OFFICIAL STATEMENT THE BONDS HAVE BEEN DESIGNATED AS QUALIFIED TAX-EXEMPT OBLIGATIONS FOR FINANCIAL INSTITUTIONS.

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1 NEW ISSUE - Book-Entry-Only OFFICIAL STATEMENT Dated May 11, 2010 Ratings: Moody s: Aa1 S&P: AAA (See OTHER INFORMATION - Ratings 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 hereof subject to the matters described under "TAX MATTERS" herein and will not be included in computing the alternative minimum taxable income of the owners thereof. See TAX MATTERS Tax Exemption herein. THE BONDS HAVE BEEN DESIGNATED AS QUALIFIED TAX-EXEMPT OBLIGATIONS FOR FINANCIAL INSTITUTIONS. $12,000,000 CITY OF ALLEN, TEXAS (Collin County) GENERAL OBLIGATION BONDS, SERIES 2010 Dated Date: May 1, 2010 Due: August 15, as shown on page 2 PAYMENT TERMS... Interest on the $12,000,000 City of Allen, Texas, General Obligation Bonds, Series 2010 (the "Bonds") will accrue from May 1, 2010 (the Dated Date ), will be payable February 15 and August 15 of each year, commencing February 15, 2011, 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 BONDS - Book-Entry-Only System" herein. The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (see "THE BONDS - Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE; SECURITY AND SOURCE OF PAYMENT... The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas (the "State"), including particularly Vernon's Texas Codes Annotated ("V.T.C.A."), Government Code, Chapter 1331, as amended, an election held in the City of Allen, Texas (the City ) on May 12, 2007, and an ordinance adopted by the City Council of the City authorizing the Bonds (the "Ordinance"), and are direct obligations of the City, payable from an annual ad valorem tax, within the limits prescribed by law, levied on all taxable property within the City as provided in the Ordinance (see "THE BONDS - Authority for Issuance" and "THE BONDS - Security and Source of Payment"). PURPOSE... Proceeds from the sale of the Bonds will be used to construct and/or make improvements to streets, public art projects pursuant to the Public Art Master Plan, and the Allen Environmental Discovery Center, to acquire community park land and a public safety communication system, for city facility renovations, and to pay the costs related to the issuance of the Bonds. (See PLAN OF FINANCING Use of Proceeds herein.) CUSIP PREFIX: MATURITY SCHEDULE & 9 DIGIT CUSIP See Schedule on Page 2 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 Fulbright & Jaworski L.L.P., Dallas, Texas, Bond Counsel (see APPENDIX C, "Form of Bond Counsel's Opinion"). Certain legal matters will be passed upon for the Underwriters by their counsel, McCall, Parkhurst & Horton, L.L.P., Dallas, Texas. DELIVERY... It is expected that the Bonds will be available for delivery through DTC on June 2, BOSC, INC. A subsidiary of BOK Financial Corp. LOOP CAPITAL MARKETS, LLC

2 MATURITY SCHEDULE CUSIP Prefix: (1) Price Price Principal (August 15) Interest or CUSIP Principal (August 15) Interest or CUSIP Amount Maturity Rate Yield Suffix (1) Amount Maturity Rate Yield Suffix (1) $ 370, % 0.600% WQ8 $ 630, % 3.430% * XA2 500, % 0.950% WR6 655, % 3.550% * XB0 510, % 1.300% WS4 685, % 3.680% * XC8 520, % 1.650% WT2 710, % 3.750% * XD6 530, % 2.000% WU9 740, % 3.830% * XE4 545, % 2.410% WV7 770, % 3.930% * XF1 560, % 2.730% WW5 800, % 4.010% XG9 575, % 2.950% WX3 830, % 4.090% XH7 595, % 3.150% WY1 865, % 4.170% XJ3 610, % 3.290% WZ8 (Accrued Interest from May 1, 2010 to be Added) OPTIONAL REDEMPTION... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after August 15, 2021 in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2020, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "THE BONDS Optional Redemption"). (1) 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 way as a substitute for the CUSIP Services. Neither the City, the Financial Advisor nor the Underwriters are responsible for the selection or correctness of the CUSIP numbers set forth herein. * Priced to the first call date August 15, [The Remainder of this Page Left Blank Intentionally] 2

3 No dealer, broker, salesperson or other person has been authorized by the City 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 City or the Underwriters. This Official Statement does not constitute an offer to sell Bonds in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. The Underwriters have provided the following sentence for inclusion in the Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their 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. Certain information set forth herein has been obtained from the City and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Financial Advisor. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof. See CONTINUING DISCLOSURE OF INFORMATION for a description of the City s undertaking to provide certain information on a continuing basis. The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Underwriters after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering prices, including sales to dealers who may sell the Bonds into investment accounts. 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 appendices hereto, to obtain information essential to making an informed investment decision. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THE BONDS HAVE BEEN REGISTERED, QUALIFIED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. Neither the City, the Underwriters, nor the 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. The statements contained in this Official Statement, and in other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. [The Remainder of this Page Left Blank Intentionally] 3

4 TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY...5 CITY OFFICIALS, STAFF AND CONSULTANTS...7 ELECTED OFFICIALS...7 SELECTED ADMINISTRATIVE STAFF...7 CONSULTANTS AND ADVISORS...7 INTRODUCTION...9 PLAN OF FINANCING...9 APPENDICES GENERAL INFORMATION REGARDING THE CITY... A EXCERPTS FROM THE ANNUAL FINANCIAL REPORT.. B FORM OF BOND COUNSEL'S OPINION... C The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Official Statement. THE BONDS...10 TAX INFORMATION...15 TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT...19 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY...20 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY...21 TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY...21 TABLE 5 - TEN LARGEST TAXPAYERS...22 TABLE 6 - TAX ADEQUACY...22 TABLE 7 - ESTIMATED OVERLAPPING DEBT...23 DEBT INFORMATION TABLE 8 - GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS...24 TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION...25 TABLE 10- AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS...25 TABLE 11- OTHER OBLIGATIONS...26 FINANCIAL INFORMATION TABLE 12 - GENERAL FUND REVENUE AND EXPENDITURE HISTORY...28 TABLE 13 - MUNICIPAL SALES TAX HISTORY...29 TABLE 14 - CURRENT INVESTMENTS...32 TAX MATTERS...32 CONTINUING DISCLOSURE OF INFORMATION 34 OTHER INFORMATION...35 RATINGS...35 LITIGATION...35 REGISTRATION AND QUALIFICATION OF BONDS FOR SALE...35 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS...35 LEGAL MATTERS...35 AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION...36 FINANCIAL ADVISOR...36 UNDERWRITING...36 FORWARD-LOOKING STATEMENTS DISCLAIMER

5 OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Bonds 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 CITY... The City of Allen, Texas (the "City") is a political subdivision and home-rule municipal corporation of the State, located in Collin County, Texas. The City is a retail point located approximately 25 miles north of Dallas on U.S. Highway 75 (see "INTRODUCTION - Description of the City"). THE BONDS... The Bonds will be issued as $12,000,000 General Obligation Bonds, Series 2010 in serial maturities from August 15, 2011 through August 15, PAYMENT OF INTEREST... Interest on the Bonds will accrue from the Dated Date and will be payable February 15, 2011 and each August 15 and February 15 thereafter until maturity or prior redemption (see "THE BONDS - Description of the Bonds" and "THE BONDS Optional Redemption"). AUTHORITY FOR ISSUANCE... The Bonds are authorized and issued pursuant to the Constitution and the general laws of the State, including particularly Vernon s Texas Codes Annotated (V.T.C.A.), Government Code, Chapter 1331, as amended, an election held in the City on May 12, 2007, and an ordinance passed by the City Council of the City (see "THE BONDS - Authority for Issuance"). SECURITY FOR THE BONDS... The Bonds constitute direct obligations of the City, payable from the levy and collection of a direct and continuing annual ad valorem tax, within the limits prescribed by law, on all taxable property located within the City (see "THE BONDS - Security and Source of Payment"). OPTIONAL REDEMPTION... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after August 15, 2021, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2020, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "THE BONDS Optional Redemption"). TAX EXEMPTION... 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 hereof subject to the matters described under "TAX MATTERS" herein and will not be included in computing the alternative minimum taxable income of the owners thereof. See TAX MATTERS Tax Exemption herein. QUALIFIED TAX-EXEMPT OBLIGATIONS... The Bonds have been designated as qualified tax-exempt obligations for financial institutions (see TAX MATTERS - Qualified Tax-Exempt Obligations for Financial Institutions ). USE OF PROCEEDS... Proceeds from the sale of the Bonds will be used to construct and/or make improvements to streets, public art projects pursuant to the Public Art Master Plan, and the Allen Environmental Discovery Center, to acquire community park land and a public safety communication system, for city facility renovations; and to pay the costs related to the issuance of the Bonds. RATINGS... The Bonds are rated Aa1 by Moody's Investors Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Services, a Standard and Poor s Financial Services LLC business ("S&P"). The presently outstanding ad valorem tax supported debt of the City is rated "Aa1" by Moody s and AAA by S&P. The City also has several series of obligations outstanding with credit enhanced ratings from various municipal bond insurance companies. Due to recent downgrades of some insurers, the insured ratings on these obligations range broadly. (See "OTHER INFORMATION - Ratings"). PAYMENT RECORD... The City has not defaulted in payment of its general obligation tax debt. 5

6 BOOK-ENTRY-ONLY SYSTEM... The definitive Bonds 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 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 BONDS - Book-Entry-Only System"). SELECTED FINANCIAL INFORMATION Ratio Funded Per Capita Per Tax Debt to Fiscal Year Taxable Taxable Funded Capita Taxable % of Ended Estimated Assessed Assessed Tax Funded Assessed Total Tax 9/30 Population (1) Valuation Valuation Debt Tax Debt Valuation Collections ,699 $ 5,161,086,884 $ 68,179 $ 83,800,000 $ 1, % 99.80% ,804 5,719,244,070 72,576 88,620,000 1, % 99.52% ,318 6,453,510,061 78,397 94,030,000 1, % % ,929 7,023,771,639 83, ,230,000 1, % 99.99% ,322 7,317,367,749 85, ,235,000 (2) 1,292 (2) 1.51% (2) 97.82% (3) (1) City estimate. (2) Includes the Bonds. (3) Tax collections through February Includes current and delinquent collections. GENERAL FUND CONSOLIDATED STATEMENT SUMMARY For Fiscal Year Ended September 30, 2010 (1) Beginning Balance $ 13,864,532 $ 13,831,447 $ 13,373,243 $ 11,492,233 $ 9,435,175 Total Revenues 54,774,438 51,923,565 50,347,885 44,016,143 40,531,999 Total Expenditures (58,355,114) (51,816,003) (50,904,511) (42,628,290) (39,149,852) Other Resources (Uses) 3,580,676 (74,477) 1,014, , ,911 Change in Fund Balance Ending Balance $ 13,864,532 $ 13,864,532 $ 13,831,447 $ 13,373,243 $ 11,492,233 (1) Budgeted numbers. [The Remainder of this Page Left Blank Intentionally] 6

