OFFICIAL STATEMENT DATED FEBRUARY 22, RATING: Standard & Poor s AA- (See OTHER INFORMATION Rating herein)

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1 OFFICIAL STATEMENT DATED FEBRUARY 22, 2016 NEW ISSUE BOOK-ENTRY-ONLY RATING: Standard & Poor s AA- (See OTHER INFORMATION Rating herein) IN THE OPINION OF BOND COUNSEL, UNDER EXISTING LAW, INTEREST ON THE CERTIFICATES IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES AND IS NOT INCLUDED IN THE ALTERNATIVE MINIMUM TAXABLE INCOME OF INDIVIDUALS. SEE TAX MATTERS FOR A DISCUSSION OF THE OPINION OF BOND COUNSEL, INCLUDING A DESCRIPTION OF ALTERNATIVE MINIMUM TAX CONSEQUENCES FOR CORPORATIONS. THE CERTIFICATES HAVE BEEN DESIGNATED AS QUALIFIED TAX-EXEMPT OBLIGATIONS FOR FINANCIAL INSTITUTIONS. SEE TAX MATTERS PURCHASE OF TAX-EXEMPT OBLIGATIONS BY FINANCIAL INSTITUTIONS. $1,445,000 CITY OF CARTHAGE, TEXAS (A political subdivision of the State of Texas located in Panola County, Texas) TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2016 Dated Date: March 1, 2016 Interest accrues from the Date of Delivery (defined below) Due: As shown on the inside cover page The City of Carthage, Texas (the City ) is issuing its Tax and Revenue Certificates of Obligation, Series 2016 (the Certificates ) pursuant to the applicable provisions of the Texas Constitution, the general laws of the State of Texas, including particularly Subchapter C, Chapter 271, Texas Local Government Code, as amended, and an ordinance of the City authorizing the issuance of the Certificates (the Ordinance ). Simultaneously with the issuance of the Certificates, the City is issuing its $4,300,000 General Obligation Refunding Bonds, Series Interest will accrue from the Date of Delivery (defined below) of the Certificates to the initial purchaser (the Initial Purchaser ) and is payable on November 15, 2016, and on each May 15 and November 15 thereafter until maturity or prior redemption. Interest will be calculated on the basis of a 360-day year of twelve 30-day months. The Certificates are direct obligations of the City payable from and secured by an annual ad valorem tax levied, within the limits prescribed by law, against all taxable property located within the City, and from a limited pledge of a subordinate lien on the net revenues of the City s water and sewer system, in an amount not to exceed $1,000. See THE CERTIFICATES Sources of Payment herein. The Certificates will be issued in fully-registered form and, when issued, will be registered in the name of Cede & Co., the nominee of The Depository Trust Company, New York, New York ( DTC ), as the registered owner, pursuant to the book-entry-only system described herein. Beneficial ownership of the Certificates may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the beneficial owners thereof, unless use of the book-entry only system is discontinued. Principal of, premium, if any, and interest on the Certificates will be payable by The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (the Paying Agent/Registrar ) to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Certificates. See THE CERTIFICATES Book-Entry-Only System herein. Proceeds from the sale of the Certificates will be used for: (i) certain improvements to the City s water and sewer system; (ii) certain improvements to City streets; (iii) improvements to City parks; (iv) drainage improvements within the City; (v) the costs for professional services rendered in connection with the aforementioned projects; and (vi) the costs and expenses of issuing the Certificates. See THE CERTIFICATES Sources and Uses herein. SEE INSIDE COVER FOR MATURITY SCHEDULE The Certificates are subject to optional redemption prior to their scheduled maturities as described herein. See THE CERTIFICATES Optional Redemption herein. Additionally, the Certificates maturing May 15 in the years 2028 and 2030, (the Term Certificates ) are subject to mandatory sinking fund redemption. See THE CERTIFICATES Mandatory Redemption herein. The Certificates are offered for delivery when, as and if issued by the City and received by the Initial Purchaser subject to the approving opinion of the Attorney General of the State of Texas and Andrews Kurth LLP, Houston, Texas, Bond Counsel for the City. See LEGAL MATTERS herein and Form of Opinion of Bond Counsel attached hereto as Appendix D. It is expected that the Certificates will be available for delivery through the facilities of DTC on or about March 29, 2016 (the Date of Delivery ).

2 MATURITY SCHEDULE $1,445,000 CITY OF CARTHAGE, TEXAS TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2016 Initial Principal Interest Reoffering Maturity Amount Rate Yield (b) CUSIP No (c) 5/15/2019 $ 100, % 0.850% NE9 5/15/ , % 1.000% NF6 5/15/ , % 1.150% NG4 5/15/ , % 1.300% NH2 5/15/ , % 1.450% NJ8 5/15/ , % 1.550% NK5 5/15/ , % 1.700% NL3 5/15/2026 (a)(d) 125, % 1.800% NM1 $265, % Term Certificates Due May 15, 2028 (a)(d) to Yield (b) 1.950% CUSIP No (c) NP4 $275, % Term Certificates Due May 15, 2030 (a)(d) to Yield (b) 2.100% CUSIP No (c) NR0 (Interest accrues from Date of Delivery) (a) The City reserves the right, at its option, to redeem Certificates having stated maturities on and after May 15, 2026, in whole or in part in principal amounts of $5,000 or any integral multiple thereof on May 15, 2025, or any date thereafter at par plus accrued interest from the most recent interest payment date to the date fixed for redemption. See THE CERTIFICATES Optional Redemption herein. Additionally, the Certificates maturing May 15 in the years 2028 and 2030 (the Term Certificates ) are subject to mandatory sinking fund redemption. See THE CERTIFICATES Mandatory Redemption herein. (b) The initial reoffering prices or yields of the Certificates are furnished by the Initial Purchaser (as defined herein) and represent the initial offering prices or yields to the public, which may be changed by the Initial Purchaser at any time. (c) CUSIP numbers are included solely for the convenience of the owners of the Certificates. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Global Services. None of the Initial Purchaser, the City, nor the Financial Advisor is responsible for the selection or correctness of the CUSIP numbers set forth herein. (d) Priced to May 15, 2025, the first optional redemption date. ii

3 ELECTED OFFICIALS, CITY OFFICIALS AND CONSULTANTS The City The City of Carthage is a political subdivision and municipal corporation of the State of Texas (the "State"), duly organized and existing under the laws of the State, including the City's Home Rule Charter. The City was incorporated in 1948 and has operated under a "Home Rule Charter" since incorporation. The City operates under the Council/Manager form of government consisting of the mayor and four commission members who are elected at large for staggered two-year terms. Elected Officials Name Position Term Expires May Occupation Lynn C. Vincent Mayor 2016 President, First State Bank & Trust Olin Joffrion, Jr. Mayor Pro Tem and 2017 Realtor, Insurance Agent Commissioner, Place 1 John William Cooke Commissioner, Place Owner, Car Dealership Ida Mae Beck Commissioner, Place Homemaker Jerry Hanszen Commissioner, Place Hanszen Broadcasting, Owner Appointed Position Name Position Length of Service Brenda Samford City Manager 35 Debbie Pierce City Secretary 25 Wendy Hudman City Accountant 3 Consultants Bond Counsel... Andrews Kurth LLP Houston, Texas Certified Public Accountants... Karen A. Jacks and Associates, P.C. Longview, Texas Financial Advisor... USCA Municipal Advisors, LLC Houston, Texas For Additional Information Contact: Brenda Samford City of Carthage 812 West Panola P. O. Box 400 Carthage, Texas Phone: bsamford@carthagetexas.com Mr. Ben J. Rosenberg USCA Municipal Advisors, LLC 300 W. 6 th Street, Suite 1900 Austin, Texas Telephone: (512) brosenberg@uscallc.com iii

4 USE OF INFORMATION IN OFFICIAL STATEMENT No dealer, broker, salesman or other 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. This Official Statement does not constitute an offer to sell Certificates in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. Certain information set forth herein has been obtained from the City and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Financial Advisor or the Initial Purchaser. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described. See CONTINUING DISCLOSURE OF INFORMATION herein for a description of the City s undertaking to provide certain information on a continuing basis. IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE INITIAL PURCHASER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. NONE OF THE CITY, ITS FINANCIAL ADVISOR, BOND COUNSEL OR THE INITIAL PURCHASER MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK-ENTRY ONLY SYSTEM. THE 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 THEREOF. The agreements of the City 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. iv

5 TABLE OF CONTENTS MATURITY SCHEDULE... ii ELECTED OFFICIALS, CITY OFFICIALS, AND CONSULTANTS... iii USE OF INFORMATION IN OFFICIAL STATEMENT... iv OFFICIAL STATEMENT SUMMARY... vi SELECTED INFORMATION OF THE CITY... viii INTRODUCTION... 1 THE CERTIFICATES... 1 Purpose... 1 Sources and Uses... 1 General... 2 Description... 2 Authority for Issuance... 2 Sources of Payment... 2 Optional Redemption... 2 Mandatory Redemption... 2 Notice of Redemption... 3 Book-Entry-Only System... 3 Ownership... 5 Transfers and Exchanges... 5 Remedies in the Event of Default... 6 Paying Agent/Registrar... 6 Record Date for Interest Payment... 7 Defeasance... 7 TAX INFORMATION... 7 General... 7 Tax Rate Limitation... 7 The Tax Code... 7 Property Subject to Taxation by the City... 8 Valuation of Property for Taxation... 8 Residential Homestead Exemptions... 9 Freeport Goods and Goods-in-Transit Exemption... 9 Carthage Economic Development Corporation Tax Increment Financing Other Economic Development Programs City and Taxpayer Remedies Levy and Collection of Taxes City s Rights in the Event of Tax Delinquencies ISSUER INFORMATION Authorized But Unissued General Obligation Debt 11 Anticipated Issuance of Additional Debt Other Obligations Employee Retirement Plan Financial Policies Deposits and Investments LEGAL MATTERS Legal Opinions Litigation No Litigation Certificate TAX MATTERS Tax Exemption Proposed Legislation Purchase of Tax-Exempt Obligations by Financial Institutions Tax Accounting Treatment of Original Issue Discount Certificates Tax Accounting Treatment of Original Issue Premium Certificates CONTINUING DISCLOSURE OF INFORMATION 18 Annual Reports Event Notices Availability of Information from EMMA Limitations and Amendments Compliance with Prior Undertakings OTHER INFORMATION Rating Financial Advisor Initial Purchaser GENERAL CONSIDERATIONS Prices and Marketability Legal Investments and Eligibility to Secure Public Funds in Texas Securities Laws Sources and Compilation of Information Forward-Looking Statements Information from External Sources Certification of the Official Statement Approval of Official Statement APPENDIX A FINANCIAL INFORMATION AND DEBT INFORMATION APPENDIX B ECONOMIC AND DEMOGRAPHIC INFORMATION APPENDIX C SELECTED DATA FROM COMPREHENSIVE ANNUAL FINANCIAL REPORT CITY OF CARTHAGE, TEXAS, FISCAL YEAR ENDED SEPTEMBER 30, 2014 APPENDIX D FORM OF OPINION OF BOND COUNSEL v

6 OFFICIAL STATEMENT SUMMARY This Official Statement Summary is subject in all respects to the more complete information contained therein. The offering of the Certificates to potential investors is made only by means of the entire Official Statement. No person is authorized to detach this Official Statement Summary from the Official Statement or otherwise to use same without the entire Official Statement. Certain defined terms used in this Official Statement Summary are defined elsewhere in this Official Statement. The Issuer The Certificates Interest Paying Agent/Registrar Authority for Issuance Redemption Security for the Certificates Use of Proceeds City of Carthage, Texas. $1,445,000 City of Carthage, Texas Tax and Revenue Certificates of Obligation, Series 2016 (the Certificates ). The Certificates are being issued in the principal amounts, maturities, and at the rates per annum, set forth on the inside cover page hereof. Simultaneously with the issuance of the Certificates, the City is issuing its $4,300,000 General Obligation Refunding Bonds, Series The Certificates are dated March 1, Interest will accrue from the initial date of delivery of the Certificates to the Initial Purchaser at the rates indicated on the insider cover page hereof, with interest payable on November 15, 2016, and on each May 15 and November 15 thereafter until the earlier of redemption or maturity. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. The Certificates will be issued only in fully-registered form in integral multiples of $5,000. See THE CERTIFICATES Description herein. The initial Paying Agent/Registrar for the Certificates is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, including particularly Subchapter C, Chapter 271, Texas Local Government Code, as amended, and an ordinance of the City Commission authorizing the issuance of the Certificates (the Ordinance ). The City reserves the right, at its option, to redeem the Certificates having stated maturities on and after May 15, 2026, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, on May 15, 2025 or any day thereafter at par plus accrued interest from the most recent interest payment date to the date fixed for redemption. Additionally, the Certificates maturing May 15 in the years 2028 and 2030, (the Term Certificates ) are subject to mandatory sinking fund redemption. See THE CERTIFICATES Optional Redemption and -Mandatory Sinking Fund Redemption herein. Principal of and interest on the Certificates are payable from the receipts of a continuing, direct annual ad valorem tax levied, against all taxable property located within the City, within the limits prescribed by law and a limited pledge of a subordinate lien on net revenues of the City s water and sewer system, in an amount not to exceed $1,000. The Certificates are direct obligations of the City and not obligations of the State, Panola County or any other political subdivision. See THE CERTIFICATES Sources of Payment herein. Proceeds from the sale of the Certificates will be used for: (i) certain improvements to the City s water and sewer system; (ii) certain improvements to City streets; (iii) improvements to City parks; (iv) drainage improvements within the City; (v) the costs for professional services rendered in connection with the aforementioned projects; and (vi) the costs and expenses of issuing the Certificates. See THE CERTIFICATES Sources and Uses herein. vi

