OFFICIAL STATEMENT DATED AUGUST 21, 2007

Transcription

1 OFFICIAL STATEMENT DATED AUGUST 21, 2007 NEW ISSUE - Book-Entry-Only RATINGS: Fitch - "AAA" Moody's - "Aaa" S&P - "AAA" FSA Insured (See "BOND INSURANCE" and "OTHER INFORMATION - Bond Ratings" herein) In the opinion of Fulbright & Jaworski L.L.P. ( Bond Counsel ), assuming continuing compliance by the County after the date of initial delivery of the Certificates (defined below) with certain covenants described in the Order authorizing the issuance thereof and subject to the matters described herein under "TAX MATTERS", interest on the Certificates under existing statutes, regulations, rulings and court decisions (1) will be excludable from the gross income of the owners thereof for federal income tax purposes under section 103 of the Internal Revenue Code and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as described herein, corporations (see "TAX MATTERS" herein). Dated: August 1, 2007 $71,820,000 BEXAR COUNTY, TEXAS COMBINATION FLOOD CONTROL TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2007 Due: June 15, in each of the years herein The $71,820,000 Bexar County, Texas Combination Flood Control Tax and Revenue Certificates of Obligation, Series 2007 (the Certificates ) are being issued by the Commissioners Court ( the "Court") of Bexar County, Texas (the County ) pursuant to the terms of the order (the Order ) adopted by the Commissioners Court of the County. The Certificates are being issued pursuant to the laws of the State of Texas ( the State ), including the Certificates of Obligation Act of 1971, as amended, Local Government Code, Section through Section , Subchapter E of Chapter 1473, as amended, Texas Government Code, and the Order. Interest on the Certificates will accrue from the dated date above and will be payable semiannually on June 15 and December 15 of each year commencing December 15, 2007, and will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The Certificates are issuable only in fully registered form in the denomination of $5,000 principal amount or integral multiples thereof and initially registered solely in the name Cede & Co., as registered owner and nominee for The Depository Trust Company, New York, New York ( DTC ) acting as securities depository for the Certificates, until DTC resigns or is discharged. The Certificates initially will be available to purchasers in book-entry form only. So long as Cede & Co. is the registered owner of the Certificates, as nominee for DTC, the Paying Agent/Registrar, initially, The Bank of New York Trust Company, National Association, Dallas, Texas will pay the principal of and interest on the Certificates to Cede & Co., which will, in turn, remit such amounts to DTC participants for subsequent disbursement to the beneficial owners of the Certificates. (See BOOK-ENTRY-ONLY SYSTEM herein.) Proceeds from the sale of the Certificates are being used by the County for the purpose of (1) constructing improvements for flood control purposes, including road and bridge improvements; (2) constructing improvements for flood control purposes, including the Main Plaza Redevelopment Project; the Mission Reach Plaza Project, and the Museum Reach Project, (3) purchase of equipment, machinery, land, rights-of-way, materials, and supplies for authorized needs and purposes relating to flood control improvements; and (8) payment of all professional services. The Certificates are payable from an annual ad valorem tax levied against all taxable property located in the County, within the limitations prescribed by law, and additionally from a subordinate lien on and pledge of certain net revenues derived from the operation of the County's parking facilities on a parity with certain currently outstanding obligations and any additional parity obligations hereafter issued by the County. (See "THE CERTIFICATES - Authority for Issuance" herein). The scheduled payment of principal of and interest on the Certificates when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Certificates by FINANCIAL SECURITY ASSURANCE INC. (See BOND INSURANCE herein.) SEE MATURITY SCHEDULE, PRINCIPAL AMOUNTS, INTEREST RATES, INITIAL YIELDS, CUSIP NUMBERS AND REDEMPTION PROVISONS ON REVERSE SIDE OF THIS PAGE The Certificates are offered for delivery, when issued, and received by the initial purchasers (the Underwriters ) subject to the approving opinion of the Attorney General of the State of Texas and the approval of certain legal matters by Fulbright & Jaworski L.L.P, San Antonio, Texas (See APPENDIX D - Form of Bond Counsel s Opinion herein). Certain legal matters will be passed upon for the Underwriters by Escamilla & Poneck, Inc. and Shelton & Valadez, P.C., San Antonio, Texas, co-counsel for the Underwriters. (See "LEGAL MATTERS" herein.) The Certificates are expected to be available for initial delivery through the services of DTC on or about September 10, THE FROST NATIONAL BANK COASTAL SECURITIES, INC. SIEBERT BRANDFORD SHANK & CO., L.L.C..

2 MATURITY SCHEDULE, PRINCIPAL AMOUNTS, INTEREST RATES, INITIAL YIELDS, CUSIP NUMBERS AND REDEMPTION PROVISONS CUSIP NO. PREFIX: $25,770,000 Serial Certificates Maturity 6/15 Principal Amount ($) Interest Rate (%) Initial Yield (%) CUSIP No. Suffix (1) ,560, F ,165, G ,210, H ,260, J ,310, K ,375, L ,430, M ,505, N ,580, P ,655, (2) 2Q ,730, R ,810, S ,890, (2) 2T ,990, (2) 2U ,095, (2) 2V ,205, (2) 2W1 $46,050,000 Term Certificates $10,035, % Term Certificate Due June 15, Priced to Yield 4.800% - CUSIP No. Suffix 2X9 (1)(2) $ 8,995, % Term Certificate Due June 15, Priced to Yield 4.890% - CUSIP No. Suffix 2Y7 (1)(2) $27,020, % Term Certificate Due June 15, Priced to Yield 5.100% - CUSIP No. Suffix 2Z4 (1) (Interest to accrue from Dated Date) The County reserves the right to redeem the Certificates (hereinafter defined) maturing on and after June 15, 2017 in whole or in part, in the principal amount of $5,000 or any integral multiple thereof, on June 15, 2016 or any date thereafter, at the redemption price of par plus accrued interest. The Term Certificates (hereinafter defined) are also subject to mandatory sinking fund redemption. (See "THE CERTIFICATES - Redemption Provisions of the Certificates" herein.) (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor s CUSIP Service Bureau, A Division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. (2) Yield calculated based on the assumption that the Certificates denoted and sold at a premium will be redeemed on June 15, 2016, the first optional call date for the Certificates, at a redemption price of par, plus accrued interest to the redemption date. -ii-

3 BEXAR COUNTY, TEXAS COMMISSIONERS COURT Length of Term Name Position Service Expires Occupation Nelson W. Wolff County Judge 6 years 2009 Businessman/Attorney Sergio "Chico" Rodriguez Commissioner, Precinct 1 2 years 2008 Public Official Paul Elizondo Commissioner, Precinct 2 20 years 2009 Businessman Lyle Larson Commissioner, Precinct 3 10 years 2008 Businessman Tommy Adkisson Commissioner, Precinct 4 8 years 2009 Attorney COUNTY OFFICIALS Years Name Position Served Sylvia S. Romo County Tax Assessor/Collector 10 Margaret G. Montemayor District Clerk 5 Susan D. Reed Criminal District Attorney 8 Gerard C. Rickhoff County Clerk 11 Ralph Lopez Sheriff 14 APPOINTED OFFICIALS Years Name Position Served David L. Smith Executive Director, Planning & Resource Management/Budget Officer/Chief Investment Officer 3 Tommy J. Tompkins, C.P.A. County Auditor 4 Gary O'Bar, C.P.M. Purchasing Agent 4 COMMISSIONERS COURT EMPLOYEES Years Name Position Served Joe Aceves Director, Infrastructure Services 1 Keith Charlton Executive Director, Justice Planning & Coordination 1 David J. Morgan Chief Information Officer 8 CONSULTANTS AND ADVISORS SAMCO Capital Markets, Inc. San Antonio, Texas Co-Financial Advisors M. E. Allison & Co., Inc. Co-Financial Advisors San Antonio, Texas Fulbright & Jaworski L.L.P. San Antonio, Texas Garza/Gonzalez & Associates San Antonio, Texas Bond Counsel Certified Public Accountants -iii-

4 For additional information regarding the County, please contact: Mr. David L. Smith Mr. Tommy J. Tompkins, C.P.A. Executive Director, Planning & Resource County Auditor Management/Budget Officer/Chief Investment Officer Bexar County Bexar County 212 Stumberg 410 S. Main, Suite 208 Suite 100 San Antonio, Texas San Antonio, Texas (210) Telephone (210) Telephone (210) Facsimile (210) Facsimile Mr. Michael U. Villarreal and Mr. Duane L. Westerman Mr. Mark A. Seal Co-Financial Advisors Co-Financial Advisors SAMCO Capital Markets, Inc. M. E. Allison & Co., Inc Crownhill Boulevard, Suite E. Basse Road, 2nd Floor San Antonio, Texas San Antonio, TX (210) Telephone (210) Telephone (210) Facsimile (210) Facsimile mvillarreal@samcocapital.com mseal@meallison.com dwesterman@samcocapital.com [The remainder of this page intentionally left blank] -iv-

5 No dealer, broker, salesman, or other person has been authorized by the County to give any information or to make any representation with respect to the Certificates, other than as 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 either of the foregoing. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of the Certificates by any person, in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. The information set forth herein has been obtained from 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 Co-Financial Advisors or the Underwriters. The information and expressions of opinion herein 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 information or opinions set forth herein after the date of this Official Statement. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THIS ISSUE AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 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 responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The Co-Financial Advisors have provided the following sentence for inclusion in this Official Statement. The Co-Financial Advisors have reviewed the information in this Official Statement in accordance with their responsibilities to the County and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Co-Financial Advisors do not guarantee the accuracy or completeness of such information. THE CERTIFICATES ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE CERTIFICATES IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE SECURITIES HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION FOR THE PURCHASE THEREOF. The County, the Co-Financial Advisors, and the Underwriters, either individually or collectively, make no 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 agreements of the County and others related to the Certificates are contained solely in the contracts described herein. Neither this Official Statement nor any other statement made in connection with the offer or sale of the Certificates is to be construed as constituting an agreement with the purchasers of the Certificates. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. Other than with respect to information concerning Financial Security Assurance Inc. ("Financial Security") contained under the caption "BOND INSURANCE" and APPENDIX E - SPECIMEN MUNICIPAL BOND INSURANCE POLICY herein, none of the information in this Official Statement has been supplied or verified by Financial Security and Financial Security makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the Certificates; or (iii) the tax exempt status of the interest on the Certificates. [The remainder of this page intentionally left blank] -v-

6 TABLE OF CONTENTS COVER PAGE... i Taxable Property, Exemptions and STATED MATURITY SCHEDULE... ii Agriculture Exclusions... 9 COMMISSIONERS COURT... iii Tax Rate and Funded Debt Limitations COUNTY OFFICIALS... iii PROPERTY TAXES APPOINTED OFFICIALS... iii Property Tax Code and County-wide COMMISSIONERS COURT EMPLOYEES... iii Appraisal District CONSULTANTS AND ADVISORS... iii Tax Abatement Reinvestment Zone/ INTRODUCTION... 1 Tax Phase-in Agreements THE CERTIFICATES Exemptions from Taxes Authority for Issuance... 1 County and Taxpayer Remedies General Description... 1 Levy and Collections of Taxes Security for Payment... 1 Tax Liens Payment Record... 2 The Effect of the Financial Institutions Act of 1989 Legality... 2 On Tax Collections of the County Delivery... 2 INVESTMENT POLICIES Future Issues... 2 LEGAL MATTERS Use of Proceeds... 2 NO-LITIGATION Redemption Provisions of the Certificates... 3 TAX MATTERS Notice of Redemption... 3 Tax Exemption Defeasance... 4 Ancillary Tax Consequences Amendments... 4 Tax Accounting Treatment of Discount Certificates Defaults and Remedies... 4 Tax Accounting Treatment of Premium Certificates SOURCES AND USES OF FUNDS CONTINUING DISCLOSURE OF INFORMATION FOR THE CERTIFICATES... 5 OTHER PERTINENT INFORMATION REGISTRATION, TRANSFER, AND EXCHANGE Authenticity of Financial Data and Other Information Paying Agent Registrar... 5 Registration and Qualification of Certificates for Sale Successor Paying Agent/Registrar... 5 Legal Investments and Eligibility to Record Date... 6 Secure Public Funds in Texas Special Record Date for Interest Payment... 6 Bond Ratings... Registration, Transferability and Exchange... 6 Co-Financial Advisors Limitation on Transferability of Underwriting Certificates Called for Redemption... 6 Financial Statements Replacement Certificates... 6 Use of Information in the Official Statement BOOK-ENTRY-ONLY SYSTEM... 7 Forward Looking Statements BOND INSURANCE... 8 GASB Implications for the County AD VALOREM TAX PROCEDURES Certification of the Official Statement Ad Valorem Taxation... 9 Authorization of the Official Statement SELECTED FINANCIAL INFORMATION OF BEXAR COUNTY... BEXAR COUNTY ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS... BEXAR COUNTY AUDITED FINANCIAL STATEMENT... FORM OF OPINION OF BOND COUNSEL... SPECIMEN OF MUNICIPAL BOND INSURANCE POLICY... APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E The cover page, subsequent pages hereof, and appendices attached hereto, are part of this Official Statement. -vi-

7 OFFICIAL STATEMENT RELATING TO $71,820,000 BEXAR COUNTY, TEXAS COMBINATION FLOOD CONTROL TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2007 INTRODUCTION This Official Statement of Bexar County, Texas (the County ) is provided to furnish certain information in connection with the sale of the County's $71,820,000 Combination Flood Control Tax and Revenue Certificates of Obligation, Series 2007 (the Certificates ). This Official Statement contains descriptions of the Certificates and certain other information about the County and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the County at the Bexar County Courthouse, 100 Dolorosa, Room 101, San Antonio, Texas and, during the offering period, from the County's Co- Financial Advisors, SAMCO Capital Markets, Inc., 8700 Crownhill Blvd., Suite 601, San Antonio, Texas 78209, and M. E. Allison & Co, Inc., 950 E. Basse Road, 2nd Floor, San Antonio, Texas 78209, by electronic mail or upon payment of reasonable copying, mailing, and handling charges. This Official Statement speaks only as to its date, and the information contained herein is subject to change. Copies of the Final Official Statement pertaining to the Certificates will be deposited with the Municipal Securities Rulemaking Board, 1900 Duke Street, Suite 600, Alexandria, Virginia See CONTINUING DISCLOSURE OF INFORMATION for a description of the County s undertaking to provide certain information on a continuing basis. Authority for Issuance THE CERTIFICATES The Certificates are being issued pursuant to the laws of the State of Texas (the "State"), including the Certificates of Obligation Act of 1971, as amended, Section et seq., Texas Local Government Code, Subchapter E of Chapter 1473, as amended, Texas Government Code, and the Order. General Description The Certificates will be dated August 1, 2007 and will be issued in principal denominations of $5,000 or any integral multiple thereof. The Certificates bear interest from such date at the stated interest rates indicated on the inside cover page hereof. Interest on the Certificates will be calculated on the basis of a 360-day year of twelve 30-day months payable on December 15, 2007 and each June 15 and December 15 thereafter, until the earlier of stated maturity or redemption. Interest on the Certificates is payable to the registered owners appearing on the bond registration books of the Paying Agent/Registrar on the Record Date (identified below) and such interest shall be paid by the Paying Agent/Registrar (i) by check sent United States mail, first class, postage prepaid, to the address of the registered owner recorded in the bond register or (ii) by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the registered owner. The principal of the Certificates is payable at stated maturity or redemption, upon their presentation and surrender to the Paying Agent/Registrar. The Certificates will be issued only in fully registered form in denominations of $5,000 or any integral multiple thereof. Initially the Certificates will be registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. No physical delivery of the Certificates will be made to the owners thereof. Notwithstanding the foregoing, as long as the Certificates are held in the Book- Entry-Only System, principal of, premium, if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Certificates. (See "BOOK-ENTRY-ONLY SYSTEM" herein.) Security for Payment The Certificates are payable from the County's $0.15 flood control tax rate as approved at a County-wide election on April 17, (See "AD VALOREM TAX INFORMATION - Tax Rate and Funded Debt Limitations" herein.) and additionally payable from a subordinate lien on and pledge of certain net revenues derived from the operation of the County's parking -1-