7 CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS Length of Term City Council Position Service Expires Occupation Stephen Terrell Mayor Mayor 19 Years May 2011 Small Business Owner - Dry Cleaners Debbie Stout Mayor Pro-Term Ross Obermeyer Joey Herald Robin L. Sedlacek Councilmember, Place 1 Councilmember, Place 2 Councilmember, Place 3 Councilmember, Place 4 9 Years May 2012 Small Business Owner - Office Services 8 Years May 2011 Retired 2 Years May 2012 Realtor 3 Years May 2013 CPA Gary L. Caplinger Jeff McGregor Councilmember, Place 5 Councilmember, Place 6 4 Years May 2012 Small Business Owner 8 Years May 2013 Real Estate Appraiser SELECTED ADMINISTRATIVE STAFF Length of Name Position Service Peter H. Vargas City Manager 11 Years Kevin Hammeke Finance Director 8 Years Joanne Stoehr Assistant Finance Director 15 Years Shelley B. George City Secretary 13 Years CONSULTANTS AND ADVISORS Independent Auditors... Weaver and Tidwell, L.L.P. Dallas, Texas Bond Counsel...Fulbright & Jaworski L.L.P. Dallas, Texas Financial Advisor...Estrada Hinojosa & Company, Inc. Dallas, Texas For additional information regarding the City, please contact: Kevin F. Hammeke (Finance Director) David G. Gordon Joanne Stoehr (Assistant Finance Director) Lawrence E. Jordan City of Allen Estrada Hinojosa & Company, Inc. One Allen Civic Plaza or 1717 Main Street, Suite 4700 Allen, TX Dallas, TX Phone Phone Fax Fax 7

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9 OFFICIAL STATEMENT RELATING TO CITY OF ALLEN, TEXAS (Collin County) $12,000,000 GENERAL OBLIGATION BONDS, SERIES 2010 INTRODUCTION This Official Statement, which includes Appendices hereto, provides certain information regarding the issuance of $12,000,000 City of Allen, Texas General Obligation Bonds, Series 2010 (the "Bonds"). Except as otherwise indicated herein, capitalized terms used in this Official Statement have the same meanings assigned to such terms in the ordinance adopted by the City Council (the Ordinance ) authorizing the issuance of the Bonds. There follows in this Official Statement descriptions of the Bonds and certain information regarding the City 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 City's Financial Advisor, Estrada Hinojosa & Company, Inc., Dallas, Texas. DESCRIPTION OF THE CITY... The City is a political subdivision and municipal corporation of the State, duly organized and existing under the laws of the State, including the City's Home Rule Charter. The City adopted its Home Rule Charter in 1979 and amended it in 1995, May 5, 2001, and May 12, The City operates under a Council/Manager form of government with a City Council comprised of the Mayor and six Council members. The 2000 Census population for the City was 48,308, while the current estimated population is 84,545 as of February 28, The City covers approximately 26 square miles. PLAN OF FINANCING PURPOSE... Proceeds from the sale of the Bonds will be used to construct and/or make improvements to streets, public art projects pursuant to the Public Art Master Plan, and the Allen Environmental Discovery Center, to acquire community park land and a public safety communication system, for city facility renovations, and to pay the costs related to the issuance of the Bonds. USE OF PROCEEDS... The proceeds from the sale of the Bonds will be applied approximately as follows: Sources of Funds: Par Amount of the Bonds $ 12,000, Accrued Interest 35, Net Premium 150, Total Sources of Funds $ 12,185, Uses of Funds: Deposit to Project Fund $ 11,988, Deposit to Interest and Sinking Fund 35, Costs of Issuance, including Underwriters' Discount 162, Total Uses of Funds $ 12,185, [The Remainder of this Page Left Blank Intentionally] 9

10 THE BONDS DESCRIPTION OF THE BONDS... The Bonds are dated as of May 1, 2010 (the Dated Date ), and mature on August 15 in each of the years and in the amounts shown on the inside cover page hereof. The Bonds are subject to redemption prior to maturity as further described under the caption "Optional Redemption" below. Interest on the Bonds will accrue from the Dated Date, will be computed on the basis of a 360-day year of twelve 30-day months, and will be payable on February 15 and August 15 of each year commencing on February 15, 2011 and is payable until maturity or prior redemption. The definitive Bonds 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, New York, New York ("DTC") pursuant to the Book- Entry-Only System described herein. 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 BONDS - Book-Entry-Only System" herein. AUTHORITY FOR ISSUANCE... The Bonds are being authorized and issued pursuant to the Constitution and general laws of the State of Texas, particularly V.T.C.A., Government Code, Chapter 1331, as amended, an election held in the City on May 12, 2007, and the Ordinance. SECURITY AND SOURCE OF PAYMENT... All taxable property within the City is subject to an annual ad valorem tax levied by the City, within the limits prescribed by law, sufficient to provide for the payment of principal of and interest on the Bonds. TAX RATE LIMITATION... All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. Administratively, the Attorney General of the State of Texas will permit allocation of $1.50 of the $2.50 maximum tax rate for all General Obligation debt service, as calculated at the time of issuance of the Bonds and based on a 90% collection factor. OPTIONAL REDEMPTION... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after August 15, 2021, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2020, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Bonds are to be redeemed, the City may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC), while the Bonds are in Book-Entry-Only form shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. If any Bond (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. NOTICE OF REDEMPTION... Not less than 30 days prior to a redemption date for the Bonds, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Bonds to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE, PROVIDED THAT MONIES FOR THE PAYMENT OF THE REDEMPTION PRICE AND THE INTEREST ACCRUED ON THE PRINCIPAL AMOUNT TO BE REDEEMED TO THE DATE OF REDEMPTION ARE HELD FOR THE PURPOSE OF SUCH PAYMENT BY THE PAYING AGENT/REGISTRAR. With respect to any optional redemption of the Bonds, unless certain prerequisites to such redemption required by the Ordinance have been met and money sufficient to pay the principal of and premium, if any, and interest on the Bonds to be redeemed will have been received by the Paying Agent/Registrar prior to the giving of such notice of redemption, such notice may state that said redemption is 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 City will not redeem such Bonds, and the Paying Agent/Registrar will give notice in the manner in which the notice of redemption was given, to the effect that such Bonds have not been redeemed. DEFEASANCE... The Ordinance provides for the defeasance of the Bonds when the payment of the principal of and premium, if any, on the Bonds, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption, or otherwise), is provided by irrevocably depositing with the Paying Agent/Registrar or an authorized escrow agent, in trust (1) 10

11 money sufficient to make such payment or (2) Government Securities, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient money to make such payment. The Ordinance provides that "Government Securities" means (a) direct, noncallable obligation of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date of their acquisition or purchase by the City, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date of their acquisition or purchase by the City, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The foregoing obligations may be in book-entry-only form, and shall mature and/or bear interest in such amounts as will be sufficient to provide for the scheduled payment and/or redemption of the Bonds. Upon making such deposit in the manner described, such Bonds shall no longer be deemed outstanding obligations secured by the Ordinance, but will be payable only from the funds and Government Securities deposited into escrow and will not be considered debt of the City for purposes of taxation or applying any limitation on the City s ability to issue debt for any other purpose. Furthermore, all rights of the City to initiate proceedings to call the Bonds for redemption or take any other action amending the terms of the Bonds are extinguished; provided, however, that the right to call the Bonds for redemption is not extinguished if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Bonds for redemption; (ii) gives notice of the reservation of that right to the owners of the Bonds 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 is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by DTC while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City and the Underwriters believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The City cannot and does 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 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 securities 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 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 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company 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 Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 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 11

12 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 Ordinance. 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 Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 City or the Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Direct and Indirect Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Direct and Indirect Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or the City, 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) is the responsibility of the City 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 City 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 City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. So long as Cede & Co. is the registered owner of the Bonds, the City will have no obligation or responsibility to the Direct Participants or the Indirect Participants, or the persons for which they act as nominees, with respect to the payment to or providing of notice to such Direct Participants, Indirect Participants or the persons for which they act as nominees. Use of Certain Terms in Other Sections of this Official Statement. In reading this Official Statement it should be understood that while the Bonds 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 Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as identified on the cover page of this Official Statement, notices that are to be given to registered owners under the Ordinance 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 City or the Underwriters. Effect of Termination of Book-Entry-Only System. In the event the Book-Entry-Only System with respect to the Bonds is discontinued by DTC, or the use of the Book-Entry-Only System with respect to the Bonds is discontinued by the City, printed securities certificates will be issued to the holders of the Bonds, and the Bonds will be subject to transfer, exchange and 12

13 registration provisions as set forth in the Ordinance, summarized under "THE BONDS- Transfer, Exchange and Registration" below. PAYING AGENT/REGISTRAR... The initial Paying Agent/Registrar for the Bonds is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. In the Ordinance the City retains the right to replace the Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds is duly paid and any successor Paying Agent/Registrar shall be a bank, trust company, financial institution, or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar. Upon any change in the Paying Agent/Registrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. In the event the Book-Entry-Only system should be discontinued, interest on the Bonds shall be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (defined below), and such interest shall be paid (i) by check sent United States Mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal of the Bonds will be paid to the registered owners at their stated maturity or prior redemption upon presentation to designated payment/transfer office by the Paying Agent/Registrar; provided, however, that so long as Cede & Co. (or other DTC nominee) is the registered owner of the Bonds, all payments will be made as described under THE BONDS - Book-Entry-Only System herein. If a date for the payment of principal and/or interest on the Bonds shall be a Saturday, Sunday, a legal holiday, or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. TRANSFER, EXCHANGE AND REGISTRATION... In the event the Book-Entry-Only System should be discontinued, printed Bond certificates will be delivered to the holders and thereafter the Bonds may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender of such printed certificates to the Paying Agent/Registrar and such transfer or exchange 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. Bonds may be assigned by the execution of an assignment form on the Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bonds 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 Bonds issued in an exchange or transfer of Bonds 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 Bonds 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 Bonds 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 Bonds surrendered for exchange or transfer. See "THE BONDS- Book-Entry-Only System" herein for a description of the system to be utilized initially in regard to ownership and transferability of the Bonds. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation on transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Bond. RECORD DATE FOR INTEREST PAYMENT... The record date ("Record Date") for the interest payable on the Bonds 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 City. 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 a Bond 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. AMENDMENTS... The City may amend the Ordinance without the consent of or notice to any registered owner in any manner not detrimental to the interest of the registered owners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein. In addition, the City may, with the written consent of the holders of a majority in aggregate principal amount of the Bonds then outstanding, amend, add to, or rescind any of the provisions of the Ordinance; except that, without consent of all of the registered owners of the Bonds then outstanding, no such amendment, addition or rescission may (1) extend the time or times of payment of the principal of, premium, if any, and interest on the Bonds, reduce the principal amount thereof, the redemption price therefor, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, premium, if any, or interest on the Bonds, (2) give any preference to any Bond over any other Bond, or (3) reduce the aggregate principal amount of Bonds required to be held by Holders for consent to any such amendment, addition, or rescission. 13

