funds. -54-

99 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE D- DEPOSITS AND INVESTMENTS (CONTINUED) 2. INVESTMENTS (CONTINUED) Cash and investments of the fiduciary funds are all properly collateralized or are invested in TexPool. Their fair value at September 30,2014 amounted to$ 14,192,299. Interest Rate Risk - In accordance with its investment policy, the County manages its exposure to declines in fair value by limiting the weighted average maturity of its investment portfolio to less than nine months. As of September 30, 2014, the weighted average maturity of the County's investment portfolio was 158 days. Other Credit Risk Exposure - The County's direct investment in debt securities consist of debt securities of the U.S. Government and obligations of the U. S. government agencies that are implicitly guaranteed by the U.S. government. The County also invests in external investment pools that invest in debt securities. Foreign Currency Risk- The County's investments are not exposed to foreign currency risk. Credit Risk- In compliance with the County's Investment Policy, as of September 30, 2014, the County is authorized by statute to invest in obligations of the United States or its agencies and instrumentalities. Federal Agency Obligations held at September 30, 2014, by Bell County included Federal Home Loan Banks (FHLB) and Federal Home Loan Mortgage Corporation (FHLMC), both of which were rated by Moody's as AAA and by Standard & Poor's at AA+. Custodial Risk - The County's policy requires investments, other than investment pools and money market mutual funds, to be held by a third party custodian bank. All of the County's investments, other than investment pools, were held by the County's third party custodian bank in the County's name. The managed public funds investment pool represents the County's investment in Texas Local Government Investment Pool (TexPool). Authorized investments of TexPool include obligations of the U.S. or its agencies, direct obligations of the State of Texas or its agencies, certificates of deposit, repurchase agreements, no load money market mutual funds, and highly rated commercial paper. At September 30, 2014 the fair value of the County's investments in TexPool approximated its carrying value. TexPool has been established for governmental entities in conformity with the Interlocal Cooperation Act, Chapter 791 of the Texas Government Code, and the Public Funds Investment Act, Chapter 2256 of the Texas Government Code and operates in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of The State Comptroller of Public Accounts exercises oversight responsibility over TexPool. Additionally, the State Comptroller has established an advisory board composed of both participants in TexPool and other persons who do not have a business relationship with TexPool. Finally, TexPool is rated AAA by Standard & Poors. As a requirement to maintain the rating, weekly portfolio information must be submitted to Standard & Poors, as well as the office of the Comptroller of Public Accounts for review. -55-

100 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE E- PROPERTY TAXES AND RECEIVABLES The County levies taxes on real and personal property within the County on October 1 of each year. This is also the lien date. Such taxes become delinquent the following February 1. Interest and penalty of 7, 9, 11, 13, 15, and 18 percent are assessed for payments received in February, March, April, May, June, and July, respectively. The assessed valuation of taxable property as of January 1, 2013 in the County was $ 16,361,859,029. The County grants exemptions authorized by State law for disabled veterans and homesteads; therefore, the assessed values to which the tax rates are applied are less than the 100 percent valuation. Also, effective January 1, 2004, a new state law allowed a county, city or junior college district to limit taxes for homeowners who are either disabled or 65 or older, commonly called a tax ceiling. In June 2004, the Bell County Commissioners' Court adopted the tax ceiling for disabled and 65 or older. For Bell County, the ceiling was established with the 2004 taxes billed in the fall of As a result, starting with the taxes billed in the fall of 2005, those property owners eligible for the limitation did not receive an increase in property taxes due to either reappraisals or a tax increase. A new property tax exemption for 100 percent disabled veterans, HB 3613, was passed by the Texas legislature during the spring of 2009 and became effective on September 1, The first tax year impacted by the new statute was 2009 (fiscal year ). Based upon approved applications of 2, 759, the loss of property tax revenue associated with this new exemption was over$ 1,633,109 for the fiscal year To be eligible for the exemption, an applicant must have been approved to receive 100 percent disability compensation from the United States Department of Veterans Affairs. The tax rate for the 2013 tax roll was$ per$ 100 of assessed value; it was designated$ for the General Fund including the payment of principal and interest on general obligation long-term debt and $ for the Special Revenue Fund for the maintenance of roads and bridges. Taxes receivable are reduced by an allowance for estimated uncollectible taxes. Revenues from property taxes are recognized in the current year to the extent they are available to finance current year expenditures. Amounts not available are deferred. At September 30, 2014 delinquent property taxes receivable are $ 1,105,308 net of allowance of$ 924,698. The County is permitted by Article VIII, Section 9 of the State of Texas Constitution to levy taxes up to $ 0.80 per$ 100 of assessed valuation for general governmental services, including the payment of principal and interest on general obligation long-term debt, and $ 0.15 per $ 100 of assessed valuation for maintenance of public roads and bridges. The County has a tax margin of $ and could levy additional taxes of approximately$ 81,629,315 for general governmental services and maintenance for roads and bridges based upon the present assessed valuation before the limit is reached. However, under current legislation when a proposed tax rate exceeds the rollback rate or the effective rate, whichever is lower, the County Commissioners' Court must vote to place a proposal to adopt the rate on the agenda of a future meeting as an action item. If the motion passes, the Commissioners' Court must schedule two public hearings on the proposal. Delinquent taxes are prorated between maintenance and debt service based on rates adopted for the year of the levy. Allowances for uncollectible tax receivables within the General and Special Revenue Funds are based on historical experience in collecting property taxes. Uncollectible personal property taxes are periodically reviewed and written off, but the County is prohibited from writing off real property taxes without specific statutory authority from the Texas Legislature. -56-

101 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE F - INTERFUND RECEIVABLES AND PAY ABLES Individual interfund receivable and payable balances at September 30, 2014 were: Due From Other Funds Fund Type General Fund $ 844,598 $ County Construction Fund Capital Projects 2013 Fund Nonmajor Governmental Funds Special Revenue: Maintenance Bridge Fund 11,204 Precinct No I Precinct No Precinct No Adult Probation Fund 296 Adult Probation Community Correction Program 4,195 Adult Probation Diversion Treatment Program 1,168 Texas Juvenile Probation Commission Grants County Attorney Forfeiture Fund National School Lunch Program Indigent Health Care Fund Indigent Health Care Administration 162 Mental Health Deputy Grant Community Relief Fund Communication Center Bell County Expo/4-H Youth Fund Bell County Organized Crime Operating Fund District Attorney Forfeiture of Contraband Fund Inmate Commissary 27th Judicial District Fund 389 Indigent Defense Grant Justice ofthe Peace Technology Fund Texas Agri-Life Grant Capital Projects: Capital Projects 2007 Fund 757 Capital Projects 2008 Fund 844 Capital Projects 2010 Fund 122,962 Total Nonmajor Governmental Funds 142,942 Total $ 987,540 $ Due To Other Funds 376, ,231 4, ,650 5,644 14,513 81,131 76, ,868 86, ,242 4,112 7, , ,540 The purpose of the interfund balances is mainly for cash flow concerns, and the amounts are anticipated to be repaid in the current year. -57-