8 facilities on a parity with certain currently outstanding obligations and any additional parity obligations hereafter issued by the County. The lien on and pledge of the Pledged Revenues securing, in part, the payment of the Certificates will be on a parity with the lien thereof securing, in part, the payment of the County's currently outstanding Obligations Similarly Secured (as defined in the Order). The County also reserves the right to issue, for any lawful purpose, at any time in one or more installments, bonds, certificates of obligation, and other obligations of any kind payable, in whole or in part, from the Pledged Revenues, as Prior Lien Bonds and Additional Revenue Obligations, such liens being prior and superior to the lien on and pledge of the Pledged Revenues securing payment of the Certificates or the currently outstanding Obligations Similarly Secured or any Additional Parity Obligations (each as defined in the Certificate Order) hereafter issued by the County. (See "AD VALOREM TAX INFORMATION - Tax Rate and Funded Debt Limitations" herein.) The term "Pledged Revenues," as defined in the Order, means a portion of the Net Revenues of the County's parking facilities securing the payment of the currently outstanding Obligations Similarly Secured or any Additional Parity Obligations (both as defined in the Order) hereafter issued by the County. The amount of Pledged Revenues appropriated during any fiscal year and set aside in the annual budget for the payment of principal of or interest on each series of the currently outstanding Obligations Similarly Secured and the Certificates will be determined within the sole discretion of the Commissioners Court; provided, however, that in no event may the Commissioners Court in the exercise of its discretion appropriate less than $1,000, or such lesser amount remaining and available after the payment of all Maintenance and Operation Expenses, of such Net Revenues for the payment of the principal of or interest on each issue of the currently outstanding Obligations Similarly Secured, the Certificates, or any Additional Parity Obligations. The County has transferred approximately $150,000 in each of the five prior fiscal years for the payment of debt service requirements on the Obligations Similarly Secured; however, the holders of the Certificates should not anticipate that the County will transfer an amount in excess of $1,000 in each fiscal year for the payment of principal of and interest on the Certificates. Accordingly, the County intends that ad valorem taxes will be the primary source for the repayment of the debt service requirements on the Certificates. Payment Record The County has never defaulted on the payment of its bonded indebtedness. Legality The Certificates are offered for delivery when issued and received by the initial purchasers (the "Underwriters") subject to the approving legal opinion of Fulbright & Jaworski L.L.P., Bond Counsel, San Antonio, Texas, and the Attorney General of the State of Texas. The legal opinion of Bond Counsel will be printed on or attached to the Certificates. A form of the legal opinion of Bond Counsel appears in APPENDIX D. Delivery When issued; anticipated on or about September 10, Future Issues The County has several issues of debt which have occurred at or about the same time as the Certificates. These additional issues are as follows: $22,385,000 Pass-Through Revenue and Limited Tax Bonds, Series 2007 which were delivered on August 9, 2007; $19,220,000 Unlimited Tax Road Bonds, Series 2007 which are expected to be delivered on September 10, 2007; and $22,205,000 Combination Tax and Revenue Certificates of Obligation, Series 2007 which are expected to be delivered on September 10, This offering statement only describes the Certificates and investors must review the other disclosure documents, if any, relating to the sale, delivery, and issuance of the foregoing debt instruments by the County. Use of Proceeds Proceeds from the sale of the Certificates will be used for the purpose of (1) constructing improvements for flood control purposes, including road and bridge improvements; (2) constructing improvements for flood control purposes, including the Main Plaza Redevelopment Project; the Mission Reach Plaza Project, and the Museum Reach Project, (3) purchase of equipment, machinery, land, rights-of-way, materials, and supplies for authorized needs and purposes relating to flood control improvements; and (4) payment of all professional services. -2-

9 Redemption Provisions of the Certificates Optional Redemption The Certificates stated to mature on and after June 15, 2017 are subject to optional redemption, in whole or in part in principal amounts of $5,000 or any integral multiple thereof (and if less than all within a stated maturity by lot, selected by the Paying Agent/Registrar), on June 15, 2016 or on any date thereafter, at a price of par plus accrued interest to the date fixed for redemption. Mandatory Redemption The Certificates maturing on June 15, 2027, June 15, 2030, and June 15, 2037 (the "Term Certificates") are subject to mandatory redemption in part prior to maturity at the price of par plus accrued interest to the mandatory redemption date on the dates and in the principal amounts as follows: Term Certificates Maturing June 15, 2027 Term Certificates Maturing June 15, 2030 Term Certificates Maturing June 15, 2037 Redemption Principal Redemption Principal Redemption Principal Date Amount Date Amount Date Amount June 15, 2024 $2,320,000 June 15, 2028 $2,845,000 June 15, 2031 $3,320,000 June 15, ,440,000 June 15, ,995,000 June 15, ,485,000 June 15, ,570,000 June 15, 2030* 3,155,000 June 15, ,660,000 June 15, 2027* 2,705,000 June 15, ,840,000 June 15, ,035,000 June 15, ,235,000 June 15, 2037* 4,445,000 * Stated maturity. Approximately forty-five (45) days prior to each mandatory redemption date that the Term Certificates are to be mandatorily redeemed, the Paying Agent/Registrar shall select by lot the numbers of the Term Certificates within the applicable Stated Maturity to be redeemed on the next following June 15 from money set aside for that purpose in the Interest and Sinking Fund maintained for the payment of the Certificates. Any Term Certificates not selected for prior redemption shall be paid on the date of their Stated Maturity. The principal amount of the Term Certificates for a Stated Maturity required to be redeemed pursuant to the operation of such mandatory redemption provisions may be reduced, at the option of the County, by the principal amount of the Term Certificates of like Stated Maturity which, at least fifty (50) days prior to the mandatory redemption date (1) shall have been acquired by the County and delivered to the Paying Agent/Registrar for cancellation, (2) shall have been purchased and canceled by the Paying Agent/Registrar at the request of the County, or (3) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory redemption requirement. Notice of Redemption Not less than 30 days prior to a redemption date for the Certificates, the County must cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to each such registered owner of a Certificate to be redeemed, in whole or in part, at the address of the Holder 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 OF REDEMPTION SO MAILED WILL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN IRRESPECTIVE OF WHETHER RECEIVED BY THE CERTIFICATEHOLDER. If a Certificate is subject by its terms to prior redemption and has been called for redemption and notice of redemption thereof has been given as herein above provided, such Certificate (or the principal amount thereof to be redeemed) will become due and payable and interest thereon will cease to accrue from and after the redemption date thereof, provided moneys sufficient for the payment of such Certificate (or of the principal amount thereof to be redeemed) at the then applicable redemption price are held for the purpose of such payment by the Paying Agent/Registrar. All notices of redemption must (i) specify the date of redemption for the Certificates, (ii) identify the Certificates to be redeemed and, in the case of a portion of the principal amount to be redeemed, the principal amount thereof to be redeemed, (iii) state the redemption price, (iv) state that the Certificates, or the portion of the principal amount thereof to be redeemed, will become due and payable on the redemption date specified, and the interest thereof, or on the portion of the principal amount thereof to be redeemed, will cease to accrue from and after the redemption date, and (v) specify that payment of the redemption price for the Certificates, or the principal amount thereof to be redeemed, will be made at the designated corporate trust office of the Paying Agent/Registrar only upon presentation and surrender thereof by the registered owner. The Paying Agent/Registrar and the County, so long as a Book-Entry-Only System is used for the Certificates will send any notice of redemption, notice of proposed amendment to the Order or other notices with respect to the Certificates only to DTC. Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify -3-

10 the beneficial owners, will not affect the validity of the redemption of the Certificates called for redemption or any other action premised or any such notice. Redemption of portions of the Certificates by the County will reduce the outstanding principal amount of such Certificates held by DTC. In such event, DTC may implement, through its Book-Entry-Only System, a redemption of such Certificates held for the account of DTC participants in accordance with the rules or other agreements with DTC participants and then DTC participants and indirect participants may implement a redemption of such Certificates for the beneficial owners. Any such selection of Certificates to be redeemed will not be governed by the Order and will not be conducted by the County or the Paying Agent/Registrar. Neither the County, the Paying Agent/Registrar, nor the Underwriters will have any responsibility to DTC participants, indirect participants or the persons for whom DTC participants act as nominees, with respect to the payments of the Certificates or the providing of notice to DTC participants, indirect participants, or beneficial owners of the selection of portions of the Certificates for redemption. (See BOOK-ENTRY-ONLY SYSTEM herein.) Defeasance Any Certificate will be deemed paid and shall no longer be considered to be outstanding within the meaning of the Order when payment of the principal of and interest on such Certificate to its stated maturity or redemption date will have been made or will have been provided by depositing with the Paying Agent/Registrar, or an authorized escrow agent, (1) cash in an amount sufficient to make such payment, (2) Government Obligations certified by an independent public accounting firm of national reputation to be of such maturities and interest payment dates and bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment, or (3) a combination of money and Government Obligations together so certified sufficient to make such payment. The term "Government Obligations" means (i) direct noncallable obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations unconditionally guaranteed or insured by the agency or instrumentality and on the date of their acquisition or purchase by the County are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent and (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and on the date of their acquisition or purchase by the County are rated as to investment quality by a nationally recognized investment rating firm not less than "AAA" or its equivalent. Upon such deposit as described above, such Certificates shall no longer be regarded to be outstanding or unpaid. Provided, however, the County has reserved the option, to be exercised at the time of the defeasance of the Certificates, to call for redemption at an earlier date those Certificates which have been defeased to their maturity date, if the County (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Certificates for redemption, (ii) gives notice of the reservation of that right to the owners of the Certificates immediately following the making of the firm banking and financial arrangements, and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. Amendments The County may amend the Order without the consent of or notice to any registered owners in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein. In addition, the County may, with the written consent of the holders of a majority in aggregate principal amount of the Certificates then outstanding, amend, add to, or rescind any of the provisions of the Order; except that, without the consent of all of the registered owners of the Certificates then outstanding, no such amendment, addition, or rescission may (1) change the date specified as the date on which the principal of, or any installment of interest on any Certificate is due and payable, reduce the principal amount thereof, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, or interest on the Certificates, (2) give any preference to any Bond over any other Certificate, or (3) reduce the percentage of the aggregate principal amount of Certificates required to be held for consent to any amendment, addition, or waiver. Defaults and Remedies If the County defaults in the payment of principal, interest, or redemption price on the Certificates when due, or if it fails to make payments into any fund or funds created in the Order, or defaults in the observation or performance of any other covenants, conditions, or obligations set for in the Order, the registered owners may seek a writ of mandamus to compel County officials to carry out their legally imposed duties with respect to the Certificates, if there is no other available remedy at law to compel performance of the Certificates or Order and the County s obligations are not uncertain or disputed. The issuance of a writ of mandamus is controlled by equitable principles, so rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Certificates in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Order does not provide for the appointment of a trustee to represent the interest of the bondholders upon any failure of the County to perform in accordance with the terms of the Order, or upon any other condition and accordingly all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by, the registered owners. Texas counties are -4-

11 generally immune from suits for money damages for breach of contracts under the doctrine of sovereign immunity. On June 30, 2006, the Texas Supreme Court ruled in Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006) that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in clear and unambiguous language. Because it is unclear whether the Texas legislature has effectively waived the County s sovereign immunity from a suit for money damages, bondholders may not be able to bring such a suit against the County for breach of the Certificates or the Order covenants. Even if a judgment against the County could be obtained, it could not be enforced by direct levy and execution against the County s property. Further, the registered owners cannot themselves foreclose on property within the County or sell property within the County to enforce the tax lien on taxable property to pay the principal of and interest on the Certificates. Furthermore, the County is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code ( Chapter 9 ). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of ad valorem taxes in support of a general obligation of a bankrupt entity is not specifically 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 bondholders of an entity which has sought protection under Chapter 9. Therefore, should the County avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Order and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors. SOURCES AND USES OF FUNDS FOR THE CERTIFICATES Sources of Funds: Principal Amount of the Certificates $71,820, Net Original Issue Premium 791, Accrued Interest 386, Total Sources of Funds $72,997, Paying Agent/Registrar Uses of Funds: Deposit to Construction Fund $71,800, Underwriters Discount 425, Cost of Issuance, including bond insurance premium 383, Deposit to Interest and Sinking Fund 386, Contingency 2, Total Uses of Funds $72,997, REGISTRATION, TRANSFER, AND EXCHANGE The initial Paying Agent/Registrar is The Bank of New York Trust Company, National Association, Dallas, Texas. The Certificates will be issued in fully registered form in multiples of $5,000 for any one stated maturity, and principal and semiannual interest will be paid by the Paying Agent/Registrar. If the Certificates are not held in the Book-Entry-Only System, interest on the Certificates will be paid by check or draft mailed on each interest payment date by the Paying Agent/Registrar to the registered owner at the last known address as it appears on the Paying Agent/Registrar's books on the Record Date (see Record Date herein) or by such other method, acceptable to the Paying Agent/Registrar, requested by and at the risk and expense of the registered owner, and principal of the Certificates will be paid to the registered owner at stated maturity or earlier redemption upon presentation to the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Certificates shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where 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. Successor Paying Agent/Registrar The County covenants that until the Certificates are paid it will at all times maintain and provide a paying agent/registrar. In the Order, the County retains the right to replace the Paying Agent/Registrar. If the Paying Agent/Registrar is replaced by the County, the new Paying Agent/Registrar must accept the previous Paying Agent/Registrar's records and act in the same capacity as the previous Paying Agent/Registrar. Any successor Paying Agent/Registrar selected by the County must be a bank, trust company, financial institution or other entity duly qualified and legally authorized to serve and perform the duties of Paying Agent/Registrar for the Certificates. Upon any change in the Paying Agent/Registrar for the Certificates, the County will promptly cause a notice thereof to be sent to each registered owner of the Certificates by United States mail, first class, postage prepaid, which notice shall give the address of the new Paying Agent/Registrar. -5-

12 Record Date The record date ("Record Date") for the payment of interest on a Certificate is the last day of the month next preceding each interest payment date. If the date for the payment of the principal of or interest on the Certificates is a Saturday, a Sunday, a legal holiday or a day on which banking institutions in the city where the corporate trust office of the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment is the next succeeding day which is not such a day and payment on such date will have the same force and effect as if made on the original date payment was due. Special Record Date for Interest Payment 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. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each registered owner of a Certificate appearing on the 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. Registration, Transferability and Exchange In the event the Book-Entry-Only System is be discontinued, printed certificates will be issued to the registered owners of the Certificates and thereafter the Certificates may be transferred, registered, and assigned on the registration books of the Paying Agent/Registrar only upon presentation and surrender thereof to the Paying Agent/Registrar, and such registration and transfer will be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration and transfer. A Certificate may be assigned by the execution of an assignment form on the Certificate or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Certificate or Certificates will be delivered by the Paying Agent/Registrar in lieu of the Certificates being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States registered mail to the new registered owner at the registered owner's request, risk and expense. New Certificates issued in an exchange or transfer of Certificates 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 Certificates to be canceled in the exchange or transfer 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 Certificates registered and delivered in an exchange or transfer will be in denominations of $5,000 for any one stated maturity or any integral multiple thereof and for a like aggregate principal amount and at the same maturity or maturities as the Certificate or Certificates surrendered for exchange or transfer. Neither the County or the Paying Agent/Registrar will be required to transfer or exchange any Certificates (i) during a period beginning at the close of business on any Record Date and ending with the next interest payment date or (ii) with respect to any Certificates or any portion thereof called for redemption prior to maturity, within 45 days prior to its redemption date. (See BOOK-ENTRY-ONLY SYSTEM herein for a description of the system to be utilized initially in regard to ownership and transferability of the Certificates.) Limitation on Transferability of Certificates Called for Redemption Neither the County nor the Paying Agent/Registrar will be required to issue, transfer or exchange any Certificate called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation on transferability will not be applicable to an exchange by the registered owner of the unredeemed principal balance of a Certificate called for redemption in part. Replacement Certificates If any Certificate is mutilated, destroyed, stolen or lost, a new Certificate of like kind and in the same amount as the Certificate so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Certificate, such new Certificate will be delivered only upon surrender and cancellation of such mutilated Certificate. In the case of any Certificate issued in lieu of and in substitution for a Certificate which has been destroyed, stolen, or lost, such new Certificate will be delivered only (a) upon filing with the County and the Paying Agent/Registrar evidence satisfactory to establish to the County and the Paying Agent/Registrar that such Certificate has been destroyed, stolen or lost and proof of the ownership thereof, and (b) upon furnishing the County and the Paying Agent/Registrar with Certificate or indemnity satisfactory to them. The person requesting the authentication and delivery of a new Certificate must comply with such other reasonable regulations as the Paying Agent/Registrar may prescribe and pay such expenses as the Paying Agent/Registrar may incur in connection therewith. -6-