14 BONDHOLDERS REMEDIES... If the City defaults in the payment of principal, interest or redemption price on the Bonds when due, or if it fails to make payments into any fund or funds created in the Ordinance, or defaults in the observation or performance of any other covenants, conditions or obligations set forth in the Ordinance, the registered owners may seek a writ of mandamus to compel City officials to carry out their legally imposed duties with respect to the Bonds if there is no other available remedy at law to compel performance of the Bonds or the Ordinance and the City 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 Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Ordinance does not provide for the appointment of a trustee to represent the interest of the holders of the Bonds upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition and, accordingly, all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by, the registered owners. On June 30, 2006, the Texas Supreme Court ruled 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 City s sovereign immunity from a suit for money damages, holders of the Bonds may not be able to bring such a suit against the City for breach of the Bonds or the Ordinance covenants. Even if a judgment against the City could be obtained, it could not be enforced by direct levy and execution against the City's property. Further, the registered owners cannot themselves foreclose on property within the City or sell property within the City to enforce the tax lien on taxable property to pay the principal of and interest on the Bonds. Furthermore, the City 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 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 holders of the Bonds of an entity which has sought protection under Chapter 9. Therefore, should the City 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 Ordinance and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. [The Remainder of this Page Left Blank Intentionally] 14

15 TAX INFORMATION AD VALOREM TAX LAW... The appraisal of property within the City is the responsibility of the Collin Central 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 Property Tax Code (as defined below) 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 the 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 that would not 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 property s appraised value in the preceding tax year, plus (b) the property s appraised value in the preceding tax year, plus (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 twenty-three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to V.T.C.A., Title I, Tax Code (commonly known as the "Property Tax Code"), for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open-space lands at productivity value, 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. 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; 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. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open-space land (Section 1-d-1), including open-space land devoted to farm or ranch purposes or open-space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-1. 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. 15

16 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. The City or Collin County (the County ) may create one or more tax increment financing districts ( TIF ) within the City or the County and freeze the taxable values of property in the TIF at the value at the time of its creation. Other overlapping taxing units levying taxes in the TIF may agree to contribute all or part of future ad valorem taxes levied and collected against the value of property in the TIF in excess of the frozen values to pay or finance the costs of certain public improvements in the TIF. Taxes levied by the City against the values of real property in the TIF in excess of the frozen value are not available for general city use but are restricted to paying or financing project costs within the TIF. The City may also enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years (See Tax Abatement Policy below). Cities are also authorized, pursuant to Chapter 380, Texas Local Government Code ( Chapter 380 ) to establish programs to promote state or local economic development and to stimulate business and commercial activity in the City. In accordance with a program established pursuant to Chapter 380, the City may make loans or grant of public fund for economic development purposes, however, no obligations secured by ad valorem taxes may be issued for such purposes unless approved by voters of the City. In a statewide election held on September 13, 2003, voters approved an amendment to Section 1-b, Article VIII, of the Texas Constitution that would authorize a county, city, town or junior college district to establish an ad valorem tax freeze on residence homesteads of the disabled and of the elderly and their spouses. The City Council is now authorized to freeze ad valorem taxes on residence homesteads of persons who are disabled or sixty-five years of age or older. If the City Council does not take action to establish the tax limitation, City voters may submit a petition requiring the City Council to call an election to determine by majority vote whether to establish the tax limitation. Such petition must be signed by at least five percent of the City s registered voters. If the tax limitation is established, the total amount of ad valorem taxes imposed by the City on a homestead that receives the exemption may not be increased while it remains the residence homestead of that person or that person s spouse who is disabled or sixty-five years of age or older, except to the extent the value of the homestead is increased by improvements (other than repairs or improvements required to comply with governmental requirements). If a disabled or elderly person dies in a year in which the person received a residence homestead exemption, the total amount of ad valorem taxes imposed on the homestead by the City may not be increased 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. In addition, the Legislature by general law may provide for the transfer of all or a proportionate amount of the tax limitation applicable to a person s homestead to be transferred to the new homestead of such person if the person moves to a different residence within the City. Once established, the City Council may not repeal or rescind the tax limitation. The City Council has taken no action regarding the constitutional amendment approved by the voters. The City can make no representations or predictions concerning the impact such a tax limitation would have on the City's tax rate, financial condition or ability to make debt service payments. Article VIII, Section 1-n of the Texas Constitution provides for the exemption from taxation of "goods-in-transit." "Goods-intransit" is defined by Section of the Property Tax Code, which is effective for tax years 2008 and thereafter, as personal property acquired or imported into Texas and transported to another location in the State or outside of the State within 175 days of the date the property was acquired or imported into Texas. The exemption excludes oil, natural gas, petroleum products, aircraft and special inventory, including motor vehicle, vessel and out-board motor, heavy equipment and manufactured housing inventory. Section permits local governmental entities, on a local option basis, to take official action by January 1 of the year preceding a tax year, after holding a public hearing, to tax goods-in- transit during the following tax year. A taxpayer may receive only one of the freeport exemptions or the goods-in-transit exemptions for items of personal property. EFFECTIVE TAX RATE AND ROLLBACK TAX RATE... Section of the Property Tax Code provides that the governing body of a taxing unit is required to adopt the annual tax rate for the unit before the later of September 30 or the 60 th day after the date the certified appraisal roll is received by the taxing unit, and a failure to adopt a tax rate by such required date will result in the tax rate for the taxing unit for the tax year to be the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the taxing unit for the preceding tax year. Furthermore, Section provides that City Council may not adopt a tax rate 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 City s website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. 16

17 Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate." If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City 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 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 City is generally assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October 1 of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Attorney Month Penalty Interest Fees Total February 6% 1% -- 7% March April May June July % 38 After July, 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, a taxing unit may contract with an attorney for the collection of delinquent taxes and the amount of compensation as set forth in such contract may provide for a fee up to 20% of the amount of delinquent tax penalty and interest collected. The City charges 20%. 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 City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF PROPERTY TAX CODE... The residence homestead exemption of persons 65 years of age or older is $50,000. The disabled are also granted an exemption of $25,000. The City does not grant an additional exemption of up to 20% of the market value of residence homesteads; minimum exemption of $5,000. See Table 1 for a listing of the amounts of the exemptions described above. The City does not tax nonbusiness personal property; and the Collin County Tax Assessor collects taxes for the City. The City does not permit split payments, and discounts are not allowed. The City does not tax freeport property. 17

18 The City does tax goods-in-transit. The City does not collect the additional one-half cent sales tax for reduction of ad valorem taxes. The City has not established an ad valorem tax freeze on the residence homesteads of persons 65 years of age or older and the disabled. TAX ABATEMENT POLICY... The City has adopted a tax abatement policy to encourage economic development. For the 2010 Fiscal Year, the City has 16 abatements with 9 companies with a total aggregate taxable value exempt from taxation through the abatement agreements of $95,966,963 (including adjustments). The latest expiration date for any of the agreements is the Fiscal Year The value of property subject to abatement is shown in Table 1. TAX INCREMENT FINANCING ZONES... Two TIF zones have been created within the City. Both zones (the Garden District and the Central Business District) are expected to have tax increments of approximately $752,505 for Fiscal Year Both zones are still being developed. CHAPTER 380 AGREEMENTS... The City currently has Chapter 380 agreements with Stacy Furniture, The Village at Allen L.P., Chelsea Allen Development L.P., Andrews Family Properties LLC, and Cabela s Wholesale, Inc. The agreements generally refer to grant payments that are calculated off of sales and property taxes generated by the respective projects. [The Remainder of this Page Left Blank Intentionally] 18

19 TABLE 1 - VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2009 Actual Market Value of Taxable Property (100% of Actual) $ 8,202,240,300 Less ARB Reductions 5,116,882 Less Exemptions Over 65 and/or Disabled Homestead $ 89,340,402 Disabled and Deceased Veterans 12,108,949 Productivity Value Loss 328,152,529 Freeport 105,572,692 Abatements 95,966,963 CHODO 39,838,491 Pollution 237,744 House Bill ,781 Homestead Cap Adjustment 1,872,311 Totally Exempt Property 206,636, ,755, Net Taxable Assessed Valuation $ 7,317,367,749 Tax-Supported Debt Payable from Ad Valorem Taxes (as of June 15, 2010) $ 104,230,000 Plus: The Bonds 12,000,000 Net Tax-Supported Debt Payable from Ad Valorem Taxes $ 116,230,000 Interest and Sinking Fund (as of September 30, 2009) $ 1,578,807 Ratio of Total Tax Supported Debt to Net Taxable Assessed Valuation 1.59% 2010 Population as Estimated by the City 85,322 Per Capita Net Taxable Assessed Valuation $85,762 Per Capita Total General Obligation Debt Payable from Ad Valorem Taxes $1,362 [The Remainder of this Page Left Blank Intentionally] 19

20 TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY Taxable Appraised Value for Fiscal Year Ended September 30, % of % of % of Real Estate: Amount Total Amount Total Amount Total Single-Family Residence $ 5,124,379, % $ 4,970,930, % $ 4,645,744, % Multi-Family Residence 278,203, % 240,621, % 214,589, % Vacant Lots 79,720, % 63,439, % 59,330, % Acreage 446,962, % 503,841, % 471,226, % Farm/ Ranch Improvements 3,214, % 3,022, % 3,241, % Commercial & Industrial 1,191,722, % 1,034,278, % 889,402, % Utilities (Real & Personal) 220,926, % 208,009, % 165,639, % Personal: Commercial 448,807, % 394,453, % 458,451, % Industrial 12,286, % 10,046, % 11,874, % Other % % 4,082, % Real, Inventory 147,944, % 192,049, % 229,822, % Special Inventory 1,925, % 1,993, % 2,020, % Exempt Property 246,148, % 239,509, % 229,313, % Less: Estimated ARB Reductions (5,116,882) -0.06% % % Total Appraised Valuation Before Exemptions $ 8,197,123, % $ 7,862,195, % $ 7,384,738, % Less: Total Exemptions/Reductions 879,755, ,423, ,228,814 Total Taxable Assessed Value $ 7,317,367,749 $ 7,023,771,639 $ 6,453,510,061 Taxable Appraised Value for Fiscal Year Ended September 30, % of % of Real Estate: Amount Total Amount Total Single-Family Residence $ 4,135,047, % $ 3,783,348, % Multi-Family Residence 172,857, % 138,422, % Vacant Lots 72,103, % 77,760, % Acreage 435,691, % 425,546, % Farm/ Ranch Improvements 3,890, % 3,772, % Commercial & Industrial 772,196, % 670,252, % Utilities (Real & Personal) 128,247, % 40,789, % Personal: Commercial 394,461, % 443,526, % Industrial 6,266, % 6,214, % Other % % Real, Inventory 158,968, % 117,077, % Special Inventory 2,239, % 928, % Exempt Property 223,522, % 211,109, % Less: Estimated ARB Reductions % % Total Appraised Valuation Before Exemptions $ 6,505,493, % $ 5,918,749, % Less: Total Exemptions/Reductions 786,249, ,662,868 Total Taxable Assessed Value $ 5,719,244,070 $ 5,161,086,884 NOTE: Valuations shown are from the Collin Central Appraisal District's Supplemental Certification Reports and the Property Tax Division of the State Comptroller s Office, for the years shown, adopted by the City Council. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 20