102 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE G- CAPITAL ASSET ACTIVITY Capital asset activity for the County for the year ended September 30, 2014, was as follows: Beginning Balance Additions Governmental Activities: Capital assets not being depreciated: Land $ 3,202,904 $ Total capital assets not being depreciated 3,202,904 Capital assets being depreciated: Infrastructure 175,334,661 4,747,257 Buildings 177,761,824 1,351,169 Vehicles 6,779,526 1,527,615 Furniture and Equipment 15,147,501 1,225,822 Machinery and Equipment 31,501, ,204 Total capital assets being depreciated 406,524,845 9,762,067 Less Accumulated Depreciation for: Infrastructure (89,568,870) (5,856,165) Buildings (32, 165,504) (3,292,537) Vehicles (3,388,383) (707,706) Furniture and Equipment (3, 170,249) (605,778) Machinery and Equipment (22,645,125) (1,349,403) Total Accumulated Depreciation (150,938,131) (11,811,589) Total capital assets being depreciated, net 255,586,714 (2,049,522) Governmental Activities Capital Assets, Net $ 258,789,618 $ (2,049,522) Reclassifications/ Deletions $ (435,272) (55,262) (372,907) (863,441) 355, , ,572 (127,869) $ (127,869) Ending Balance $ 3,202,904 3,202, ,081, ,112,993 7,871,869 16,318,061 32,038, ,423,471 (95,425,035) (35,458,041) (3,740,844) (3,776,027) (23,614,201) (162,014,148) 253,409,323 $ 256,612,227 Depreciation expense was charged to governmental activities as follows: General Administration Judicial and Legal Public Safety Health and Human Services Countywide Road and Bridge Conservation Total Depreciation Expense $ 2,313,644 26,414 2,679,191 2,292 6,783,404 6,644 $11,811,

103 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE H- DISAGGREGATION OF RECEIVABLES AND PAYABLES Receivables at September 30, 2014, were as follows: Delinquent Taxes Receivable Accounts (Net of Total Receivable Allowance~ Receivables Governmental Activities: General Fund $ 4,331,281 $ 807,875 $ 5,139,156 Capital Projects-2013 Fund 1,767 1,767 Nonmajor Governmental Funds 257, , ,223 Total- Governmental Activities $ 4,590,838 $ 1,105,308 $ 5,696,146 Payables at September 30, 2014 were as follows: Accrued Due to Accounts Restitution Expenditures Other Pa~able Pa~able Pa~able Gov'ts Governmental Activities: General Fund $ 2,695,855 $ 275,759 $ 465,854 $ 4,086,000 Capital Project 2013 Fund 192,954 Nonmajor Governmental Funds 748,638 75, Total - Governmental Activities $ 3,637,447 $ 275,759 $ 541,318 $ 4,086,083 Total Pa~ables $ 7,523, , ,185 $ 8,540,607 NOTE I- DEFERRED REVENUE Governmental funds report unearned revenue in connection with receivables of revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the components of deferred revenue reported in the governmental funds were entirely made up of funds received in advance of the requirements to spend them. -59-

104 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE J- CHANGES IN LONG-TERM DEBT Long-term activity for the year ended September 30, 2014 was as follows: Beginning Ending Balance Additions Reductions Balances Governmental Activities: Bonds and Notes Payable: (a) General Obligations $ $ $ $ Contractual Obligations 645,000 (315,000) 330,000 Limited Tax Notes 110,075,000 (7,210,000) 102,865,000 Certificates of Obligation 11,315,000 (645,000) 10,670,000 Plus deferred amount: Issuance premiums 4,689,564 (541,930) 4,147,634 Other Post-employment (b) Benefits Obligation 900, ,885 {86,713~ 1,128,250 Total Governmental Activities $127,624,642 $ 314,885 $ {8,798,643~ $119,140,884 $ Due within One Year 330,000 7,685, , ,508 $ 9,226,508 Funding for Liquidation: a- Debt Service; b - General Fund NOTE K- LONG-TERM DEBT Long-term debt at September 30, 2014, is composed of the following individual components: Contractual Obligations: $ 3,635,000 Public Property Finance Contractual Obligations Series 2005 due February 15, 2015, payable in annual principal installments ranging from$ 265,000 to$ 575,000, interest at 3.0% to 4.0% Limited Tax Notes: $ 24,435,000 Limited Tax Refunding Bonds, Series 2006 due February 15, 2024 payable in annual principal installments ranging from $ 900,000 to$ 2,710,000, interest at 4.5% to 5.0% $ 29,495,000 Limited Tax Refunding Bonds, Series 2008 due February 15, 2026 payable in annual principal installments ranging from$ 1,705,000 to$ 3,020,000, interest at 3.75% to 5.25% $ 23,650,000 Limited Tax Refunding Bonds, Series 2010 due February 15, 2028 payable in annual principal installments ranging from $ 405,000 to$ 2,215,000, interest at 2.0% to 5.0% $ 13,150,000 Limited Tax Refunding Bonds, Series 2011 due February 15, 2028 payable in annual principal installments ranging from$ 300,000 to $ 1, 110,000, interest at 2.0% to 5.0% $ 330,000 9,815,000 27,790,000 22,765,000 12,165,

105 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE K- LONG-TERM DEBT (CONTINUED) Limited Tax Notes (Continued): $ 8,385,000 Limited Tax Refunding Bonds, Series 2012 due February 15, 2026 payable in annual principal installments ranging from$ 375,000 to$ 1,070,000, interest at 2.0% to 3.0%. $ 14,535,000 Limited Tax Refunding Bonds, Series 2013 due February 15, 2024 payable in annual principal installments ranging from $ 200,000 to$ 1,650,000, interest at 1.78%. $ 10,095,000 Limited Tax Notes, Series 2013 due February 15,2020 payable in annual principal installments ranging from $ 445,000 to $ 2,000,000, interest at 1.59%. Subtotal Limited Tax Notes Certificates of Obligation: $ 6,100,000 Certificates of Obligation, Series 2007, due August 15, 2017 payable in annual principal installments ranging from$ 60,000 to $ 1,325,000, interest at 4.17% $ 10,000,000 Combination Tax and Revenue Certificates of Obligation, Series 2010 due February 15,2030, payable in annual installments ranging from$ 505,000 to$ 875,000; interest at 3.375% to 5.0% Subtotal Certificates of Obligation Total Long-Term Debt 7,420,000 14,335,000 8,575, ,865, ,000 10,000,000 10,670,000 $ 113,865,000 Debt service requirements to maturity for governmental activities are as follows: Year Ending September 30 Principal Interest Total ,685,000 4,254,380 12,939, ,810,000 3,943,140 12,753, ,090,000 3,632,636 12,722, ,130,000 3,316,892 13,446, ,005,000 2,973,429 12,978, ,670,000 9,436,613 54,106, ,600,000 1,928,612 23,528, ,000 18, ,594 Totals $ 113,865,000 $ 29,504,296 $ 143,369,