13 BOOK-ENTRY-ONLY SYSTEM The following describes how ownership of the Certificates is to be transferred and how the principal of, premium, if any, and interest on the Certificates are to be paid to and credited by DTC while the Certificates are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The County, the Co-Financial Advisors and the Underwriters believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The County cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Certificates, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Certificates (the "Securities"). The Securities 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 fullyregistered Security certificate will be issued for each maturity of the Securities, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. 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 Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC s records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities 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 Securities, except in the event that use of the book-entry-only system for the Securities is discontinued. To facilitate subsequent transfers, all Securities 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 Securities 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 Securities; DTC s records reflect only the identity of the Direct Participants to whose accounts such Securities 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 Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. -7-

14 For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities 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 Securities within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the County as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds and principal and interest payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the County or the Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC [nor its nominee], the Paying Agent/Registrar, or the County, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the County or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the County or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the County believes to be reliable, but the County, the Co-Financial Advisors, or the Underwriters take no responsibility for the accuracy thereof. Use of Certain Terms in Other Sections of This Official Statement In reading this Official Statement it should be understood that while the Securities 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 Securities, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Order will be given only to DTC. Effect of Termination of Book-Entry-Only System In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry-Only System is discontinued by the County, printed certificates will be issued to the respective holders and the Certificates will be subject to transfer, exchange and registration provisions as set forth in the Order and summarized under the caption REGISTRATION, TRANSFER AND EXCHANGE above. Bond Insurance Policy BOND INSURANCE Concurrently with the issuance of the Certificates, Financial Security Assurance Inc. ("Financial Security") will issue its Municipal Bond Insurance Policy for the Certificates (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Certificates when due as set forth in the form of the Policy included as APPENDIX E to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Financial Security Assurance Inc. Financial Security is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Financial Security Assurance Holdings Ltd. ("Holdings"). Holdings is an indirect subsidiary of Dexia, S.A., a publicly held -8-

15 Belgian corporation, and of Dexia Credit Local, a direct wholly-owned subsidiary of Dexia, S.A. Dexia, S.A., through its bank subsidiaries, is primarily engaged in the business of public finance, banking and asset management in France, Belgium and other European countries. No shareholder of Holdings or Financial Security is liable for the obligations of Financial Security. At June 30, 2007, Financial Security's combined policyholders' surplus and contingency reserves were approximately $2,642,612,000 and its total net unearned premium reserve was approximately $2,116,401,000 in accordance with statutory accounting principles. At June 30, 2007, Financial Security's consolidated shareholder s equity was approximately $2,686,026,000 and its total net unearned premium reserve was approximately $1,655,217,000 in accordance with generally accepted accounting principles. The consolidated financial statements of Financial Security included in, or as exhibits to, the annual and quarterly reports filed after December 31, 2005 by Holdings with the Securities and Exchange Commission are hereby incorporated by reference into this Official Statement. All financial statements of Financial Security included in, or as exhibits to, documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this Official Statement and before the termination of the offering of the Certificates shall be deemed incorporated by reference into this Official Statement. Copies of materials incorporated by reference will be provided upon request to Financial Security Assurance Inc.: 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). The Policy does not protect investors against changes in market value of the Certificates, which market value may be impaired as a result of changes in prevailing interest rates, changes in applicable ratings or other causes. Financial Security makes no representation regarding the Certificates or the advisability of investing in the Certificates. Financial Security makes no representation regarding the Official Statement, nor has it participated in the preparation thereof, except that Financial Security has provided to the County the information presented under this caption for inclusion in the Official Statement. Ad Valorem Taxation AD VALOREM TAX PROCEDURES The Certificates are payable primarily from an annual ad valorem tax levied, within the limitations prescribed by law, on all taxable property within the County. Reference is hereby made to the Vernon s Texas Codes Annotated, Tax Code (the Property Tax Code ) for identification of property subject to taxation, property exempt or which may be exempted from taxation, the appraisal of property for taxation purposes, and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Among other provisions, the Property Tax Code contains the following provisions with respect to the assessment of property and the levy and collection of ad valorem taxes: (1) a single appraisal district in each county to appraise property for taxation purposes for all taxing units located wholly or partly within the county; (2) excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, all property is to be appraised on the basis of 100% of its market value and the assessment of property on the basis of a percentage of its appraised value is prohibited; (3) requires an "effective tax rate" and "rollback tax rate" to be annually calculated and publicized and necessitates the holding of two public hearings when the tax rate proposed to be adopted exceeds the lower of the rollback tax rate or the effective tax rate; if the adopted tax rate exceeds the rollback tax rate, a referendum election may be required to be held on limiting the tax rate for the County for the current year to the rollback tax rate; and (4) the value of property is generally assessed for purposes of taxation on January 1 of each year and taxes levied each year generally become due and payable on October 1 and become delinquent on February 1 of the following year in which the taxes are imposed. Taxable Property, Exemptions and Agricultural Exclusions All real property located in the taxing unit and certain personal property is taxable property unless exempt by law. With certain exceptions, intangible personal property is not taxable property. Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, all property is to be appraised on the basis of 100% of its market value. 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 market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The County may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the County by petition filed with the Appraisal Review Board. -9-

16 State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the less of (1) the market value of the property or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. Principal categories of exempt property include: (1) property owned and used for public purposes by the State or its political subdivisions; (2) property exempt by federal law; (3) family supplies, household goods and personal effects not held or used in the production of income; (4) certain property owned by charitable organizations, youth development associations, and religious organizations; (5) certain properties used for school purposes; (6) solar and wind-powered energy devices; (7) farm products, livestock, and poultry in the hands of the producer, and family supplies for home and farm use; (8) implements of husbandry used in the production of farm and ranch products; (9) personally owned automobiles (unless affirmatively provided to be taxed by taxing entity); (10) property owned by disabled veterans or by the surviving spouse and surviving minor children of disabled veterans is exempt from taxation in amounts ranging from $5,000 to $12,000 depending on the disability rating of the veteran; and (11) other miscellaneous exceptions. At an election held on September 13, 2003, the voters of the State approved a constitutional amendment authorizing counties, cities, towns or junior college districts to establish an ad valorem tax freeze on residence homesteads of the disabled and persons sixty-five years of age or older. This tax freeze can be implemented by official action of a governing body, or pursuant to an election called by the governing body upon receipt of a petition signed by 15% of registered voters of the municipality. The County implemented this tax freeze on May 11, Non-business 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 non-business property are exempt from ad valorem taxation. Article VIII, Section 1-j of the Constitution exempts from taxation goods, wares, merchandise, other tangible personal property and ores (other than oil, natural gas and other petroleum products) acquired or imported for assembling, storing, manufacturing, processing or fabricating purposes while such property is being detained in the State, and such property is to be forwarded outside the State within 175 days after the date of its acquisition or importation. Notwithstanding such exemption, counties, school districts, junior college districts and cities may tax such tangible personal property provided official action to tax is taken before April 1, The official action to tax such property can subsequently be rescinded and, if rescinded, such property will thereafter be exempt from taxation. Additionally, a percentage of the value of the residence homestead of a person may be exempt from taxation at the option of the governing body of the taxing entity, such exemption not to exceed 20% each year. Furthermore, not less than $3,000 of the market value of the residence homestead of a person 65 years of age or older and certain disabled persons may be exempt from taxation, if such exemption is allowed by the governing body of the taxing entity or imposed by referendum election. Tax Rate and Funded Debt Limitations The County must annually calculate and publicize its effective tax rate and rollback tax rate. By the later of September 30 or the 60th day after the County receives the certified appraisal roll the Commissioners Court must adopt a tax rate per $100 taxable value for the current year. 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, the Commissioners Court may not adopt a tax rate that exceeds the lower of the rollback rate or of the effective tax rate until it has held two public hearings on the proposed increase following notice to the taxpayers and otherwise complied with the Property Tax Code. The tax rate consists of two components: (1) a rate for funding of operations, and (2) a rate for debt service. If the adopted tax rate exceeds the rollback tax rate, the qualified voters of the County, by petition, may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. Effective tax rate means the rate that will produce last year s total tax levy (adjusted) from this year s total taxable values (adjusted). Adjusted means lost values are not included in the calculation of last year s taxes and new values are not included in this year s taxable values. Rollback tax rate" means the rate that will produce last year s maintenance and operation tax levy (adjusted) from this year s values (adjusted) multiplied by 1.08 plus a rate that will produce this year s debt service from this year s values (adjusted) divided by the anticipated tax collection rate. 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. The Property Tax Code provides certain cities and counties in the State the option of assessing a maximum one-half percent (1/2%) sales tax on retail sales of taxable items for the purpose of reducing its ad valorem taxes if approved by a -10-

17 majority of the voters in a local option election. If the additional tax is approved and levied, the ad valorem property tax levy must be reduced by the amount of the estimated sales tax revenues to be generated in the current year. Further, the Property Tax Code provides certain cities the option of assessing a maximum one-half percent (1/2%) sales tax on retail sales of taxable items for economic development purposes if approved by a majority of the voters in a local option election. Limited Tax Funded Debt Payable From Proceeds of $0.80 Constitutional Tax Rate: Article VIII, Section 9 of the Texas Constitution imposes a limit of $.80 per $100 assessed valuation for all purposes of the County's General Fund, Permanent Improvement Fund, Road and Bridge Fund and Jury Fund, including debt service of bonds, warrants, tax notes and certificates of obligation issued against such funds. By administrative policy, the Attorney General of Texas will permit allocation of $0.40 of the constitutional $0.80 tax rate for the payment of the debt service requirements on the County's indebtedness payable from such tax. Taxes subject to this limitation are the primary source for the currently outstanding limited tax bonds, tax notes, and certificates of obligation. (See "OBLIGATIONS OUTSTANDING" and "AUTHORIZED BUT UNISSUED TAX BONDS" in APPENDIX A.) The Certificates are not payable from such limited tax indebtedness. The Certificates described herein are being issued pursuant to the laws of the State of Texas, including particularly Subchapter C, Chapter 271, as amended, Texas Local Government Code, Subchapter E of Chapter 1473, as amended, Texas Government Code, and the Order. There are no specific limitations as to the amount of such debt under this authority. Limited tax obligations of counties issued pursuant to authority granted under Section , Texas Government Code, as amended, does limit the amount of such debt issued for those certain purposes as follows: Courthouse Jail Courthouse and Jail Road and Bridge 2% of Assessed Valuation 1 1/2% of Assessed Valuation 3 1/2% of Assessed Valuation 1 1/2% of Assessed Valuation Unlimited Tax Road Bonds: Article III, Section 52, Texas Constitution, authorizes the County to levy a separate unlimited tax to pay debt service on County road bonds. Unlimited tax road bonds may not be issued in an amount greater than 25% of the County's assessed valuation of real estate. (See "OBLIGATIONS OUTSTANDING" and "AUTHORIZED BUT UNISSUED TAX BONDS" in APPENDIX A.) Road Maintenance: As imposed by statute (Section , as amended, Texas Transportation Code) $0.15 per $100 assessed valuation, no part of which may be used for debt service. Farm-to-Market and/or Flood Control: As imposed by statute (Section , as amended, Texas Transportation Code, Article VIII, Section 1-8, Vernon s Texas Civil Statutes), $0.30 per $100 assessed valuation after exemption of homesteads up to $3,000; no allocation prescribed by statute between debt service and maintenance. All or part may be used for either purpose. These levies provide additional funds for road and flood control purposes that might otherwise be paid from taxes subject to the $0.80 tax limitation. The County held an election on April 17, 1951 which approved the levy of a (i) $0.15 tax per $100 valuation for Farm-to-Market and Lateral Roads and (ii) $0.15 tax per $100 valuation for flood control purposes (the Flood Control Tax ). The Certificates are payable, in part, from a lien on and pledge of the Flood Control Tax. (See OBLIGATIONS OUTSTANDING in APPENDIX A.) Property Tax Code and County-Wide Appraisal District PROPERTY TAXES The appraisal district created for Bexar County (the "Bexar Appraisal District" or the "Appraisal District") is responsible for the appraisal of all taxable property and the equalization of appraised values of property of all taxing units in the Appraisal District, including the County. The Appraisal District is governed by a Board of Directors elected by the governing bodies of certain taxing units in the Appraisal District. The Board of Directors has appointed a Chief Appraiser to act as Chief Administrator of the Appraisal District. Appraisal districts have a minimum of 5 directors and may have up to 13 directors. The Bexar Appraisal District presently has 5 directors. The Property Tax Code: (1) requires that all taxing units assess taxable property at 100% of its appraised value, subject to the limitations hereafter described; (2) allows the valuation of certain eligible farm, ranch, and timberlands on a "productive capacity" basis; (3) requires that the appraised values, subject to the limitations hereafter described of real property within an appraisal district be reviewed at least every three years; (4) provides for notices of any increases in appraised values to property owners before meetings of an appraisal review board; (5) grants rights of administrative and judicial appeal for taxpayers challenging property valuations established by an appraisal district or a county; (6) requires taxing jurisdictions to hold two public hearings and publish newspaper advertisements before adopting a tax rate that exceeds the rollback tax or the effective tax rate, whichever is lower in accordance with the Property Tax Code; and (7) permits taxpayers by referendum in the event the tax rate exceeds the rollback tax rate to reduce the tax rate to the rollback tax rate. State law further limits the appraised value of a residence homestead for a tax year to an amount not to -11-

18 exceed the lesser of (1) the market value of the property or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The Texas Constitution permits local governments the option of granting all individuals a homestead exemption of up to 20% of market value, with a minimum exemption of $5,000. The Commissioners Court has never granted such exemption and it cannot be predicted whether the Commissioners Court will exercise any of its options thereunder in future years. Tax Abatement Reinvestment Zone/Tax Phase-In Agreements Texas statutes permit the creation of tax abatement reinvestment zones to attract new commercial investment, to expand existing facilities, and to contribute to retaining or expanding primary employment within areas of economic development interests. The designation of a zone should contribute to the County's economic development and guidelines and criteria for governing tax phase-in agreements must be adopted at the discretion of Commissioners Court. Once a reinvestment zone has been designated, the County may offer a tax phase-in agreement to owners or lessees of taxable property within the reinvestment zone on a case-by-case basis. Areas designated as an enterprise zone under the Texas Enterprise Zone Act also constitute designation as a reinvestment zone. Tax phase-in agreements are contracts between the County and an owner or lessee of property wherein the owner or lessee makes an amount of new capital investment and jobs and the County abates all or a portion of ad valorem taxes under its authority on the new eligible real and personal property improvements within a reinvestment zone for a specific period of time. Tax phase-in agreements may abate up to 100% on real and/or personal property improvement values for up to 10-years. Since 1985, the County has executed a number of tax phase-in agreements to grow and diversify its economy, to attract new industry and commercial enterprises, and to encourage the retention and development of existing businesses. As evidenced by the following companies, such agreements result in major stimulus to the County s marketplace: Alcoa, Boeing Aerospace, Capital Group, CEDRA Clinical Research, Chase Bankcard, DPT Laboratories, H.B. Zachry, Lancer Partnership, LCWW Partners, MSPA Acquisition, Oberthur Gaming Technologies, Richeters Bakery, Royal Oak Industries, Silver Rio Limited Partnership, Takata Seatbelts, Toyota Motor Manufacturing Texas and Supplier Park Companies, Valero Energy and Washington Mutual. Under the revised and adopted "Tax Phase-in Guidelines," the County is focused on the revitalization of areas located inside Loop 410, south of U.S. Highway 90 and the areas contained by the I-35 Highway north, I-10 Highway south, County Line east, and Loop 410 and within commercial areas of the Medical Center, San Antonio International Airport and Texas Search Park. In addition, the County may offer tax abatement proposals to the following targeted industries predicated on a project's proposed levels of capital investment and job creation: agribusiness; aviation/aerospace; biotechnology; high level business services; information technology and security; logistics and distribution; manufacturing; telecommunications; corporate and regional headquarters; or Central City mixed-use multi-family housing. The County does not offer to abate Flood Control taxes or taxes levied on behalf of the University Health System (the System ). Exemptions from Taxes The Texas Constitution and the Property Tax Code grant various exemptions from taxation, if properly claimed, including exemptions for public property, residence homestead, tangible personal property not producing income, farm products and implements of farming or ranching, cemeteries, property owned and used exclusively by certain charitable organizations, and, at the option of the taxing jurisdiction, freeport goods. The County has elected to tax freeport goods. In addition, Texas law authorizes counties, cities, or junior college districts to take official action to establish a permanent limitation on the total amount of ad valorem taxes that may be imposed by such governmental entity on the residence homestead of a disabled individual or an individual 65 years of age or older under Texas Constitution, article VIII, Section 1-b(h). Under the legislation, the surviving spouse of an individual who qualified for the limitation on ad valorem taxes, would be entitled to the limitation if the surviving spouse is 55 years of age or older when the individual dies and the residence homestead of the qualifying individual is, and remains, the residence homestead of the surviving spouse. If an individual who qualified for the limitation makes improvements to the residence homestead, the governmental entity granting the limitation may increase the amount of taxes on the homestead in the first year the value of the homestead is increased on the appraisal roll because of the enhanced value of the improvements. The legislation required the adoption of a constitutional amendment by the voters of the State of Texas authorizing the governing body of a county, city or junior college district to place such a limitation on ad valorem tax increases on the residence homestead of a disabled individual or individual 65 years of age or older which voters adopted on September 13, By Order approved by the Commissioners Court on May 11, 2005, the Commissioners Court adopted the ad valorem tax limitation on the residence homestead of individuals who are under a disability for purposes of payment of disability insurance benefits under Federal Old-Age, Survivors, and Disability Insurance, or its successor, and individuals 65 years of age or older as permitted under the Texas Constitution, article VIII,1-b(h) and Property Tax Code, Section Adoption of the tax limitation by Commissioners Court set 2005 as the base year for those individuals who qualify for the stated ad -12-

