HOU:3051425.

3

OFFICIAL STATEMENT DATED AUGUST 24, 2010
In the opinion of Bond Counsel, interest on the Series 2010A Certificates is excludable from gross income for federal income tax
purposes under existing law, subject to the matters described under TAX MATTERS herein, and is not includable in the
federal alternative minimum taxable income of individuals or corporations. See TAX MATTERS for a discussion of the opinion
of Bond Counsel and other possible tax consequences of an investment in such Certificates. Interest on the Taxable Series 2010B
Certificates is not excludable from gross income for federal income tax purposes. See TAX MATTERS FOR BUILD AMERICA
BONDS.
NEW ISSUE: BOOK-ENTRY-ONLY Ratings: S&P ...................................................................... AA
Moodys ............................................................. Aa2
$9,055,000
MONTGOMERY COUNTY, TEXAS
Certificates of Obligation, Series 2010A
(Mental Health Treatment Facility)

$23,395,000
MONTGOMERY COUNTY, TEXAS
Certificates of Obligation,
Taxable Series 2010B
(Direct Subsidy Build America Bonds)
(Mental Health Treatment Facility)
Dated: September 1, 2010 Due: March 1, as shown on the inside cover page hereof
The $9,055,000 Montgomery County, Texas, Certificates of Obligation, Series 2010A (the Series 2010A Certificates) and the
$23,395,000 Montgomery County, Texas, Certificates of Obligation, Taxable Series 2010B (the Taxable Series 2010B
Certificates, together with the Series 2010A Certificates, the Certificates ), are being issued by the Commissioners Court of
Montgomery County (the County) pursuant to the terms of an order adopted by the Commissioners Court of the County. The
Certificates are payable from an annual ad valorem tax levied on all taxable property in the County, within the limits prescribed
by law, and by a pledge of a subordinate lien on the net revenues of the Countys park system. See THE CERTIFICATES
Source of Payment of the Certificates and TAXING PROCEDURES AND TAX BASE ANALYSIS Tax Rate Limitations.
Interest on the Certificates will accrue from September 1, 2010, and will be payable March 1 and September 1 of each year,
commencing March 1, 2011. The Certificates will initially be registered and delivered only to Cede & Co., the nominee of The
Depository Trust Company (DTC) pursuant to the Book-Entry-Only System described herein. 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. Principal of and interest on the Certificates will be payable by Regions Bank,
Houston, Texas (the Paying Agent/Registrar) to Cede & Co., which will make distribution of the amounts so paid to the
beneficial owners of the Certificates. See THE CERTIFICATES - Book-Entry-Only System herein. Interest on the
Certificates is payable to the registered owners (initially Cede & Co.) appearing on the registration books of the Paying
Agent/Registrar on the 15
th
day of the month preceding each interest payment date (the Record Date). See THE
CERTIFICATES - General.
The Certificates maturing on March 1, 2020 and thereafter are subject to optional redemption by the County in whole, or from
time to time in part, on March 1, 2019 or any date thereafter at a price of par plus accrued interest to the date of redemption. See
THE CERTIFICATES - Optional Redemption. Certain of the Taxable Series 2010B Certificates are subject to mandatory
redemption as describe herein under THE CERTIFICATES Mandatory Redemption. The Taxable Series 2010B Certificates
are also subject to extraordinary optional redemption on any date up to and including March 1, 2019 in whole or in part in
principal amounts of $5,000 or any integral multiple thereof. See THE CERTIFICATES Extraordinary Optional
Redemption.
See Principal Amounts, Maturities, Interest Rates and Prices on the Inside Cover Page
Proceeds from the sale of the Certificates will be used for (i) the construction of a 100-bed forensic psychiatric hospital located at
700 Hilbig Road, Conroe, Texas 77301, and (ii) payment of professional services and payment of the costs of issuance of the
Certificates. See PLAN OF FINANCE Purpose.
The Certificates are offered when, as and if issued by the County and accepted by the Underwriters, subject to the approving
opinion of the Attorney General of the State of Texas and the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel.
Certain legal matters will be passed upon for the County by Andrews Kurth LLP, Houston, Texas, Disclosure Counsel. Certain
legal matters will be passed upon for the Underwriters by Allen Boone Humphries Robinson LLP, Counsel for the Underwriters.
It is expected that the Certificates will be delivered through the facilities of DTC on or about September 21, 2010.
WELLS FARGO SECURITIES

FIRSTSOUTHWEST JEFFERIES & COMPANY, INC.

.


HOU:3051425.3
PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES
MONTGOMERY COUNTY, TEXAS
$9,055,000 Certificates of Obligation, Series 2010A
(Mental Health Treatment Facility)

Maturity
(a)

(March 1)

Principal
Amount

Interest
Rate

Initial
Yield
(b)

CUSIP
(c)

Nos.
613681
2012 $ 685,000 3.000% 0.530% K46
2013 705,000 3.000 0.740 K53
2014 730,000 3.000 0.990 K61
2015 750,000 3.000 1.440 K79
2016 780,000 4.000 1.760 K87
2017 810,000 4.000 2.030 K95
2018 845,000 4.000 2.220 L29
2019 875,000 4.000 2.440 L37
2020 915,000 4.000 2.640 L45
2021 955,000 5.000 2.810 L52
2022 1,005,000 5.000 2.950 L60