106 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE K- LONG-TERM DEBT (CONTINUED) Public Property Finance Contractual Obligations, Series 2005, totaling$ 3,635,000 were financed at 3.85 percent over ten years. The purpose of the issue is for equipment for County use and for costs of issuance. Limited Tax Refunding Bonds, Series 2006 in the amount of$ 24,435,000 financed at a net interest cost of 4.79 percent. These bonds were used to refund$ 24,160,000 of the Series 2004 Limited Tax Notes. Certificates of Obligation, Series 2007, totaling $ 6,100,000 were financed at an interest cost of 4.17 percent for ten years. The proceeds will be used for acquiring, constructing, renovating and equipping of County facilities (including storage facilities, maintenance facilities and multipurpose facilities), purchase of County equipment, including road and public safety equipment, and the cost of issuance. Limited Tax Refunding Bonds, Series 2008, totaling $ 29,495,000 were financed at a net interest cost of 4.59 percent. These bonds were used to refund$ 28,650,000 of the Series 2006 Limited Tax Notes. Limited Tax Refunding Bonds, Series 2010, totaling $ 23,650,000 were financed at a net interest cost of 3.97 percent. These bonds were used to refund $ 5,575,000 of the Series 2001 Combination Tax and Revenue Certificates of Obligation, $ 550,000 of the Series 2006 Limited Tax Refunding Bonds, and $ 17,480,000 of the Series 2008 Limited Tax Notes. Combination Tax & Revenue Certificates of Obligation, Series 2010, totaling$ 10,000,000 were financed at a net interest cost of 3.94 percent for 20 years. The proceeds will be used for the acquisition, construction, renovation and equipping of County facilities; acquisition of land and right of way; repairs or improvement to the County jail and Expo Center; maintenance, improvements and extensions to roads and bridges and transportation improvements, acquisition or construction of an animal control facility; and acquisition of computer hardware and software, communications equipment, public safety equipment, vehicles and construction equipment. Limited Tax Refunding Bonds, Series 2011, totaling $ 13,150,000 were financed at a net interest cost of 3.43 percent. These bonds were used to refund$ 13,160,000 of the Series 2008 Limited Tax Notes. Limited Tax Refunding Bonds, Series 2012, totaling $ 8,385,000 were financed at a net interest cost of 1.59 percent. These bonds were used to refund$ 5,195,000 in principal from Series 2006 Limited Tax Notes and $ 3,430,000 in principal from Series 2003 Limited Tax Refunding Bonds. Limited Tax Refunding Bonds, Series 2013, totaling $ 14,535,000 were financed at a net interest cost of 1.78 percent. These bonds were used to refund $ 12,065,000 in principal from Series 2006 Limited Tax Refunding Bonds and $ 1,425,000 in principal from series 2007 Certificates of Obligation. Limited Tax Notes, Series 2013, totaling$ 10,095,000 were financed at net interest cost of 1.59 percent for seven years. The County has an option to restructure this issuance at a future call and extend the payments through a subsequent refunding issuance. The proceeds will be used for (1) technical equipment (including computer hardware, software, operating and storage equipment, communications lines and equipment and video equipment); (2) office upgrades and office equipment; (3) road and bridge equipment; (4) parking lot renovation or expansion/new parking lots for county buildings; (5) building enlargement, improvements or repairs (including to the jail annex, animal shelter, Expo Center, juvenile probation building, county annex buildings, help center and juvenile detention center); (6) vehicles and patrol equipment for the Sheriffs office; and (7) archives equipment. -62-

107 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE K- LONG-TERM DEBT (CONTINUED) The following is a summary of long-term debt transactions of the County for the year ended September 30, Such long-term debt is to be retired from General Fund revenues, primarily ad valorem taxes. Total General Bonds Long-term Payable Debt Primary Government Long-term debt, at October 1, 2013 $ 122,035,000 $ 122,035,000 Retired long-term debt: Series 2005 PPFCO (315,000) (315,000) Series 2006 Limited Tax Refunding Bonds ( 1,655,000) (1,655,000) Series 2007 Certificates of Obligation (645,000) (645,000) Series 2008 Limited Tax Refunding Bonds (1,705,000) (1,705,000) Series 2010 Limited Tax Refunding Bonds (480,000) (480,000) Series 2011 Limited Tax Refunding Bonds (685,000) (685,000) Series 2012 Limited Tax Refunding Bonds (965,000) (965,000) Series 2013 Limited Tax Refunding Bonds (200,000) (200,000) Series 2013 Limited Tax Notes (1,520,000) ( 1,520,000) Long-term debt at September 30, 2014 $ 113,865,000 $ 113,865,000 The County is required by its long-term debt agreements to establish and maintain separate interest and sinking funds at the County's depository bank for each issuance of long-term debt obligation. Further, all ad valorem taxes levied and collected for payment of long-term debt shall be deposited, as collected, to the individual interest and sinking fund accounts. The County has complied with this in regards to all of its debt issues. The County's treatment of the debt service activity is allowed by the Texas Constitution, Article VIII, Section 9 which states that a County may put all tax money in the General Fund, without regards to the purpose or source of the tax. The County is subject to certain statutes of the Texas Constitution, which limit the amount of net bonded debt (exclusive of revenue bonds). The County may have outstanding up to 25 percent of the assessed value of real property. At September 30, 2014, the statutory limit for the County was$ 3,631,855,443 providing a debt margin of$ 3,513,842,

108 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE K- LONG-TERM DEBT (CONTINUED) The general obligation debt of the County and all local governmental units which provide services within the County's boundaries, and which must be borne by properties in the County (commonly called overlapping debt) is summarized below: Net Bonded Percentage Amount of Debt Applicable to Overlapping Units Outstanding Bell County Debt Bell County $ 118,012, % $ 118,012,634 School Districts 490,200, % 388,581,788 Colleges 21,710, % 21,710,000 Cities 393,619, % 392,905,922 $ 1,023,543,215 $ 921,210,344 NOTE L- DEFERRED AMOUNT ON REFUNDING The amounts reported for deferred amount of refunding balances of the County for the year ended September 30, 2014: Beginning Ending Balance Additions Reductions Balances Governmental Activities: General obligation bonds $ 2,304,458 $470,482 $ $ 1,833,976 Total Governmental Activities $ 2,304,458 $470,482 $ $ 1,833,