19 valorem tax limitation and the qualified individuals will realize tax freeze benefits beginning January 1, 2006 for tax year Once established, the governing body of the taxing unit may not repeal or rescind the tax limitation. The County studied the effects of implementing such an ad valorem tax freeze for resident homeowners that qualify as disabled individuals and/or individuals 65 years of age or older and was unable to determine the exact extent to which such a tax freeze would negatively impact the County s future tax revenues is unknown. A number of other studies have been undertaken to measure the extent of the impact of a tax freeze and these studies have concluded that such a tax freeze would cause a decrease in the rate of growth of future ad valorem tax revenues to the County. County and Taxpayer Remedies Under certain circumstances, taxpayers and taxing units, including the County, may appeal orders of the Appraisal Review Board by filing a notice of appeal with that Board and a petition for review in district court. In such event, the property value in question may be determined by the courts or by a jury, if requested by any party. Additionally, taxing units may bring suit against the Appraisal District to compel compliance with the Property Tax Code. The Property Tax Code establishes procedures for providing notice and the opportunity for a hearing for taxpayers in the event of certain proposed tax increases and provides for taxpayer referenda which could result in the repeal of certain tax increases. The Property Tax Code also establishes a procedure for notice to property owners of reappraisals reflecting increased property value, appraisals which are higher than renditions, and appraisals of property not previously on an appraisal roll. Levy and Collection of Taxes The County is responsible for the collection of its taxes, but it may assign such functions to another governmental entity. By the later of September 30 th or 60 days after the certified appraisal roll is delivered to the taxing unit, the rate of taxation is set by the Commissioners Court based upon the valuation of property within the County as of January 1. Ad valorem taxes are due on receipt of a tax bill and payable from October 1 of the year in which levied until January 31 of the following year without interest or penalty. Split payments are allowed with the first half due by November 30, and the second half of the taxes due by June 30. Unless the split payment option is exercised by the taxpayer, taxes become delinquent after January 31 of the following year. On February 1, the unpaid taxes have a penalty and interest charge of 7%. Taxes delinquent from March 1 through June 30 have an additional penalty and interest charge of 2% per month, for a total penalty and interest charge of 20%. Taxes delinquent on July 1 have a total penalty and interest charge of 18%. Unpaid taxes after July 31 accrue an additional penalty and interest charge of 1% per month until paid. State law allows employment of outside legal counsel to collect delinquent taxes. When this is done, the County may, upon giving proper notice, impose an additional penalty up to 20% to the taxes, penalty, and interest delinquent as of July 1. The County has elected this option and presently uses outside legal counsel to collect delinquent taxes. Tax Liens Taxes levied by the County are a personal obligation of the owner of the property. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed for the year on the property. The lien exists in favor of each taxing unit, including the County, having power to tax the property. The tax lien on real property has priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien. Personal property under certain circumstances is subject to seizure and sale for the payment of delinquent taxes, penalty, and interest. At any time after taxes on property become delinquent, the County may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the County may join other taxing units that have claims for delinquent taxes against all or part of the same property. The ability of the County to collect delinquent taxes by foreclosure may be adversely affected by the amount of taxes owed to other taxing units, adverse market conditions, taxpayer redemption rights, or bankruptcy proceedings which restrain the collection of a taxpayer's debt. Also, provisions of the Property Tax Code require the abatement of any foreclosure or collection suit for delinquent taxes against any individual who is 65 years of age or older, owns and occupies as a residential homestead the property on which the taxes are delinquent, and requests the abatement in writing at the appropriate time. The Effect of the Financial Institutions Act of 1989 on Tax Collections of the County The "Financial Institutions Reform, Recovery and Enforcement Act of 1989" ("FIRREA"), enacted on August 9, 1989, contains certain provisions which affect the time for protesting property valuations, the fixing of tax liens, and the collection of penalties and interest on delinquent taxes on real property owned by the Federal Deposit Insurance Corporation ("FDIC") and the Resolution Trust Corporation ("RTC") when the FDIC/RTC is acting as the conservator or receiver of an insolvent financial institution. Under FIRREA real property held by the FDIC/RTC is still subject to ad valorem taxation, but such act states (i) that no real property of the FDIC/RTC shall be subject to foreclosure or sale without the consent of the FDIC/RTC and no involuntary liens shall attach to such property, (ii) the FDIC or RTC shall not be liable for any penalties or fines, including those arising from the failure to pay any real or personal property tax when due, and (iii) notwithstanding failure of a -13-

20 person to challenge an appraisal in accordance with state law, such value shall be determined as of the period for which such tax is imposed. There has been little judicial determination of the validity of the provisions of FIRREA or how they are to be construed and reconciled with respect to conflicting state laws. However, certain federal court decisions have held that the FDIC/RTC is not liable for statutory penalties and interest authorized by State property tax law, and that although a lien for taxes may exist against real property, such lien may not be foreclosed without the consent of the FDIC/RTC, and no liens for penalties, fines, interest, attorneys fees, costs of abstract and research fees exist against the real property for the failure of the FDIC/RTC or a prior property owner to pay ad valorem taxes when due. It is also not known whether the FDIC/RTC will attempt to claim the FIRREA exemptions as to the time for contesting valuations and tax assessments made prior to and after the enactment of FIRREA. Accordingly, to the extent that the FIRREA provisions are valid and applicable to any property in the County, and to the extent that the FDIC/RTC attempts to enforce the same, these provisions may affect the timeliness of collection of taxes on property, if any, owned by the FDIC/RTC in the County, and may prevent the collection of penalties and interest on such taxes. INVESTMENT POLICIES Investments The County invests its funds in investments authorized by Texas law in accordance with investment policies approved by the Commissioners Court of the County. Both State law and the County s investment policies are subject to change. Legal Investments Texas law permits the County to invest in (1) obligations, including letters of credit, of the United States or its agencies and instrumentalities, (2) direct obligations of the State 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 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) (a) certificates of deposit and share certificates issued by a depository institution that has its main office or branch office in the State, that are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund or their respective successors, or are secured as to principal by obligations described in clauses (1) through (5) and clause (13) or in any other manner and amount provided by law for County deposits, and in addition (b) the County is authorized, subject to certain conditions, to invest in certificates of deposit with a depository institution that has its main office or branch office in the State and that participates in the Certificate of Deposit Account Registry Service network (CDARS ) and as further provided by Texas law, (7) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1) and require the security being purchased by the County to be pledged to the County, held in the County s name and deposited at the time the investment is made with the County or with a third party selected and approved by the County, and are placed through a primary government securities dealer or a financial institution doing business in the State, (8) bankers acceptances with the remaining term of 270 days or less from the date of 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, (9) commercial paper with the remaining term of 270 days or less from the date of issuance that is rated at least "A-1" or "P-1" or the equivalent by at least (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, (10) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average portfolio 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, (11) no-load mutual fund 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 clause (13), 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, (12) 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, and (13) Certificates issued, assumed or guaranteed by the State of Israel. Texas law also permits the County to invest bond proceeds in a guaranteed investment contract subject to the limitations set forth in Chapter 2256, as amended, Texas Government Code. Entities such as the County may enter into securities lending programs if (i) the securities loaned under the program are 100% collateralized including accrued income, 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 (5) and clause (13) above, (b) pledged 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 (5) and clause (13) above, clause (9) above and clauses (10) and (11) above, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to such investing entity or a third -14-

21 party designated by such investing entity; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State; and (iv) the agreement to lend securities has a term of one year or less. The County may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pool are rated no lower than AAA or AAA-m or an equivalent by at least one nationally recognized rating service. The County is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Under Texas law, the County 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 registered with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the County retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the County must do so by order, ordinance or resolution. The County distributed a request for proposal to contract with an investment management firm to provide such services and entered into a contract on July 13, Investment Policies Under Texas law, the County is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for County funds, maximum allowable stated maturity of any individual investment owned by the County and the maximum average dollar-weighted maturity allowed for pooled fund groups. All County funds must be invested consistent with a formally adopted Investment Strategy Statement that specifically addresses each fund s investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, County 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 County must submit an investment report detailing: (1) the investment position of the County, (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 County funds without express written authority from the Commissioners Court. Additional Provisions Under Texas law, the County is additionally required to: (1) annually review its adopted policies and strategies, (2) adopt a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order, ordinance or resolution, (3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the Commissioners Court; (4) require the qualified representative of firms offering to engage in an investment transaction with the County to: (a) receive and review the County s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the County and the business organization that are not authorized by the County s investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the County s entire portfolio or requires an interpretation of subjective investment standards), and (c) deliver a written statement in a form acceptable to the County and the business organization attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the County s investment policy; (6) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (7) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse purchase agreement; (8) restrict the investment in non-money market mutual funds in the aggregate to no more than 15% of the County s monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements, and (10) at least annually review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the County. -15-

22 Current Investments The investments of the County as of June 1, 2007 are as follows: Type of Investment Book Balance Fair Value Percent U.S. Treasury Investments $ 6,466,971 $ 6,469, % U.S. Government Securities 73,166,241 73,163, % Local Government Investment Pools 156,170, ,170, % Commercial Paper 7,945,458 7,943, % Total $243,749,529 $243,746, % Source: County records as confirmed by the County Auditor. As of such date, the fair value of such investments (as determined by the County by reference to published quotations, dealer bids, and comparable information) was approximately 100% of their book balance. No funds of the County are invested in derivative securities, i.e., securities whose rate of return is determined by reference to some other instrument, index, or commodity. LEGAL MATTERS The County will furnish the Underwriters with a complete transcript of proceedings incident to the authorization and issuance of the Certificates, including the unqualified approving legal opinion of the Attorney General of the State to the effect that the Initial Certificate is a valid and legally binding obligation of the County, and based upon examination of such transcript of proceedings, the approval of certain legal matters by Bond Counsel, to the effect that the Certificates, issued in compliance with the provisions of the Order, are valid and legally binding obligations of the County and, subject to the qualifications set forth herein under "TAX MATTERS," the interest on the Certificates will be excludable from gross income for federal income tax purposes under existing statutes, published rulings, regulations, and court decisions. Bond Counsel has been engaged by and only represents the County. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information under the caption "THE CERTIFICATES" (other than the information under the subcaptions "Payment Record," Delivery, "Future Issues," Use of Proceeds, and "Defaults and Remedies" (as to which no opinion is expressed), "REGISTRATION, TRANSFER AND EXCHANGE," "LEGAL MATTERS" (except for the last two sentences of the first paragraph thereof, as to which no opinion is expressed), "TAX MATTERS," "CONTINUING DISCLOSURE OF INFORMATION" (other than the information under the subcaption "Compliance with Prior Undertakings," (as to which no opinion is expressed) and the subcaption "Legal Investments and Eligibility to Secure Public Funds in Texas" under the caption "OTHER PERTINENT INFORMATION" in the Official Statement and such firm is of the opinion that the information relating to the Certificates and the legal issues 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 Certificates, such information conforms to the provisions of the Order. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Certificates or which would affect the provision made for their payment or security, or in any manner questioning the validity of the Certificates will also be furnished. Bond Counsel has been engaged by and only represents the County. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of Certificates are contingent on the sale and delivery of the Certificates. The legal opinion of Bond Counsel will accompany the Certificates deposited with DTC or will be printed on the definitive Certificates in the event of the discontinuance of the Book-Entry-Only System. Certain matters will be passed upon for the Underwriters by Escamilla & Poneck, Inc. and Shelton & Valadez, P.C., as co-underwriters counsel. The fees of Escamilla & Poneck, Inc. and Shelton & Valadez, P.C. are contingent upon the sale and delivery of the Certificates. The various legal opinions to be delivered concurrently with the delivery of the Certificates 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. NO-LITIGATION On the date of delivery of the Certificates to the Underwriters, the County will execute and deliver to the Underwriters a certificate to the effect that no litigation of any nature has been filed or is pending, as of that date, to restrain or enjoin the issuance or delivery of the Certificates or which would adversely affect the provisions made for their payment or security, or in any manner questioning the validity of the Certificates. -16-

23 In the opinion of certain officials of the County, the County is not a party to any litigation or other proceedings pending or, to its knowledge, threatened, in any court, agency or other administrative body (either state or federal) which, if decided adversely to the County, would have a material adverse effect on the financial statements of the County. Tax Exemption TAX MATTERS The delivery of the Certificates is subject to an opinion of Fulbright & Jaworski L.L.P., Bond Counsel to the County ( Bond Counsel ), to the effect that interest on the Certificates for federal income tax purposes under existing statutes, regulations, published rulings and court decisions (1) will be excludable from the gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date of initial delivery of the Certificates (the Code ), of the owners thereof pursuant to section 103 of the Code and (2) will not be included in computing the alternative minimum taxable income of individuals or, except as hereinafter described, corporations. The statute, regulations, rulings and court decisions on which such opinion will be based are subject to change. A form of Bond Counsel s opinion appears in APPENDIX D attached hereto. Interest on all tax-exempt obligations, including the Certificates, owned by a corporation will be included in such corporation s adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust ( FASIT ). A corporation s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed. In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the County pertaining to the use, expenditure and investment of the proceeds of the Certificates and will assume continuing compliance with the provisions of the Order by the County subsequent to the issuance of the Certificates. The Order contains covenants by the County with respect to, among other matters, the use of the proceeds of the Certificates and the facilities financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the Certificates are to be invested and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants may cause interest on the Certificates to be includable in the gross income of the owner thereof for federal income taxes from the date of the issuance of the Certificates. Except as described above, Bond Counsel will express 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 Certificates. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations such as the Certificates 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 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. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances. Bond Counsel s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, published rulings and court decisions and the representations and covenants of the County 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 on going program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Certificates is commenced, under current procedures the Service is likely to treat the County as the taxpayer, and the Owners 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 Certificates, the County may have different or conflicting interests from the Owners. Public awareness of any audit of the Certificates could adversely affect the value and liquidity of the Certificates during the pendency of the audit, regardless of its ultimate outcome. Ancillary Tax Consequences Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations such as the Certificates may result in collateral federal tax consequences to, among others, financial institutions, property and casualty insurance companies, life insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, owners of an interest in a FASIT, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit 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. -17-