7 Book-Entry Only System Payment Record Municipal Bond Rating Tax Exemption Qualified Tax-Exempt Certificates Delivery Legality The Certificates are initially registered and delivered only to Cede & Co., the nominee of DTC, pursuant to the book-entry-only system. No physical delivery of the Certificates will be made to the beneficiary thereof. Principal of and interest on the Certificates will be paid to Cede & Co., which will distribute such payment to the participating members of DTC for remittance to the beneficial owners of the Certificates. See THE CERTIFICATES Book-Entry-Only System herein. The City has never defaulted with respect to payment of debt service on any outstanding debt. Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( Standard & Poor s ), has assigned its municipal bond rating of AA- to the Certificates. See OTHER INFORMATION Rating herein. In the opinion of Bond Counsel, under existing law interest on the Certificates is excludable from gross income for federal income tax purposes, and will not be included in the alternative minimum tax income of individuals. See TAX MATTERS for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. The City has designated the Certificates as qualified tax-exempt obligations for financial institutions. See TAX MATTERS Purchase of Tax-Exempt Obligations by Financial Institutions herein. It is expected that the Certificates will be available for delivery through the facilities of DTC on or about March 29, 2016 (the Date of Delivery ). Delivery of the Certificates is subject to the approval by the Attorney General of the State of Texas, the rendering of an opinion as to legality by Andrews Kurth LLP, Bond Counsel, Houston, Texas and certifications by the City as to no litigation and the content of the Official Statement. vii

8 SELECTED INFORMATION OF THE CITY 2015 Taxable Assessed Valuation $ 500,684, Taxable Assessed Valuation $ 467,826, Estimated Population (a) 6, U.S. Census Population 6, US Census Population 6,664 Direct Ad Valorem Tax Debt Outstanding Debt - as of September 30, 2015 Tax and Water & Sewer (Ltd Pledge) Revenue Certificates of Obligation, Series 2006 $ 2,580,000 General Obligation Refunding Bonds, Series ,100,000 Tax and Revenue Certificates of Obligation, Series ,935,000 Tax Notes, Series 2013A 560,000 Tax Notes, Series 2013B 560,000 Direct Debt $ 14,735,000 Plus the Series 2016 Refunding Bonds 4,300,000 Less the Refunded Obligations (c) 4,370,000 Plus the Series 2016 Certificates 1,445,000 Total Direct Debt $ 16,110,000 Less: Self-Supporting Debt (b) 7,124,000 Net Tax-Supported Debt Service $ 8,986,000 Estimated Overlapping Debt (b) $ 7,461,612 Estimated Overlapping & Total Debt $ 23,571,612 Estimated Overlapping & Net Tax-Supported Debt $ 16,447,612 Per Capita % of 2015 Debt Assessed Value Debt Ratios: Total Direct Debt Service $ 2, % Total Direct & Estimated Overlapping Debt $ 3, % Net Tax-Supported Debt Service $ 1, % Net Tax-Supported & Estimated Overlapping Debt $ 2, % Fund Balances (FYE 9/30/15) Unaudited: General Fund $ 3,957,553 Debt Service Fund $ 77,653 Water & Sewer Fund - Net Position $ 23,169, Tax Rate: Debt Tax $ Maintenance & Operations Tax Total Tax Rate $ (a) U.S. Census Bureau Estimate and Municipal Advisory Council of Texas (b) Self-supporting debt includes 100% of the Tax and Water and Sewer Revenue Certificates of Obligation, Series 2006 and 64% of the General Obligation Refunding Bonds, Series (c) The City is issuing its $4,300,000 General Obligation Refunding Bonds to refund the Refunded Oblgations. (d) See "Estimated Overlapping Debt". viii

9 PRELIMINARY OFFICIAL STATEMENT $1,445,000 CITY OF CARTHAGE, TEXAS (A political subdivision of the State of Texas located in Panola County, Texas) TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2016 INTRODUCTION This Official Statement is provided to furnish information in connection with the offering by the City of Carthage, Texas (the City ) of its Tax and Revenue Certificates of Obligation, Series 2016 in the aggregate principal amount of $1,445,000 (the Certificates ). Simultaneously with the issuance of the Certificates, the City is issuing its $4,300,000 General Obligation Refunding Bonds, Series Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance (the Ordinance ) to be adopted by the City Commission of the City (the City Commission ), the governing body of the City, authorizing the issuance of the Certificates, except as otherwise indicated herein. The Certificates are issued pursuant to the applicable provisions of the constitution and the laws of the State of Texas (the State ), including, particularly, Subchapter C, Chapter 271, Texas Local Government Code, as amended, and the Ordinance. The Certificates are issued for the purposes described below and are payable from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, against all taxable property located within the City, and from a limited pledge of a subordinate lien on net revenues of the City s water and sewer system, not to exceed $1,000. See THE CERTIFICATES Sources of Payment herein. The City s audited general purpose financial statements for the fiscal year ended September 30, 2014, which are included in Appendix C, present information on the general financial condition of the City at the dates and for the periods described therein. Purpose THE CERTIFICATES Proceeds from the sale of the Certificates will be used for: (i) certain improvements to the City s water and sewer system; (ii) certain improvements to City streets; (iii) improvements to City parks; (iv) drainage improvements within the City; (v) the costs for professional services rendered in connection with the aforementioned projects; and (vi) the costs and expenses of issuing the Certificates. Sources and Uses The following table sets forth the sources and uses of funds associated with the proceeds from the sale of the Certificates. Sources of Funds: Par Amount $1,445, Premium 130, Total $1,575, Use of Funds: Project Fund Deposit 1,500, Issuance Costs 1 57, Initial Purchaser s Discount 13, Deposit to Debt Service Fund (Additional Proceeds) 4, Total $1,575, Includes professional costs, paying agent/registrar, and attorney general. 1

10 General The following is a description of some of the terms and conditions of the Certificates, which description is qualified in its entirety by reference to the Ordinance. Copies of the Ordinance may be obtained upon request to the City. Certain terms not defined elsewhere in the Official Statement are defined in the Ordinance. Description The Certificates will bear interest at the rates and will mature on the dates and in the amounts as set forth on the inside cover page hereof. The Certificates are dated March 1, Interest will accrue from the initial date of delivery to the Initial Purchaser (the Date of Delivery ) and will be payable on November 15, 2016, and on each May 15 and November 15 thereafter, until the earlier of redemption or maturity. The Certificates will be issued in fully-registered form in integral multiples of $5,000 of principal amount, for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company, New York, New York ( DTC ), pursuant to the book-entry-only system, described herein. No physical delivery of the Certificates will be made to the beneficial owners thereof, unless use of the book-entry-only system is discontinued. Principal of, premium, if any, and interest on the Certificates will be payable by the paying agent/registrar, initially The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (the Paying Agent/Registrar ), to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Certificates. See THE CERTIFICATES Book-Entry- Only System herein. Authority for Issuance The Certificates are being issued by the City pursuant to the applicable provisions of the Texas Constitution, the general laws of the State, including particularly Subchapter C, Chapter 271, Texas Local Government Code and the Ordinance. Sources of Payment The Certificates are payable as to principal and interest from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against all taxable property within the City and a limited pledge of a subordinate lien on net revenues of the System, not to exceed $1,000. See TAX INFORMATION - Tax Rate Limitation herein. Optional Redemption The City reserves the right, at its option, to redeem Certificates having stated maturities on and after May 15, 2026, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on May 15, 2025, or any date thereafter at par plus accrued interest from the most recent interest payment date to the date fixed for redemption. If less than all the Certificates of a stated maturity are to be redeemed, the Certificates, or portions thereof, within such maturity to be redeemed shall be selected by lot or other customary method. Mandatory Redemption The Certificates maturing May 15 in the years 2028 and 2030 (the Term Certificates ) are subject to mandatory sinking fund redemption prior to maturity in part at random, by lot or other customary method selected by the Paying Agent/Registrar, at par plus accrued interest to the redemption date, in amounts sufficient to redeem the Term Certificates on May 15 in the years and principal amounts shown on the following schedule: Redemption Date Principal Amount 2028 Term Certificates 5/15/2027 $130,000 5/15/ ,000 (Maturity) 2030 Term Certificates 5/15/2029 $135,000 5/15/ ,000 (Maturity) 2

11 The particular Term Certificates to be mandatorily redeemed shall be selected by lot or other customary random selection method. The principal amount of the Term Certificates to be mandatorily redeemed on such mandatory redemption date shall be reduced by the principal amount of such Term Certificate which, by the 45th day prior to such mandatory redemption date, either has been purchased in the open market and delivered or tendered for cancellation by or on behalf of the City to the Paying Agent/Registrar or optionally redeemed and which, in either case, has not previously been made the basis for a reduction under this sentence. Notice of Redemption The Paying Agent/Registrar shall give notice of any redemption of Certificates by sending notice by United States mail, first class, postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the Owner of each Certificate (or part thereof) to be redeemed, at the address shown on the registration books at the close of business on the Business Day next preceding the date of mailing such notice. The notice shall state the redemption date, the redemption price, the place at which the Certificates are to be surrendered for payment, and, if less than all the Certificates outstanding are to be redeemed, an identification of the Certificates or portions thereof to be redeemed. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE CERTIFICATES CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY CERTIFICATE OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH CERTIFICATE OR PORTION THEREOF SHALL CEASE TO ACCRUE. The Paying Agent/Registrar and the City, 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 the beneficial owner, shall not affect the validity of the redemption of the Certificates called for redemption or any other action premised on any such notice. Redemption of portions of the Certificates by the City will reduce the outstanding principal amount of such Certificates held by DTC. In such an 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 its rules or other agreements with DTC participants and then DTC participants and indirect participants may implement redemption of such Certificates from 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 City or the Paying Agent/Registrar. Neither the City nor the Paying Agent/Registrar will have any responsibility to DTC participants, indirect participants or the persons for whom DTC participants act as nominees, with respect to the payments on 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 THE CERTIFICATES Book-Entry Only System ). With respect to any optional redemption of the Certificates, unless certain prerequisites to such redemption required by the Ordinance have been met and money sufficient to pay the principal of and premium, if any, and interest on the Certificate to be redeemed will have been received by the Paying Agent/Registrar prior to the giving of such notice of redemption, such notice may state that said redemption is conditional upon the satisfaction of such prerequisites and receipt of such money by the Paying Agent/Registrar on or prior to the date fixed for such redemption or upon any prerequisite set forth in such notice of redemption. If a conditional notice of redemption is given and such prerequisites to the redemption are not fulfilled, such notice will be of no force and effect, the City will not redeem such Certificates, and the Paying Agent/Registrar will give notice in the manner in which the notice of redemption was given, to the effect that such Certificate have not been redeemed. Book-Entry-Only System This section 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 The Depository Trust Company, New York, New York (the 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 City, the Financial Advisor and the Initial Purchaser believe the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. 3

12 The City cannot and does not give any assurance that (1) DTC will distribute payment 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 United States Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Certificates. The Certificates will be issued as fully-registered securities in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Certificates, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is a holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its registered subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the United States Securities and Exchange Commission. More information about DTC can be found at and Purchasers of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC s records. The ownership interest of each actual purchaser of each Certificate ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their Purchaser. Beneficial Owners are, however, expected to receive written confirmation 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 Certificates 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 physical Certificates representing their ownership interests in Certificates, except in the event that use of the book-entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co., or such other DTC nominee, do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC s records reflect only the identity of the Direct Participants to whose accounts such Certificates 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 Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the 4

13 alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/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 Certificates within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). All payments on the Certificates will be made to DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the City or the Paying Agent/Registrar, on payable dates in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as 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 City, subject to any statutory or regulatory requirements as may be in effect from time to time. All payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) are the responsibility of the City or the Paying Agent/Registrar. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Certificates will be printed and delivered. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the City believes to be reliable, but neither the City, the Financial Advisor nor the Initial Purchaser take 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 Certificates are in the book-entry-only system, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Certificates, but (i) all rights of ownership must be exercised through DTC and the book-entry-only system, and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. Information concerning DTC and the book-entry-only system has been obtained from DTC and is not guaranteed as to accuracy or completeness by and is not to be construed as a representation by the City or the Initial Purchaser. Ownership The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificates for the purposes of making payment of the principal thereof and the interest thereon and for all other purposes, whether or not such Certificate is overdue. Neither the City nor the Paying Agent/Registrar will be bound by any notice or knowledge to the contrary. All payments made to the registered owner of such Certificate in accordance with the Ordinance will be valid and effectual and will discharge the liability of the City and the Paying Agent/Registrar for such Certificate to the extent of the sums paid. Transfers and Exchanges In the event the book-entry-only system should be discontinued, the Certificates may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying 5