109 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE M- FUND EQUITY The major components the County's governmental fund equity as of September 30, 2014 are as follows: Capital Projects Capital County Projects Construction 2013 Nonmajor Descri[!tion General Fund Fund Governmental Total Nonspendable: Inventory $ $ $ $ 23,834 $ 23,834 Prepaid expenditures 1,344,135 1,315 1,345,450 1,344,135 25,149 1,369,284 Restricted for: Animal control 21,727 21,727 Capital projects 8,294,611 1,047,732 9,342,343 Countywide road and bridge 3,314,996 3,314,996 Court reporter service 466, ,469 Debt service 2,474,800 2,474,800 District clerk preservation 202, ,044 Health and welfare 388, ,143 Judicial and legal 1,249,541 1,249,541 Law library books and services 974, ,550 Museum 178, ,538 Public safety 2,679,566 2,679,566 Record management 320, ,186 Record retention 1,360,272 1,360,272 Voter registration 43,033 43,033 2,413,731 8,294,611 12,307,866 23,016,208 Committed for: Conservation 730, , , ,079 Assigned for: Capital projects 7,156 3,371 10,527 Conservation Countywide road and bridge 1,156,181 1, 156,181 Health and welfare 489, ,192 Judicial and legal 8,729 8,729 Law library books and services 325, ,529 Museum 30,020 30,020 Public safety 495, ,513 7,156 2,508,709 2,515,865 Unassigned 34,288,137 34,288,137 TOTAL FUND BALANCES $ 38,046,003 $ 7,156 $ 8,294,611 $ 15,571,803 $ 61,919,

110 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE N- TRANSFERS Transfers of financial resources among funds are recognized in all funds affected in the accounting period in which the transfer arose. Interfund transfers are legally authorized transfers from a fund receiving revenue to the fund through which the resources are to be expended. During the year ended September 30, 2014, interfund transfers are as follows: General Fund Nonmajor Governmental Funds Special Revenue Funds Law Library Fund National School Lunch Program Indigent Health Care Administration Emergency Relief Fund Communication Center Bell County Museum Designated Fund Indigent Defense Grant Champs Hog Grant Bell County Expo I 4-H Youth Fund Total General Fund Nonmajor Governmental Funds Special Revenue Funds Law Library Fund General Fund Adult Probation CCP Fund Adult Probation Fund Adult Probation Diversion Treatment Program Adult Probation Fund County Attorney Hot Check Fund County Attorney State Supplements Grant National School Lunch Program General Fund Indigent Health Care Administration General Fund Emergency Relief Fund General Fund Communication Center General Fund Bell County Expo I 4-H Youth Fund General Fund In Transfers $ $ 86,469 86,469 17,000 8,450 10,830 20, , ,026 20,000 3,319,958 Out 17, , ,026 20,000 3,319,958 1,000 93, ,893,127 8,450 10,830 20,000 86,

111 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE N- TRANSFERS (CONTINUED) Nonmajor Governmental Funds (Continued) Special Revenue Funds(Continued) Bell County Organized Crime Operating Fund Bell County Organized Crime State Forfeiture Fund Bell County Museum Designated Fund General Fund Indigent Defense Grant General Fund Champs Hog Grant General Fund Total Special Revenue Funds Debt Service Funds 2008 Limited Tax Refunding 2006 Limited Tax Notes 20 I 0 Certificates of Obligation 2006 Limited Tax Notes 20 I 0 Limited Tax Refunding 2006 Limited Tax Notes 20I2 Limited Tax Refunding 2006 Limited Tax Notes 2013 Limited Tax Notes 2005 GO Refunding 2013 Limited Tax Refunding 2003 Limited Tax Refunding 20I3 Limited Tax Refunding 2006 Limited Tax Notes Total Debt Service Funds Total Nonmajor Governmental Funds Total All Funds $ I50,000 I,OOO 93, ,082,407 IOO,OOO 100,000 IOO,OOO 200,000 2I6,332 8,754 6I, ,765 4,869,I72 4,955,64I I50, ,749 IOO,OOO IOO,OOO IOO,OOO 200,000 2I6,332 8,754 6I, ,765 I,062,5I4 $ 4,955,64I The purpose of the transfers is to fund operational deficits in the receiving fund. -67-

112 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE 0- RISK MANAGEMENT The County is a member of the Texas Association of Counties Risk Pool ("Pool"). The Pool was created for the purpose of providing coverage against risks which are inherent in operating a political subdivision. The County pays annual premiums to the Pool for unemployment and workers' compensation coverage. The County's agreement with the Pool provides that the Pool will be self-sustaining through member premiums and will provide coverage through commercial company's reinsurance contracts. The Pool agrees to handle all unemployment and workers' compensation claims and provide any defense as is necessary. The Pool makes available to the County loss control services to assist the County in following a plan of loss control that may result in reduced losses. The County agrees that it will cooperate in instituting any and all reasonable loss control recommendations made by the Pool. The County also carries commercial insurance on all other risks of loss, including liability, property, employee health, and accident insurance. The County has experienced no significant reductions in coverage through the Pool over the past year. There have been no insurance settlements exceeding Pool and commercial coverage for any of the past three years. NOTE P- PENSION PLAN 1. PLAN DESCRIPTION Bell County, Texas provides retirement disability and death benefits for all of its full-time employees through a nontraditional defined benefit pension plan in the statewide Texas County and District Retirement System (TCDRS). The Board of Trustees oftcdrs is responsible for the administration of the statewide agent multipleemployer public employee retirement system consisting of 574 nontraditional defined benefit pension plans. TCDRS in the aggregate issues a comprehensive annual financial report (CAFR) on a calendar year basis. The CAFR is available upon written request from the TCDRS Board of Trustees at P.O. Box 2034, Austin, Texas The plan provisions are adopted by the governing body of the employer, within the options available in the Texas state statutes governing TCDRS (TCDRS Act). Members can retire at ages 60 and above with 8 or more years of service, with 30 years of service regardless of age, or when the sum of their age and years of service equals 75 or more. Members are vested after 8 years of service but must leave their accumulated contributions in the plan to receive any employer-financed benefit. Members who withdraw their personal contributions in a lump sum are not entitled to any amounts contributed by their employer. Benefit amounts are determined by the sum of the employee's contributions to the plan, with interest, and employer-financed monetary credits. The level of these monetary credits is adopted by the governing body ofthe employer within the actuarial constraints imposed by the TCDRS Act so that the resulting benefits can be expected to be adequately financed by the employee's commitment to contribute. At retirement, death, or disability, the benefit is calculated by converting the sum of the employee's accumulated contributions and the employer-financed monetary credits to a monthly annuity using annuity purchase rates prescribed by the TCDRS Act. -68-