24 Tax Accounting Treatment of Discount Certificates The initial public offering price to be paid for certain Certificates may be less than the amount payable on such Certificates at maturity (the Discount Certificates ). An amount equal to the difference between the initial public offering price of a Discount Certificate (assuming that a substantial amount of the Discount Certificates 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 Certificates. A portion of such original issue discount, allocable to the holding period of a Discount Certificate by the initial purchaser, will be treated as interest for federal income tax purposes, excludable from gross income on the same terms and conditions as those for other interest on the Certificates. Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Certificate, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Certificate 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 his taxable year. However, such accrued interest may be required to be taken into account in determining the alternative minimum taxable income of a corporation, for purposes of calculating a corporation s alternative minimum tax imposed by section 55 of the Code, and 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, property and casualty insurance companies, life insurance companies, S corporations with subchapter C earnings and profits, owners of an interest in a FASIT, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, 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. In the event of the sale or other taxable disposition of a Discount Certificate prior to maturity, the amount realized by such owner in excess of the basis of such Discount Certificate in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Certificate was held) is includable in gross income. Owners of Discount Certificates should consult with their own tax advisors with respect to the determination for federal income tax purposes of accrued interest upon disposition of Discount Certificates and with respect to the state and local tax consequences of owning Discount Certificates. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on the Discount Certificates may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment. Tax Accounting Treatment of Premium Certificates The initial public offering price to be paid for certain Certificates may be greater than the stated redemption price on such Certificates at maturity (the Premium Certificates ). An amount equal to the difference between the initial public offering price of a Premium Certificate (assuming that a substantial amount of the Premium Certificates of that maturity are sold to the public at such price) and its stated redemption price at maturity constitutes premium to the initial purchaser of such Premium Certificates. The basis for federal income tax purposes of a Premium Certificate in the hands of such initial purchaser must be reduced each year by the amortizable certificate premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium with respect to the Premium Certificates. 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 Certificate. 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 Certificates should consult with their own tax advisors with respect to the determination of amortizable certificate premium on Premium Certificates for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Certificates. CONTINUING DISCLOSURE OF INFORMATION In the Order, the County has made the following agreement for the benefit of the holders and Beneficial Owners of the Certificates. The County is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. Under the agreement, the County will be obligated to provide timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. Annual Reports Under Texas law, including, but not limited to, Chapter 115, as amended, Texas Local Government Code, the County must keep its fiscal records in accordance with generally accepted accounting principles, must have its financial accounts and records audited by a certified or permitted public accountant and must maintain each audit report with the County Auditor. The County s fiscal records and audit reports are available for public inspection during the regular business hours of the County Auditor. Additionally, upon the filing of these financial statements and the annual audit, these -18-

25 documents are subject to the Texas Open Records Act, as amended, Texas Government Code, Chapter 552. Thereafter, any person may obtain copies of these documents upon submission of a written request to the County Auditor at the Bexar County Auditor, 212 Stumberg, Suite 100, San Antonio, Texas 78204, and upon paying the reasonable copying, handling, and delivery charges for providing this information. The County will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated with respect to the County includes all quantitative financial information and operating data of the general type included in this Official Statement. The information is of the general type included in APPENDIX A, exclusive of the table reflecting "Consolidated Overlapping Gross Funded Debt Payable from Ad Valorem Taxes," and in APPENDIX C. The County will update and provide this information within six months after the end of each fiscal year ending in or after The County will provide the updated information to each Nationally Recognized Municipal Securities Information Repository ( NRMSIR ) and to any State Information Depository ( SID ) that is designated by the State of Texas and approved by the staff of the United States Securities Exchange Commission (the SEC ). The County may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12 (the "Rule"). The updated information will include audited financial statements, if the County commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the County will provide unaudited financial statements by the required time, and will provide audited financial statements when and if the audit report becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in APPENDIX C or such other accounting principals as the County may be required to employ from time to time pursuant to state law or regulation. The County s current fiscal year end is September 30. Accordingly, it must provide updated information by the last day of March in each year, unless the County changes its fiscal year. If the County changes its fiscal year, it will notify each NRMSIR and any SID of the change. Material Event Notices In the Order, the County has agreed, for the benefit of the holders and Beneficial Owners of the Certificates, to provide timely notices of certain events to certain information vendors. The County is required to observe such agreement for so long as it remains obligated to advance funds to pay the Certificates. These material event notices will be available to securities brokers and others who subscribe to receive the information from the vendors. The County will provide notice of any of the following events with respect to the Certificates, if such event is material to a decision to purchase or sell Certificates; (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Certificates; (7) modifications to rights of holders of the Certificates; (8) Bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Certificates; and (11) rating changes. In addition, the County will provide notice to the NRMSIRs and SID of any change in the County's fiscal year. Neither the Certificates nor the Order makes any provision for debt service reserves or liquidity enhancement. In addition, the County will provide timely notice of any failure by the County to provide information, data, or financial statements in accordance with its agreement described above under Annual Reports. The County will provide each notice described in this paragraph to any SID and to either each NRMSIR or the Municipal Securities Rulemaking Board ( MSRB ). Availability of Information from NRMSIRs and SID The County has agreed to provide the foregoing information only to NRMSIRs and any SID. The information will be available to holders of Certificates only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. The Municipal Advisory Council of Texas (the MAC ) has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the MAC is 600 West 8th Street, Post Office Box 2177, Austin, Texas , and its telephone number is 512/ The MAC has also received SEC approval to operate, and has begun to operate, a central post office for information filings made by municipal issuers, such as the County. A municipal issuer may submit its information filings with the central post office, which then transmits such information to the NRMSIRs and the appropriate SID for filing. This central post office can be accessed and utilized at ( DisclosureUSA ). The County may utilize DisclosureUSA for the filing of information relating to the Certificates. Limitations and Amendments The County has agreed to update information and to provide notices of material events only as described above and subject to the exemption contained in the Rule. The County has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The County makes no representation or warranty -19-

26 concerning such information or concerning its usefulness to a decision to invest in or sell Certificates at any future date. The County disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders and Beneficial Owners of Certificates may seek a writ of mandamus to compel the County to comply with its agreement. This continuing disclosure agreement may be amended by the County 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 County, but only if (1) the provisions, as so amended, would have permitted a purchaser to purchase or sell Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the registered owners of a majority in aggregate principal amount (or any greater amount required by any other provision of the Order that authorizes such an amendment) of the outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the County (such as nationally recognized bond counsel) determined that such amendment will not materially impair the interest of the registered owners and Beneficial Owners of the Certificates. The County may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provision 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 a purchaser from lawfully purchasing or selling Certificates in the primary offering of the Certificates. If the County amends its agreement, it must include with the next financial information and operating data provided in accordance with its agreement described above under Annual Reports an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of information and data provided. Compliance with Prior Undertakings During the past five years, the County has complied in all material respects with continuing disclosure agreements made by it in accordance with the Rule. On March 31, 2007 the County made its timely annual filing which included the audited financial statements for the period ended September 30, Authenticity of Financial Data and Other Information OTHER PERTINENT INFORMATION The financial data and other information contained herein have been obtained from the County s records, audited financial statements and other sources that are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. Registration and Qualification of Certificates for Sale The sale of the Certificates has not been registered under the federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Certificates have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been qualified under the securities act of any other jurisdiction. The County assumes no responsibility for qualification of the Certificates under the securities laws of any jurisdiction in which the Certificates may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Certificates 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 Securities Procedures Act (Chapter 1201, Texas Government Code, and Section , as amended, Texas Local Government Code) provides that the Certificates are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Certificates 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 Certificates be assigned a rating of at least "A" or its equivalent as to investment quality by a national rating agency. (See "OTHER PERTINENT INFORMATION - Municipal Bond Ratings" herein.) In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Certificates are legal investments for state banks, savings banks, trust companies with at least $1 million of capital, and savings and loan associations. The Certificates are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. -20-

27 Bond Ratings Fitch Ratings ("Fitch"), Moody's Investors Service, Inc. ( Moody's ) and Standard & Poor s Corporation, a Division of the McGraw-Hill Companies, Inc. ( S&P ) have assigned their municipal bond ratings of AAA, "Aaa," and "AAA," respectively, to the Certificates on the basis of the payment of the Certificates being guaranteed under a municipal bond insurance policy to be issued by Financial Security Assurance Inc. (See BOND INSURANCE" herein.) The ratings reflect only the views of Fitch, Moody's and S&P at the time the ratings are given, and the County makes no representations as to the appropriateness thereof. There is no assurance that any rating will continue for any given period of time, or that a rating will not be revised downward or withdrawn entirely if, in the judgment of the Fitch, Moody's or S&P, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Certificates. The presently outstanding unenhanced, ad valorem tax debt of the County is rated AA+ by Fitch, Aa1 by Moody s and AA by S&P. This represents an upgrade from "Aa2" to "Aa1" by Moody's and the County filed a material event notice concerning this matter with DisclosureUSA on August 21, The County also has several outstanding issues that are rated Aaa by Moody s and AAA by S&P through insurance by various commercial insurance companies. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. Any rating reflects only the view of the rating organization and the County makes no representation as to the appropriateness of any rating. There is no assurance that such rating will continue for any given period of time or it will not be revised downward or withdrawn entirely by such rating organization, if in the judgment of such organization, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Certificates. Co-Financial Advisors SAMCO Capital Markets, Inc. and M. E. Allison & Co., Inc. (the Co-Financial Advisors) are employed as the Co-Financial Advisors to the County in connection with the issuance of the Certificates. The Co-Financial Advisor s fee for services rendered with respect to the sale of the Certificates is contingent upon the issuance and delivery of the Certificates. The Co-Financial Advisors, in their capacity as Co-Financial Advisors, have relied on the opinion of Bond Counsel and have not verified and do not assume any responsibility for the information, covenants, and representations contained in any of the bond documentation with respect to the federal income tax status of the Certificates. The fee of the Co-Financial Advisors for services with respect to the Certificates is contingent upon the issuance and sale of the Certificates. In the normal course of business, the Co-Financial Advisors may also from time to time sell investment securities to the County for the investment of bond proceeds or other funds of the County upon the request of the County. The Co-Financial Advisors have provided the following sentence for inclusion in this Official Statement. The Co-Financial Advisors have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to the County and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Co-Financial Advisors do not guarantee the accuracy or completeness of such information. Underwriting The Underwriters have agreed, subject to certain conditions, to purchase the Certificates at a price equal to the initial offering prices to the public, as shown on the inside cover page hereof, less an underwritings discount of $425, The Underwriters obligation is subject to certain conditions precedent. The Underwriters will be obligated to purchase all of the Certificates if any Certificates are purchased. The Certificates may be offered and sold to certain dealers and others at prices lower than such public offering price, and such public 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 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. Financial Statements APPENDIX C to this Official Statement contains the County s annual financial report for the fiscal year ended September 30, These financial statements have been audited by Garza/Gonzalez & Associates, San Antonio, Texas, independent certified public accountants, as stated in their reports included with such financial statements in APPENDIX C. -21-

28 Use of Information in Official Statement No person has been authorized to give any information or to make any representations other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the County. This Official Statement does not constitute an offer to sell or solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Forward Looking Statements The statements contained in this Official Statement, and in any other information provided by the County, that are not purely historical, are forward-looking statements, including statements regarding the County s expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward looking statements included in this Official Statement are based on information available to the County on the date hereof, and the County assumes no obligation to update any such forward-looking statements. It is important to note that the County s actual results could differ materially from those in such forward-looking statements. The forward-looking statements herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the County. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate. GASB Implications for the County In June 1999, the Governmental Accounting Standards issued statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments ( GASB 34 ), which established new financial reporting requirements for state and local governments throughout the United States. The County has complied with GASB No. 34 effective with the September 30, 2002 financial statements. GASB 34 enhances the clarity and usefulness of the general-purpose external financial reports of state and local governmental entities to the citizenry, investors, creditors, and legislative and oversight bodies by creating new information and restructuring much of the information that governments have presented in the past to provide a more comprehensive demonstration of their annual financial performance. Examples of the changes that have been initiated due to GASB 34 include requiring governments to (i) report information about their most important funds, including their general fund, individually as opposed to reporting fund information in the aggregate by fund type, (ii) report the government s original annual budget in additional to revised versions created throughout the year to provide for a more accurate measure of budgetary compliance and the government s ability to estimate and manage its general resources, (iii) provide government-wide financial statements prepared using the accrual method of accounting, which measures both current and long term assets and liabilities, and (iv) provide management s discussion and analysis of the government s financial manager giving readers an objective analysis of the government s financial performance for the year. Governments with total annual revenues (excluding extraordinary items) of $100 million or more must apply GASB 34 in the preparation of their annual reports for periods beginning after June 15, As such, the County s annual financial reports beginning with fiscal year ending September 30, 2002 reflect the changes required by GASB 34. Certification of the Official Statement At the time of payment for and delivery of the Certificates, the Underwriters will be furnished a certificate, executed by proper officers, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the description and statements of or pertaining to the County contained in its Official Statement, and any addenda, supplement or amendment thereto, on the date of such Official Statement, and on the date of the initial delivery of the Certificates, were and are true and correct in all material respects; (b) insofar as the County and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of circumstances under which they are made, not misleading; (c) insofar as the description and statements, including financial data, of or pertaining to entities, other than the County, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the County believes to be reliable and that the County has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the County since September 30, 2006, the date of the last audited financial statements of the County. -22-

29 Authorization of the Official Statement No person has been authorized to give any information or to make any representations other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the County. This Official Statement has been approved by the Commissioners Court of the County for distribution in accordance with provisions of the United States Securities and Exchange Commission s Rule codified at 17 C.F.R. Section c-12, as amended. BEXAR COUNTY, TEXAS /s/ Nelson W. Wolff County Judge ATTEST: /s/ Gerard C. Rickhoff County Clerk -23-

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31 APPENDIX A SELECTED FINANCIAL INFORMATION OF BEXAR COUNTY

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33 GENERAL PURPOSE, GENERAL OBLIGATION DEBT 2006 Appraised Valuation of 100%... $82,878,115,408 Less Local Exemptions: Local Over-65/Disabled Homestead $4,104,719,699 Veteran Exemption 255,929,296 Freeport Exemption 399,287,480 Abatement Loss 339,635,304 Productivity Loss 1,481,159,905 Pollution Control Exemption 29,614,970 Low Income Housing Loss 45,891,843 Solar/Wind Exemption Loss 15,930,706 10% Cap 941,717,633 7,613,886, Taxable Assessed Valuation... $75,264,228,572 Source: Comptroller of Public Accounts 2006 County Self-Report. County s Funded Debt Payable from Ad Valorem Taxes (as of ) Total Funded Debt Unlimited Tax and Limited Tax Outstanding (including proposed issues)... $273,220,000 Ratio Total Funded Debt to 2006 Taxable Assessed Valuation % 2000 U.S. Census Population - 1,392,931; 2006 Estimated Population - 1,609,500 Per Capita 2006 Taxable Assessed Valuation - $46, Per Capita Total General Purpose Funded Debt - $ Area - 1,248 Square Miles - 798,720 Acres Total General Purpose Funded Debt Per Acre - $ OBLIGATIONS OUTSTANDING (a) (b) Limited Tax Debt: Limited Tax General Obligation and Refunding Bonds, Series 1999 $16,740,000 Combination Tax and Revenue Certificates of Obligation, Series ,665,000 Limited Tax General Obligation Bonds, Series ,720,000 Limited Tax General Obligation Refunding Bonds, Series ,430,000 Combination Tax and Revenue Certificates of Obligation, Series ,720,000 Limited Tax General Obligation Refunding Bonds, Series ,115,000 Combination Tax and Revenue Certificates of Obligation, Series ,830,000 Limited Tax Bonds, Series ,450,000 Combination Tax and Revenue Certificates of Obligation, Series 2004-A 23,130,000 Limited Tax General Obligation Refunding Bonds, Series ,355,000 Limited Tax General Obligation Refunding Bonds, Series ,150,000 Pass-Through Revenue and Limited Tax Bonds, Series 2007 (c) 22,385,000 Combination Tax and Revenue Certificates of Obligation, Series ,205,000 Total Limited Tax Debt $168,895,000 Unlimited Tax Debt: (b) Unlimited Tax Road Bonds, Series ,080,000 Unlimited Tax Road Bonds, Series ,220,000 Total Unlimited Tax Debt 25,300,000 Flood Control Tax Debt: Combination Flood Control Tax and Revenue Certificates of Obligation, Series ,610,000 Combination Flood Control Tax and Revenue Certificates of Obligation, Series ,595,000 Combination Flood Control Tax and Revenue Certificates of Obligation, Series 2007 (the Certificates) 71,820,000 Total Flood Control Debt 79,025,000 Total Outstanding Debt $273,220,000 (a) See AD VALOREM TAX INFORMATION in the Official Statement with regard to the $0.80 Tax Limitation herein. (b) As of July 1, Excludes debt payable from a flood control tax which is included as "Flood Control Tax Debt." See AD VALOREM TAX INFORMATION - Tax Rate and Funded Debt Limitations" in the Official Statement. (c) The Pass-Through Revenue and Limited Tax Bonds, Series 2007 should be self-supporting with the debt service being funded through agreements with the Texas Department of Transportation and the Advanced Transportation District. A-1