21 TABLE 3 - VALUATION AND GENERAL OBLIGATION DEBT HISTORY Ratio Funded Per Capita Per Tax Debt to Fiscal Year Taxable Taxable Funded Capita Taxable Ended Estimated Assessed Assessed Tax Funded Assessed 9/30 Population (1) Valuation Valuation Debt Tax Debt Valuation ,421 $ 2,849,399,418 $ 52,358 $ 68,364,064 $ 1, % ,118 3,444,882,485 61,386 78,007,619 1, % ,643 4,076,548,994 64,053 79,243,921 1, % ,147 4,432,999,647 66,019 85,833,921 1, % ,891 4,785,147,808 68,466 86,930,670 1, % ,699 5,161,086,884 68,179 83,800,000 1, % ,804 5,719,244,070 72,576 88,620,000 1, % ,318 6,453,510,061 78,397 94,030,000 1, % ,929 7,023,771,639 83, ,230,000 1, % ,322 7,317,367,749 85, ,235,000 (2) 1,292 (2) 1.51% (2) (1) City estimate. (2) Includes the Bonds. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY Taxing Purposes Total Fiscal Local Debt Tax Total Current Total Year Maintenance Service Rate Tax Levy Collections Collections 2001 $ $ $ $ 16,070, % % ,396, % % ,912, % % ,869, % 99.97% ,796, % % ,853, % 99.80% ,925, % 99.52% ,946, % % ,114, % 99.99% ,611, % (1) 97.82% (1) (1) Collections through February [The Remainder of this Page Left Blank Intentionally] 21

22 TABLE 5 - TEN LARGEST TAXPAYERS 2009 Percentage of Type of Assessed Total Assessed Taxpayers Business Valuations Valuation AT&T Telephone Utility $ 75,081, % Chelsea Allen Development LP Commercial Real Estate 73,500, % Coventry II DDR/Trademark Montgomery Farm Commercial Real Estate 60,036, % Benton Pointe Apartments Inc Apartment Complex 38,283, % Oncor Energy Delivery Electric Utility 37,370, % Lexington Allen LP Commercial Real Estate 36,728, % BH Settler's Gate Apartments LP Apartment Complex 34,802, % Sanmina Corp Manufacturing Company 33,353, % TC Village, Inc Real Estate 31,430, % The Village at Allen LP Commercial Real Estate 30,248, % Totals $ 450,835, % Source: Collin Central Appraisal District GENERAL OBLIGATION DEBT LIMITATION... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "THE BONDS - Tax Rate Limitation"). TABLE 6 - TAX ADEQUACY Net Principal and Interest Requirements, 2010 $ 10,763,796 $ Tax Rate at 99.50% Collection Produces $ 10,502,454 Average Net Principal and Interest Requirements, $ 8,031,395 $ Tax Rate at 99.50% Collection Produces $ 8,031,395 Maximum Net Principal and Interest Requirements, 2015 $ 11,780,054 $ Tax Rate at 99.50% Collection Produces $ 11,780,054 (1) (2) (3) (3) (1) No debt service payments are scheduled for the Bonds in Fiscal Year (2) Budgeted shortfall to be paid from existing Interest & Sinking Fund balance and other non-tax revenues. (3) Includes the Bonds. [The Remainder of this Page Left Blank Intentionally] 22

23 TABLE 7 - ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City 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 City, the City 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 Tax Debt since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of Tax Debt, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. Amount Total Overlapping Tax Percent As Of Taxing Body Debt Overlapping 9/30/2010 City of Allen $ 110,235,000 (1) % $ 110,235,000 Allen Independent School District 407,450, % 376,647,300 Collin County 395,494, % 37,413,820 Collin County Community College District 45,669, % 4,329,445 Lovejoy Independent School District 105,644, % 12,497,777 McKinney Independent School District 454,016, % 908,033 Plano Independent School District 1,082,520, % 10,175,696 (1) Total Direct and Overlapping Debt: $ 552,207,071 (1) Total Direct and Overlapping Tax Debt Percent of Assessed Valuation 7.55% (1) Total Direct and Overlapping Tax Debt Per Capita $ 6,624 (1) (1) Includes the Bonds. Source: Municipal Advisory Council [The Remainder of this Page Left Blank Intentionally] 23

24 DEBT INFORMATION TABLE 8 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS Total Fiscal General Year Obligation % of Ended Outstanding General Obligation Debt The Bonds Debt Principal 09/30 Principal Interest Total Principal Interest Total Outstanding Retired 2010 $ 5,995,000 $ 4,768,796 $ 10,763,796 $ - $ - $ - $ 10,763, ,420,000 4,360,761 10,780, , , ,656 11,677, ,720,000 4,104,823 10,824, , , ,213 11,726, ,025,000 3,813,477 10,838, , , ,213 11,739, ,345,000 3,515,622 10,860, , , ,013 11,761, % ,685,000 3,194,442 10,879, , , ,613 11,780, ,460,000 2,846,729 10,306, , , ,713 11,206, ,160,000 2,534,567 9,694, , , ,363 10,592, ,500,000 2,203,085 9,703, , , ,563 10,599, ,035,000 1,854,268 8,889, , , ,313 9,788, % ,250,000 1,528,158 7,778, , , ,463 8,674, ,575,000 1,251,234 6,826, , , ,400 7,723, ,955, ,096 5,953, , , ,200 6,850, ,110, ,728 4,882, , , ,000 5,783, ,765, ,051 4,356, , , ,600 5,254, % ,540, ,391 2,961, , , ,200 3,861, ,650, ,985 2,956, , , ,600 3,857, ,650, ,580 2,835, ,000 99, ,800 3,735, ,390,000 62,800 1,452, ,000 67, ,800 2,350, ,000 34, , , % DEBT INFORMATION $ 104,230,000 $ 39,314,591 $ 143,544,591 $ 12,000,000 $ 5,083,319 $ 17,083,319 $ 160,627,910 24

25 TABLE 9 - INTEREST AND SINKING FUND BUDGET PROJECTION Tax Supported Debt Service Requirements, Fiscal Year Ending 9/30/10 $ 10,763,796 Interest and Sinking Fund, Fiscal Year Ending 9/30/09 $ 1,578,806 Budgeted Interest and Sinking Fund Tax Levy 10,393,777 (1) Net Transfers In/Out - Estimated Investment Income Plus Delinquent Collections & Penalties 224,178 12,196,761 Estimated Balance, Fiscal Year Ending 9/30/10 $ 1,432,965 (1) Includes Revised Delinquent Taxes, Penalties and Interest, and Rollback Taxes. TABLE 10 - AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS Original Date Amount Issued Being Unissued Purpose Authorized Authorized To Date Issued Balance Performing Arts Center 11/05/02 $ 19,500,000 $ 2,815,000 $ - $ 16,685,000 Service Center Facilities 05/12/07 14,500,000 12,500,000-2,000,000 Renovations 05/12/07 1,700, ,000 1,425,000 Streets 05/12/07 27,200,000 9,450,000 5,500,000 12,250,000 Parks 05/12/07 17,250,000 5,850,000 1,050,000 10,350,000 Public Art Projects 05/12/07 1,390, , , ,000 Public Safety 05/12/07 15,855,000 6,625,000 4,850,000 4,380,000 $ 97,395,000 $ 37,540,000 $ 12,000,000 $ 47,855,000 ANTICIPATED ISSUANCE OF ADDITIONAL GENERAL OBLIGATION DEBT... The City anticipates the issuance of approximately $13,725,000 of general obligation debt in the next twelve months. [The Remainder of this Page Left Blank Intentionally] 25

26 TABLE 11 - OTHER OBLIGATIONS CAPITAL LEASES... The City acquired office equipment under various leases accounted for as capital leases. The terms of the leases range from 3-5 years and call for monthly and annual payments over the life of the leases. As of September 30, 2009, the capitalized cost of the governmental leased property under capital leases was $124,521 and business-type leased property was $272,960. The following is a schedule of future minimum lease payments under the capital leases, together with the present value of the net minimum lease payments as of September 30, Fiscal Governmental Year Annual Ending Lease 9/30 Payments 2010 $ 71, , Future Minimum Lease Payments $ 6, ,521 Fiscal Business-Type Year Annual Ending Lease 9/30 Payments 2010 $ 96, , , , ,389 Future Minimum Lease Payments $ 272,960 PENSION PLAN... The City provides pension benefits for all its eligible employees through a nontraditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), an agent, multiple-employer public employee retirement system. Under the state law governing TMRS, the contribution rate for each City is determined annually by the actuary using the Projected Unit Credit actuarial cost method. The rate consists of the normal cost contribution rate and the prior service cost contribution rate, which is calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the portion of an active member s projected benefit allocated annually; the prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the applicable period for that city. Both the normal cost and prior service contribution rates include recognition of the projected impact of annually repeating benefits such as Updated Service Credits and Annuity Increases. The City contributes to the TMRS Plan at an actuarially determined rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes into effect (i.e. December 31, 2007 valuation is effective for rates beginning January 2009). The City s retirement cost rate was 9.93% from October to December 2008 and 10.9% from January to September Beginning in fiscal year 2008, changes in actuarial funding and assumptions resulted in higher required contributions and lower funded ratios. To assist in this transition to higher rates, TMRS approved an eight-year phase-in period, which allows cities the opportunity to increase their contributions gradually to their full required contribution rate. The City made additional voluntary contributions of approximately 1% from January to September 2008 and 2% for the entire 2009 fiscal year to reduce the unfunded actuarial accrued liability. As of December 31, 2008, the most recent actuarial valuation date, the plan was 68.9% funded. The actuarial accrued liability for benefits was $72,366,502, and the actuarial value of assets was $49,860,343, resulting in an unfunded actuarial accrued liability (UAAL) of $22,506,159. These amounts include the assets and actuarial liabilities related to both the Municipal Accumulation fund (MAF) and the Employee Savings Fund (ESF) of the City. It should be noted that only the assets of the MAF can be used to pay for the MAF s actuarial liabilities, and if ESF assets and liabilities had been excluded, the reported funding status would be lower. The 26