14 Agent/Registrar and such transfer or exchange shall be without expense or service charge to the Registered Owners, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Certificates may be assigned by the execution of an assignment form on the respective Certificates or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Certificates will be delivered by the Paying Agent/Registrar, in lieu of the Certificates being transferred or exchanged, at the designated office or the Paying Agent/Registrar, or sent by United States mail, first class postage prepaid, to the new registered owner or his designee. To the extent possible, new Certificates issued in an exchange or transfer of Certificates will be delivered to the registered owner or assignee of the registered owner not more than three (3) business days after the receipt of the Certificates to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Certificates registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate principal amount as the Certificates surrendered for exchange or transfer. All Certificates issued in any transfer or exchange of Certificates shall be delivered to the Registered Owners at the principal corporate trust office of the Paying Agent/Registrar or sent by United States mail, first class, postage prepaid to the Registered Owners, and, upon the registration and delivery thereof, the same shall be the valid Certificates of the City, evidencing the same obligation to pay, and entitled to the same benefits under the Ordinance, as the Certificates surrendered in such transfer or exchange. Remedies In The Event of Default The Ordinance does not provide for the appointment of a trustee to represent the interests of the Certificate holders upon any failure of the City to perform in accordance with the terms of the Ordinance or upon any other condition and, in the event of any such failure to perform, the registered owners would be responsible for the initiation and cost of any legal action to enforce performance of the Ordinance. Furthermore, the Ordinance does not establish specific events of default with respect to the Certificates and, under State law, there is no right to the acceleration of maturity of the Certificates upon the failure of the City to observe any covenant under the Ordinance. A registered owner of the Certificates could seek a judgment against the City if a default occurred in the payment of principal of or interest on any such Certificates; however, such judgment could not be satisfied by execution against any property of the City and a suit for monetary damages could be vulnerable to the defense of sovereign immunity. A registered owner s only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Certificates as it becomes due or perform other material terms and covenants contained in the Ordinance. In general, Texas courts have held that a writ of mandamus may be issued to require a public official to perform legally imposed ministerial duties necessary for the performance of a valid contract, and Texas law provides that, following their approval by the Attorney General and issuance, the Certificates are valid and binding obligations for all purposes according to their terms. However, the enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The City is also 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 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 Certificate holders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors, including rights afforded to creditors under the Bankruptcy Code. Paying Agent/Registrar The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar with respect to the Certificates. The Paying Agent/Registrar may be removed from its duties at any time, but no such removal is effective until a successor has accepted the duties of the Paying Agent/Registrar by written instrument. The City covenants to maintain and provide a Paying Agent/Registrar for the Certificates until the Certificates are duly paid. Any successor Paying 6

15 Agent/Registrar shall be a bank, trust company, financial institution or other entity qualified and authorized to serve in such capacity and perform the duties and services of Paying Agent/Registrar. Upon any change in the Paying Agent/Registrar for the Certificates, the City agrees to promptly cause a written notice thereof to be sent to each registered owner affected by the change, which notice shall give the address of the new Paying Agent/Registrar. Record Date for Interest Payment The record date ( Record Date ) for the interest payable on the Certificates on any interest payment date means the close of business on the 15 th day of the preceding month. In the event of a non-payment of interest on a scheduled payment date, that continues for thirty (30) days or longer thereafter, a new record date for such interest payment (a Special Record Date ) will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from or on behalf of the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest ( Special Payment Date, which shall be fifteen (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 Holder of a Certificate appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Defeasance The City reserves the right to defease the Certificates in any manner now or hereafter permitted by law. General TAX INFORMATION One of the City s primary sources of operational revenue and a principal source of funds for debt service payments on the Bonds is ad valorem taxation. The following is a summary of the authority for taxation, including methodology, limitations, remedies and procedures. Tax Rate Limitations All taxable property within the City is subject to the assessment, levy and collection by the City of an annual ad valorem tax levied, within the limits prescribed by law, sufficient to provide for the payment of principal of and interest on the Bonds. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2.50 per $100 assessed valuation. The City operates under a Home-Rule Charter, which adopts the constitutional provisions. Administratively, the Attorney General of the State will only permit the allocation of $1.50 of the $2.50 maximum tax rate for all debt service payable from ad valorem taxes, as calculated at the time of issuance. The Tax Code Property appraisal within the City is the responsibility of the Panola County Appraisal District (the Appraisal District ). The Appraisal District is required under the Property Tax Code to appraise all property within the County on the basis of 100% of its market value. The value of real property within the Appraisal District must be reviewed every five years; however, the City may, at its own expense, require annual reviews of appraised values. The City may challenge appraised values established by the Appraisal District through various appeals and legal action. Under the Property Tax Code legislation (the Tax Code ), the City establishes tax rates for property within the City s corporate limits. The City must annually calculate and publicize its effective tax rate and rollback tax rate. The Council may not adopt a tax rate that exceeds the lower of the rollback rate or 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 Tax Code. If the new rate exceeds the effective tax rate after certain adjustments for the previous year by more than eight percent (8%), qualified voters of the City may petition for an election to determine whether to limit the tax rate to no more than eight percent (8%) above the effective tax rate. 7

16 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 (unadjusted) 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 Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. The 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 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 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. The City has authorized the additional sales tax for economic development at the rate of one-half percent (1/2%). Property Subject to Taxation by the City Except for certain exemptions provided by Texas law, all real and certain tangible personal property with a tax situs in the City are subject to taxation by the City. Principal categories of exempt property (including certain exemptions which are subject to local option by the Council) include property owned by the State of Texas or its political subdivisions if the property is used for public purposes; property exempt from ad valorem taxation by federal law; certain improvements to real property and certain tangible personal property located in designated reinvestment zones on which the City has agreed to abate ad valorem taxes, certain household goods, family supplies and personal effects; farm products owned by the producers; certain property of a non-profit corporation used in scientific research and educational activities benefiting a college or university, and designated historical sites. Other principal categories of exempt property include tangible personal property not held or used for production of income, solar and wind-powered energy devices; most individually owned automobiles; certain varying amounts of valuation attributable to residential homesteads of persons ages 65 or over and property of disabled veterans or their surviving spouses or children; and certain classes of intangible property. Owners of agricultural and open space land, under certain circumstances, may request valuation of such land on the basis of productive capacity rather than market value. The voters of the State of Texas have approved a constitutional amendment authorizing counties, cities, towns or junior colleges to establish an ad valorem tax freeze on residence homesteads of the disabled and persons sixty-five years of age or older. The surviving spouse of a taxpayer who qualifies for the freeze on ad valorem taxes is entitled to the same exemption so long as (i) the taxpayer died in a year in which he qualified for the exemption, (ii) the surviving spouse was at least 55 years of age when the taxpayer died, and (iii) the property was the residence homestead of the surviving spouse when the taxpayer died and the property remains the residence homestead of the surviving spouse. 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 5% of registered voters of the political subdivision. The City has approved the tax freeze. Valuation of Property for Taxation Generally, property in the City must be appraised by the Appraisal District at market value as of January 1 of each year. Once an appraisal roll is prepared and finally approved by the Appraisal Review Board, it is used by the City in establishing its tax rolls and tax rate. Assessments under the Tax Code are to be based on one hundred percent (100%) of market value, except as described below, and no assessment ratio can be applied. State law requires the appraised value of a residence homestead to be based solely on the property s value as a residence homestead, regardless of whether residential use is considered to be the highest and best use of the property. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property 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 8

17 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. Article VIII of the Texas Constitution and the Tax Code permits land designated for agricultural use (Section 1-d), open space or timberland (Section 1-d-1) to be appraised at the lesser of its value based on the land s capacity to produce agricultural or timber products or its market value. Landowners wishing to avail themselves of the agricultural use designation must apply for the designation, and the appraiser is required by the Tax Code to act on each claimant s right to the designation individually. If a claimant receives the agricultural use designation and later loses it by changing the use of the property or selling it to an unqualified owner, the City can collect taxes based on the new value, including three (3) years for agricultural use and five (5) years for agricultural open space land and timberland prior to the loss of the designation. The same land may not be qualified under both Section 1-d and 1-d-1. The Tax Code requires the Appraisal District to implement a plan for periodic reappraisal of property to update appraisal values. The plan must provide for appraisal of all real property in the Appraisal District at least once every three (3) years. The City, at its expense, has the right to obtain from the Appraisal District a current estimate of appraised values within the City or an estimate of any new property or improvements within the City. While such current estimate of appraised values may serve to indicate the rate and extent of growth of taxable values within the City, it cannot be used for establishing a tax rate within the City until such time as the Appraisal District chooses to formally include such values on its appraisal roll. Residential Homestead Exemptions The City grants a local exemption of 20% of the market value of all residence homesteads, minimum exemption of $5,000. The City also grants an additional local-option exemption of $10,000 to the market value of the residence homestead of persons 65 years or age or older. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property. The City does not tax freeport property. The City does permit split payments and discounts are allowed. The City does not tax goods-intransit. The City collects an additional one-half cent sales tax for reduction of ad valorem taxes. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. A disabled veteran who receives from the United States Department of Veterans Affairs or its successor 100% disability compensation due to a service-connected disability and a rating of 100% disabled or of individual unemployability is entitled to an exemption from taxation of the total appraised value of the veteran s residence homestead. A partially disabled veteran or the surviving spouse of a partially disabled veteran is entitled to an exemption equal to the percentage of the veteran s disability, if the residence was donated at no cost to the veteran by a charitable organization. The surviving spouse of a member of the armed forces who is killed in action is entitled to a property tax exemption for all or a part of the market value of such surviving spouse s residence homestead, if the surviving spouse has not remarried since the service member s death and said property was the service member s residence homestead at the time of death. Such exemption is transferable to a different property of the surviving spouse, if the surviving spouse has not remarried, in an amount equal to the exemption received on the prior residence in the last year in which such exemption was received. Freeport Goods and Goods-In-Transit Exemption Article VIII, Section 1-j of the Texas Constitution provides for an exemption from ad valorem taxation for freeport property, which is defined as goods detained in the state for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Taxing units that took action prior to April 1, 1990 may continue to tax 9

18 freeport property and decisions to continue to tax freeport property may be reversed in the future. However, decisions to exempt freeport property are not subject to reversal. In addition, effective for tax years 2008 and thereafter, Article VIII, Section 1-n of the Texas Constitution provides for an exemption from taxation for goods-in-transit, which are defined as personal property acquired or imported into the state and transported to another location inside or outside the state within 175 days of the date the property was acquired or imported into the state. The exemption excludes oil, natural gas, petroleum products, aircraft and special inventory, including motor vehicle, vessel and out-board motor, heavy equipment and manufactured housing inventory. After holding a public hearing, a taxing unit may take action by January 1 of the year preceding a tax year to tax goods-in- transit during the following tax year. A taxpayer may obtain only a freeport exemption or a goods-in-transit exemption for items of personal property. Carthage Economic Development Corporation The Carthage Economic Development Corporation ("CEDC") and the Carthage Improvement Corporation (the CIC ) were created by the City for the purpose of promoting, assisting and enhancing economic development activities on behalf of the City. Each organization is a non-profit corporation and funded by sales tax collected by the City. The voters approved the additional 1/4 of 1% each for the CEDC (May 1992) and the CIC (May 2000) over the 1% sales tax collected for general fund purposes and ½ of 1% sales tax for ad valorem tax reduction. Tax Increment Financing A city may utilize tax increment financing ("TIF"), pursuant to the Tax Increment Financing Act, Texas Tax Code, Chapter 311, to encourage development and redevelopment within a designated reinvestment zone. Taxes collected from increases in valuation above the base value (the "captured appraised value") by each taxing unit that levies ad valorem taxes on real property in the reinvestment zone may be used to pay costs of infrastructure or other public improvements in the reinvestment zone and to supplement or act as a catalyst for private development in the defined area of the reinvestment zone. The tax increment base value for a taxing unit is the total appraised value of all real property taxable by the taxing unit and located in the reinvestment zone as of January 1 of the year in which the city created the reinvestment zone. Each taxing unit can choose to dedicate all, any portion or none of its taxes collected from the captured appraised value to the costs of improvements in the reinvestment zone. The amount of a taxing unit's tax increment for a year is the amount of property taxes levied by the taxing unit for that year on the captured appraised value of real property taxable by the taxing unit and located in the reinvestment zone, multiplied by the taxing unit's percentage level of participation. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. The City has established a tax abatement program for economic development. The value of property subject to abatement will be provided by the City upon request. Other Economic Development Programs The City is authorized, pursuant to Chapter 380, Texas Local Government Code, as amended ("Chapter 380"), to establish programs to promote state or local economic development and to stimulate business and commercial activity in the City. In accordance with a program established pursuant to Chapter 380, the City may make loans or grants of public funds for economic development purposes however no bonds secured by ad valorem taxes may be issued for such purposes unless approved by voters of the City. The City may contract with the federal government, the State of Texas, another political subdivision, a nonprofit organization or any other entity, including private entities, for the administration of such a program. City and Taxpayer Remedies Under certain circumstances, taxpayers and taxing units, including the City, may appeal the orders of the Appraisal Review Board by filing a timely petition for review in City court within 45 days after notice is received that a final order has been entered. In such event, the property value in question may be determined by the court, or by a jury, if requested by any party, or through binding arbitration, if requested by the taxpayer. Additionally, taxing units may bring suit against the Appraisal District to compel compliance with the Tax Code. The Tax Code sets forth notice and hearing procedures for certain tax rate increases by the City and provides for taxpayer referenda that could result in the repeal of certain tax increases. The Tax Code also establishes a procedure 10