34 OTHER DEBT The County has authorized its General Obligation Commercial Paper Notes, Series A which is a general obligation commercial paper program in the maximum principal amount of $100,000,000. The purpose of the Commercial Paper Program is to provide funds for the interim financing of a portion of the costs of capital improvements in the County. Scheduled maturities of the short-term borrowings under the Commercial Paper Program must mature within 270 days and cannot extend beyond September 20, 2012, which is the current stated expiration date of the Revolving Credit Agreement executed between the County and Dexia Credit Local, acting through its New York Branch. Bear, Stearns & Co., Inc, serves as the dealer for the Commercial Paper Program and Deutsche Bank Trust Company Americas, New York, New York, serves as the Issuing and Paying Agent. As of June 15, 2007, the County has issued $7,000,000 in principal amount of the commercial paper notes. On December 20, 2000, the County issued $123,265,000 aggregate principal amount of Bexar County, Texas Tax- Exempt Venue Project Revenue Bonds, Series 2000 and $25,580,000 aggregate principal amount of Bexar County, Texas Taxable Venue Project Revenue Bonds, Series 2000 (collectively, the Venue Project Bonds ) for the development, construction, and renovation of the Venue Project (a sports and community venue project to be used primarily by the San Antonio Spurs and San Antonio Rodeo), pursuant to Chapter 334, as amended, Texas Local Government Code and an election held in the County on November 2, The Venue Project Bonds are payable solely from the imposition of a 1 ¾% hotel occupancy tax and a 5% short-term motor vehicle rental tax and certain rents to be received from the lease of the Venue Project to other entities. No ad valorem taxes may be utilized to pay the debt service requirements on the Venue Project Bonds or to maintain and operate the Venue Project. As of August 15, 2007, $103,335,000 of the Venue Project Bonds remains outstanding. Source: The County's audited financial statements and information provided by the County Auditor. AD VALOREM TAX RATIOS The following table sets forth the ratio of the County's total indebtedness outstanding payable from ad valorem taxes to assessed value and indebtedness outstanding per capita. Fiscal Year Ended 9/30 Assessed Value (a) Net Indebtedness Outstanding (b) Net Indebtedness Outstanding To Assessed Value Estimated Population Net Indebtedness Outstanding Per Capita 1996 $34,815,286,285 $158,632, % 1,340,900 $ ,399,027, ,258, % 1,371, ,978,789, ,876, % 1,401, ,836,862, ,577, % 1,432, ,870,592, ,455, % 1,462, ,407,904, ,096, % 1,488, ,789,196, ,262, % 1,512, ,734,890, ,442, % 1,536, ,047,025, ,114, % 1,560, ,273,124, ,642, % 1,584, ,437,180, ,304, % 1,609, ,264,228, ,220,000 (c) 0.36% 1,609, (a) Assessed values are net of exemptions. The basis of assessment is 100% of appraised value. (b) Includes the Unlimited Tax Obligations, Limited Tax Obligations, and the Flood Control Obligations. (c) Includes the Certificates. ADDITIONAL DEBT On November 4, 2003, the voters of the County approved a bond referendum authorizing $99,246,000 in new debt for a variety of projects. As of August 1, 2007, the County has $64,471,000 in authorized but unissued bonds outstanding from the 2003 bond referendum. It is projected that the County will issue this debt in various increments over the course of the next seven years. (See SELECTED FINANCIAL INFORMATION OF THE COUNTY - Authorized but Unissued Tax Bonds herein.) A-2

35 The County may issue certificates of obligation, personal property finance contractual obligations, tax notes and commercial paper notes payable from ad valorem taxes without voter approval. AUTHORIZED BUT UNISSUED TAX BONDS The County has the following authorized but unissued bonds payable from the $0.80 Tax Limitation: Purpose Date Authorized Original Amount Authorized Amount Previously Issued Amount Being Issued Unissued Balance Detention Facilities $79,000,000 $66,999,113 $0 $12,000,887 Detention Facilities ,990,000 8,112, ,877,500 Parks & Comm. Facilities ,925, , ,950,000 Public Safety ,750, , ,437,500 The County has not previously held an election to authorize debt payable from the Flood Control Tax (hereinafter defined). The County has the following authorized but unissued bonds payable from an unlimited tax: Original Amount Date Amount Previously Amount Unissued Purpose Authorized Authorized Issued Issued Balance Road Projects $40,581,000 $6,080,000 $19,295,000* $15,206,000 * Consists of a principal amount of $19,220,000 and an allocated premium of $75,000 resulting in the amount of $19,295,000 of "voted authority" relating to the issuance of the Unlimited Tax Road Bonds, Series (See "Other Debt Issues" below.) The County has authorized its General Obligation Commercial Paper Notes, Series A which is a general obligation commercial paper program in the maximum principal amount of $100,000,000 payable from the $0.80 Tax Limitation. As of June 15, 2007, the County has issued $7,000,000 in principal amount of the commercial paper notes. OTHER DEBT ISSUES The County has several issues of debt which have occurred at or about the same time as the Certificates. These additional issues are as follows: $22,385,000 Pass-Through Revenue and Limited Tax Bonds, that were delivered on August 9, 2007; $22,205,000 Combination Tax and Revenue Certificates of Obligation, Series 2007, expected to be delivered on September 10, 2007; and $19,220,000 Unlimited Tax Road Bonds, Series 2007, expected to be delivered on September 10, (The remainder of this page intentionally left blank) A-3

36 DEBT SERVICE REQUIREMENTS - LIMITED TAX INDEBTEDNESS The following table sets forth the annual debt service requirements on the County's limited tax indebtedness, including the Pass-Through Revenue and Limited Tax Bonds, Series 2007 and proposed Combination Tax and Revenue Certificates of Obligation, Series (See "SELECTED FINANCIAL INFORMATION OF THE COUNTY - Authorized But Unissued Tax Bonds" herein.) (a) Fiscal Year Total Ending Limited Tax 9/30 Principal (a) Interest (a) Debt Service 2008 $ 13,325, $ 7,670, $ 20,995, ,360, ,364, ,724, ,630, ,722, ,352, ,995, ,012, ,007, ,740, ,334, ,074, ,350, ,583, ,933, ,910, ,848, ,758, ,920, ,220, ,140, ,755, ,741, ,496, ,445, ,316, ,761, ,800, ,965, ,765, ,170, ,605, ,775, ,185, ,230, ,415, ,445, , ,384, ,240, , ,915, ,415, , ,920, ,435, , ,761, ,510, , ,760, ,590, , ,761, ,675, , ,762, Total $168,895, $57,571, $226,466, Includes the Combination Tax and Revenue Certificates of Obligation, Series 2007 and the Pass-Through and Limited Tax Bonds, Series 2007; excludes the Certificates. TAX ADEQUACY - LIMITED TAX DEBT Estimated Proceeds from $ Limited Tax Using 2006 Taxable Assessed Valuation of $75,264,225,572 at 95% Collected... $20,377,789 Estimated Other Sources... $ 725,000 Total Estimated Available Funds for Limited Tax Debt Service... $21,102, /2008 Estimated Limited Tax Debt Service Requirement... $20,995,280 A-4

37 DEBT SERVICE REQUIREMENTS - UNLIMITED TAX INDEBTEDNESS The following table sets forth the annual debt service requirements on the County's unlimited tax indebtedness, including the Proposed Unlimited Tax Road Bonds, Series (See "SELECTED FINANCIAL INFORMATION OF THE COUNTY - Authorized But Unissued Tax Bonds" herein.) Total Unlimited Fiscal Year Tax Debt End 9/30 Principal Interest Debt Service 2008 $ - $ 1,024, $ 1,024, , ,139, ,124, ,015, ,102, ,117, ,055, ,064, ,119, ,100, ,025, ,125, ,140, , ,122, ,185, , ,123, ,225, , ,117, ,280, , ,121, ,330, , ,118, ,395, , ,121, ,460, , ,119, ,530, , ,120, ,605, , ,121, ,675, , ,117, ,760, , ,123, ,290, , ,568, ,355, , ,568, ,420, , ,565, ,495, , ,569, Total $25,300, $13,811, $39,111, TAX ADEQUACY - UNLIMITED TAX BONDS Estimated Proceeds from $ Unlimited Tax Using 2006 Taxable Assessed Valuation of $75,264,225,572 at 95% Collected... $1,072,515 Estimated Other Sources... $ 25,000 Total Estimated Available Funds for Unlimited Tax Debt Service... $1,097, /2008 Estimated Unlimited Tax Debt Service Requirement... $1,024,290 A-5

38 DEBT SERVICE REQUIREMENTS - FLOOD CONTROL TAX INDEBTEDNESS The following table sets forth the annual debt service requirements on the County's flood control indebtedness, including the Certificates. (See "SELECTED FINANCIAL INFORMATION OF THE COUNTY - Authorized but Unissued Bonds" herein.) Total Unlimited Fiscal Year Tax Debt End 9/30 Principal Interest Debt Service 2008 $ 1,895, $ 3,427, $ 5,322, ,695, ,806, ,501, ,760, ,739, ,499, ,835, ,668, ,503, ,905, ,592, ,497, ,000, ,500, ,500, ,085, ,417, ,502, ,190, ,315, ,505, ,295, ,209, ,504, ,900, ,097, ,997, ,985, ,013, ,998, ,075, ,924, ,999, ,165, ,832, ,997, ,275, ,720, ,995, ,395, ,603, ,998, ,520, ,480, ,000, ,320, ,350, ,670, ,440, ,228, ,668, ,570, ,100, ,670, ,705, ,965, ,670, ,845, ,823, ,668, ,995, ,673, ,668, ,155, ,516, ,671, ,320, ,351, ,671, ,485, ,185, ,670, ,660, ,010, ,670, ,840, , ,667, ,035, , ,670, ,235, , ,669, ,445, , ,667, Total $79,025, $70,673, $149,698, TAX ADEQUACY - FLOOD CONTROL TAX OBLIGATIONS Estimated Proceeds from $ Flood Control Tax Using 2006 Taxable Assessed Valuation of $75,264,225,572 at 95% Collected... $5,577,079 Estimated Other Sources... $ 100,000 Total Estimated Available Funds for Flood Control Tax Debt Service... $5,677, /2008 Estimated Flood Control Tax Debt Service Requirement... $5,322,484 A-6

39 AD VALOREM TAX RATES The following table shows the County's ad valorem tax rates per $100 of assessed value for each of the tax years 2002 through 2006: Purpose General Fund $ $ $ $ $ Limited Tax Bonds Debt Service Equipment Obligations Total Limited Tax Rate $ $ $ $ $ Unlimited Tax Rate (1) Sub-Total $ $ $ $ $ Farm to Market Special Tax Flood Control Special Tax (2) Total Tax Rate $ $ $ $ $ (1) The County has historically utilized other lawfully available funds, including the Farm-to-Market and Lateral Road Tax discussed above to pay the debt service requirements on the County's unlimited tax road bonds. (2) The County has previously entered into a contract, as amended, with the San Antonio River Authority ( SARA ) pursuant to Section , as amended, Texas Local Government Code, for the accomplishment of plans and programs for flood control and soil conservation, pursuant to which the County agreed to annually assess and levy a portion of the Flood Control Tax at the rates and amounts set forth in the contract sufficient to meet the obligations of the County under the contract with SARA. In addition, a portion of the Flood Control Tax is utilized to pay the debt service requirements on the Flood Control Certificates. PROPERTY TAX LEVIES, COLLECTIONS AND DELINQUENCIES The table below sets forth a comparison of the ad valorem taxes levied and collected by the County for the tax years 1996 through 2006: Total Total Delinquent Total Collections Fiscal Tax Total Current Tax % of Levy Tax Tax as a % of Year Year Tax Levy (1) Collections Collected Collections Collections Current Levy Ending 1996 $132,467,920 $130,699, % $2,561,525 $133,261, % 9/30/ ,696, ,570, % 2,396, ,966, % 9/30/ ,790, ,418, % 2,531, ,950, % 9/30/ ,129, ,241, % 2,512, ,754, % 9/30/ ,823, ,364, % 2,408, ,772, % 9/30/ ,155, ,276, % 2,960, ,237, % 9/30/ ,409, ,427, % 3,145, ,573, % 9/30/ ,737, ,777, % 3,298, ,075, % 9/30/ ,408, ,749, % 3,926, ,675, % 9/30/ ,330, ,390, % 3,844, ,234, % 9/30/ ,226, ,475, % 3,453, ,928, % (2) 9/30/2007 (1) Includes the General Fund, Limited Tax Debt Service Fund, Equipment Obligations, Flood Control Tax and the Unlimited Tax Debt Debt Service tax rates. (2) As of June 30, A-7

40 TAXPAYERS BY CLASSIFICATION PROPERTY VALUATIONS BY CATEGORY Assessed Percent Assessed Percent Assessed Percent Classification Valuation Of Total Valuation Of Total Valuation Of Total Real Estate: Single Family Residential $48,780,573, % $42,642,081, % $38,892,596, % Multi-Family Residential 4,713,305, % 3,946,142, % 3,526,967, % Vacant - Platted Lots/Tracts 1,667,515, % 1,219,419, % 1,552,264, % Acreage (Land Only) 2,447,744, % 1,741,638, % 1,877,949, % Farm & Ranch Improvements 303,888, % 271,547, % 133,976, % Commercial & Industrial 15,455,694, % 13,522,492, % 12,363,286, % Oil, Gas & Other Mineral Res. 4,877, % 3,699, % 2,685, % Personal: Utilities 717,336, % 736,384, % 717,832, % Commercial 6,232,872, % 5,733,370, % 5,308,163, % Industrial 1,533,038, % 1,399,919, % 1,195,987, % Mobile Homes 296,179, % 295,001, % 298,485, % Residential Inventory 388,383, % 2,271,756, % 607,522, % Special Inventory 336,706, % % % Total Valuation $82,878,115,408 $73,783,455,309 $66,477,718,533 Less Exemptions & Exclusions 7,613,886, % 8,082,809, % 6,238,916, % Net Taxable Assessed Valuation $75,264,228,572 $65,700,645,678 $38,892,596,407 Source: Comptroller of Public Accounts Self-Reports. EXEMPTIONS AND REDUCTIONS TO APPRAISED VALUES Fiscal Year ending September and Over Exemptions on Homestead (a) $4,104,719,699 $3,864,326,984 $3,836,427,052 $3,784,760,207 $3,621,375,691 Veterans Exemption 255,929, ,427, ,938, ,672, ,443,181 Freeport Loss 399,287, ,086, ,187, ,549, ,304,410 Productivity Loss 1,481,159,905 1,108,039,348 1,092,572,103 1,169,267,466 1,016,730,517 Abatement Loss 339,635, ,649, ,000, ,341, ,230,620 Solar 15,930, Other 75,506,813 1,796,347, ,975, ,284,617 86,418,226 Value Lost to 10% Cap 941,717, ,932, ,815, ,066, ,267,644 $7,613,886,836 $8,082,809,631 $6,238,916,719 $6,343,941,704 $5,897,770,289 (a) The County currently offers an exemption of $50,000 to property owners that qualify as disabled persons and/or persons 65 years of age or older. The County has studied the effects to the property tax base and tax revenues of raising that exemption to levels between $60,000 and $100,000. The exact extent to which such an increase in the current exemption would negatively impact the County s future tax revenues is unknown. A number of studies, however, have been undertaken to measure the extent of the impact of an increase in the current exemption, and these studies have concluded that such an increase in the current exemption would cause a decrease in the rate of growth of future tax revenues to the County. Source: Comptroller of Public Accounts - County Self-Reports. A-8

41 TEN LARGEST TAXPAYERS AND THEIR VALUATIONS The following table lists the ten taxpayers with the largest assessed values in the County as of September 30, 2006: Percent of Total Taxpayer Type of Business Market Value Taxable Value H.E.B. Grocery Retail $735,934, % AT&T Services 568,536, % Wal-Mart Stores, Inc. #2404 Retail 340,766, % USAA Finance/Insurance 337,380, % Baptist Hospital Sys (VHS San Antonio Partners LP) Medical 251,810, % Methodist Hospital System Medical 220,974, % Toyota Motor MFG Texas Inc. Manufacturing 202,348, % New Rivercenter Mall LP Retail 178,976, % Timewarner Cable San Antonio LP Services 178,828, % Frost National Bank Finance/Services 174,828, % Total $3,189,575, % Source: Bexar Appraisal District. CONSOLIDATED OVERLAPPING GROSS FUNDED DEBT PAYABLE FROM AD VALOREM TAXES Expenditures of the various taxing bodies within the territory of the County are paid out of ad valorem taxes levied by these taxing bodies on properties within the County. These political taxing bodies are independent of the County and may incur borrowings to finance their expenditures. The following statement of direct and estimated overlapping ad valorem tax debt was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the County, the County has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed below may have issued additional debt since the date stated in the table, and such entities may have programs requiring the issuance of substantial amounts of additional debt, the amount of which cannot be determined. The following table reflects the County s estimated share of overlapping gross debt of these various taxing bodies: Tax Debt Outstanding Estimated Overlapping Taxing Body As of 5/01/2007 Percent Tax Debt Alamo CCD $ 395,818, % $ 395,818,778 Alamo Heights ISD 76,788, % 76,788,963 City of Balcones Heights 1,775, % 1,775,000 Bexar Co. WC&ID # % -0- Bexar Co. WC&ID # % -0- Boerne ISD 115,289, % 23,311,467 Cibolo Creek Municipal Authority 10,532, % 10,532,067 Comal ISD 356,769, % 44,061,082 City of Converse 5,670, % 5,670,000 East Central ISD 50,039,996 (a) % 50,039,996 Edgewood ISD 114,237,481 (a) % 114,237,481 City of Elmendorf % -0- City of Fair Oaks Ranch 3,525, % 2,551,748 Floresville ISD 20,619, % 26,806 City of Grey Forest 675, % 675,000 Harlandale ISD 200,742,565 (a) % 200,742,565 City of Helotes 1,300, % 1,300,000 City of Hill Country Village 1,615, % 1,615,000 Town of Hollywood Park 75, % 75,000 (Table continued on next page) A-9