27 covered payroll (annual payroll of active employees covered by the plan) was $31,392,512, and the ratio of the UAAL to the covered payroll was 71.7%. See Appendix B Excerpts from the Annual Report Footnote 7 to Basic Financial Statements for additional information on the pension plan. OTHER POST EMPLOYMENT BENEFITS... In fiscal year , the City implemented GASB Statement 45 Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions (OPEB). As required by state law the City makes health care benefits available to all retired employees through a single-employer defined benefit medical plan. This healthcare plan provides lifetime insurance or until age 65 to all employees at any age with 20 years of service and their dependents. The benefits and contribution rates are approved annually by the City Council as part of the budget process. The retiree benefit consists of medical, dental and vision care at the same cost as an employee until age 65. Retiree premiums are equal to COBRA rates and are paid entirely by the retiree (no City subsidy). Retirees must make a one-time irrevocable decision to continue benefits at the time of retirement, after that their eligibility for this benefit ends. As of September 30, 2008, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $534,259, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $31,392,512, and the ratio of the unfunded actuarial accrued liability to the covered payroll was 1.7%. For the first year of GASB 45 implementation the City contributed the annual required contribution (ARC) of $48,973 and retirees contributed $21,234 to the Risk Management Fund where payments of current OPEB benefits are made on a pay-as-you-go basis. The City is not required to establish an irrevocable trust fund to accumulate assets for payment of future OPEB benefits, and has elected not to do so for It is important to note, however, that the net assets of $3,575,961 available in the Risk Management Fund exceed the $534,259 actuarial accrued liability. An actuarial study update is planned for fiscal year 2010 at which time the City will reassess the funding and program options. The City has 8 retirees and beneficiaries receiving benefits and the ARC budgeted for FY is $48,973. See Appendix B Excerpts from the Annual Report Footnote 11 to Basic Financial Statements for additional information on other post employment benefits. [The Remainder of this Page Left Blank Intentionally] 27

28 FINANCIAL INFORMATION TABLE 12 - GENERAL FUND REVENUE AND EXPENDITURE HISTORY Fiscal Year Ended September 30, Revenues: 2010 (1) Ad Valorem Taxes $ 30,041,006 $ 29,828,073 $ 28,616,988 $ 23,230,344 $ 19,727,993 Franchise Taxes 5,828,503 5,448,977 5,458,370 4,866,243 5,520,215 Sales Taxes 12,460,253 10,879,111 9,940,618 9,755,380 9,230,206 Licenses, Permits and Fees 1,007,100 1,292,312 1,832,689 1,637,556 1,732,374 Charges for Services 2,200,865 1,591,604 1,557,929 1,404,376 1,447,878 Fines 1,929,215 1,817,068 1,713,351 1,727,693 1,506,429 Gifts and Contributions 11, , , ,018 78,370 Intergovernmental ,826 - Interest Earned 450, , , , ,876 Miscellaneous 846, , , , ,658 Total Revenues $ 54,774,438 $ 51,923,566 $ 50,347,885 $ 44,016,143 $ 40,531,999 Expenditures: Current: General Government $ 16,522,908 $ 11,915,266 $ 11,864,246 $ 9,111,806 $ 7,293,588 Public Safety 24,867,059 23,662,504 22,928,597 19,825,653 18,124,797 Public Works 3,690,171 3,499,107 3,478,586 3,025,105 3,257,485 Culture and Recreation 10,870,719 10,454,422 10,378,193 8,772,497 8,750,856 Community Development 2,404,257 2,284,704 2,254,889 1,893,229 1,723,126 Total Expenditures $ 58,355,114 $ 51,816,003 $ 50,904,511 $ 42,628,290 $ 39,149,852 Excess (Deficiency) of Revenues Over Expenditures $ (3,580,676) $ 107,563 $ (556,626) $ 1,387,853 $ 1,382,147 Other Financing Sources (Uses): 3,580,676 (74,477) 1,014, , ,911 Excess (Deficiency) of Revenues & Other Resources Over (Under) Expenditures and Other Uses $ - $ 33,086 $ 458,204 $ 1,881,010 $ 2,057,058 Fund Balance - Beginning of Year 13,864,533 13,831,447 13,373,243 11,492,233 $ 9,435,175 Residual Equity Transfer Fund Balance - September 30 $ 13,864,533 $ 13,864,533 $ 13,831,447 $ 13,373,243 $ 11,492,233 (1) Budgeted numbers. [The Remainder of this Page Left Blank Intentionally] 28

29 TABLE 13 - MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, Texas Tax Code Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Bonds. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 2% service fee, to the City monthly. Fiscal Year % of Equivalent of Ended Total Ad Valorem Ad Valorem Per 9-30 Collected (1) Tax Levy Tax Rate Capita (2) 2006 $ 9,159, % 0.18 $ ,674, % ,933, % ,692, % ,790,137 (3) 7.56% (3) 0.04 (3) (3) (1) Figures refer to the City s 1% sales tax only and do not include additional ½% for 4A and ½% for 4B corporations. (2) Based on City population estimates. (3) As of March 2010 for sales through January FINANCIAL POLICIES The financial statements of the City have been prepared in conformity with accounting principles generally accepted in the United States of America ( GAAP ). The Governmental Accounting Standards Board ( GASB ) is the accepted standardsetting body for establishing governmental accounting and financial reporting principles. For the fiscal year ended September 30, 2002, the City implemented Governmental Accounting Standards Board Statement No. 34 ( GASB 34 ). Government-wide and Fund Financial Statements The governmental-wide financial statement (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Government activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate 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 as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting and Basis of Presentation...The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and 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 have been met. Government fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 50 days of the end of the current fiscal period, with the exception of intergovernmental revenues, which have a one-year period of availability. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, claims and judgments, landfill closer/post close costs, are recorded only when the liability has matured. 29

30 Property taxes, sales taxes, franchise fees and licenses, intergovernmental revenues, certain charges for services, 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 the City receives the cash as the resulting receivables are deemed immaterial. Fund Balances... It is the City s policy that the undesignated fund balance in the General Fund should be in an amount that is within a range of 60 to 90 days of the General Fund current year operating expenditures budget. The undesignated fund balance for the debt service fund shall be maintained in an amount that is within a range of 5% to 10% of the current year s debt service. Use of Bond Proceeds... The City's policy is to use bond proceeds for capital expenditures only and not to fund normal City operations. Budgetary Procedures... The City Charter establishes the fiscal year as the twelve-month period beginning each October 1. On or before August 10 of each year, the City Manager submits to the City Council a proposed budget for the fiscal year beginning the following October 1. The operating budget includes proposed expenditures and the means of financing them. Public hearings are conducted. The budget is legally enacted by the City Council through the passage of appropriation and tax levying ordinances prior to September 30. During the fiscal year, budgetary control is maintained by the monthly review of departmental appropriation balances. Actual operations are compared to the amounts set forth in the budget. Departmental appropriations that have not been expended lapse at the end of the fiscal year if no disbursement from or encumbrance of the appropriation has been made. INVESTMENTS The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City. Both State law and the City s investment policies are subject to change. LEGAL INVESTMENTS... Under Texas law, the City is authorized to invest in (1) obligations, including letters of credit, of the United States or its agencies and instrumentalities, (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 are unconditionally guaranteed or insured by, or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities, (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent, (6) bonds issued, assumed, or guaranteed by the State of Israel, (7) certificates of deposit and share certificates meeting the requirements of the Texas 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 City deposits or (ii) where (a) the funds are invested by the City through a depository institution that has a main office or branch office in the State and that is selected by the City; (b) the depository institution selected by the City arranges for the deposit of funds in one or more federally insured depository institutions, wherever located, for the account of the City; (c) the full amount of the principal and accrued interest of each of the certificates of deposit is insured by the United States or an instrumentality of the United States; (d) the depository institution acts as a custodian for the City with respect to the certificates of deposit; and (e) at the same time that the certificates of deposit are issued, the depository institution selected by the City receives deposits from customers of other federally insured depository institutions, wherever located, that is equal to or greater than the funds invested by the City through the depository institution selected under clause (ii) (a) above, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) bankers acceptances with a stated maturity of 270 days or less from the date of its issuance, 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 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, (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 the preceding clauses, 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, and (13) public funds investment pools that have an advisory board which includes participants in the pool 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 or no lower than investment grade with a weighted average maturity no greater than 90 days. Texas law also permits the City to invest bond proceeds in a guaranteed investment contract, subject to limitations as set forth in the PFIA. 30

31 Effective September 1, 2003, a political subdivision such as the City 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 City, held in the City s name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less. The City 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 or no lower than investment grade by at least one nationally recognized rating service with a weighted average maturity no greater than 90 days. The City 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. INVESTMENT POLICIES... Under Texas law, the City 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 includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City 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, City 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 investment officers of the City shall submit an investment report detailing (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to (a) adopted investment strategy statements and (b) State law. No person may invest City funds without express written authority from the City Council. ADDITIONAL PROVISIONS... Under State law, the City 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 entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (4) require the qualified representative of firms offering to engage in an investment transaction with the City to: (a) receive and review the City s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the City and the business organization that are not authorized by the City s investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the City s entire portfolio or requires an interpretation of subjective investment standards), and (c) deliver a written statement in a form acceptable to the City and the business organization attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the City 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 City 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 City. Under Texas law, the City may 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 City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance or resolution. The City has not contracted with, and has no present intention of contracting with, any such investment management firm or the State Securities Board to provide such services. 31

32 TABLE 14 - CURRENT INVESTMENTS As of March 31, 2010, the City s investable funds were invested in the following categories: Market Value Percentage Fund and Investment Type Amount of Portfolio Government Agencies $ 41,454, % TexPool Investments 49,080, % Certificates of Deposit 39,497, % Total Investments $ 130,032, % As of such date, the market value of such investments (as determined by the City by reference to published quotations, dealer bids, and comparable information) was approximately 100% of their book value. No funds of the City are invested in derivative securities, i.e., securities whose rate of return is determined by reference to some other instrument, index, or commodity. TAX MATTERS TAX EXEMPTION... The delivery of the Bonds is subject to the opinion of Fulbright & Jaworski L.L.P. ( Bond Counsel ) to the effect that interest on the Bonds for federal income tax purposes (1) will be excludable from gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date of such opinion (the "Code"), pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof. A form of Bond Counsel's opinion is reproduced as Appendix C. The statutes, regulations, rulings, and court decisions on which such opinion is based are subject to change. In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the City made in a certificate dated the date of delivery of the Bonds pertaining to the use, expenditure, and investment of the proceeds of the Bonds and will assume continuing compliance by the City with the provisions of the Ordinance subsequent to the issuance of the Bonds. The Ordinance contains covenants by the City with respect to, among other matters, the use of the proceeds of the Bonds and the facilities financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the Bonds are to be invested, the periodic calculation and payment to the United States Treasury of arbitrage "profits" from the investment of the proceeds, and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants may cause interest on the Bonds to be includable in the gross income of the owners thereof from the date of the issuance of the Bonds. Bond Counsel s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Internal Revenue Service (the Service ) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel s opinion is not binding on the Service. The Service has an ongoing program of auditing the taxexempt status of the interest on tax-exempt obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the City as the taxpayer, and the owners of the Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the City may have different or conflicting interests from the owners of the Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome. Except as described above, Bond Counsel expresses no other opinion with respect to any other federal, state or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a financial asset securitization investment trust ( FASIT ), and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances. TAX ACCOUNTING TREATMENT OF DISCOUNT AND PREMIUM ON CERTAIN BONDS... The initial public offering price of certain Bonds (the "Discount Bonds") may be less than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue discount allocable to the holding period of such 32