19 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 City is responsible for the levy and collection of its taxes unless it elects to transfer such functions to another governmental entity. By the later of September 30 th or 60 days after the date the certified appraisal roll is received by the City, or as soon thereafter as practicable, the rate of taxation is set by the City based upon the valuation of property within the City as of the preceding January 1. Taxes are due October 1, or when billed, whichever comes later, and generally become delinquent after January 31 of the following year. A delinquent tax incurs a penalty of six percent (6%) of the amount of the tax for the first calendar month it is delinquent, plus one percent (1%) for each additional month or portion of a month the tax remains unpaid prior to July 1 of the year in which it becomes delinquent. If the tax is not paid by July 1 of the year in which it becomes delinquent, the tax incurs a total penalty of twelve percent (12%) regardless of the number of months the tax has been delinquent and incurs an additional penalty of up to twenty percent (20%) if imposed by the City. The delinquent tax also accrues interest at a rate of one percent (1%) for each month or portion of a month it remains unpaid. The Tax Code also makes provision for the split payment of taxes, discounts for early payment and the postponement of the delinquency date of taxes under certain circumstances. City s Rights in the Event of Tax Delinquencies Taxes levied by the City are a personal obligation of the owner of the property as of January 1 of the year for which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all state and local taxes, penalties, and interest ultimately imposed for the year on the property. The lien exists in favor of the State of Texas and each local taxing unit, including the City, having power to tax the property. The City s tax lien is on a parity with tax liens of such other taxing units. A tax lien on real property takes 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; however, whether a lien of the United States is on a parity with or takes priority over a tax lien of the City is determined by applicable federal law. 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 City 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 City must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing units, by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights (a taxpayer may redeem property within two (2) years after the purchaser s deed issued at the foreclosure sale is filed in the City records) or by bankruptcy proceedings which restrict the collection of taxpayer debts. Federal bankruptcy law provides that an automatic stay of actions by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for postpetition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases, post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. Authorized But Unissued General Obligation Debt ISSUER INFORMATION The City does not have any outstanding authorized but unissued debt. Anticipated Issuance of Additional Debt Simultaneously with the issuance of the Certificates, the City plans to issue $4,300,000 General Obligation Refunding Bonds, Series 2016 (the Series 2016 Refunding Bonds ) to refund certain outstanding obligations of the City (the Refunded Obligations.) Other Obligations The City has the following capital leases outstanding for a fire truck, a sweeper and police vehicles. See Appendix C Selected Data from the Annual Financial Report City of Carthage, Texas Fiscal Year Ended September 30,

20 General Fund Enterprise Fund Leased Assets: Machinery and equipment $ 480,000 $ 60,179 Less accumulated depreciation (150,768) (60,179) Carrying value $ 329,232 $ - Employee Retirement Plan For a discussion of the City s Employee Retirement Plan and its obligation thereunder, see Selected Data from the Annual Financial Report Fiscal Year Ended September 30, 2014, attached hereto as Appendix C. Financial Policies Basis of Accounting. The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. Governmental resources are allocated and accounted for in the individual funds based upon the purposes for which they are utilized and the means by which spending activities are controlled. All proprietary funds are accounted for using the accrual basis of accounting. See Selected Data from Annual Financial Report, City of Carthage, Texas Fiscal Year Ended September 30, 2014 attached hereto as Appendix C. General Fund. Accounts for all financial resources of the general government, except those required to be accounted for in another fund. Debt Service Fund. Accounts for the resources accumulated and payments made for principal and interest on longterm general obligation debt of governmental funds. Capital Projects Fund. Accounts for bond and other debt issuance proceeds obtained to finance capital projects and the expenditures related to those projects. Water and Sewer Fund. Accounts for the operations of the water and sewer system, including debt service and capital improvements related to water and sewer operations. Fund Balance Policy. The City has formally adopted a fund balance policy which states that the City will maintain a minimum of four months of average general fund operating expenditures in unassigned fund balance. Deposits and Investments The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Commission. Both State law and the City s investment policies are subject to change. Authorized Investments. Under Texas law, the City is authorized to invest in (1) obligations, including letters of credit, of the United States or its agencies and instrumentalities; (2) direct obligations of the State 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, insured, or backed by the full faith and credit of the State or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed, or guaranteed by the State of Israel; (7) Bonds of deposit and share Bonds (i) issued by a depository institution that has its main office or a 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 are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, or (ii) where (a) the funds are invested by the City through (I) a broker that has its main office or a branch office in the State and is selected from a list adopted, at least annually, by the City as required by law or (II) a depository institution that has its main office or a branch office in the State that is selected by the City; (b) the broker or the depository institution selected by the City arranges for the deposit of the funds in Bonds of deposit in one or 12

21 more federally insured depository institutions, wherever located, for the account of the City; (c) the full amount of the principal and accrued interest of each of the Bonds of deposit is insured by the United States or an instrumentality of the United States; and (d) the City appoints the depository institution selected under (a) above, a custodian as described by Section (d) of the Texas Government Code, or a clearing broker-dealer registered with the United States Securities and Exchange Commission and operating pursuant to Securities and Exchange Commission Rule 15c3-3 (17 C.F.R. Section c3-3) as custodian for the City with respect to the Bonds of deposit; (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by a combination of cash and obligations described in clause (1) which are pledged to the City, held in the City s name, and deposited at the time the investment is made with the City or with a third party selected and approved by the City and are placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in the State of Texas; (9) bankers acceptances with a stated maturity of 270 days or less from the date of its issuance, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency; (10) commercial paper that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a United States or state bank; (11) no-load money market mutual funds registered with and regulated by the United States Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share; (12) no-load mutual funds registered with the United States Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the preceding clauses, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent; and (13) public funds investment pools that have an advisory board which includes participants in the pool and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. Texas law also permits the City to invest bond proceeds in a guaranteed investment contract, subject to limitations as set forth in the Public Funds Investment Act, Texas Government Code, Chapter 2256 (the PFIA ). A political subdivision such as the City may enter into securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (10) through (12) above, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City s name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program through either a primary government securities dealer or a financial institution doing business in the State; and (iv) the agreement to lend securities has a term of one year or less. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAA-m or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance, or resolution. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgagebacked security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Investment Policies. Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment, the maximum average dollar-weighted maturity allowed for pooled fund groups, methods to monitor the market price of investments acquired with public funds, a requirement for settlement of all transactions, except investment pool funds and mutual funds, on a delivery versus payment basis, and procedures to monitor rating changes in investments acquired with public funds and the liquidation of such investments consistent with the Public Funds Investment Act. All City funds must be invested consistent with 13

22 a formally adopted Investment Strategy Statement that specifically addresses each fund s investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, City investments must be made with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived. At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) State law. No person may invest City funds without express written authority from the City Commission. Additional Provisions. Under Texas law, the City is additionally required to: (1) annually review its adopted policies and strategies; (2) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the City to disclose the relationship and file a statement with the Texas Ethics Commission and the City Commission; (3) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) perform an annual audit of the management controls on investments and adherence to the City s investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer (if not the Treasurer) and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict its investment in no-load mutual funds in the aggregate to no more than 15 percent of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, and to invest no portion of bond proceeds, reserves and funds held for debt service, in mutual funds; (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; and (9) at least annually review, revise and adopt a list of qualified brokers that are authorized to engage in investments transactions with the City. Current Investments. As of January 1, 2016, the City had $8,163,007 in cash and investments. As of such date, the market value of such investments (as determined by the City by reference to published quotations, dealer bids, and comparable information) was approximately 100% of their book value. No funds of the City are invested in derivative securities, i.e., securities whose rate of return is determined by reference to some other instrument, index, or commodity. Legal Opinions LEGAL MATTERS The Certificates are offered when, as and if issued, subject to the approval by the Attorney General of the State and the rendering of an opinion as to legality by Andrews Kurth LLP, Houston, Bond Counsel for the City. The City will furnish the Initial Purchaser with a complete transcript of proceedings held incident to the authorization and issuance of the Certificates, including the approving opinion of the Attorney General of the State as recorded in the Bond Register of the Comptroller of Public Accounts of the State, to the effect that the Certificates are valid and legally binding Certificates of the City under the Constitution and laws of the State. The City will also furnish the approving legal opinion of Bond Counsel in substantially the form attached hereto as Appendix D. In its capacity as Bond Counsel, Andrews Kurth LLP, Houston, Texas, has not independently verified any of the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy or completeness of this Official Statement. Bond Counsel s role in connection with the Official Statement was limited to reviewing the information describing the Certificates in the Official Statement to verify that such descriptions conform to the provisions of the Ordinance. No person is entitled to rely upon such firm s limited participation as an assumption of responsibility for, or an expression of opinion of any kind with regard to, the accuracy or completeness of any of the information contained herein. 14

23 The legal fee to be paid to Bond Counsel for services rendered in connection with the issuance of the Certificates is contingent on the sale and delivery of the Certificates. The legal opinion will accompany the Certificates deposited with DTC or will be printed on the Certificates in the event of the discontinuance of the book-entry-only system. 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. Litigation The City is exposed to various risks of losses related to torts, theft of, damage to and destruction of fixed assets; error and omissions; injuries to employees; and natural disasters. The City has obtained commercial insurance coverage for these risks and provided various employee education and prevention programs. No-Litigation Certificate The City will furnish the Initial Purchaser a certificate, dated as of the Date of Delivery of the Certificates, executed by both the Mayor and the City Secretary, to the effect that no litigation of any nature is then pending or threatened, either in state or federal courts, contesting or attacking the Certificates; restraining or enjoining the issuance, execution, or delivery of the Certificates; affecting the provisions made for the payment of or security for the Certificates; in any manner questioning the authority or proceeding for the issuance, execution or delivery of the Certificates; or affecting the validity of the Certificates. Tax Exemption TAX MATTERS Delivery of the Certificates is subject to the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, that interest on the Certificates will be (1) excludable from gross income of the owners thereof for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ), and (2) not includable in the alternative minimum taxable income of individuals or, except as described below, corporations. Interest on the Certificates owned by a corporation, other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT), will be included in such corporation s adjusted current earnings for purposes of calculating such corporation s alternative minimum taxable income. A corporation s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. The foregoing opinions of Bond Counsel are based on the Code and the regulations, rulings and court decisions thereunder in existence on the date of issue of the Certificates. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum taxable income. In rendering its opinions, Bond Counsel has assumed continuing compliance by the City with certain covenants contained in the Ordinance and has relied on representations by the City with respect to matters solely within the knowledge of the City, which Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of Certificate proceeds and any facilities financed therewith, the source of repayment of the Certificates, the investment of Certificate proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of Certificate proceeds and certain other amounts be paid periodically to the United States and that the City file an information report with the Internal Revenue Service. If the City should fail to comply with the covenants in the Ordinance or if its representations relating to the Certificates that are contained in the Ordinance should be determined to be inaccurate or incomplete, interest on the Certificates could become taxable from the date of delivery of the Certificates, regardless of the date on which the event causing such taxability occurs. 15