113 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE P- PENSION PLAN (CONTINUED) 2. FUNDING POLICY The employer has elected the annually determined contribution rate (ADCR) plan provisions of the TCDRS Act. The plan is funded by monthly contributions from both employee members and the employer based on the covered payroll of employee members. Under the TCDRS Act, the contribution rate of the employer is actuarially determined annually. The employer contributed using the actuarially determined rate of percent for the months of the accounting year in 2013, and percent for the months of the accounting year in The general fund and all special revenue funds containing payroll expenditures are responsible for liquidating the net pension obligation. The contribution rate payable by the employee members for calendar year and 2014 is the rate of 7 percent as adopted by the governing body of the employer. 3. ANNUAL PENSION COST For the employer's accounting year ended September 30, 2014, the annual pension cost for the TCDRS plan for its employees was$ 5,921,879, and the actual contributions were$ 5,921,879. The annual required contributions were actuarially determined as a percent of the covered payroll of the participating employees, and were in compliance with the GASB Statement No. 27 parameters based on the actuarial valuations as of December 31, 2011 and December 31, 2012, the basis for determining the contribution rates for calendar years 2013 and The December 31, 2013 actuarial valuation is the most recent valuation. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The required schedule of funding progress immediately following the notes to the financial statements presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Calculations are based on the types of benefits provided under the terms of the substantive plan at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point. Actuarial calculations reflect a long-term perspective. Consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets

114 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE P- PENSION PLAN (CONTINUED) 3. ANNUAL PENSION COST (CONTINUED) Actuarial valuation date Actuarial cost method Amortization method Actuarial Valuation Information 12/ entry age level percentage of payroll, closed 20 years 12/ entry age level percentage of payroll, closed 20 years 12/ entry age level percentage of payroll, closed 20 years Amortization period Asset valuation method SAF: 10 yr smoothed value SAF: 10 yr smoothed value SAF: 5 yr smoothed value ESF Fund value ESF Fund value ESF Fund value Actuarial Assumptions: Investment return (includes inflation at stated rate) Projected salary increases (includes inflation at stated rate) Inflation Cost of living adjustments 8.0% 5.4% 3.5% 0.0% 8.0% 5.4% 3.5% 0.0% 8.0% 4.9% 3.0% 0.0% Net Pension Obligation Accounting Year Ending Annual Pension Cost{APC} Percentage ofapc Contributed Net Pension Obligation September 30,2012 September 30, 2013 September 30, 2014 $ 5,026,179 5,367,550 5,921, % 100% 100% Schedule of Funding Progress for the Retirement Plan for the Employees of Bell County, Texas Actuarial Actuarial Unfunded Annual Actuarial Value of Accrued AAL Funded Covered Valuation Assets Liability (UAAL) Ratio Payroll Date (a) (AAL) (b) (b- a) (alb) {c~ 12/31/2011 $ 123,836,934 $ 149,516,896 $25,679, % $42,750,600 12/ ,927, ,540,071 28,612, % 43,792,404 12/31/ ,037, ,111,105 28,073, % 45,281,752 UAAL as of Percentage of Covered Payroll ~ (b-a~/c~ 60.07% 65.34% 62.00% The schedule of funding progress, presented as Required Supplementary Information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability of benefits. -70-

115 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE Q- DEFERRED COMPENSATION PLAN The County offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. In 1998, the County implemented the requirements of GASB No. 32, "Accounting and Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans". In accordance with this statement and recent tax law changes, the County has amended their trust agreement which establishes that all assets and income of the trust are for the exclusive benefit of eligible employees and their beneficiaries. Due to the implementation of these changes, the County does not have any fiduciary responsibility or administrative duties relating to the deferred compensation plan other than remitting employees' contributions to the trustee. Accordingly, the County has not presented the assets and income from the plan in these financial statements. Deferred compensation investments are held by an outside trustee. Plan investments are chosen by the individual (employee) participant and include mutual funds whose focus is on stocks, bonds, treasury securities, money market-type investments or a combination of these. The plan, available to all permanent County employees, permits them to defer until future years an appropriate deferral amount of annual gross earnings with a not to exceed amount per the following categories: Regular Deferrals$ 17,500, Age 50 and Over$ 23,000, and Retirement Catch Up$ 35,000. The Retirement Catch Up is allowed if an employee who is within three years of normal retirement age under the plan, and has not contributed the maximum in the past, the employee would be able to increase the deferral amount up to two times the maximum contribution limit. The maximum contribution is allowed through the Special 457 Catch-up provision, but cannot be used in the same year as Age 50 Catch-up. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. NOTE R- POST- EMPLOYMENT BENEFITS 1. PLAN DESCRIPTION In addition to providing pension benefits through the Texas County and District Retirement System, the County, effective January I, 1991, agreed to administer and make available post-retirement group health care benefits to retired employees at a cost to the retired employee and at no cost to the County through a single-employer defined benefit plan. Effective October 1, 1998, the County began contributing to the post-employee benefit. For fiscal year 2014, the County contributed $ 180 for health insurance and $ 9 for dental insurance for each participating retired employee. This amount is capped for the County contribution and any increases are the responsibility of the retiree. Additional family health coverage is available if paid for by the retired employee. This benefit is available to retired employees eligible to draw monthly retirement checks from TCDRS and who applied to TCDRS for benefits; benefits are available until such employees become eligible for Medicare

116 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE R- POST- EMPLOYMENT BENEFITS (CONTINUED) 1. PLAN DESCRIPTION (CONTINUED) Membership in the plan at September 30, 2014, data used for the latest actuarial valuation, consists of the following: Retired participants Active employees, fully eligible Active employees, not fully eligible FUNDING POLICY Local Government Code Section assigns the authority to establish and amend benefit provisions to Commissioners Court. The County is under no legal obligation to pay these premiums, and the decision to provide these benefits is made by the Commissioners Court on a year-to-year basis. The rates are set annually by the Commissioners Court. The plan is funded on a pay-as-you-go basis; accordingly, there is not separate financial reporting for the plan, as an irrevocable trust has not been established to fund this obligation. For the year ended, September 30, 2014, the County contributed $ 86,713 while the retirees' contributions were$ 152,911 for a total contribution of$ 239,624. The general fund is responsible for liquidating the liability for other post-employment benefits. In June 2004, the Governmental Accounting Standards Board (GASB) issued Statement No. 45, creating accounting standards for other post-employment benefits (OPEB) provided by governmental entities separately from a pension plan. This statement establishes standards for the measurement, recognition, and display of OPEB expenses/expenditures and related liabilities (assets), note disclosures, and if applicable required supplemental information (RSI) in the financial reports of state and local governments. The County implemented the requirements of GASB Statement No. 45 during the fiscal year ending September 30, The County has performed an actuarial valuation of its post-retirement benefit liability. The financial statement disclosures for 2014 are as follows: 3. ANNUAL OPEB COST AND NET OPEB OBLIGATION For the fiscal year ended September 30, 2014, the County's annual OPEB cost was$ 314,885 which is equal to the Normal Cost plus a 30-year level dollar amount of the Actuarial Accrued Liability, adjusted with interest to the end of the fiscal year at the discount rate. The dollar amount contributed by the County toward the OPEB cost was$ 86,713. At September 30, 2014 the County had a net OPEB obligation of$ 1,128,