33 Discount Bond by the initial purchaser will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Bonds described above under "Tax Exemption." Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during the tax year. However, such interest may be required to be taken into account in determining the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with "subchapter C" earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Bond was held) is includable in gross income. Owners of Discount Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment. The initial public offering price of certain Bonds (the "Premium Bonds") may be greater than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser's yield to maturity. Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Bonds. QUALIFIED TAX-EXEMPT OBLIGATIONS FOR FINANCIAL INSTITUTIONS Section 265 of the Code provides, in general, that interest expense to acquire or carry tax-exempt obligations is not deductible from the gross income of the owner of such obligations. In addition, section 265 of the Code generally disallows 100% of any deduction for interest expense which is incurred by financial institutions described in such section and is allocable, as computed in such section, to tax-exempt interest on obligations acquired after August 7, Section 265(b) of the Code provides two exceptions to this interest disallowance rule for financial institutions. First, the disallowance does not apply to interest expense allocable to tax-exempt obligations issued in 2009 or 2010 (other than to refund, directly or in a series of refundings, a bond originally issued before 2009) to the extent the amount of such obligations owned by a financial institution does not exceed 2% of the average adjusted bases for all its assets. Second, the disallowance does not apply to interest expense allocable to tax-exempt obligations (other than private activity bonds that are not qualified 501(c)(3) bonds) which are designated by an issuer as qualified tax-exempt obligations. An issuer may designate obligations as qualified tax-exempt obligations only if the amount of the issue of which they are a part, when added to the amount of all other tax-exempt obligations (other than private activity bonds that are not qualified 501(c)(3) obligations and other than certain refunding bonds) issued or reasonably anticipated to be issued by the issuer during the same calendar year, does not exceed $10,000,000 ($30,000,000 for obligations issued in 2009 or 2010). The City has designated the Bonds as qualified tax-exempt obligations and has certified its expectation that the above-described $30,000,000 ceiling will not be exceeded. Accordingly, it is anticipated that financial institutions which purchase the Bonds will not be subject to the 100% disallowance of interest expense allocable to interest on the Bonds under section 265(b) of the Code. However, the deduction for interest expense incurred by a financial institution which is allocable to the interest on the Bonds will be reduced by 20% pursuant to section 291 of the Code. 33

34 CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to the Municipal Securities Rulemaking Board (the MSRB ). ANNUAL REPORTS... The City 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 City of the general type included in this Official Statement in Tables 1 through 6 and 8 through 14 herein and certain information in the annual financial statements in Appendix B. The City will update and provide this information within six 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 United States 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 City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide audited financial statements when and if an audit report becomes 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 City may be required to employ from time to time pursuant to State law or regulation. The City s current fiscal year end is September 30. Accordingly, it must provide updated information by the last day of March in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. MATERIAL EVENT NOTICES... The City will also provide timely notices of certain events to the MSRB. The City will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the taxexempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) Bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. (Neither the Bonds nor the Ordinance make any provision for debt service reserves, credit enhancement or liquidity enhancement.) In addition, the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." AVAILABILITY OF INFORMATION... In connection with its continuing disclosure agreement entered into with respect to the Bonds, the City 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 City has agreed to update information and to provide notices of material events only as described above. The City 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 City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the provisions of its continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds. 34

35 If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS... During the last five (5) years, the City has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule. OTHER INFORMATION RATINGS The Bonds are rated Aa1 by Moody's Investors Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Services, a Standard and Poor s Financial Services LLC business ("S&P"). The presently outstanding ad valorem tax supported debt of the City is rated "Aa1" by Moody's and "AAA" by S&P. The City also has several series of obligations outstanding with credit enhanced ratings from various municipal bond insurance companies. Due to recent downgrades of some insurers, the insured ratings on these obligations range broadly. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Bonds. LITIGATION The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, it is the opinion of the City Attorney that the resolution of these matters will not have a material adverse affect on the financial condition of the City. REGISTRATION AND QUALIFICATION OF BONDS FOR SALE The sale of the Bonds 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 Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any other jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds 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 Bonds 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 Bonds 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 Bonds be assigned a rating of not less than A or its equivalent as to investment quality by a national rating agency. See OTHER INFORMATION Ratings herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with at least $1 million of capital and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the State, its agencies and political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. LEGAL MATTERS The delivery of the Bonds is subject to the approval of the Attorney General of Texas to the effect that the Bonds are valid and legally binding obligations of the City payable from the proceeds of an annual ad valorem tax levied, within the limitations prescribed by law, upon all taxable property in the City, and the approving legal opinion of Bond Counsel, to like effect and to the effect that the interest on the Bonds will be excludable from gross income for federal income tax purposes under Section 103(a) of the Code, subject to the matters described under TAX MATTERS herein. The form of Bond Counsel s opinion is attached hereto as APPENDIX C. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent upon the sale and delivery of the Bonds. The legal opinion of Bond Counsel will accompany the Bonds deposited with DTC or will be printed on the definitive Bonds in the event of the discontinuance of the Book-Entry-Only 35

36 System. Certain legal matters will be passed upon for the Underwriters by McCall, Parkhurst, & Horton, L.L.P., Dallas, Texas, Counsel for the Underwriters. The legal fee of such firm is contingent upon the sale and delivery of the Bonds. Bond Counsel was engaged by, and only represents, the City. Except as noted below, Bond Counsel 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 herein except that in its capacity as Bond Counsel, such firm has reviewed the information appearing under the captions PLAN OF FINANCING (except under the subcaption Use of Proceeds ), THE BONDS (except under the subcaptions Book-Entry-Only System and Bondholders Remedies ), TAX MATTERS, CONTINUING DISCLOSURE OF INFORMATION (except under the subcaption Compliance With Prior Undertakings ) and the subcaptions Legal Matters (except for the last two sentences of the first paragraph thereof), Registration and Qualification of Bonds for Sale, and Legal Investments and Eligibility to Secure Public Funds in Texas, under the caption OTHER INFORMATION and such firm is of the opinion that the information relating to the Bonds and legal matters contained under such captions and subcaptions is an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Bonds, such information conforms to the Ordinance. The various legal opinions to be delivered concurrently with the delivery of the Bonds 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 the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION The financial data and other information contained herein have been obtained from City 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 ordinances contained in this Official Statement are made subject to all of the provisions of such statutes, documents and ordinances. These summaries do not purport to be complete statements of such provisions and reference is made to such statutes, documents and ordinances for further information. Reference is made to original documents in all respects. FINANCIAL ADVISOR Estrada Hinojosa & Company, Inc. is contracted as Financial Advisor to the City in connection with the issuance of the Bonds. The fee for services rendered by the Financial Advisor with respect to the sale of the Bonds is contingent upon the issuance and delivery of such Bonds. Estrada Hinojosa & Company, Inc. has relied on the opinion of Bond Counsel and 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 Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. In the normal course of business, the Financial Advisor may from time to time sell investment securities to the City for the investment of bond proceeds or other funds of the City upon the request of the City. The Financial Advisor to the City 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, their responsibilities to the City 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. UNDERWRITING The Underwriters have agreed, subject to certain conditions, to purchase the Bonds from the City, for a purchase price of $12,072, (which reflects a net original issue premium of $150, and an Underwriters discount of $78,010.77) plus accrued interest from the dated date to the date of initial delivery of the Bonds. The Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Bonds into investment trusts) at prices lower than the public offering prices of such Bonds and such public offering prices may be changed, from time to time, by the Underwriters. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. 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. 36

37 FORWARD-LOOKING STATEMENTS DISCLAIMER The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City'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 City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City's actual results could differ materially from those discussed in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. The Ordinance authorizing the issuance of the Bonds approves the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorizes its further use in the reoffering of the Bonds by the Underwriters. ATTEST: /s/ STEPHEN TERRELL Mayor City of Allen, Texas /s/ SHELLEY B. GEORGE City Secretary 37

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39 APPENDIX A GENERAL INFORMATION REGARDING THE CITY

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41 GENERAL The City of Allen (the City ), incorporated in 1953, is located in central Collin County, Texas, 25 miles north of downtown Dallas, on U.S. Highway 75 and currently occupies a land area of square miles. Allen is a community that offers exceptional housing, award-winning schools, a pro-business attitude and enthusiastic accommodation of industry. During 2008, Allen was ranked #20 in Money Magazine as one of the best small cities in the United States to live in. In 2009 Forbes.com lists Allen as one of the top 20 best places to live and Congressional Quarterly ranked Allen as the 9 th safest city in America with populations exceeding 75,000 residents. This ranking also placed Allen as the #1 safest city in Texas. Along with an ideal location just north of Dallas, Allen s appealing demographics have spurred along record breaking growth. The population of approximately 84,545 is expanding with an estimated 2.8% growth. Estimated population at build out is 97,938. The quality of the Allen community attracts well-educated residents with a high level of spending power and disposable income. Also, a population of 3.5 million in a 30-mile radius makes Allen a prime location for restaurants, shopping centers and other retail venues. POPULATION Census City of Collin Report Allen County , ,940 66, , , , , , , , ,010 Current (Est.) 84,545 (1) 748,050 Sources: United States Bureau of the Census, the North Central Texas Council of Governments, and the City of Allen. (1) Population as of February 28, EDUCATION The City is served by the Allen Independent School District (the District ). The District covers approximately 32 square miles in Collin County. In addition to serving the City, the District also serves students from the municipalities of Plano, McKinney, Fairview and Lucas, along with various rural areas. The District is comprised of fifteen elementary schools for grades kindergarten through sixth, three middle schools for grades seventh through eighth, one ninth grade center, and one high school for grades tenth through twelfth. Curricula have been updated to keep pace with current trends in education and the more complex needs of students. All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level and are equipped with computers and full cafeteria service. The District s current estimate of its total enrollment is 18,091 students. Institutions of higher learning within a fifty-mile radius of Allen include Southern Methodist University, Dallas; The University of North Texas, Denton; Texas A&M University at Commerce; Texas Woman s University, Denton; Austin College, Sherman; University of Texas at Dallas, Richardson; University of Texas at Arlington; Texas Christian University, Fort Worth; and seven campuses of the Dallas County Community College District in Dallas County. The Collin County Community College District is currently operating four campuses: Spring Creek Campus, McKinney Campus, Preston Park Boulevard Campus, and a Frisco Campus. ECONOMIC DEVELOPMENT The Allen Economic Development Corporation s (AEDC) primary purpose is to aggressively market and promote Allen to attract high quality, aesthetically attractive, environmentally sound businesses to increase the local employment and tax base. Formed in 1992 by the voters of Allen, the AEDC receives funds from a half-cent sales tax for economic development. The fivemember board is appointed by the Allen City Council. Projects of the AEDC assist in relieving the property tax burden on individual homeowners. Accomplishments for FY 2010: Provide economic investment that increases employment opportunity, the tax base, and provides desired goods and services for residents and contributes to the community character and identity. A-1