24 Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on or acquisition or disposition of the Certificates. Bond Counsel s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Internal Revenue Service (the Service ) with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel s opinion is not binding on the Service. The Service has an ongoing program of auditing the 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 City as the taxpayer, and the owners of the Certificates may 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 City may have different or conflicting interests from the owners of the Certificates. Public awareness of any future 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. Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax-exempt interest, such as interest on the Certificates, received or accrued during the year. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. Proposed Legislation Tax legislation, administrative actions taken by tax authorities, and court decisions may cause interest on the Certificates to be subject, directly or indirectly, to federal income taxation or state income taxation, or otherwise prevent the beneficial owners of the Certificates from realizing the full current benefit of the tax status of such interest. For example, future legislation to resolve certain federal budgetary issues may significantly reduce the benefit of, or otherwise affect, the exclusion from gross income for federal income tax purposes of interest on all state and local obligations, including the Certificates. In addition, such legislation or actions (whether currently proposed, proposed in the future or enacted) could affect the market price or marketability of the Certificates. Prospective purchasers of the Certificates should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and its impact on their individual situations, as to which Bond Counsel expresses no opinion. Purchase of Tax-Exempt Obligations by Financial Institutions Section 265 of the Code provides, in general, that interest expense to acquire or carry tax-exempt obligations is not deductible from the gross income of the owner of such obligations. In addition, section 265 of the Code generally disallows 100% of any deduction for interest expense which is incurred by financial institutions described in such section and is allocable, as computed in such section, to tax-exempt interest on obligations acquired after January 7, Section 265(b) of the Code provides an exception to this interest disallowance rule for financial institutions, stating that such disallowance does not apply to interest expense allocable to tax-exempt obligations (other than private activity bonds that are not qualified 501(c)(3) bonds) which are properly designated by an issuer as qualified tax-exempt obligations. An issuer may designate obligations as qualified tax-exempt obligations only if the amount of the issue of which they are a part, when added to the amount of all other tax-exempt obligations (other than private activity bonds that are not qualified 501(c)(3) obligations and other than certain current refunding bonds) issued or reasonably anticipated to be issued by the issuer during the same calendar year, does not exceed $10,000,000. The City has designated the Certificates as qualified tax-exempt obligations within the meaning of section 265(b) of the Code. In furtherance of that designation, the City has covenanted to take such action that would assure, or to refrain from such action that would adversely affect, the treatment of the Certificates as qualified tax-exempt obligations. Notwithstanding such designation, 20% of the interest expenses of a financial institution allocable to the interest on the Certificates will not be deductible by such financial institution, pursuant to section 291 of the Code. 16

25 Tax Accounting Treatment of Original Issue Discount Certificates Some of the Certificates may be offered at an initial offering price which is less than the stated redemption price payable at maturity of such Certificates. If a substantial amount of any maturity of the Certificates is sold to members of the public (which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of wholesalers or underwriters) at such initial offering price, each of the Certificates of that maturity (a Discount Certificate ) will be considered to have original issue discount for federal income tax purposes equal to the difference between (a) the stated redemption price payable at the maturity of such Discount Certificate and (b) the initial offering price to the public of such Discount Certificate. Under existing law, such original issue discount will be treated for federal income tax purposes as additional interest on a Certificate and such initial owner will be entitled to exclude from gross income for federal income tax purposes that portion of such original issue discount deemed to be earned (as discussed below) during the period while such Discount Certificate continues to be owned by such initial owner. Except as otherwise provided herein, the discussion regarding interest on the Certificate under the caption TAX MATTERS Tax Exemption generally applies to original issue discount deemed to be earned on a Discount Certificate while held by an owner who has purchased such Certificate at the initial offering price in the initial public offering of the Certificates and that discussion should be considered in connection with this portion of the Official Statement. In the event of a redemption, sale, or other taxable disposition of a Discount Certificate prior to its stated maturity, however, any amount realized by such initial owner in excess of the basis of such Discount Certificate in the hands of such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such Discount Certificate continues to be held by such initial owner) will be includable in gross income for federal income tax purposes. Because original issue discount on a Discount Certificate will be treated for federal income tax purposes as interest on a Certificate, such original issue discount must be taken into account for certain federal income tax purposes as it is deemed to be earned even though there will not be a corresponding cash payment. Corporations that purchase a Discount Certificate must take into account original issue discount as it is deemed to be earned for purposes of determining alternative minimum tax. Other owners of a Discount Certificate may be required to take into account such original issue discount as it is deemed to be earned for purposes of determining certain collateral federal tax consequences of owning a Certificate. See TAX MATTERS Tax Exemption herein for a discussion regarding the alternative minimum taxable income consequences for corporations and for a reference to collateral federal tax consequences for certain other owners. The characterization of original issue discount as interest is for federal income tax purposes only and does not otherwise affect the rights or obligations of the owner of a Discount Certificate or of the City. The portion of the principal of a Discount Certificate representing original issue discount is payable upon the maturity or earlier redemption of such Certificate to the registered owner of the Discount Certificate at that time. Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each Discount Certificate is deemed to be earned each day. The portion of the original issue discount deemed to be earned each day is determined under an actuarial method of accrual, using the yield to maturity as the constant interest rate and semi-annual compounding. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Discount Certificates by an owner that did not purchase such Certificates in the initial public offering and at the initial offering price may be determined according to rules which differ from those described above. All prospective purchasers of Discount Certificates should consult their tax advisors with respect to the determination for federal, state and local income tax purposes of interest and original issue discount accrued upon redemption, sale or other disposition of such Discount Certificates and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Discount Certificates. Tax Accounting Treatment of Original Issue Premium Certificates Some of the Certificates may be offered at an initial offering price which exceeds the stated redemption price payable at the maturity of such Certificates. If a substantial amount of any maturity of the Certificates is sold to members of the public (which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of wholesales or underwriters) at such initial offering price, each of the Certificates of such maturity (a Premium 17

26 Certificate ) will be considered for federal income tax purposes to have bond premium equal to such excess. The basis for federal income tax purposes of a Premium Certificate in the hands of an initial purchaser who purchases such Premium Certificate in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Premium Certificate by the amount of amortizable bond premium. This reduction in basis will increase the amount of any gain (or decrease the amount of any loss) recognized for federal income tax purposes upon the sale or other taxable disposition of a Premium Certificate by the initial purchaser. Generally, no corresponding deduction is allowed for federal income tax purposes, for the reduction in basis resulting from amortizable bond premium with respect to a Premium Certificate. The amount of bond premium on a Premium Certificate which is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Certificate) is determined under special tax accounting rules which use a constant yield throughout the term of the Premium Certificate based on the initial purchaser s original basis in such Premium Certificate. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner of Premium Certificates that are not purchased in the initial offering or which are purchased at an amount representing a price other than the initial offering prices for the Premium Certificates of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Premium Certificates should consult their tax advisors with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of Premium Certificates. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the registered and beneficial owners of the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually and timely notice of specified events to the Municipal Securities Rulemaking Board ( MSRB ). Annual Reports The City annually will provide certain updated financial information and operating data to the MSRB via the Electronic Municipal Market Access ( EMMA ) system. The information to be updated includes schedules 1 and 2 and 4 through 13 in Appendix A and the information in Appendix C attached hereto. The City will update and provide this information within six months after the end of each fiscal year ending in or after The City may provide undated information in full text, or may incorporate by reference any publicly available documents, or in such other form consistent with the agreement, as permitted by Rule 15c2-12 of the United States Securities and Exchange Commission (the Rule ). The updated information will include audited financial statements, if the City commissions an audit and the audit is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix C or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City s current fiscal year-end is September 30. Accordingly, the City must provide updated information by the last day of March in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. Event Notices The City will also provide to the MSRB notices of certain events on a timely basis no later than 10 business days after the event. The City will provide notice of any of the following events with respect to the Certificates: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax status of the Certificates, or other material events affecting the tax status of the Certificates; (7) modifications to rights of holders of the Certificates, if material; (8) Certificate calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Certificates, if material; (11) rating changes; (12) bankruptcy, 18

27 insolvency, receivership, or similar event of the City; (13) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into of a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of the trustee, if material. (Neither the Certificates nor the Certificate Ordinance makes any provision for a trustee). Additionally, the City will file Failure to File Notice of any failures to timely file the information described under Annual Reports above. Availability of Information from EMMA All such information described above must be filed with the MSRB. Investors will be able to access continuing disclosure information filed with the MSRB at The City has agreed to provide the foregoing information only to the MSRB through EMMA. Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Certificates at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Certificates may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Certificates in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Certificates consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the registered and beneficial owners of the Certificates. The City may also repeal or amend the provisions of this Section if the SEC amends or repeals the applicable provisions of the Rule or any court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the provisions of this Section in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling the Certificates in the primary offering of the Certificates, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. Compliance with Prior Undertakings The City filed audited financial information late for fiscal years ending 2008 and A failure to file notice for the 2008 and 2010 late filings we made on December 11, The City failed to file operating data for fiscal years 2012 and Operating data for 2012 and 2013, as well as a failure to file notice was filed on December 11, Finally, the City failed to file a notice regarding various insured rating changes. A notice of the insured rating changes as well as a failure to file notice was filed on December 11, Otherwise, for the past five years the City has complied in all material respects with its previous continuing disclosure agreements in accordance with the Rule 15c

28 OTHER INFORMATION Rating Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( Standard & Poor s ) has assigned its municipal bond rating of AA- to this issue of Certificates. An explanation of the rating may be obtained from Standard and Poor s. The rating reflects only the view of Standard & Poor s and the City makes no representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by Standard & Poor s, if in the judgment of such company, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Certificates. Financial Advisor USCA Municipal Advisors, LLC (the Financial Advisor ), a subsidiary of U.S. Capital Investors, LLC, has been employed by the City to assist the City in connection with issuance of the Certificates. The Financial Advisor s fee for services with respect to the Certificates is contingent upon the issuance and delivery of the Certificates. Although the Financial Advisor has assisted in the drafting of this Official Statement, the Financial Advisor has not independently verified any of the data contained in it nor conducted a detailed investigation of the affairs of the City to determine the accuracy or completeness of this Official Statement. No person should presume that the limited participation of such Financial Advisor means that such Financial Advisor assumes any responsibility for the accuracy or completeness of any of the information contained in this Official Statement. Initial Purchaser After requesting competitive bids for the Certificates, the City has accepted a bid tendered by Hilltop Securities (the Initial Purchaser ) to purchase the Certificates at the rates shown on the inside cover page of this Official Statement at a price of $1,562, (which reflects the par amount of the Certificates of $1,445,000, plus a premium of $130,759.50, less discount of $13,578.81). No assurance can be given that any trading market will be developed for the Certificates after their initial sale by the City. The City has no control over the prices at which the Certificates will initially be re-offered to the public by the Initial Purchaser. Prices and Marketability GENERAL CONSIDERATIONS The delivery of the Certificates is conditioned upon the receipt by the City of a certificate executed and delivered by the Initial Purchaser on or before the date of delivery of the Certificates, stating the prices at which a substantial amount of the Certificates of each maturity have been sold to the public. For this purpose, the term public shall not include any bondhouse, broker, dealer, or similar person acting in the capacity of Initial Purchaser or wholesaler. The City has no control over trading of the Certificates after a bona fide offering of the Certificates is made by the Initial Purchaser at the yields specified inside the cover page. Information concerning reoffering yields or prices is the responsibility of the Initial Purchaser. The prices and other terms respecting the offering and sale of the Certificates may be changed from time to time by the Initial Purchaser after the Certificates are released for sale, and the Certificates may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Certificates into investment accounts. Legal Investments and Eligibility to Secure Public Funds in Texas Pursuant to the Texas Public Securities Act, Chapter 1201, Texas Government Code, as amended, the Certificates, whether rated or unrated, are legal and authorized investments for insurance companies, fiduciaries or trustees, and for municipalities and other political subdivisions or public agencies. Most political subdivisions in the State are required to adopt investment guidelines under the Public Funds Investment Act, Chapter 2256, Texas Government Code, and such political subdivisions may impose a requirement consistent with such act that the Certificates have a rating of not less than A or its equivalent to be legal investments of such entity s funds. The Public Funds Collateral Act, Chapter 2257, Texas Government Code, provides that deposits of public funds, as defined in such chapter, must be secured by eligible security. Eligible Security is defined to include local government obligations (such as the 20

29 Certificates) with a rating from a nationally recognized investment firm of A or its equivalent. See MUNICIPAL RATING herein. The City makes no representation that the Certificates will be acceptable to public entities to secure their deposits, or acceptable to any such entities or institutions for investment purposes. No review by the City has been made of the laws in other states to determine whether the Certificates are legal investments for various institutions in those states. Securities Laws No registration statement relating to the Certificates has been filed with the United States Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder. The Certificates have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been registered or qualified under the securities laws of any other jurisdiction. The City assumes no responsibility for registration or qualification of the Certificates under the securities laws of any other jurisdiction in which the Certificates may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or 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 or qualification provisions in such other jurisdictions. Sources and Compilation of Information The information contained in this Official Statement has been obtained primarily from the City and from other sources believed to be reliable. No representation is made as to the accuracy or completeness of the information derived from sources other than the City. This is no guarantee that any of the assumptions or estimates contained herein will be realized. The summaries of the statutes, resolutions and other related documents are included herein subject to all the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Forward-Looking Statements The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City s expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City s actual results could differ materially from those 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 City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate. Information from External Sources References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into, and are not part of, this Official Statement for purposes of, and as that term is defined in, Rule 15c

30 Certification of the Official Statement At the time of payment for and delivery of the Certificates, the Initial Purchaser will be furnished a certificate, executed by the proper City officials, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in its Official Statement and any addenda, supplement or amendment thereto, for its Certificates on the date of such Official Statement, on the date of purchase of said Certificates, and on the date of delivery, were and are true and correct in all material respects; (b) insofar as the City 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 the circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of, or pertaining to, entities other than the City and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and that the City has no reason to believe that they are untrue in any material respect; (d) there has been no material adverse change in the financial condition of the City since September 30, 2014, the date of the last audited financial statements of the City; and (e) except as disclosed herein, no litigation of any nature has been filed or is pending, as of that date, of which the City has notice to restrain or enjoin the issuance or delivery of the Certificates, or which would affect the provisions made for their payment or security, or in any manner question the validity of the Certificates. Approval of the Official Statement The Ordinance will approve the form and content of this Official Statement and any addenda, supplement or amendment thereto and authorized use in the re-offering of the Certificates by the Initial Purchaser. This Official Statement will be approved by the City Commission for distribution in accordance with the provisions of the Rule. Attest: By: /s/ Debbie Pierce City Secretary CITY OF CARTHAGE, TEXAS By: /s/ Lynn C. Vincent Mayor 22