117 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE R- POST- EMPLOYMENT BENEFITS (CONTINUED) 4. DETERMINATION OF NET OPEB OBLIGATION Annual Required Contribution Add Interest to Net OPEB Obligation Less ARC Adjustment Annual OPEB Cost Less Contributions Made Increase in Net OPEB Obligation Net OPEB Obligation- Beginning of Year Net OPEB Obligation- End ofyear $ 332,320 31,503 (48,938) 314,885 (86,713) 228, ,078 $1,128,250 The County's annual OPEB costs, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the fiscal year ended September 30, 2014 and the preceding fiscal years were as follows: Note that this is the sixth year of implementation ofgasb Statement No. 45. Percentage of Fiscal Year Discount Annual OPEB Employer OPEB Cost NetOPEB Ended Rate Cost Contributions Contributed Obligation % $ 174,133 $ 85, % $ 456, % 521,091 77, % 900, % 314,885 86, % 1,128, FUNDING STATUS AND FUNDING PROGRESS As of September 30, 2013, the most recent actuarial valuation date, the plan was 0.0 percent funded. The actuarial accrued liability for benefits was $ 3,394,272. The actuarial value of assets was $ 0 resulting in an unfunded actuarial accrued liability (UAAL) of $ 3,394,272. The covered payroll (annual payroll of active employees covered by the plan) was $ 47,039,118 and the ratio of the UAAL to the covered payroll was 7.22 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. The actuarial assumptions used in calculating the County's UAAL and ARC are elaborated later in this note. Amounts determined regarding funded status of the Plan and the ARC contributions of the employer are subject to continual revisions as actual results are compared with past expectations and new estimates are made about the future

118 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE R- POST- EMPLOYMENT BENEFITS (CONTINUED) 5. FUNDING STATUS AND FUNDING PROGRESS (CONTINUED) The benefits described represent the benefits currently in place and projected to be in place in the future. However, the projected benefits do not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and the plan members in the future. Actuarial calculations reflect a long-term perspective. The required schedule of funding progress immediately following presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Schedule of Funding Progress for the Bell County Retired Employee Healthcare Plan Actuarial Actuarial Value of Valuation Assets Date (a) 9/30/2013 $ Actuarial Accrued Liability UAAL as of (AAL)- Unfunded Annual Percentage Projected AAL Funded Covered of Covered Unit Credit (UAAL) Ratio Payroll Payroll (b) (b- a) (alb) (c) ( (b-a)/c) $ 3,394,272 $3,394, % $47,039, % Schedule of Actuarial Valuation Assumptions Actuarial Value Date: Actuarial Cost Method: Amortization Method: Amortization Period: Mortality: Dependent Status: Inflation Rate: Investment Rate of Return: Projected Salary Increases: Increase in Post Retirement Healthcare Costs: Health Care Cost Trend Rate: Discount Rate: September 30, 2013 Projected unit credit Level dollar amount, open 30 years RP 2000, Combined, Unisex, Scale AA Actual composition used 9% graded to in year 8 and thereafter 3.50% None, salary increases do not affect costs or liabilities within the plan Capped at $180 health; $9 dental; any future increases are responsibility of retiree 9% graded to 5 1/2 in year 8 and thereafter 3.50% - 74-

119 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE R- POST- EMPLOYMENT BENEFITS (CONTINUED) 5. FUNDING STATUS AND FUNDING PROGRESS (CONTINUED) Discount rate: 3.50% Health Care Cost Trend Rate: Per Capita Monthly Claim Cost: Scott & White High Option Scott & White Mid Option Scott & White Base Option Ameritas Dental/Vision Retiree Contribution: Scott & White High Option Scott & White Mid Option Scott & White Base Option Ameritas DentalNision Withdrawal Rate: 9% graded to 5 1/2 in year 8 and thereafter EE EE+SP EE+CH $ $ 1, $ , , $ $ 1, $ % at age 18 graded to 0% at age 55 FAM $ 1, , , $ 1, , , Retirement Rates: 2% ages 55-59, 5% ages 60-61, 15% ages 62-64, 100% at age 65 NOTE S - COMMITMENTS AND CONTINGENCIES 1. GRANTS The County participates in a number of State and Federal Financial Assistance programs. Although the County grant programs have been audited in accordance with the provisions of the Single Audit Act of 1984 through September 30, 2013, these programs are subject to further financial and compliance audits. The management of the County expects the amount, if any, of expenditures which may be disallowed by the granting agencies to be immaterial. 2. LITIGATION A number of claims against the County are pending with respect to various matters arising in normal course of the County's operations. The Commissioner's Court and the County's legal counsel are of the opinion that the claims will not have a material effect on the County's financial statements

120 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE T- RELATED ORGANIZATIONS The following related organizations are excluded from the financial reporting entity because the County's accountability does not extend beyond making appointments. Audited financial statements, if any, are available from the respective organizations. A brief description is provided for each organization to clarify its relationship with the County. Local School Districts in Bell County have their own locally elected Board of Trustees and are not subject to oversight by the Bell County Commissioners' Court. The local school districts are not controlled by the County nor dependent on it for funding, financing deficits, or receiving surpluses. Each school district adopts its own budget and collects its taxes, utilizing the Tax Appraisal District of Bell County. The Tax Appraisal District of Bell County was created by authority of Senate Bill 621, known as the Property Tax Code, of the 66th Legislature of the State of Texas. The District is controlled by a Board of Directors whose members are elected by the governing bodies of various taxing units within Bell County. Management is accountable to this Board of Directors, rather than to the Bell County Commissioners' Court. Under the Property Tax Code, the Appraisal District is required to appraise all real and personal property in Bell County and may provide other services such as preparation of tax rolls, billings, and tax collection services. A taxing unit may assess and collect taxes only from the appraisal roll prepared by the Appraisal District. Taxing units are charged a proportionate amount of the District's budget for services rendered to the taxing units. The County has contracted with the Appraisal District to collect ad valorem taxes on behalf of the County. The Appraisal District received$ 703,480 for these services in fiscal year Bell County Museum The Bell County Museum Association, Inc. (The Museum) was incorporated in Texas in 1996 as a nonprofit corporation for the purpose of providing educational and outreach programs and preserving artifacts of Bell County. The Museum assists in managing operations for the benefit of the County's citizens similar to other government operations. BellNET BellNET, Inc. (BellNET) was incorporated in Texas in 1997 as a non-profit corporation for the purpose of promoting distance learning and educational opportunities, improving health care and demonstrating new teaching techniques, video conferencing and data exchange. BellNET was presented as a component unit of Bell County, Texas, because BellNET provided services for the benefit of the County's citizens. The board includes the County Judge and County Auditor and all operations and budgets are reviewed by the County. BellNet's operations have diminished during the fiscal year 2008 to present to the point where it is no longer considered necessary to include them in the CAFR