42 AEDC continues to target prospects to achieve City goals for company recruitment and business retention. Building on the success of the recruitment of Cisco, the AEDC is continuing to work with prospective tenants, developers and utility providers to bring additional data center projects to Allen. Continue corporate recruitment efforts to attract companies to existing office and office/tech space. Continue retention meetings with existing industries in Allen. Enhance the quality of commercial developments by influencing landscape material and design, choice of construction materials and building appearance through the use of incentives. Create an effective process and provide adequate resources to secure and retain desirable retail and mixed-use development. Continue to enhance the community s position to attract major retail, restaurant and entertainment products, providing increased sales tax revenue and recreation opportunities to the community. Assist with the development of a transportation program to bring the retail and hospitality workforce into the City. Marketing of the City as a regional shopping and entertainment destination with the opening of our newest mixed-use projects, Watters Creek at Montgomery Farm, and the Village at Allen as well as the Allen Event Center. CULTURAL AND RECREATIONAL OPPORTUNITIES The City of Allen has a strong commitment to quality of life and is dedicated to expanding services and amenities that define the special character of the City. These programs and amenities assist in maintaining Allen as a liveable community for future generations. In addition to youth recreational programs, adult athletics and land and water fitness classes, Allen Parks and Recreation Department offers a variety of adult recreational classes year-round and sponsors special activities throughout the year. There are five Community Parks in the City, all of which provide playgrounds, sports fields, picnic areas and pavilions. Some also offer swimming pools, tennis courts, and hike and bike trails. The largest of these parks is Celebration Park with amenities that include 15 soccer fields, four baseball diamonds, Kid Mania playground, water spray ground, and two fishing lakes. Currently there are 20 Neighborhood Parks located throughout the City. Amenities in these parks vary. Possible amenities among these parks include the following: 5 acres of open space with benches, pavilion and/or picnic tables, playground areas, hike and bike trails, baseball/softball/soccer fields and tennis/hockey/basketball courts. In addition to the parks, the City has 5 Natural Greenbelt Areas with open space, picnic areas and hike/bike trails and 4 Sports Complexes with sports fields (lighted and unlighted) and hike/bike trails. There are currently 20 miles of paved hike and bike trails throughout the City and planning has already begun to develop a city-wide Trail System that would connect not only all parts of Allen, but would connect to several nearby cities as well. The City s Six- Cities Trail Plan has received numerous planning and landscape awards. Below are highlights of some of the cultural projects completed or planned by the City: Historic Village design phase. As part of the redevelopment of the Central Business District, this area is designed to preserve some of the City s significant structures. Central Business District (CBD). Redevelopment of the CBD in the historic area of Allen surrounding Main Street; covering approximately 200 acres is home to the City s new library, the Historic Village, and an expanded Allen Station Park. Performing Arts Complex. A regional performing arts center in conjunction with the cities of Plano and Frisco has been designed. Village at Allen. Design and construction of a new 6,200 fixed seat events center as part of a 181 acre mixed-use development of over 950,000 square footage of retail on the southeast corner of US 75 and Stacy Road. The events center is the home to a minor league hockey team in addition to hosting other entertainment events including concerts and other sporting events. The events center was completed in November A-2

43 MAJOR EMPLOYERS Because of the City s proximity to the Dallas metropolitan area, the accelerated economic growth in recent years has provided the City with a well-diversified economy, including electronics, manufacturing, printing and publishing, and retail establishments. Number of Employer Type of Business Employees Allen Independent School District Public School District 2,363 Presbyterian Hospital Healthcare Services 879 City of Allen Municipal Government 732 Experian Credit Bureau Firm 550 Jack Henry & Associates Financial Software Development 380 Sanmina SCI Manufacturing 300 State Farm Insurance 200 Sage Telecommunications Telecommunications 175 Photronics Manufacturing 165 Source: City of Allen. RESIDENTIAL AND COMMERCIAL BUILDING CONSTRUCTION Residential Commercial Total Fiscal Number Dollar Number Dollar Number Dollar Year of Amount of Amount of Amount Ended 9-30 Permits of Permits Permits of Permits Permits of Permits ,425 $ 244,820, $ 105,833,860 1,677 $ 350,653, , ,583, ,483,501 2, ,067, , ,808, ,759,762 1, ,567, , ,064, ,705,007 3, ,769, , ,689, ,497,137 4, ,186, , ,729, ,189,442 4, ,918, , ,399, ,188,252 1, ,587, ,074, ,389,945 1, ,464, ,386, ,882,512 1, ,268, ,906, ,869, ,775,173 Source: City of Allen. A-3

44 COLLIN COUNTY, TEXAS Collin County (the County ) is located in north central Texas immediately north of and adjacent to Dallas County, in the Dallas-Fort Worth CMSA. The County, created in 1846 from Fannin County, contains approximately 886 square miles. The area lies wholly within the rich black land belt of Texas. Its economy is based on manufacturing, finance, technology and agriculture, with grain sorghums, cotton, wheat, hay and livestock as the principal sources of agricultural income. Many residents commute to jobs in Dallas, Garland, and Richardson. The County s population increased 183.3% from 264,036 for the 1990 Census, to 748,050 in the 2010 estimates. Collin County is the richest county in Texas, one of the wealthiest counties in the country. Rapid population growth in the cities of Allen, McKinney, Frisco, and Plano during the past several years has caused accelerated industrial growth throughout the County, resulting in a sound, balanced economy. Source: Texas Municipal Report published by the Municipal Advisory Council of Texas, Collin County Website. LABOR FORCE STATISTICS City of Allen Collin County December December December December December December Civilian Labor Force 42,712 41,817 41, , , ,193 Total Employment 39,833 39,603 39, , , ,656 Total Unemployment 2,879 2,214 1,542 29,793 22,096 15,537 Percentage Unemployment 6.74% 5.29% 3.72% 7.21% 5.46% 3.87% Source: Texas Workforce Commission. ESTIMATED TOTAL RETAIL TRADE SALES STATISTICS (a) Year Collin County DFW CMSA (a) 2002 $7,189,096,226 $80,337,022, ,697,085,243 82,504,128, ,362,710,560 92,058,766, ,230,809,967 98,640,844, ,890,130, ,692,164, ,295,188, ,635,773, ,620,605, ,942,481, (b) 4,957,849,699 21,086,719,167 The Dallas-Fort Worth Consolidated Metropolitan Statistical Area (CMSA) includes the counties of Collin, Dallas, Denton, Ellis, Henderson, Hood, Hunt, Johnson, Kaufman, Parker, Rockwall, and Tarrant. (b) Through second quarter Source: Texas State Comptroller. A-4

45 APPENDIX B EXCERPTS FROM THE CITY OF ALLEN, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2009 The information contained in this Appendix consists of excerpts from the City of Allen, Texas Annual Financial Report for the Year Ended September 30, 2009, and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete Report for further information.

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47 Honorable Mayor and Members of the City Council CITY OF ALLEN, TEXAS INDEPENDENT AUDITOR S REPORT We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund information of the City of Allen (the City) as of and for the year ended September 30, 2009, which collectively comprise the City s basic financial statements, as listed in the table of contents. These basic financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion the basic financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Allen at September 30, 2009 and the respective changes in financial position and cash flows, where applicable, thereof, for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 17, 2010 on our consideration of the City's internal control over financial reporting and 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 the testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The accompanying management s discussion and analysis, schedule of TMRS funding progress and contributions, schedule of OPEB funding progress and contributions and budgetary comparison information on pages 3 through 18 and 66 and 68, respectively, are not a required part of the basic financial statements but are supplementary information required by the GASB. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 1

48 CITY OF ALLEN, TEXAS February 17, 2010 Page 2 Our audit was made for the purpose of forming opinions on the basic financial statements taken as a whole. The introductory section, combining and individual major and non-major fund financial statements and schedules, the discretely presented component units financial statements and schedules, schedules of capital assets used in the operation of governmental funds, and statistical tables listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements of the City. The combining and individual major and non-major fund financial statements and schedules, discretely presented component units financial statements and schedules, and schedules of capital assets used in the operation of governmental funds have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated, in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on such data. WEAVER AND TIDWELL, L.L.P. Dallas, Texas February 17,

49 MANAGEMENT S DISCUSSION AND ANALYSIS

50 CITY OF ALLEN, TEXAS MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2009 (UNAUDITED) As management of the City of Allen, Texas, we offer readers of the City s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, FINANCIAL HIGHLIGHTS The assets of the City exceeded its liabilities (net assets) at September 30, 2009 by $581,948,061. Of this amount, $72,035,448 (unrestricted net assets) may be used to meet the government s ongoing obligations to citizens and creditors. The City s total net assets increased by $52,721,984. The increase is primarily a result of an increase in developer contributions due to growth in commercial development, an increase in the assessed property values, and the Allen Event Center infrastructure. The City s governmental funds reported combined ending fund balances of $68,151,272 at September 30, 2009, an increase of $14,619,867 from the prior fiscal year. At the end of the fiscal year, the unreserved fund balance for the General Fund was $13,827,083 or 27% of total General Fund expenditures. On a government-wide basis, the City s total liabilities increased by $16,222,960. The key factor for this increase is a result of the issuance of $15,400,000 in General Obligation Bonds. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements and 3) notes to the financial statements. This report also contains other 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 City s finances, in a manner similar to that of a private-sector business. The Statement of Net Assets presents information on all of the City s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. To assess the overall health of the City, other non-financial factors should also be taken into consideration, such as changes in the City s property tax base and the condition of the City s infrastructure. The Statement of Activities presents information showing how the City s net assets changed during the fiscal year. All changes in net assets are reported when 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 only result in cash flows in future fiscal periods (e.g. uncollected taxes and earned but unused compensated absences). Both the Statement of Net Assets and the Statement of Activities are prepared utilizing the accrual basis of accounting as opposed to the modified accrual basis used in prior reporting models. 3

51 CITY OF ALLEN, TEXAS MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2009 (UNAUDITED) In the government-wide financial statements, pages 19 through 21, the City is divided into three kinds of activities: Governmental activities - Most of the City s basic services are reported here, including the police, fire, library, community development, parks and recreation, municipal court, and general administration. Property and sales taxes, charges for services, franchise fees, and state and federal grants finance most of these activities. Business-type activities - The City s water, sewer, solid waste, drainage, and golf course operations are reported here. These are functions intended to recover all or a significant portion of their costs through user fees and charges. Component units - The City includes two separate legal entities in this report: the Allen Economic Development Corporation (AEDC) and the Allen Community Development Corporation (ACDC). Although legally separate, these component units are important because the City is financially accountable for them. Fund financial statements - A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City, 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 City can be divided into two categories: governmental and proprietary. Governmental Funds - These funds are used to account for the majority of the City s activities, which are essentially the same functions as governmental activities in the government-wide statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as resources available for future spending at fiscal year end. These funds are reported using the modified accrual basis of accounting, which measures cash and all other financial assets that can be readily converted to cash. When compared with similar information in the broader government-wide financial statements, readers may better understand the long-term impact of the government s near-term financing decisions. Reconciliation is provided that details the relationships or differences between governmental activities and governmental funds; reconciliation follows the fund financial statements. The City maintains several individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balance for the General Fund, Debt Service Fund, General Capital Projects Fund and General Obligation Bond Fund, all of which are considered to be major funds. Data for the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of the non-major governmental funds is provided in the form of combining statements elsewhere in this report. The basic governmental fund financial statements can be found on pages 22 through 27 of this report. 4