31 APPENDIX A FINANCIAL INFORMATION AND DEBT INFORMATION The City has previously issued the following tax supported debt (the Outstanding Obligations ). The table below lists the principal amounts of the Outstanding Obligations, including the Series 2016 Refunding Bonds, the Series 2016 Certificates and excluding the Refunded Obligations. Schedule 1 - Outstanding Obligations Outstanding Debt - As of September 30, 2015 Tax and Water & Sewer (Ltd Pledge) Revenue Certificates of Obligation, Series 2006 $ 2,580,000 General Obligation Refunding Bonds, Series ,100,000 Tax and Revenue Certificates of Obligation, Series ,935,000 Tax Notes, Series 2013A 560,000 Tax Notes, Series 2013B 560,000 Total Outstanding $ 14,735,000 Plus the Series 2016 Refunding Bonds 4,300,000 Less the Refunded Obligations 4,370,000 Plus the Series 2016 Certificates 1,445,000 Total Direct Debt $ 16,110,000 (b) Less Self-Supporting Debt (a) Tax and Water & Sewer (Ltd Pledge) Revenue Certificates of Obligation, Series 2006 $ 2,580,000 General Obligation Refunding Bonds, Series ,544,000 7,124,000 Net Tax Supported Debt $ 8,986,000 (b) (a) Self-supporting debt includes 100% of the Tax and Water and Sewer (Limited Pledge) Revenue Certificates of Obligation, Series 2006 and 64% of the General Obligation Refunding Bonds, Series (b) Includes the Series 2016 Refunding Bonds and the Series 2016 Certificates and excludes the Refunded Obligations. (Remainder of the page intentionally left blank) A-1

32 Scheduled 2 Outstanding Revenue Bonds The City has no outstanding Revenue Bonds. Schedule 3 - Debt Service Requirements The following table sets forth the debt service requirements on the City s outstanding debt including the Series 2016 Refunding Bonds, the Series 2016 Certificates and excluding the Refunded Obligations. GO Refunding Bonds, Series 2016 The Certificates, Series 2016 FYE Outstanding Less Total 9/30 Debt Service Refunded Bonds Principal Interest Total Principal Interest Total Debt Service ,148,884 89,425 25,000 48,507 73, ,126, ,136, ,850 15, , ,900-48,889 48,889 2,149, ,117, ,850 20, , ,600-43,350 43,350 2,129, ,444, , , , , ,000 43, ,350 1,545, ,435, , , , , ,000 40, ,350 1,537, ,203, , ,000 99, , ,000 37, ,200 1,307, ,193, , ,000 82, , ,000 33, ,900 1,296, ,188, , ,000 64, , ,000 30, ,600 1,289, ,181, , ,000 46, , ,000 27, ,150 1,287, ,198, , ,000 27, , ,000 23, ,550 1,298, , , ,000 7, , ,000 19, , , , ,000 16, , , , ,000 12, , , , ,000 8, , , , ,000 4, , , , , , ,375 Total $ 17,683,149 $ 5,599,938 $ 4,300,000 $ 875,057 $ 5,175,057 $ 1,445,000 $ 389,239 $ 1,834,239 $ 19,085,652 Schedule 4 Financial Ratios Tax Adequacy for Estimated Debt Service The calculations shown below assume, solely for the purpose of illustration, no change in assessed valuation over the 2015 Taxable Assessed Valuation provided by the Appraisal District and use a tax rate adequate to the service of the City s total debt service requirements following issuance of the Bonds and excluding the Refunded Obligations. Average Debt Service (a) $ 1,231,910 $ per $100 AV against the 2015 Net Taxable AV, at 95% collection, produces $ 1,231,934 Maximum Debt Service (a) $ 2,149,377 $ per $100 AV against the 2015 Net Taxable AV, at 95% collection, produces $ 2,149,939 (a) Includes the Series 2016 Bonds and the Series 2016 Certificates and excludes the Refunded Obligations. A-2

33 The following table reflects the ratio of direct debt to the 2015 taxable assessed valuation provided by the Panola County Appraisal District (the Appraisal District ) and the per capita estimate of such debt calculated on the 2014 estimated population for the City. Per Capita % of Estimate Assessed Value Debt Ratios: Total Direct Debt Service $ 2, % Total Direct & Estimated Overlapping Debt $ 3, % Net Tax-Supported Debt Service $ 1, % Net Tax-Supported & Estimated Overlapping Debt $ 2, % Schedule 5 - Estimated Overlapping Debt Expenditures of the various taxing bodies within the territory of the City may be paid out of ad valorem taxes levied by these taxing bodies on property within the City. These political taxing bodies are independent of the City and may incur borrowings to finance their expenditures. The following information on overlapping jurisdictions was developed from information contained in Texas Municipal Reports published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed below may have issued additional Bonds since the date stated in the table, and such entities may have programs requiring the issuance of substantial amounts of additional Bonds the amount of which cannot be determined. The following table reflects the estimates share, in thousands, of overlapping debt of these various taxing bodies. The table below sets forth the estimated overlapping debt and the City s debt including the Bonds and excluding the Refunded Obligations. Preliminary, subject to change. Amount Percent Estimated Overlapping Debt Gross Debt As of Overlap Amount Carthage ISD $ 23,705,000 (a) 11/30/ % $ 3,852,063 Panola College 31,090,000 (a) 11/30/ % 3,609,549 Total Estimated Overlapping $ 54,795,000 $ 7,461,612 The City $ 16,110,000 * 11/30/ % $ 16,110,000 * Total Direct and Overlapping Debt $ 70,905,000 * $ 23,571,612 * Total Direct and Overlapping Debt % of 2015 A.V.: 3.22% Total Direct and Overlapping Debt per capita 2014 estimate: $2,361 (a) Gross Debt * Includes the Series 2016 Refunding Bonds and the Series 2016 Cetificates and excludes the Refunded Obligations. A-3

34 Schedule 6 - Historical Analysis of Ad Valorem Taxation The following table sets forth the City s historical taxable assessed valuation. Taxable Assessed Percent Collection Tax Year Valuation (a) Tax Rate Tax Levy Current Total FYE 9/ ,887, ,184, % 99.20% ,441, ,131, % 97.85% ,751, ,254, % 99.83% ,371, ,236, % 97.79% ,826,630 (b) ,432, % 92.46% ,684,406 (b) ,603,559 In process In process 2016 (a) Source: City of Carthage Comprehensive Annual Reports (b) Source: Panola County Appraisal District Taxable Assessed Valuation by Category Residential $ 323,651,966 $ 313,105,310 $ 302,233,034 $ 291,716,592 $ 264,107,906 Commercial and Industrial 177,032, ,721, ,138, ,034, ,334,050 Net Taxable Value $ 500,684,406 $ 467,826,630 $ 447,371,364 $ 469,751,042 $ 463,441,956 Schedule 7 Largest Taxpayers The table below reflects the City top ten taxpayers for the tax year Percent of 2015 Total Name of Taxpayer Assessed Value Type of Property Assessed Value Anadarko E&P Onshore LLC (MIN) $ 25,617,460 Oil & Gas 5.12% Anadarko E&P Onshore LLC (MI) 22,598,260 Oil & Gas 4.51% XTO Energy Inc. 14,506,760 Oil & Gas 2.90% Genpak Southwest LLC 14,216,380 Manufacturing 2.84% XTO Energy Inc. 10,747,280 Oil & Gas 2.15% Nuverra Environ Solutions 6,171,830 Oil & Gas 1.23% DCP East Texas Gathering LP 6,084,480 Oil & Gas 1.22% Pinnergy LTD 5,724,810 Oil & Gas 1.14% AEP Southwestern Power Co 4,662,040 Electric Utility 0.93% Smith Energy Services 4,268,350 Oil & Gas 0.85% $ 114,597, % As shown in the tables above, the top ten taxpayers in the City currently account for over 22% of the City's tax base, and are concentrated in the oil and gas industry. Adverse developments in economic conditions, especially in the oil and gas industry, could adversely impact the businesses that own such properties in the City and the tax values in the City, resulting in less local tax revenue. If any major taxpayer were to default in the payment of taxes, the ability of the City to make timely payment of debt service on the Certificates will be dependent on its ability to enforce and liquidate its tax lien, which is a time-consuming process, or, perhaps, to sell tax anticipation notes until such amounts could be collected, if ever. See THE CERTIFICATES Remedies in the Event of Default. A-4

35 Schedule 8 Tax Rate Distribution General Fund $ $ $ $ $ Debt Fund Total $ $ $ $ $ Schedule 9 Municipal Sales Tax History The City has adopted the Municipal Sales and Use Tax Act, Chapter 321, Texas Tax Code, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City. The proceeds are credited to the General Fund and are not pledged to the payment of the Certificates. State law allows the City to collect sales tax to assist in the promotion and development activities of the City. The Carthage Economic Development Corporation ("CEDC") and the Carthage Improvement Corporation (the CIC ) were created by the City for the purpose of promoting, assisting and enhancing economic development activities on behalf of the City. Each organization is a non-profit corporation and funded by sales tax collected by the City. The voters approved the additional 1/4 of 1% each for the CEDC (May 1992) and the CIC (May 2000) over the 1% sales tax collected for general fund purposes and ½ of 1% sales tax for ad valorem tax reduction. Schedule 10 Sales Tax Collections City Sales Tax Revenues Percent of FYE Sales Tax Ad Valorem Equivalent City Population Revenues Year Revenues Tax Levy Tax Rate Estimate (b) Per Capita ,334, % , ,434, % , ,204, % , ,970, % , ,159, % , (a) 1,028,937 n/a n/a 6,822 n/a (a) Revenues collected through December 15, unaudited. (b) Source: Municipal Advisory Council of Texas (Remainder of the page intentionally left blank) A-5

36 Schedule 11 - Historical Operations of the Debt Service Fund The following statement sets forth in condensed form the historical operations of the City s Debt Service Fund. Such information has been prepared based upon information obtained from the City s audited financial statements and other information provided by the City. CITY OF CARTHAGE, TEXAS Debt Service Fund Unaudited Fiscal Year Ended September 30, 9/30/ REVENUES: Taxes $ 895,444 $ 1,139,322 $ 1,108,858 $ 883,194 $ 957,838 $ 1,258,371 Interest revenue - 6,528 10,569 24,097 - Miscellaneous revenues ,540 TOTAL REVENUES 895,444 1,139,322 1,115, , ,935 1,267,911 EXPENDITURES: Non-departmental 1,095 1,595 1,250 4, Debt Service - principal 639, , , , , ,000 - interest and fees 326, , , , , ,776 TOTAL EXPENDITURES 967, , , , , ,776 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES BEFORE OTHER FINANCING (71,557) 212, ,114 63, , ,135 SOURCES (USES) OTHER FINANCING SOURCES (USES): Bond Proceeds ,004,000 Refuding Bond Proceeds (5,004,000) Transfers in , , ,986 Transfers out - (582,884) (211,112) (240,000) (284,048) (521,897) TOTAL OTHER FINANCING SOURCES (USES) - (582,884) (111,112) (240,000) (57,615) (324,911) EXCESS (DEFICIENCY) OF REVENUES AND OTHER (71,557) (370,726) 220,002 (176,004) 102,275 73,224 SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES FUND BALANCE - BEGINNING OF YEAR $ 149,210 $ 519,936 $ 299,934 $ 475,939 $ 373,665 $ 300,441 Prior period adjustments FUND BALANCE - END OF YEAR $ 77,653 $ 149,210 $ 519,936 $ 299,935 $ 475,940 $ 373,665 A-6