42 Consolidated Overlapping Gross Funded Debt Payable From Ad Valorem Taxes (continued from page A-9) Tax Debt Outstanding Estimated Overlapping Taxing Body As of 5/01/2007 Percent Tax Debt Judson ISD $ 357,850,636 (a) % $ 357,850,636 City of Kirby 1,195, % 1,195,000 Lackland ISD -0- (a) % -0- City of Leon Valley 3,705, % 3,705,000 City of Live Oak 20,935, % 20,935,000 City of Lytle 1,400, % 111,300 Medina Valley ISD 18,615,000 (a) 16.90% 3,145,935 North East ISD 852,023,655 (a) % 852,023,655 Northside ISD 1,064,074,988 (a) 99.62% 1,060,031,503 City of Olmos Park 5,675, % 5,675,000 Randolph Field ISD 1,716,385 (a) % 1,716,385 City of St. Hedwig 1,230, % 1,230,000 San Antonio ISD 505,689,560 (a) % 505,689,560 San Antonio MUD #1 1,435, % 1,435,000 San Antonio RA 52,180, % 52,180,000 City of San Antonio 960,375, % 960,375,000 City of Schertz 35,400, % 661,980 Schertz- Cibolo- University City ISD 210,215, % 26,276,977 City of Selma 5,910, % 43,143 City of Shavano Park 4,155, % 4,155,000 Somerset ISD 27,829,991 (a) 73.69% 20,507,920 City of Somerset % -0- S San Antonio ISD 115,714, % 115,714,314 Southside ISD 71,380,000 (a) % 71,380,000 Southwest ISD 88,415, % 88,415,000 City of Terrell Hills 4,580, % 4,580,000 City of University City 6,420, % 6,420,000 City of Windcrest 4,085, % 4,085,000 Total Overlapping $5,098,759,259 Bexar County 273,220,000 (b) % 273,220,000 Total Direct and Overlapping... $5,371,979,259 (a) Certain bonds issued by Texas Independent School Districts are eligible for payment from the State of Texas Instructional Facilities Allotments and from Existing Debt Allotments. These bonds, while obligations of the district, are payable in whole or in part from district allocations of state funds. Such funding may vary between districts and from year to year depending upon the state s contributions. (b) Includes the Certificates, the Pass-Through and Limited Tax Bonds, Series 2007 that sold on July 6, 2007 and closed on August 9, 2007, the Combination Tax and Revenue Certificates of Obligation, Series 2007, and the Unlimited Tax Road Bonds, Series NOTE: All outstanding capital appreciation bonds are shown at the original issue amount. (The remainder of this page intentionally left blank) A-10

43 CURRENT DEBT SERVICE REQUIREMENTS Outstanding Debt Service Series 2007 Issues Fiscal Limited Unlimited Pass-Through U/L Tax Comb Tax and Comb Flood Grand Year Tax (a) Tax Total Limited Tax Road Bonds Rev CO Control CO Total Total 2008 $ 19,064, $ 241, $ 19,305, $ 820, $ 783, $ 1,761, $ 4,671, $ 8,036, $ 27,342, ,830, , ,386, , ,567, ,760, ,669, ,963, ,349, ,024, , ,576, ,399, ,566, ,759, ,668, ,393, ,969, ,671, , ,223, ,407, ,568, ,761, ,669, ,407, ,630, ,732, , ,288, ,408, ,569, ,762, ,669, ,409, ,697, ,585, , ,139, ,415, ,569, ,763, ,669, ,417, ,556, ,408, , ,964, ,419, ,567, ,763, ,669, ,419, ,384, ,788, , ,340, ,425, ,565, ,760, ,672, ,422, ,763, ,134, , ,687, ,432, ,569, ,762, ,672, ,436, ,123, ,886, , ,438, ,441, ,566, ,762, ,668, ,439, ,877, ,884, , ,439, ,446, ,565, ,764, ,668, ,444, ,884, ,889, , ,441, ,452, ,567, ,762, ,670, ,452, ,894, ,521, , ,075, ,459, ,566, ,761, ,669, ,457, ,532, ,482, , ,035, ,466, ,568, ,760, ,670, ,465, ,501, ,482, , ,034, ,565, ,760, ,670, ,996, ,031, ,487, , ,041, ,569, ,762, ,670, ,003, ,044, ,568, ,761, ,670, ,999, ,999, ,568, ,760, ,668, ,997, ,997, ,565, ,761, ,670, ,997, ,997, ,569, ,762, ,670, ,002, ,002, ,668, ,668, ,668, ,668, ,668, ,668, ,671, ,671, ,671, ,671, ,671, ,671, ,670, ,670, ,670, ,670, ,670, ,670, ,667, ,667, ,667, ,670, ,670, ,670, ,669, ,669, ,669, ,667, ,667, ,667, $169,874, $8,545, $178,419, $30,960, $30,566, $35,235, $140,095, $236,857, $415,277, (a) Existing flood control debt included in total. A-11

44 THE COUNTY CREATION AND LOCATION The County was created in 1836 and organized in 1837 as one of the original counties of the Republic of Texas and is now the third most populous of the 254 counties in the State of Texas. The County is located in south central Texas and is a component of the San Antonio Metropolitan Statistical Area, the nation's thirtieth largest Metropolitan Statistical Area and the third largest in Texas in The 2000 population of the County was 1,392,931. See APPENDIX B for more information concerning the County. The principal city within the County is San Antonio, the county seat. The economy is based on manufacturing, agriculture, mineral production, medical facilities, military activities, and tourism. ADMINISTRATION OF THE COUNTY Those officials having responsibility for the financial administration of the County are the County Judge and four County Commissioners (the "Commissioners Court"), the County Tax Assessor Collector and the County Clerk (all of whom are elected officials), the County Auditor (who is appointed by the District Judges), and the Budget Officer (who is an employee of Commissioners Court). See page vi for the names of the current office holders. The Commissioners Court is the governing body of the County. It has certain powers expressly granted by the Texas Constitution and by the Legislature and powers necessarily implied from such grants. Among other things, it approves the budget, determines the tax rates, approves contracts in the name of the County, determines whether indebtedness should be authorized and issued, and appoints certain County officials. The County Judge is the presiding official of the Commissioners Court and is elected for a four-year term by the voters of the County. Each Commissioner represents one of the four precincts into which the County is divided. Each of the four Commissioners is elected by the voters of his precinct for a four-year term. The Tax Assessor Collector is responsible for collecting ad valorem taxes, collecting certain State and County fees and other taxes. The County Clerk's duties include Treasurer responsibilities as related to depositing money received by the County in the depository selected by the Commissioners Court and cosigning all of the County's checks. In addition, the County Clerk is the Clerk of the Commissioners Court and civil, criminal, and probate courts. The County Clerk is also the recorder of the County and issues and records, marriage licenses, assumed business names, and records military discharges, cattle brands, uniform commercial code filings and deeds. The County Auditor is the chief financial officer of the County and is responsible for substantially all County finance and accounting control functions. The responsibilities include those of auditing, accounting system design, financial planning, financial relations, payroll and is charged statutorily with strict enforcement of the law governing county finances. The County Auditor is appointed for a two-year term by, and is accountable to, the 24 State District Judges of whose courts are located in the County. The County Budget Officer is appointed by the Commissioners Court and is responsible for preparing the County s annual budget. These responsibilities also include those of Chief Investment Officer, debt issuance planning and health insurance administration. In addition, the County Budget Officer develops the long range financial forecast and completes special studies and cost/benefit analyses of various issues that have a fiscal impact on the County. EMPLOYEES The following table shows the number and employment category of the County's employees on September 30, years 2000 through General Government Judicial Public Safety 2,467 2,384 2,331 2,325 2,333 2,270 2,047 Education & Recreation Highways Health & Public Welfare Total 4,459 4,353 4,236 4,201 4,215 4,143 3,906 A-12

45 COUNTY SERVICES The County operates a jail and detention system and various parking facilities, constructs and maintains roads, and provides various levels of civil and criminal courts, a district attorney's office, a county sheriff's department, juvenile probation and detention, parks, and certain other public health and social welfare services. The Bexar County Hospital District which uses the assumed name University Health System (the "System"), is a political subdivision of the State of Texas which owns and operates several health care facilities and is the major teaching facility for the University of Texas Health Science Center. The Commissioners Court appoints the governing body of the System and approves the System's annual budget. The financial information contained herein does not include information concerning the System. The financial statements of the County include the Bexar County Housing Finance Corporation, the Bexar County Health Facilities Development Corporation, and the Bexar County Industrial Development Corporation as blended component units. In March, 2005, Commissioners Court recognized the Deputy Sheriff s Association of Bexar County (DSABC) as the exclusive bargaining agent for collective bargaining. The DSABC represents about 1,450 Sheriff s Office uniformed employees in the Detention and Law Enforcement careers. These 1,451 positions represent an annual payroll of $52.3 million. The purpose of the bargaining is to come to agreement pertaining to wages, hours and conditions of employment and enter into a contract between the members of the DSABC and the County. To prepare for negotiations the County has formed a negotiation team composed of senior staff from the Sheriff s Office and Commissioners Court to work out an agreement. RETIREMENT PROGRAM Plan Description The County provides retirement, disability and death benefits for all of its full-time employees through a non-traditional defined benefit pension plan in the statewide Texas County and District Retirement System (TCDRS). The Board of Trustees of TCDRS is responsible for the administration of the statewide agent multiple-employer public employee retirement system which consists of 575 non-traditional defined benefit pension plans. TCDRS, in the aggregate issues a Comprehensive Annual Financial Report (CAFR) on a calendar year basis. The CAFR is available upon written request from the TCDRS Board of Trustees at P. O. Box 2034, Austin, Texas The plan provisions are adopted and may be amended by the governing body of the County within the options available in the Texas state statutes governing TCDRS (TCDRS Act). Members can retire at ages 60 and above with 8 or more years of service, with 20 years of service regardless of age, or when the sum of their age and years of service equals 75 or more. Members are vested after 8 years of service but must leave their accumulated deposits in the plan to receive any employer-financed benefit. Members who withdraw their personal deposits in a lump-sum and who are not eligible to retire are not entitled to any amounts contributed by their employer. Benefit amounts are determined by the sum of the employees' deposits to the plan, with interest, and employer-financed monetary credits. The level of these monetary credits is adopted by the governing body of the employer within the actuarial constraints imposed by the TCDRS Act, so that the resulting benefits can be expected to be adequately financed by the employer's commitment to contribute. At retirement, death, or disability, the benefit is calculated by converting the sum of the employee's accumultated deposits and the employer-financed monetary credits to a monthly annuity using annuity purchase rates prescribed by the TCDRS Act. Funding Policy The County has elected the Annually Determined Contribution Rate (ADCR) plan provisions of the TCDRS Act. The plan is funded by monthly contributions from both employee members and the employer based on the covered payroll of employee members. Under the TCDRS Act, the contribution rate of the employer is actuarially determined annually. The County contributed using the actuarially determined rate of 9.43% for the months of the accounting year 2005, and 9.49% for the months of the accounting year The deposit rate payable by all employee members for the calendar year 2006 is the rate of 7% as adopted by the governing body of the County. The employee deposit rate and the employer contribution rate may be changed by the governing body of the employer within the options available in the TCDRS Act. A-13

46 Annual Pension Cost For the County's accounting year ended September 30, 2006, the annual pension cost for the TCDRS plan for its employees was $16,294,613 and the actual contributions were $16,294,613. The annual required contributions were actuarially determined as a percent of the covered payroll of the participating employees, and were in compliance with the GASB Statement No. 27 parameters based on the actuarial valuations as of December 31, 2003 and December 31, 2004, the basis for determining the contribution rates for calendar years 2005 and The December 31, 2005 actuarial valuation is the most recent valuation. Actuarial Valuation Information Actuarial valuation date December 31,2003 December 31, 2004 December 31, 2005 Actuarial cost method Entry age Entry age Entry age Amortization method Level percentage of Level percentage of Level percentage of payroll, open payroll, open payroll, open Amortization period in years Asset valuation method Long-term appreciation Long-term appreciation Long-term appreciation With adjustment With adjustment With adjustment Actuarial assumptions: Investment return* 8.0% 8.0% 8.0% Projected salary increases* 5.5% 5.5% 5.5% Inflation 3.5% 3.5% 3.5% Cost-of-living adjustments 0.0% 0.0% 0.0% * Includes inflation at the stated rate. Trend Information Accounting Actual Pension Percentage of Net Pension Year Ending Cost (APC) APC Contributed Obligation September 30, 2004 $15,035, % $0 September 30, 2005 $15,664, % $0 September 30, 2006 $16,294, % $0 Schedule of Funding Progress UAAL as a Actuarial Unfunded Percentage of Actuarial Actuarial Accrued AAL Funded Annual Covered Valuation Value Liability (UAAL) Ratio Covered Payroll Date Assets (a) (AAL) (b) (b-a) (a/b) Payroll (c) ((b-a)/c) 12/31/03 $378,486,006 $438,774,462 $60,288, % $153,332, % 12/31/04 406,467, ,799,283 61,332, % 157,693, % 12/31/05 439,658, ,135,375 65,476, % 167,111, % A-14

47 BEXAR COUNTY, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN GENERAL FUND FUND BALANCE For the Fiscal Year Ended September REVENUES: Ad Valorem Taxes $188,613,835 $170,881,729 $159,967,421 $141,392,215 $132,137,870 Other Taxes, Licenses, Fees & Permits 8,084,404 6,289,868 5,901,983 5,393,339 5,152,284 Intergovernmental Revenue 5,702,551 10,511,528 5,630,135 3,696,843 3,559,906 Fines and Court Costs 21,925,747 19,314,287 17,028,893 18,312,477 16,481,531 Fees on Motor Vehicles 5,169,201 4,913,787 4,739,518 4,595,760 4,542,263 Other Fees 13,307,060 8,248,916 7,596,272 7,535,809 6,265,727 Detention Board Bills 667, , , ,365 3,519,428 Commissions from Govt. Units 3,334,166 3,495,393 4,099,299 3,659,432 3,250,092 Revenue from Use of Assets 15,196,066 12,714,860 11,323,111 5,204,622 5,635,394 Net Decrease in Investment Fair Value ( 18,157 ) ( 148,992 ) -- Sales Refunds and Miscellaneous 5,573,009 5,810,431 5,533,809 4,557,506 4,557,158 TOTAL REVENUES 267,573, ,967, ,648, ,181, ,101,653 EXPENDITURES: General Government 50,904,335 48,617,954 46,290,205 38,419,821 35,525,202 Judicial 59,610,351 54,689,066 52,435,452 49,720,800 46,118,600 Public Safety 124,713, ,039, ,589, ,766, ,741,976 Education and Recreation 5,642,199 5,127,360 4,550,752 4,719,878 4,474,742 Public Works 913, ,506 1,275, , ,467 Health and Public Welfare 4,229,257 3,160,499 3,134,218 3,376,897 3,329,899 Capital Expenditures 34, , , , ,785 Debt Service 164, TOTAL EXPENDITURES 246,211, ,520, ,415, ,915, ,589,671 Excess (Deficiency) of Revenues Over Expenditures 21,362,472 10,446,755 2,233,562 ( 10,733,978 ) ( 9,488,018 ) OTHER FINANCING SOURCES (USES): Proceeds from Long Term Debt , Operating Transfers In 564, ,847 2,965,120 4,108,647 1,050,066 Operating Transfers (Out) ( 3,109,883 ) ( 3,890,821 ) ( 4,672,896 ) ( 1,497,516 ) (1,393,992 ) Total Other Financing Sources (Uses) ( 2,545,738 ) ( 3,021,974 ) ( 1,707,776 ) 3,235,848 ( 343,926 ) Net Change in Fund Balance 18,816,734 7,424, ,786 ( 7,498,130 ) ( 9,831,944 ) Beginning Fund Balance (Oct. 1) 29,910,020 22,485,239 21,959,453 29,457,583 39,289,527 Ending Fund Balance (Sept. 30) $ 48,726,754 (1) $ 29,910,020 $ 22,485,239 $ 21,959,453 $ 29,457,583 Source: County s Annual Financial Reports (1) The County anticipates that the unaudited fund balance in the General Fund will be approximately $44,000,000 at September 30, The fund balance in the General Fund could significantly change when the accounting has been completed for the fiscal year. A-15