121 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30, 2014 NOTE U- CONDUIT DEBT OBLIGATIONS From time to time, the County has utilized its various conduit finance corporations (Bell County Housing Finance and Bell County Health Facilities Development Corporation) to issue Revenue Bonds to provide assistance to industrial, housing and health care development entities for the acquisition and construction of facilities deemed to be in the public interest. In every case, the Revenue Bonds issued are special limited obligations of the issuing conduit finance corporation and are secured either by the property financed and/or are payable solely from payments received under loan agreements with the borrowing entities. In every case, where the County has facilitated the issuance of such conduit Revenue Bonds, neither the County, the State of Texas nor any other political subdivision thereof is obligated in any manner, including specifically the levy of ad valorem taxes, for repayment of the Revenue Bonds. Such Revenue Bonds do not constitute a debt or a pledge of the full faith and credit of the issuing conduit finance corporation, the County or the State of Texas and, accordingly, have not been reported in the accompanying financial statements. As of September 30, 2014, the County had outstanding HFC and HFDC Revenue Bonds, issued in various series, equal to$ 35,583,294. A breakdown of the various projects for which such Revenue Bonds were issued has been provided in the following table. Bell County HFC Issuer Name Bell County HFDC Bell County HFDC Bell County HFDC Bell County HFDC Bell County HFDC Outstanding Conduit Debt As of September 30, 2014 Description Amount Outstanding Meadow Village Apartments Project Total HFC Debt $ 7,279,772 7,279,772 Advanced Living Technologies, Inc. 7,780,512 * Buena Vida Project (formerly Heartway Corp.) 5,713,132 Care Institute, Inc.- Texas Project Cook Children's Medical Center Project 14,595,000 Renaissance Village- Oak Creek Project 214,878 Total HFDC Debt 28,303,522 ** TOTAL CONDUIT DEBT $ 35,583,294 :::::i::::======== * On 2/20/13, the Borrower filed a petition for Bankruptcy. The Court authorized the Debtor to sell the facilities to one or more winning bidders in a competitive bidding process. On 7/1113 the Debtor closed its sale of the Facilities to Southern TX SNF Realty LLC for a purchase price of$ 18,000,000. On 7/25/13, an initial distribution was made in the amount of$ 11,334, on principal outstanding and$ 1,699, on the interest outstanding, which represents$ per$ 1,000 and$ per$ 1,000 respectively. On the Debtor's Bankruptcy Case converted from a Chapter 11 to Chapter 7. ** The prior obligor, Heartway Corp., filed for bankruptcy in 2007, and the remaining balance owed on the Bonds has been assumed by Buena Vida Health Services, Inc., a Florida corporation

122 NOTES TO FINANCIAL STATEMENTS (CONTINUED) September 30,2014 NOTE V- ARBITRAGE Bell County has a contract with First Southwest Asset Management, to perform arbitrage rebate calculations for all of the County's debt issues. Based on the County's summary of rebatable arbitrage and yield restriction all calculations indicate negative arbitrage; therefore, there are no liabilities at September 30, 2014 due to the IRS and no accruals are recorded in the Government-Wide Statements. NOTE W- SUBSEQUENT EVENTS The County has evaluated subsequent events after the balance sheet date of September 30, 2014 through March 20, 2015, which is the date these financial statements were available to be issued. In November 2014, the County refunded a total of$ 8.3 million in bonds as disclaimed below: Limited Tax Refunding Bonds, Series On November 18, 2014 the County issued$ 8,375,000 in Limited Tax Refunding Bonds in order to capture savings related to the then-prevailing low interest rate environment as compared with the rate on the previously issued bonds. The transaction refunded $ 8,075,000 of outstanding Series 2006 Limited Tax Refunding Bonds, resulting in a present value (economic) gain of$ 953,020. The 2014 refunding did not extend the maturity of the originally issued Series 2006 Limited Tax Refunding Bonds

123 REQUIRED SUPPLEMENTARY INFORMATION September 30,2014 SCHEDULE OF FUNDING PROGRESS (Unaudited) Plan Actuarial Valuation Date Actuarial Actuarial Value of Accrued Funded Assets Liability (UAAL) Ratio Annual Covered Payroll Percentage ofuaal to Covered Payroll Texas County and District Retirement System 12/ $97,610,035 $ 118,287,316 $20,677, % $39,208,203 12/31/ ,283, ,137,771 20,853, % 41,977,670 12/ ,111, ,152,479 23,041, % 42,437,183 12/ ,836, ,516,896 25,679, % 42,750,600 12/ ,927, ,540,071 28,612, % 43,792,404 12/ ,037, ,111,105 28,073, % 45,281, % 49.68% 54.30% 60.07% 65.34% 62.00% Other Post-employment Benefits (Note) 9/30/2009 $ $ 3,071,425 $ 3,071, % $41,322,000 9/30/2011 3,562,489 3,562, % 43,133,250 9/30/2013 3,394,272 3,394, % 45,143, % 8.26% 7.52% SCHEDULE OF EMPLOYER CONTRIBUTIONS (Unaudited) Annual Percentage Estimated OPEB of Required Net Plan Year Annual Benefit Cost Contribution OPEB Plan End Contribution (ABC) Contributed Obligation Other Post-employment Benefits (Note) 9/30/2009 $ 98,247 $ 241, % $ 143,699 9/30/ , , % 229,668 9/30/ , , % 367,440 9/30/ , , % 456,094 9/30/ , , % 900,078 9/30/ , , % 1,128,250 Note: GASB 45 was implemented in fiscal year 2009; therefore, information is available for 2009 and years that follow. -79-