37 Schedule 12 - Historical Operations of the General Fund The following statement sets forth in condensed form the historical operations of the City s General Fund. Accounting principles customarily employed in the determination of net revenues have been observed and in all instances exclude depreciation. CITY OF CARTHAGE, TEXAS General Fund Unaudited Fiscal Year Ended September 30, 9/30/ REVENUES: Taxes $ 4,905,215 $ 4,678,225 $ 4,562,137 $ 4,630,636 $ 4,958,879 $ 3,815,909 Licenses and permits 69, , ,345 55, ,797 48,647 Sanitation collections 1,328,868 1,247,096 1,176,730 1,699,367 1,346,852 1,170,103 Fines - corporation court 237, , , , , ,807 Interest revenue 19,376 27,350 22,000 45,730 75,923 - Miscellaneous revenues 219,875 84, ,492 71,818 89, ,866 Grant revenue - 1, Rents and leases 537, , , , , ,217 Donations , , , TOTAL REVENUES 7,317,215 7,377,679 6,815,648 7,414,436 7,328,698 5,895,549 EXPENDITURES: General government 411, , , , , ,218 Public safety 2,022,878 1,994,438 1,903,038 1,992,462 1,800,634 1,571,909 Sanitation 1,251,829 1,291,338 1,205,458 1,737,257 1,388,503 1,223,075 Main street program 84,048 56,214 23,138 28,598 25,203 13,061 Building inspections 216, , , , ,387 - Licenses and permits ,874 Streets 863,566 1,315, , ,598 1,215, ,452 Culture and recreation 276, , , , , ,137 Developmental activities Non-departmental 1,831,050 2,054,224 1,802,895 1,696,867 1,881,982 1,828,836 Debt Service - principal 295,834 59,039 52,106 50, , interest and fees 25,935 9,549 9,205 10,678 14,414 - TOTAL EXPENDITURES 7,278,949 7,933,030 7,131,047 7,341,374 7,455,497 6,429,562 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES BEFORE OTHER FINANCING 38,266 (555,351) (315,399) 73,062 (126,799) (534,013) SOURCES (USES) OTHER FINANCING SOURCES (USES): Capital lease financing - 132, ,314 43,180 Sale of assets 4, ,000 - Transfers in 379, ,596-37, , ,451 Transfers out - (51,782) (305,857) (139,057) (180,609) (1,401,561) TOTAL OTHER FINANCING SOURCES (USES) 383, ,814 (305,857) (101,246) 466,612 (923,930) EXCESS (DEFICIENCY) OF REVENUES AND OTHER 422,045 (342,537) (621,256) (28,184) 339,813 (1,457,943) SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES FUND BALANCE - BEGINNING OF YEAR $ 3,535,508 $ 3,878,045 $ 4,640,204 $ 4,668,388 4,397,436 5,855,379 Prior period adjustments 0 - (140,904) - (68,862) - FUND BALANCE - END OF YEAR $ 3,957,553 $ 3,535,508 $ 3,878,044 $ 4,640,204 $ 4,668,387 $ 4,397,436 A-7

38 Schedule 13 - Historical Operations of the Water and Sewer Fund The following statement sets forth in condensed form the historical operations of the City s Water & Sewer Fund. Such information has been prepared based upon information obtained from the City s audited financial statements and other information provided by the City. CITY OF CARTHAGE, TEXAS Water and Sewer Fund Unaudited Fiscal Year Ended September 30, 9/30/ OPERATING REVENUES Charges for services $ 5,103,078 $ 5,138,431 $ 5,001,182 $ 4,777,127 $ 5,163,730 $ 4,387,981 Other revenues 23,835 24,605 14,960 17,576 69,817 3,032 TOTAL OPERATING REVENUES 5,126,913 5,163,036 5,016,142 4,794,703 5,233,547 4,391,013 OPERATING EXPENSES Salaries and fringe benefits 1,952,817 1,855,975 1,767,520 1,740,489 1,746,050 1,575,495 Contractual services 211, , , ,216 99, ,030 Depreciation 1,033, , , , , ,189 Supplies and maintenance 779, , , , , ,427 Utilities and telephone 310, , , , , ,410 Water purchases 148, , ,409 78,880 85,291 74,916 Street rental 450, , , , , ,000 Insurance 124, , , , , ,861 Bad Debts , Other expenses 156, , , , ,959 89,405 TOTAL OPERATING EXPENSES 5,166,889 4,687,417 4,812,088 4,623,928 4,466,081 4,216,733 OPERATING INCOME (39,976) 475, , , , ,280 NONOPERATING REVENUES (EXPENSES) Interest income 10,695 10,292 13,197 22,381 42,243 66,093 Interest expense & related fees (903,384) (380,807) (417,750) (489,055) (503,327) - Certificates, bonds, & notes--interest & fees (321,722) Capital grants / Donations - 230, ,000 TOTAL NONOPERATING REVENUES (EXPENSES) (892,689) (139,820) (404,553) (466,674) (461,084) INCOME BEFORE TRANSFERS (932,665) 335,799 (200,499) (295,899) 306,382 (76,349) TRANSFERS Transfers in - 1,223,941 3,422, , ,897 1,890,570 Transfers out - - (343,766) - (156,907) - TOTAL TRANSFERS - 1,223,941 3,078, , ,990 1,890,570 CHANGE IN NET ASSETS (932,665) 1,559,740 2,877, , ,372 1,814,221 TOTAL NET ASSETS - BEGINNING $ 24,102,177 $ 22,542,437 $ 20,129,180 $ 19,956,470 $ 18,755,984 16,941,763 Prior period adjustments - (464,572) - 567,114 - TOTAL NET ASSETS - ENDING $ 23,169,512 $ 24,102,177 $ 22,542,436 $ 20,129,183 $ 19,956,470 $ 18,755,984 A-8

39 APPENDIX B ECONOMIC AND DEMOGRAPHIC INFORMATION The City The City of Carthage is the county seat and principal industrial and commercial center of Panola County. The City is located at the intersection of U.S. Highways 59 and 79, and is 168 miles east of Dallas, and 35 miles southwest of Shreveport, Louisiana. The City's 2010 population estimate was 6,779, increasing 1.72% since Local industries include a poultry processor employing over 600 persons. An Oriented Strand Board manufacturing plant, a lumber mill, and a manufacturer of disposable cups and plates, each employing over 100 persons. The County Panola County is an east Texas county, bordering Louisiana traversed by U.S. Highways 59 and 79, State Highways 149 and 315 and Farm Road 10. The economy is based on mineral production, manufacturing, agriculture and lumbering. Principal sources of agricultural income are cattle, poultry and timber. Principal industries produce lumber, disposable cups and poultry. In 1996, Panola County led in natural gas production of all counties. The County's 2010 U.S. Census population was 23,796 which is a 4.57% increase from its 2000 U.S. Census population of 22,756. Education Carthage Independent School District has a total of 5 campuses (listed below). Regular program average daily attendance for the district's is 2,659 students. Campus Grades Academic Rating Carthage High School 9-12 Acceptable Carthage Junior High School 7-8 Acceptable Baker-Koonce Intermediate 4-6 Acceptable Libby Elementary 2-3 Recognized Carthage Primary Ell Recognized Panola Charter School There is one private school in Carthage, Northside Christian Academy, which teaches kindergarten through the twelfth grade. Panola County Junior College serves the residents of the City, and Panola, Harrison, and Shelby Counties as well as several colleges within an eighty miles radius of Carthage. Other area higher education facilities within eighty miles: Angelina College Centenary - Shreveport, LA East Texas Baptist University - Marshall Jacksonville College - Jacksonville Kilgore Junior College - Kilgore Le Toumeau University - Longview Lon Morris - Jacksonville Louisiana State University - Shreveport Northeast Texas Community College Stephen F. Austin - Nacogdoches Texas College Texas State Technical College - Marshall Tyler Junior College -Tyler University of Texas - Tyler University of Texas Health Center- Tyler Wiley College Marshall B-1

40 Transportation Infrastructure The City is located at the intersection of U.S. Highways 59 and 79, and is 168 miles east of Dallas, and 35 miles southwest o Shreveport, Louisiana. Shreveport offers a port facility. Interstate Highway 20 is 23 miles north of the City. East Texas Regional Airport is located 32 miles west of the City. Commerce Supporting commerce within the area of the City are 6 motor freight carriers, 4 parcel service providers, and I rail provider. Utilities AEP/Swepco provides electricity to the area. Natural gas is provided by CenterPointEnergy. The City furnishes both water and sewer service. The City's supply of water comes from nearby Lake Murvaul. The City operates two surface water treatment plants with a combined capacity of 5.6 million gallons per day. Additionally, the City has two deep water wells used for emergency only. Economic Development Economic development efforts in the area are focused through the City's two economic development corporations, Carthage Improvement Corporation and the Carthage Economic Development Corporation. Each corporation assesses a one-quarter of one percent sales tax. Recreation The City has the following facilities available: three city parks with camping, a country club, and a roller-skating rink. Lake Murvaul, which is located 10 miles southwest, provides fishing, boating and water skiing. Residents can also fish at nearby Toledo Bend Reservoir and Sabine River. Top Ten Major Employers Employer Employees Tyson Foods 750 Carthage ISD 498 Courtney Construction Inc 393 Panola College 290 Ritter Construction 261 Panola County 200 ETMC - Carthage 154 Genpak 134 Louisiana Pacific 130 Smith Equipment 100 Source: City of Carthage B-2

41 APPENDIX C SELECTED DATA FROM COMPREHENSIVE ANNUAL FINANCIAL REPORT, CITY OF CARTHAGE, TEXAS, FISCAL YEAR ENDED SEPTEMBER 30, 2014

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43 CITY OF CARTHAGE, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2014 ISSUED BY CITY OF CARTHAGE, TEXAS BRENDA SAMFORD, CITY MANAGER AND DIRECTOR OF FINANCE

44 Introductory Section

45 City of Carthage, Texas Comprehensive Annual Financial Report For The Year Ended September 30, 2014 TABLE OF CONTENTS Page Exhibit/Table INTRODUCTORY SECTION Letter of Transmittal... 3 Organizational Chart... 8 GFOA Certificate of Achievement... 9 List of Principal Officials FINANCIAL SECTION Independent Auditors' Report Management's Discussion and Analysis (Required Supplementary Information) Basic Financial Statements Government-wide Financial Statements: Statement of Net Position Exhibit A-1 Statement of Activities Exhibit A-2 Fund Financial Statements: Balance Sheet - Governmental Funds Exhibit A-3 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position Exhibit A-4 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Exhibit A-5 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Exhibit A-6 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget (GAAP Basis) and Actual - General Fund Exhibit A-7 Statement of Net Position - Proprietary Fund Exhibit A-8 Statement of Revenues, Expenses, and Changes in Fund Net Position - Proprietary Fund Exhibit A-9 Statement of Cash Flows - Proprietary Fund Exhibit A-10 Notes to the Financial Statements Required Supplementary Information Texas Municipal Retirement System Schedule of Funding Progress Texas Emergency Services Retirement System Schedule of Funding Progress Combining Statements and Budgetary Comparison Schedules as Supplementary Information: Special Revenue Funds: Combining Balance Sheet - Nonmajor Special Revenue Funds Exhibit B-1 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Special Revenue Funds Exhibit B-2 1

46 City of Carthage, Texas Comprehensive Annual Financial Report For The Year Ended September 30, 2014 TABLE OF CONTENTS Page Exhibit/Table Budgetary Comparison Schedules: Hotel/Motel Occupancy Tax Fund Exhibit B-3 Carthage Economic Development Corporation Exhibit B-4 Carthage Improvement Corporation Exhibit B-5 Debt Service Funds: Budgetary Comparison Schedule: Debt Service Fund Exhibit B-6 STATISTICAL SECTION - UNAUDITED Net Position by Component - Last Ten Fiscal Years Table 1 Change in Net Position - Last Ten Fiscal Years Table 2 Fund Balances of Governmental Funds - Last Ten Fiscal Years Table 3 Changes in Fund Balances of Governmental Funds - Last Ten Fiscal Years Table 4 Changes in Fund Balances of Proprietary Funds - Last Ten Fiscal Years Table 5 Assessed Value of Taxable Property - Last Ten Fiscal Years Table 6 Direct and Overlapping Property Tax Rates and Levies - Last Ten Fiscal Years Table 7 Property Tax Levies and Collections - Last Ten Fiscal Years Table 8 Principal Property Tax Payers Table 9 Tax Revenues by Source - General Fund - Last Ten Fiscal Years Table 10 Municipal Sales Tax - Last Ten Fiscal Years Table 11 Legal Debt Margin Information - Last Ten Fiscal Years Table 12 Total City Debt by Type - Last Ten Fiscal Years Table 13 Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt Per Capita - Last Ten Fiscal Years Table 14 Computation of Direct and Overlapping Government Debts Table 15 Revenue Bond Coverage - Last Ten Fiscal Years Table 16 Demographic Statistics - Last Ten Fiscal Years Table 17 Panola County Demographic and Economic Statistics - Last Ten Fiscal Years Table 18 Panola County Principal Employers - Last Ten Fiscal Years Table 19 City Employees by Function - Last Ten Fiscal Years Table 20 Operating Indicators By Function/Program - Last Ten Fiscal Years Table 21 Capital Asset Statistics by Function/Program - Last Ten Fiscal Years Table 22 Miscellaneous Statistical Data Table 23 COMPLIANCE SECTION Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings Corrective Action Plan