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49 APPENDIX B BEXAR COUNTY ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS

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51 This Appendix contains a brief discussion of certain economic and demographic characteristics of the area in which the County is located. Information in this Appendix has been obtained from the sources noted. They are believed to be reliable, although no investigation has been made to verify the accuracy of such information. Information concerning the City of San Antonio, Texas (the City) and its operations is included in this Appendix solely for general information; the City is not obligated in any way to support payment of the Bonds. Creation and Location of Bexar County The County was organized in 1836 as one of the original counties of the Republic of Texas and is now the third largest of the 254 counties in the State of Texas. According to the U.S. Census of Population, the 2000 population of the County was 1,392,931. The County is located in South Central Texas on the edge of the Balcones Escarpment and Coastal Plains, with the City of San Antonio as the County seat. The County has an area of approximately 1,248 square miles, and contains 21 other incorporated cities within its boundaries. The City covers approximately 430 square miles. The City was founded in the early eighteenth century and was incorporated by the Republic of Texas in The City s 2000 population estimate of 1,144,646 makes it the third largest city in Texas and the ninth largest in the United States. The following table provides, at the dates shown, the population of the City, the County, and the Area MSA, which includes Bexar, Comal, Wilson and Guadalupe Counties. Calendar Year (a) City of San Antonio Bexar County Area MSA , , , , , , , , , , , , , , , , , , , ,870 1,071, ,933 1,185,394 1,337, ,144,646 1,392,931 1,592,383 (a) Source: U.S. Census of Population, as of April 1 of the year shown. Economic Factors The County has a diversified economic base which is composed of agribusiness, manufacturing, construction, tourism, medicine and the military. The County s proximity to Mexico provides favorable conditions for international business relations in the areas of agriculture, tourism, manufacturing, wholesale and retail markets. Approximately fifty percent (50%) of U.S. exports to Mexico and fifty percent (50%) of Mexican exports to the U.S. pass through San Antonio. Trade between the United States and Mexico was valued at $45.84 billion annually in 1995 and was expected to exceed $98.00 billion in The increase in trade is largely attributed to the passage of the North American Free Trade Agreement (NAFTA) in San Antonio is also the headquarters for the North American Development Bank (NADBank), a bi-national institution created by NAFTA. The intended purpose of NADBank is to help finance environmental infrastructure within 60 to 100 miles (approximately) of the US/Mexican border. With a lending capacity of $2 billion, NADBank finances projects including water, wastewater and solid waste programs. Industries in the County range from the manufacturing of apparel, food products, aircraft, electronics and pharmaceuticals to iron and steel products and oil well equipment. San Antonio is a major insurance center in the southwest, serving as the headquarters for several insurance companies, including United Services Automobile Association, the nation's 6th largest private automobile insurer and the 10th largest homeowner s insurer. The medical and bio-medical industry is now the number one economic generator in the County, having an economic impact of nearly $14.3 billion on the local economy in 2005, maintained a $4.2 billion payroll and employed 108,000 persons. The key components of the health care industry are three major military medical centers, the South Texas Medical Center (which includes five University of Texas health professional schools, nine major hospitals and 80 health-related facilities), the Southwest Foundation for Biomedical Research, and the Southwest Research Institute. The military presence in the County continues to be a principal component of the area economy. The active military installations in the County include Fort Sam Houston and the Air Force Bases of Lackland and Randolph, as well as the "privatized" installation of Brooks City-Base. These facilities provide over 72,500 defense-related jobs and an estimated $5 billion annual direct economic impact. Although the military mission of Kelly Air Force Base concluded in 2001 as a result of the last round of base closure and realignment process in 1995, the Air Force still retains over 2 million square feet of lease space at the facility now known as Kelly USA. The County also is home to Camp Bullis which offers nearly 28,000 acres of B-1

52 unparalleled training infrastructure to ensure the readiness of military and government agencies. The demand for training at Camp Bullis is strong, particularly in light of the ongoing global war on terror and its capacity to support joint military operations and homeland security missions. San Antonio stands to gain both military and civilian positions with the addition of a satellite campus of the National Security Agency and additional missions added to existing bases. In 2005, a fifth round of base closures and realignments over the last 18-years was initiated by the U.S. Department of Defense. Final recommendations of the 2005 Defense Base Closure and Realignment Commission are recognized to have profound effects on many communities and the people who bring them to life as well as on the uniformed men and women embodying our Armed Forces. Recommendations were made to strategically transform the military infrastructure to meet current and future missions of the United States of America. For the County, key recommendations were made and approved with regard to the closure of a Defense Finance and Accounting Service field site and Brooks City-Base, as well as the realignment of Lackland Air Force Base. Despite the closure of military missions at Brooks City-Base, several of its missions have been relocated to Fort Sam Houston and the Air Force Bases of Lackland and Randolph so as to maximize existing technical synergies and co-locate similar research and development activities. The approved recommendations also significantly expand Fort Sam Houston to become the nation's premier military medical training base and the future home of Army installation management, and management of family support activities and community programs. The County is supportive of tax phase-in incentives and other economic development programs to extensively market and encourage the commercial redevelopment of properties previously used by the military at Brooks-City Base and Kelly USA. In 2005, the net effect of closures and realignments is an increase of more than 3,400 new military jobs at County military installations. The success experienced in this round of base closures and realignments was facilitated by the San Antonio Military Missions Task Force, established in 2004 by the County, the City, Greater San Antonio Chamber of Commerce and other community leaders. Agribusiness is still a leading industry in the County. The agricultural industry is not limited to farmers and ranchers, but includes storage, processing and distribution of farm commodities and products made from them. The cornerstone of the manufacturing sector is the new Toyota Tundra manufacturing facility. In November 2006, the first Toyota Tundra rolled off the assembly line in San Antonio. Toyota expects to produce 200,000 trucks per year and have a payroll exceeding $37 million for 2,000 jobs. The facility covers 2,000 acres and represents an investment of $850 billion. The 21 on-site suppliers will employ 2,100 people and represent an additional investment of over $300 million (Source: Toyota). As the trucks roll off the line, the jobs also spin off, possibly adding 5,300 to 13,000 new jobs to Bexar County in associated industries (Source: TWC). Union Pacific's new intermodal railroad facility near the Toyota plant will open in 2008, and the company is investing in infrastructure improvements to railways in and around Bexar County (Source: United Pacific). In June 2005, Washington Mutual announced its selection of San Antonio as the location of its new regional operations center and the purchase of the former MCI San Antonio campus located at Stone Oak, a three-building campus with 405,000 square feet of prime office space that can accommodate as many as 2,250 employees, and can be expanded to accommodate as many as 4,200 employees. In one of the largest job creation announcements in the United States so far this year, Washington Mutual committed to bringing as many as 4,200 jobs to Texas over the next seven years with up to 3,000 of those jobs based in San Antonio. The financial services sector is growing faster in San Antonio than any other metropolitan area at an annual rate of 4.7 percent. The financial industry has become an important component of the Bexar County economy. The most recent addition to the finance community is the Washington Mutual regional operations call center. This development is expected to bring over 3,000 jobs to the area over seven years and add $1.4 billion to the local economy. There are eight financial institutions headquartered in San Antonio and four regional headquarters located in the city. The financial industry is the third largest employer with over 50,000 employees, and has the highest employee pay with an average salary of $52,614, over $18,000 higher than the area average salary (Source: City of San Antonio). Headquartered in San Antonio, Rackspace Managed Hosting is the fastest growing manage hosting specialist in the world. The company was founded in San Antonio in 1998 and currently manages more than 22,000 servers in seven data centers in Europe and the U.S. Rackspace was awarded a $22 million grant from the Texas Enterprise Fund as part of an incentive package to help Rackspace relocate within Bexar County and create up to 4,000 new jobs. The company plans to move 1,300 employees to the new location, hire 3,000 more in San Antonio over the next five years, and another 1,000 statewide. The San Antonio River Improvement Project is a 10-year, $140 million investment by the City, the County, and the U.S. Army Corps of Engineers in flood control, amenities, ecosystem restoration and recreational improvements to the San Antonio River, both north and south of downtown San Antonio. Throughout the ten-year project, the San Antonio River Authority will provide project and technical management, as well as overall project coordination between the project partners. Over the life of the project, it is anticipated that the County will contribute approximately $53 million from the County s Flood Control Tax, specifically for flood control elements of the project. The City contribution is anticipated to be approximately $37 million over the life of the project, derived from the City s capital improvements fund for amenities and recreation elements. B-2

53 The NSA has announced plans to establish a new campus on the far west side of San Antonio at West Military Drive and Loop 410. The new campus will accommodate 5,200 employees. In addition to the 2,200 current employees, the NSA plans to hire and relocate at least 3,000 more employees to the new campus by The City enjoys the distinction as a favored convention site in the southwest, primarily due to its favorable climate and recreational facilities. The following convention statistics were compiled by the San Antonio Convention and Visitors Bureau and reflect only bureau hosted conventions: Calendar Year (a) Attendance Room Nights Estimated Delegate Expenditures ($ Millions) , , , , , , , , , , , , , , , , , , , , , , (a) Figures based on expenditures per Convention delegate party. Employment Statistics The following table indicates the total civilian employment in the County for the period December 2002 through December December 2006 December 2005 December 2004 December 2003 December 2002 Civilian Labor Force 744, , , , ,528 Total Employment 715, , , , ,031 Total Unemployment 28,408 32,021 36,459 36,716 36,497 Unemployment Rate 3.8% 4.4% 5.0% 5.1% 5.2% Texas Unemployment Rate 4.1% 4.8% 5.8% 6.8% 6.3% Source: Texas Workforce Commission. Education There are 16 independent school districts in the County with 212 elementary schools, 63 middle schools and 41 high schools. Students attend school districts in which they reside. There is no busing in effect. In addition, San Antonio has over 100 private and parochial schools at all education levels. San Antonio has 17 public and private training institutions providing higher education with a combined total enrollment of 81,479 for the fall semester of There are 6 accredited universities offering degrees in all major fields of study, many at the graduate level. Water Supply Historically and currently, the City obtains all of its water through wells drilled into a geologic formation known as the Edwards Limestone Formation. The portion of the formation supplying water in the City s area has been the Edwards Underground Water Reservoir (the Edwards Aquifer ) and since 1978 has been designated by the Environmental Protection Agency as a sole-source aquifer under the Safe Drinking Water Act. The Edwards Aquifer lies beneath an area approximately 3,600 square miles in size, and including its recharge zone, it underlies all or part of 13 counties, varying from 5 to 30 miles in width and stretching over 175 miles in length, beginning in Bracketville, Kinney County, Texas, in the west and stretching to Kyle, Hays County, Texas, in the east. The Edwards Aquifer receives most of its water from rainfall runoff, rivers, and streams flowing across the 4,400 square miles of drainage basins located above it. B-3

54 Much of the Edwards Aquifer region consists of agricultural land, but areas of population ranging from communities with only a few hundred residents to urban areas with well over one million citizens exist as well. The Edwards Aquifer supplies nearly all the water for the municipal, domestic, industrial, commercial, and agricultural needs in its region. Naturally occurring artesian springs, such as the Comal Springs and the San Marcos Springs, are fed with Edwards Aquifer water and are utilized for commercial, municipal, agricultural, and recreational purposes, while at the same time supporting ecological systems containing rare and unique aquatic life. The water level of the Edwards Aquifer has never fallen below the uppermost part of the Edwards Aquifer even during extreme and lengthy drought conditions lasting from 1947 to The maximum fluctuation of water levels at the City s index well has been about 91 feet, with the recorded low of 612 feet above sea level in August, 1956 and a recorded high of 703 feet above sea level in June, This summer the Edwards Aquifer hit 699 feet above sea level. The historical (1934 to 1999) average water level at the index well in San Antonio is approximately 664 feet above sea level. San Antonio Water System ( SAWS ), the major water purveyor in the County as the water agency of the City, sets all pumps at 575 feet to insure continuous access to Edwards Aquifer water in any anticipated condition. The Edwards Aquifer is recharged by see page from streams and by precipitation infiltrating directly into the cavernous, honeycombed, limestone outcroppings in its north and northwestern area. Practically continuous recharge is furnished by spring-fed streams, with storm water runoff adding additional recharge, as well. The historical annual recharge to the reservoir is approximately 679,000 acre-feet. The average annual recharge over the last four decades, however, including the aforementioned drought period, is approximately 791,300 acre-feet. The lowest recorded recharge was 43,000 acre-feet in 1956, while the highest was 2,485,000 acre-feet in Recharge has been increased by the construction of recharge dams over an area of the Edwards Aquifer exposed to the surface known as the recharge zone. The recharge dams, or flood-retarding structures, slows flood waters and allows much of the water that would have otherwise bypassed the recharge zone to infiltrate the Edwards Aquifer. Enhancing the City s Water Supply The City has relied on the Edwards Aquifer as its sole source of water since the 1800 s. Beginning in the 1980 s and continuing today, however, the conservation and regulation of the water in the Edwards Aquifer has been the subject of intense scrutiny that has led to both extensive litigation and federal and state agency initiation of regulatory action. Based upon population and water demand projections, along with various regulatory and environmental issues, the City recognizes that additional water sources supplementing its use of the Edwards Aquifer will be required to meet the City s long-term water needs. SAWS Resource Development department is charged with the responsibility of identifying additional water resources for the City and its surrounding areas. New water resource projects range from optimizing the City s current source through conservation measures to identification and procurement of completely new and independent water sources. These efforts are guided by the 1998 Water Resource Plan, the first comprehensive, widely supported water resource plan for the City, which established programs for formulating and implementing both immediate and long-term water plans to enhance the City s water supply. In October, 2000, the City Council created a permanent funding mechanism (the Water Supply Fee ) to be used for water supply development and water quality protection. The fee is based upon a uniform rate per 100 gallons of water used and is applied to all customers. The Water Supply Fee is projected to generate sufficient revenue to support approximately $642 million in capital expenditures, as well as sufficient operational funds to conduct the planning, operation, and maintenance of such water resource facilities. The multi-year financial plan will be updated every 3 years to ensure sufficient revenues are available to meet the water resource requirements. Water Supply Fee Year Incremental Charge Per 100 Gallons Total Charge Per 100 Gallons 2001 $ $ Source: SAWS. SAWS has determined that the City s water needs can be met through the implementation of an array of programs and projects, including a critical management plan, conservation, agricultural irrigation efficiencies, reuse, surface water, non- Edwards Aquifer groundwater, enhanced recharge capabilities, and aquifer storage and recovery. SAWS has already initiated and/or implemented many such programs in an effort to increase the supply of water available to the City. B-4

55 2006 Twenty Largest Employers Firm Name Total (a) Category Lackland AFB/37th Training Wing 45,358 Government H.E.B. Grocery Company 14,920 Retail USAA 13,965 Finance/Insurance City of San Antonio 12,000 Government Northside I.S.D. 10,800 Services Randolph Air Force Base 10,201 Government Fort Sam Houston 8,360 Government San Antonio I.S.D. 7,685 Services Northeast I.S.D. 7,574 Services Methodist Healthcare System 7,027 Medical SBC Communications 5,941 Services UT Health Science Center At San Antonio 5,329 Medical University Health System 5,000 Medical Baptist Health System 4,835 Medical Bexar County 4,500 Government University of Texas at San Antonio 4,228 Services City Public Services 3,900 Utilities Valero 3,277 Utilities U.S. Postal Service 2,742 Government World Savings Bank 2,742 Finance/Services Source: San Antonio Business Journal Book of Lists 2006 and Greater San Antonio Chamber of Commerce (a) Includes a variable number of part-time employees for certain employers. Growth Indices (City of San Antonio) As Of 12/31 Electric Customers CPS Energy (a) Gas Customers Water Customers (b) (a) Source: CPS Energy. (b) Source: San Antonio Water System , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,476 B-5

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57 APPENDIX C BEXAR COUNTY, TEXAS AUDITED FINANCIAL STATEMENT For the Year Ended September 30, 2006

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