124 THIS PAGE LEFT INTENTIONALLY BLANK

125 APPENDIX C FORMS OF BOND COUNSEL S OPINIONS

126 THIS PAGE LEFT INTENTIONALLY BLANK

127 June 11, 2015 Raymond James & Associates, Inc Sherry Lane, Suite 1900 Dallas, Texas Austin Avenue Suite 800 P. O. Box 1470 Waco, Texas (254) Fax (254) Offices in: Austin Fort Worth San Antonio Waco WE HAVE ACTED as bond counsel for Bell County, Texas (the "County"), in connection with the bonds hereinafter described (the "Bonds"):, LIMITED TAX REFUNDING BONDS, SERIES 2015, dated May 15, 2015, in the aggregate principal amount of $11,265,000 THE BONDS MATURE, bear interest, are subject to redemption prior to maturity, and may be transferred and exchanged as set out in the Bonds and in the order adopted by the Commissioners Court of the County authorizing their issuance (the "Order") WE HAVE ACTED as bond counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income for Federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the County or the disclosure thereof in connection with the sale of the Bonds. IN OUR CAPACITY as bond counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds, and the obligations being refunded, on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the County; an escrow agreement (the "Escrow Agreement") between the County and The Bank of New York Mellon Trust Company, N.A., as escrow agent (the "Escrow Agent"); a Verification Report of Grant Thornton, LLP confirming the sufficiency of the deposits made with the Escrow Agent for defeasance of the obligations being refunded (the "Refunded Obligations"); customary certificates of officers, agents and representatives of the County and other public officials; and other certified showings relating to the authorization and issuance of the Bonds. We have also examined such applicable provisions of the Internal Revenue Code of 1986, as { DOC / 2}

128 amended (the "Code"), court decisions, Treasury Regulations and published rulings of the Internal Revenue Service (the "Service") as we have deemed relevant. We have also examined executed Bond No. T-1 of this issue. BASED ON SUCH EXAMINATION, IT IS OUR OPINION THAT: (A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently effective and, therefore, the Bonds constitute valid and legally binding obligations of the County; (B) Firm banking and financial arrangements have been made for the discharge and final payment of the Refunded Obligations, and therefore such Refunded Obligations are deemed to be fully paid and no longer outstanding except for the purpose of being paid from the funds provided therefor in the Order; and (C) A continuing ad valorem tax, subject to limitation as provided by law, has been levied and pledged irrevocably to the payment of the principal of and interest on the Bonds. THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPINION THAT: (1) Interest on the Bonds is excludable from gross income for federal income tax purposes under existing law; and (2) The Bonds will not be treated as specified private activity bonds the interest on which would be included as an alternative minimum tax preference item under Section 57(a)(5) of the Code. Interest on the Bonds could be included in the "adjusted current earnings" of a corporation (other than an S corporation, regulated investment company, REIT, or REMIC) for purposes of computing its alternative minimum tax liabilities. In providing the opinions set forth above, we have relied on representations of the County, the County's financial advisor and the underwriters of the Bonds with respect to matters solely within the knowledge of the County, the County's financial advisor and the underwriters, respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Order, and a related tax certificate of the County, pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. We have further relied on certain certifications of the financial advisor to the County regarding the mathematical accuracy of certain computations. If such representations or certifications are determined to be inaccurate or incomplete or the { DOC / 2}

129 County fails to comply with the foregoing provisions of the Order and tax certificate, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership, or disposition of the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the United States may be subject to the "branch profits tax" on their effectively-connected earnings and profits (including tax-exempt interest such as interest on the Bonds). The opinions set forth above are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement these opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Service; rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given as to whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the County as the taxpayer. We observe that the County has covenanted in the Order not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes. Very truly yours, NAMAN, HOWELL, SMITH & LEE, PLLC { DOC / 2}

130 THIS PAGE LEFT INTENTIONALLY BLANK

131 June 11, 2015 Raymond James & Associates, Inc Sherry Lane, Suite 1900 Dallas, Texas Austin Avenue Suite 800 P. O. Box 1470 Waco, Texas (254) Fax (254) Offices in: Austin Fort Worth San Antonio Waco WE HAVE ACTED as bond counsel for Bell County, Texas (the "County"), in connection with the Certificates of Obligation hereinafter described (the "Certificates"):, COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2015, dated May 15, 2015, in the aggregate principal amount of $31,105,000 The Certificates mature, bear interest, are subject to redemption prior to maturity, and may be transferred and exchanged as set out in the Certificates and in the order adopted by the Commissioners Court of the County authorizing their issuance (the "Order"). WE HAVE ACTED as bond counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates under the Constitution and laws of the State of Texas, and with respect to the exclusion of interest on the Certificates from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the County or the disclosure thereof in connection with the sale of the Certificates. Our role in connection with the County's Official Statement prepared for use in connection with the sale of the Certificates has been limited as described therein. IN OUR CAPACITY as bond counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Certificates which contains certified copies of certain proceedings of the County; customary certificates of officers, agents and representatives of the County and other public officials; and other certified showings relating to the authorization and issuance of the Certificates. We have also examined such applicable provisions of the Internal Revenue code of 1986, as amended (the "Code"), court decisions, Treasury Regulations and published rulings of the Internal Revenue Service (the "Service") as we have deemed relevant. We have also examined executed Certificate No. T-1 of { DOC / 2}

132 this issue. BASED ON SUCH EXAMINATION, IT IS OUR OPINION THAT: (A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently effective, and therefore, the Certificates constitute valid and legally binding obligations of the County; and (B) A continuing ad valorem tax, subject to limitation as provided by law, has been levied and pledged irrevocably to the payment of the principal of and interest on the Certificates. The Certificates are further secured by a limited pledge, not to exceed $10,000, of the revenues of the County Juvenile Justice Center. THE RIGHTS OF THE OWNERS of the Certificates are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPINION that: (1) Interest on the Certificates is excludable from gross income for federal income tax purposes under existing law. (2) The Certificates are not "private activity bonds" within the meaning of the Code, and interest on the Certificates is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Certificates could be included in the "adjusted current earnings" of a corporation (other than an S corporation, regulated investment company, REIT, or REMIC) for purposes of computing its alternative minimum tax liabilities. In providing the opinions set forth above, we have relied on representations of the County, the County's financial advisor, and the underwriters of the Certificates with respect to matters solely within the knowledge of the County, the County's financial advisor, and the underwriters, respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Order and a related tax certificate of the County pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Certificates for federal income tax purposes. If such representations are determined to be inaccurate or incomplete or the County fails to comply with the foregoing provisions of the Order and the tax certificate, interest on the Certificates could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. { DOC / 2}

133 Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership, or disposition of the Certificates. Owners of the Certificates should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the United States may be subject to the "branch profits tax" on their effectively-connected earnings and profits (including taxexempt interest such as interest on the Certificates). The opinions set forth above are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement these opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Service; rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Certificates. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the County as the taxpayer. We observe that the County has covenanted in the Order not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Certificates as includable in gross income for federal income tax purposes. Very truly yours, NAMAN, HOWELL, SMITH & LEE, PLLC { DOC / 2}

134 THIS PAGE LEFT INTENTIONALLY BLANK

135

136