47 March 12, 2015 City of Carthage PO Box 400 Carthage, Texas Phone Fax Mayor U'NN C. V INCENT Maymo Pro Tem OLIN JOFFUION City Commissioners JERRY 1: HANS7,J:N Place I JOHN ''If COOKE Place 2 IDA BJ:CI< Place 3 City Mmlager BnENDA SAMfORD City Secretary DEBBIE PIERCE Honorable Mayor and City Commission City of Carthage, Texas The Comprehensive Annual Financial Report (CAFR) of the City of Carthage, Texas, for the fiscal year ended September 30, 2014, is hereby submitted. The purpose of the report i.s ito provide the Commission, staff, the public and other interested parties with detailed information reflecting the City's financial condition. The Report Management assumes full responsibility for the completeness and reliability of the information contained in this report. To provide a reasonable basis for making the representations in these financial statements, management has established a comprehensive internal control framework that is designed both to protect the District's assets from loss, misuse or theft, and to compile sufficient reliable information for the preparation of the District's financial statements in conformity with GAAP. Because the cost of internal controls should not exceed the benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable assurance rather than absolute assurance that the financial statements will be free from material misstatement. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the various City funds. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. Generally accepted accounting principles (GAAP) require that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of Management's DiscusslOn and Analysis (MD&A). This letter of transmittal is designed to complement the MD&,A and should be read in conjunction with it. The City of Carthage's MD&A can be found immediately following the report of the independent auditors. The City was required to undergo an audit in accordance with Government Auditing Standards issued by the Comptroller General of the United States. [nc1uded in the compliance section is the report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standardso 3

48 Profile of the City The City of Carthage covers approximately 10.5 square miles in East Texas, near the Louisiana state line. As of the 2010 census, the population was 6,779. Carthage is the county seat of Panola County, Texas. The City was incorporated in 1948 under a Home Rule Charter. All powers of the City are vested in a City Commission consisting of a mayor and four commissioners who are elected by the citizens for two-year terms of office. The City Manager is the chief executive officer for the City. The City provides a full range of municipal services, including public safety (police and fire protection); sanitation services; the construction and maintenance of highways, streets, and infrastructure; planning and zoning; recreational activities and cultural events; and general administrative services. In addition, water and wastewater services are operated under an Enterprise Fund concept, with user charges set to ensure adequate coverage of operating expenses and payments on outstanding debt. Also included in this report are two component units: Carthage Economic Development Corporation (CEDC) and Carthage Improvement Corporation (CIC). Both are non-profit corporations organized to promote and develop new and expanding businesses and each is funded by a ¼ percent sales tax collected by the City. The CIC can also undertake municipal infrastructure improvements and other City projects. These corporations financial statements are blended with the City s basic financial statements as special revenue funds since they meet the criteria set forth in GASB Statement No. 39. The City enacts the budget through passage of an ordinance prior to the start of each fiscal year. This budget serves as the foundation for the City of Carthage s financial planning and control. Annual budgets are prepared for the general fund, debt service fund, hotel/motel tax fund, Carthage Economic Development Corporation and Carthage Improvement Corporation. The City Manager is authorized to transfer resources within each department; Commission approval is required for all other transfers. Local Economy The City has a diversified economy that includes one of the largest proven natural gas fields in the United States. In addition to plants processing petroleum and manufacturing or servicing oil field equipment, a major poultry processing plant and a plastic cup manufacturing plant are also located within the City. Additionally, Carthage is the home of Louisiana Pacific which, although it is located just outside the city limits, is a utility customer. The economic condition and outlook of the City have been steady during the past eight years. However, approximately 35% of the City s property tax base is represented by mineral values, and the City s economy is vulnerable to changes in natural gas values. Long-term Financial Planning The City expects continuing growth thru the diversification of industry. The City offers industrial and business prospects, a growing labor force available at competitive wage rates, adequate and reliable utilities offered at affordable prices, a ready market of office and industrial facilities, quality schools and advanced educational facilities. 4

49 Relevant Financial Policies The City has formally adopted a fund balance policy which states that the City will maintain a minimum of four months of average general fund operating expenditures in unassigned fund balance. The City strives to maintain sufficient reserves to insure its ability to maintain services at a consistent level and respond to the demands of its economy. In accordance with the Public Funds Investment Act, the City invests funds prudently and has adopted an investment policy reviewed annually by the City Commission as prescribed by State law. Staff provides a quarterly report of investments for Commission review. The City s current investment practice is limited to the purchase of certificates of deposit. Major Initiatives For the Current Year. The 2014 year presented several construction projects involving water, sewer, streets and the addition of a conference center. The Carthage Improvement Corporation (4B) Board voted unanimously to add a conference room to the recently completed civic center. The additional conference room allows occupancy up to 250 and could be divided into two separate meeting rooms if so desired. A generous donation was made by Mrs. Frances Ross for an executive board room and a scrolling marquee in front of the Civic Center. This Board room is for approximately 25 people and is equipped with media equipment and telecommunications needed for most presentation types. City sales tax revenue for the first time in a couple of years exceeded budget expectations. Property tax revenue has been reasonably consistent and continued to be again this year. The Carthage Fire Department is a very vital part of the City. It has seven full-time firefighter employees and 30 volunteer firefighters. The fire department complies with and is regulated by the Texas Commission on Fire Protection, and the department equipment is continually maintained and kept in a constant state of readiness. Training and drills are a regular part of membership in the fire department. The department maintains a Fire Protection Rating of Class II through the Insurance Service Organization. A majority of the equipment is kept up to NFPA Standards. Our Chief, Brodie Akin, has served the department for 53 years and has the respect and dedication of the firemen, which makes for an excellent volunteer department. As of this year, the Fire Department has three firemen who hold investigator and inspection licenses. We had one injury in this fiscal year and no fatalities. The Police Department is also a very vital department within the City of Carthage. Their call volume over the past two years has nearly doubled and this year we were able to add an additional officer to the force. We now have a Chief of Police, Assistant Chief, Investigator and 14 patrol officers. We have four dispatchers, an Administrative Secretary to the Chief and an Animal Control Officer. In our Municipal Court, we have a part-time Judge and a full-time Court Clerk. During fiscal year 2014, we were able to add an 18 x 30 room to the police department for secure storage of criminal records to comply with new state standards. The roof was replaced over the police and fire departments as well. The Police Department has been very successful in solving many cases on file, and part of that success is due to the services of the full-time investigator as well as the fact that the Police Department has had strong employee retention in recent years. This consistency helps make the department better as a whole. The City laid approximately 2400 feet of water line and about 3600 feet of sewer line along with installing additional radio read meters and various water taps. The East Loop in Carthage is the location of a newly constructed Industrial Park. New water and sewer lines had to be installed to service these needs. The Industrial Park was completed and, for a short time, had only one business 5

50 but sold 4 additional lots before the end of 2014 and construction immediately began on two of those lots. The construction on Klondike Street was completed during FY 2014 with the anticipation of a new truck stop and restaurant facility. The project consisted of widening and constructing a concrete drive in order to accommodate improved access by heavy truck traffic. Over the past several years, the City has completed a series of rehab projects at the water plant. Each one has helped the City to stay in compliance with the mandated guidelines from the Texas Commission on Environmental Quality. In FY 2014, the City completed the last phase in this rehabilitation process, which was a 2 million gallon clearwell. The water plant is now operating on a 24-hour basis which has proven to save money on chemicals and electricity and also maintains a more consistent water flow. Our challenge at the Sewer Plant is seven day bio-testing that the state is monitoring. When the permit is up for renewal, we anticipate this testing will become a requirement. The Main Street program, under the direction of Cindy Smith, continues to improve each year. For the 12th consecutive year the program was awarded the designation of a National Main Street City. Cindy has been successful in bringing several new events to downtown and also has formed a working downtown group of merchants who strive together to make the downtown a better place to shop. The City of Carthage continues the programs needed to meet the citizens needs for services and to safeguard the environment, in conformity with applicable federal and state standards. For the Future. In looking forward, the Industrial Business Park which was completed in FY 2014, should have businesses located there by the end of FY The Building Inspectors and the Fire Marshal will begin the year with many new building sites which include several buildings for Panola College and toward the end of FY 2015, buildings should be in construction for Carthage Independent School District. Both of these will take the better part of 2 years to construct. In conjunction with that, several additional permits for other businesses and residential permits are anticipated. In early FY 2015, additional museum space for the Texas Country Music Hall of Fame should be completed as well. We are anticipating a new display to be revealed sometime in FY 2015, along with a dedication for the museum addition. During FY2015, City staff will evaluate the condition of the water intake and pump house at Murvaul Lake. The wet well has cracks in the floor due to age and it needs rehab work and possibly some pumps replaced. We are also working with Tyson Foods to make sure all the requirements are met for the bio-monitoring required by regulation at the sewer plant. This has proven so far to be a cooperative effort between the City and Tyson Foods, and the joint effort will continue through FY We anticipated during FY 2014 that sales tax would increase due to the election passage for the sale of packaged beer and wine. We did see a slight increase but hopefully that will grow to a much larger degree in FY Carthage Economic Development Corporation and Carthage Improvement Corporation continue to assist the City with incentives for business growth and improvement as well as support in many ways. At this time, other than regular maintenance vehicles being replaced, the only equipment that will need to be addressed in FY 2016 is a chipper truck. This truck runs daily and we have spent a 6

51 great deal of time and funds on costly repairs. We would like to continue the service and this will need to be addressed in the near future. Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Carthage for its Comprehensive Annual Financial Report for the fiscal year ended September 30, This was the 15th consecutive year that the City has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized Comprehensive Annual Financial Report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program s requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of the Comprehensive Annual Financial Report on a timely basis was made possible by the dedicated service of the entire staff of the City Accountant and her department along with our independent auditors. We would also like to express sincere appreciation to all employees who contributed to its preparation. In closing, the City of Carthage will strive to be a good community partner to business and residents. We will continue to maintain and provide all services, constantly striving to do so in the most effective and economic way possible. The things that we strive to achieve for the good of Carthage or due to state/federal mandates are only possible through the stability of the Carthage City Commission. The City Commission, under the leadership of a new Mayor, Lynn Vincent, has always made themselves available to the citizens of Carthage. The previous Mayor Carson Joines, resigned after serving for 32 years. Mayor Vincent served on the City Commission for years and had no problem stepping into the leadership role. A new commissioner, Jerry Hanszen, was elected by the citizens to fill Place 4 which had become vacant. He, too, has served on numerous other boards within the City for many years which brings a different viewpoint to the Commission. I feel confident we will continue to see the cooperation, leadership and stability from the current City Commission that we have always maintained. I applaud their unselfish efforts and dedication of their time and energy to the betterment of the City of Carthage. Sincerely, Brenda Samford City Manager 7

52 CITY OF CARTHAGE, TEXAS 2014 Citizens City Commission City Judge City Attorney City Manager All Boards Court Clerk Secretary to City Manager City Secretary Office Mgr. Water Clerks Zoning Administrator Planning & Zoning Board of Adjustment Building Standards Hotel/Motel Building Trades Main Street Advisory Carthage Park Authority Parks Department City Accountant Street Department Main Street Manager Water Distribution Department Water/Sewer Production Department Fire Chief Fire Marshal Police Chief Inspection Department Civic/Conference Center Department Supervisor Foreman Employees Tap Supervisor Tap Employees Supervisor Field Employees Water Plant Chief Operator Supervisor Sewer Plant Operators Firemen Patrol Lt. 4 Sergeants 10 Patrol Officers Investigator Lt. Marketing Maintenance Residential Commercial Employees Employees Dispatcher Secretary Records Clerk Part-Time Secretary

53 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Carthage Texas For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2013 Executive Director/CEO 9

54 CITY OF CARTHAGE LIST OF PRINCIPAL OFFICIALS SEPTEMBER 30, 2014 Elected Officials Name LYNN VINCENT JOHN COOKE LIN JOFFRION IDA BECK JERRY T. HANSZEN Office MAYOR COMMISSIONER MAYOR, PRO-TEM COMMISSIONER COMMISSIONER Appointed Officials Name BRENDA SAMFORD DEBBIE PIERCE Position CITY MANAGER CITY SECRETARY 10

55 Financial Section

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57 Karen A. Jacks, CPA Peggy J. Lantz, CPA Sherry Davis, CPA KAREN A. JACKS & ASSOCIATES, P.C. Certified Public Accountants P.O. Box 3167 Longview, Texas Colony Circle Longview, Texas Phone: Fax: To the Honorable Mayor and City Commission City of Carthage. Texas Independent Audjtors' Report Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Carthage, Texas ("the City") as of and for the year ended September 30, 2014, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial staternents based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by rnanagement, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Carthage, Texas as of September 30,2014, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budget comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Meillbers American!nslilul~ ol'ccrlillcd 1'Ilbik!\~'c()u!llanls' Texas So<:idy ofccrliii';fi1'ubli<: ACC(lUll1illll~' AICI'A Division for Fillns Priv;)tc Companies 1'1ilCIi<:c Sc~ti{lll

58 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion & Analysis and information identified as Required Supplementary Information in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the Required Supplementary Information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Carthage, Texas' basic financial statements. The introductory section, combining and individual non major fund financial statements, and statistical section are presented for purposes of additional analysis and are not required parts of the basic financial statements. The combining and individual nonmajor fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information, except for that portion labeled "unaudited" on which we express no opinion, has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 12, 2015 on our consideration of City of Carthage, Texas' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Carthage, Texas' internal control over financial reporting and compliance. Karen A. Jacks & Associates, P.C. Longview, Texas March 12,

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