52 CITY OF ALLEN, TEXAS MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2009 (UNAUDITED) Proprietary Funds - The City maintains two different types of proprietary funds: enterprise funds and internal service funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its water and sewer operations, solid waste collection, disposal services, drainage operations, and golf course operations. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City s various functions. The City uses its internal service funds to account for vehicle, machinery, and equipment replacements and costs associated with workers compensation, liability and property insurance, and employee medical and dental insurance programs. These services have been included within governmental activities in the government-wide financial statements as they predominantly benefit governmental rather than business-type functions. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water and sewer operations, solid waste collection, and disposal services since they are considered to be major funds of the City. The Drainage Fund and the Golf Course Fund are the only remaining enterprise funds, so they are being presented as major funds even though they do not meet the criteria of a major fund established in Governmental Accounting Standards Board Statement No. 34. All internal service funds are combined into a single aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is provided in the form of combining statements elsewhere in this report. The basic proprietary fund financial statements can be found on pages 28 through 32 of this report. Notes to the Financial Statements - Additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements is provided in the notes to the financial statements found on pages 35 through 65 of this report. Other Information - In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information highlighting budgetary information for the General Fund and funding schedules for TMRS and OPEB found on pages 66 through 68 of this report. The combining statements referred to earlier in connection with non-major governmental funds and internal service funds are presented following the required supplementary information. Comparative schedules of capital assets used in the operation of governmental funds are found on pages 110 through

53 CITY OF ALLEN, TEXAS MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2009 (UNAUDITED) GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, over time net assets may serve as a useful indicator of the financial position of a government. The assets of the City of Allen exceed the liabilities by $581,948,061 as of September 30, By far the largest portion of the City s net assets ($508,189,441 or 87%) reflects its investment in capital assets (i.e. land, buildings, infrastructure, vehicles, machinery, and equipment), less any related debt used to acquire those assets that are still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City 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. Table 1 Net Assets Governmental Activities Business-type Activities Total Current and other assets $ 93,668,409 71,162,034 $ 32,732,961 31,099,189 $ 126,401, ,261,223 Capital assets 490,222, ,881, ,157, ,693, ,380, ,575,447 Total Assets 583,890, ,043, ,890, ,792, ,781, ,836,670 Long-term liabilities 108,380,265 97,589,061 14,512,936 15,404, ,893, ,993,572 Other liabilities 15,656,072 9,026,327 3,284,280 3,590,694 18,940,352 12,617,021 Total Liabilities 124,036, ,615,388 17,797,216 18,995, ,833, ,610,593 Net Assets: Invested in capital assets, net of related debt 415,201, ,080,938 92,988,242 95,620, ,189, ,701,352 Restricted 1,068,651 1,151, , ,863 1,723,172 2,074,677 Unrestricted 43,584,591 36,195,721 28,450,857 26,254,327 72,035,448 62,450,048 Total Net Assets $ 459,854, ,428,473 $ 122,093, ,797,604 $ 581,948, ,226,077 An additional portion of the City s net assets, $1,723,172, represents resources that are subject to external restrictions on how they may be used; the remaining balance of $72,035,448 may be used to meet the government s ongoing obligations to citizens and creditors. Analysis of the City s Operations As of September 30, 2009, the City had an overall increase in net assets of $52,721,984 for the government as a whole which represents an increase of $53,425,968 for governmental activities and a decrease of ($703,984) for businesstype activities. The increase in governmental activities is due to the continued economic development, developer contributions, the Allen Event Center infrastructure, and an 8.8% increase of total assessed property values from the preceding year. Assessed property values have increased 46.8% over the past five years. The decrease in net assets for the business activities is due to a prior period adjustment in the amount of $3,078,428 relating to depreciation of capital assets during the year of implementation of GASB34. A prior period adjustment is also reflected in the governmental activities in the amount of $11,985,861, but is offset by increases in other areas. A summary of the City s operations for the year ended September 30, 2009 is provided in Table 2. 6

54 CITY OF ALLEN, TEXAS MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2009 (UNAUDITED) Revenues: Program Revenues: Table 2 Changes in Net Assets Governmental Activities Business-type Activities Total Charges for services $ 6,225,036 8,747,568 32,928,987 32,135,903 39,154,023 40,883,471 Operating grants and contributions 2,771,709 2,762,517 2,771,709 2,762,517 Capital grants and contributions 70,200,823 42,823,515 2,135,885 14,561,455 72,336,708 57,384,970 General Revenues: Property taxes 39,450,387 37,261,411 39,450,387 37,261,411 Sales tax 11,140,337 10,046,534 11,140,337 10,046,534 Franchise taxes 5,533,573 5,530,732 5,533,573 5,530,732 Hotel motel taxes 597, , , ,039 Other taxes 1,987,765 1,900,081 1,987,765 1,900,081 Interest earnings 1,558,913 2,437, , ,413 2,058,061 3,213,339 Gain on sale of capital asset 113,734 57, , , ,603 Miscellaneous 1,052, ,656 1,052, ,656 Total Revenues 140,631, ,798,958 35,564,020 48,140, ,195, ,939,353 Expenses: General government 14,304,910 13,466,124 14,304,910 13,466,124 Public safety 24,498,604 23,438,274 24,498,604 23,438,274 Public works 14,893,306 14,508,426 14,893,306 14,508,426 Culture and recreation 17,689,583 16,980,568 17,689,583 16,980,568 Community development 2,718,864 4,557,098 2,718,864 4,557,098 Interest on longterm debt 4,326,330 4,219,858 4,326,330 4,219,858 Water and sewer 22,227,624 21,357,015 22,227,624 21,357,015 Environmental waste services 4,893,175 4,433,560 4,893,175 4,433,560 Drainage 692, , , ,711 Golf course 2,165,144 1,964,367 2,165,144 1,964,367 Total Expenses 78,431,597 77,170,348 29,978,123 28,465, ,409, ,636,001 Increase in net assets before transfers 62,200,376 35,628,610 5,585,897 19,674,742 67,786,273 55,303,352 Transfers 3,211,453 2,806,596 (3,211,453) (2,806,596) Increase in net assets 65,411,829 38,435,206 2,374,444 16,868,146 67,786,273 55,303,352 Net assets, beginning of year (as previously reported) 406,428, ,993, ,797, ,929, ,226, ,922,725 Prior Period Adjustment (11,985,861) (3,078,428) (15,064,289) Net assets, end of year $ 459,854, ,428, ,093, ,797, ,948, ,226,077 7

55 CITY OF ALLEN, TEXAS MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2009 (UNAUDITED) Governmental activities Revenues The following chart visually illustrates the City s revenue by sources for governmental activities. Revenues for the City s governmental activities increased by $27,833,015 or 25%. components of revenue decreases/increases are explained as follows: Major Capital grants and contributions increased by $27,377,308 from the prior year due to agreements and infrastructure related to the Allen Event Center. While the City was able to lower the property tax rate from $0.557 to $.0556 per $100 valuation, the property tax base and assessed property value increased on the average single family home by 3.3%. Despite the downturn in the economy, sales tax revenue increased by 11% due to increased commercial development and population growth. Charges for services decreased by 29% when compared to the prior year. This reduction in revenues is due to the roadway impact fees that were collected in the preceding year for the Village at Allen development. However, due to incentive agreements generated from the commercial developments, the fees were refunded in the preceding year as well and were shown as expenses. 8

56 CITY OF ALLEN, TEXAS MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2009 (UNAUDITED) Expenses for governmental activities were minimal and were only increased by $1,261,249 or 2%. Components of increases and decreases are explained as follows: Expenses include employee annual merit increases. As a result of the addition of new staff, as well as increased medical claims, the cost the City contributes for health insurance premiums increased by 12%. Street construction consisted of expansion of the lanes on Exchange Parkway from Twin Creek to State Highway 121 and expanding Ridgeview to include Custer to Alma. The General Fund transferred a total of $269,955 to the Golf Course Fund to cover operating expenses. Community Development expenses decreased by 40% due to the prior year incentive agreements generated from the Village at Allen development. The previous year expenses were offset by the roadway impact fees that were collected. The following chart illustrates the relationship between expenses and program revenues for governmental type activities. 9

57 CITY OF ALLEN, TEXAS MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2009 (UNAUDITED) Business-type activities Revenues The following chart visually illustrates the City s revenue by sources for businesstype activities. Business-type activities revenues decreased $12,576,375 or 26%. Major components of the decreases/increases are as follows: Capital contributions for water and sewer lines and impact fees decreased by 85% as major projects have been completed. Charges for services for business-type activities realized a minimal increase of $793,084 or 2.5%. Water sales increased by 2% and sewer charges increased by 10% from the previous year. Interest earnings decreased from $775,413 in FY2008 to $499,148 in FY2009, a reduction of 35%, as a result of the continued decline of rates on investments during FY

58 CITY OF ALLEN, TEXAS MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30, 2009 (UNAUDITED) Expenses for business-type activities increased by $1,512,470 or 5%. The increases were primarily a result of expansion of waterlines, sewer replacement, and continued renovation of Hillside Water Tower. The following chart illustrates the relationship between expenses and program revenues for business-type activities: Governmental funds FINANCIAL ANALYSIS OF THE GOVERNMENT S FUNDS The focus of the City of Allen s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City s measure of a government s net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, the governmental funds reported combined ending fund balances of $68,151,272, an increase of $14,619,867 in comparison with the prior fiscal year. Approximately 89% or $60,364,821 constitutes unreserved fund balances, which are available for spending at the government s discretion. The remaining fund balances are reserved to indicate that they are not available for new spending because the funds have already been committed to pay for encumbrances ($6,206,703), debt service ($1,578,807), and prepaid ($941). The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the total unreserved fund balance was $13,827,083. The total fund balance increased by $28,224 more than the final revised budget. Current operating expenditures had savings of $3,198,146 allowing $460,200 to be transferred to the Capital Projects Fund for financing of the I.T. Master Plan, $315,800 to be transferred to the Replacement Fund, and $332,000 transferred to the Capital Projects Fund for self financing of other capital projects. The fund balance increased from $13,831,447 to $13,864,533 resulting in a positive effect on the operational expenditure reserve for the budget. 11