$23,395,000 Certificates of Obligation, Taxable Series 2010B
(Direct Subsidy Build America Bonds)
(Mental Health Treatment Facility)

Maturity
(a)(d)

(March 1)

Principal
Amount

Interest
Rate

Initial
Yield
(b)

CUSIP
(c)

Nos.
613681
2023 $1,045,000 4.195% 4.195% J97
2024 1,075,000 4.345 4.345 J71
2025 1,105,000 4.445 4.445 J89
$6,110,000 Term Certificates Due March 1, 2030(b)(c)(d)(e) Interest Rate 5.20% (Price Par) CUSIP Number 613681K20
$14,060,000 Term Certificates Due March 1, 2039(b)(c)(d)(e) Interest Rate 5.40% (Price Par) CUSIP Number 613681K38
_____________________________
(a) The Certificates maturing on March 1, 2020, and thereafter are subject to optional redemption by the County in whole, or
from time to time in part, on March 1, 2019, or any date thereafter at a price of par plus accrued interest to the date of
redemption. See THE CERTIFICATES - Optional Redemption.
(b) The initial reoffering yields of the Certificates are furnished by the Underwriters (as defined herein) and represent the initial
offering yields to the public, which may be changed by the Underwriters at any time.
(c) CUSIP numbers have been assigned to the Certificates by Standard and Poors CUSIP Service Bureau, A Division of the
McGraw-Hill Companies, Inc., and are included solely for the convenience of the registered owners of the Certificates.
Neither the County, the Financial Advisor, nor the Underwriters are responsible for the selection or correctness of the
CUSIP numbers set forth herein.
(d) Subject to Extraordinary Optional Redemption as described herein. See THE CERTIFICATES - Extraordinary Optional
Redemption.
(e) Subject to mandatory sinking fund redemption as described herein. See THE CERTIFICATES Mandatory
Redemption.

HOU:3051425.3

COUNTY OFFICIALS
Elected Officials

Commissioners Court

Alan B. Sadler County Judge
Mike Meador Commissioner, Precinct 1
Craig Doyal Commissioner, Precinct 2
Ernest E. Chance Commissioner, Precinct 3
Ed Rinehart Commissioner, Precinct 4




Other Elected and Appointed Officials
Name Position

J. R. Moore, Jr. Tax Assessor Collector
Martha N. Gustavsen County Treasurer
Phyllis L. Martin County Auditor
David Walker County Attorney
Mark Turnbull County Clerk
Consultants and Advisors
Auditors............................................................................... Hereford, Lynch, Sellars, & Kirkham, PC, CPA
Conroe, Texas
Bond Counsel ................................................................................................................. Andrews Kurth LLP
Houston, Texas
Disclosure Counsel......................................................................................................... Andrews Kurth LLP
Houston, Texas
Financial Advisor ..................................................................................... RBC Capital Markets Corporation
Houston, Texas


HOU:3051425.3
No dealer, broker, salesman or other person has been authorized by the County or the Underwriters to give any
information or to make any representation, other than those contained in this Official Statement, and, if given or
made, such other information or representations must not be relied upon as having been authorized by the County or
the Underwriters.
This Official Statement is not to be used in an offer to sell or the solicitation of an offer to buy in any state in which
such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to
do so or to any person to whom it is unlawful to make such offer or solicitation.
NEITHER THE COUNTY, ITS FINANCIAL ADVISOR NOR THE UNDERWRITERS MAKE ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS
OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY (DTC) OR ITS BOOK-
ENTRY-ONLY SYSTEM.
THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE
COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE
REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH
APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE SECURITIES
HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A
RECOMMENDATION THEREOF.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL
ABOVE THAT WHICH MIGHT PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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 County or other matters described herein since the date
hereof.
The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters
have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to
investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the
Underwriters do not guarantee the accuracy or completeness of such information.

3
HOU:3051425.3
TABLE OF CONTENTS
Page Page
INTRODUCTION........................................................... 4
SALE AND DISTRIBUTION OF THE
CERTIFICATES....................................................... 4
Sale of the Certificates .............................................. 4
Prices and Marketability............................................ 4
Securities Laws.......................................................... 5
Ratings ....................................................................... 5
OFFICIAL STATEMENT SUMMARY ....................... 6
SELECTED FINANCIAL INFORMATION................ 8
PLAN OF FINANCE...................................................... 9
Purpose ...................................................................... 9
Concurrent County Debt Issuances........................... 9
Sources and Uses of Funds ....................................... 9
THE CERTIFICATES.................................................. 10
General..................................................................... 10
Designation of Taxable Series 2010B Certificates
as Build America Bonds.................................... 10
Record Date for Interest Payment........................... 11
Optional Redemption .............................................. 11
Mandatory Redemption........................................... 12
Extraordinary Optional Redemption....................... 12
Book-Entry-Only System........................................ 13
Authority for Issuance............................................. 15
Source of Payment of the Certificates .................... 15
Paying Agent/Registrar ........................................... 15
Transfer, Exchange and Registration...................... 16
Amendments............................................................ 16
Defeasance of Certificates....................................... 16
Certificate-holders Remedies................................. 16
Future Borrowing .................................................... 17
Legal Investments.................................................... 18
Investment Policies.................................................. 19
DEBT SERVICE REQUIREMENTS.......................... 21
COUNTY DEBT........................................................... 22
General..................................................................... 22
Indebtedness ............................................................ 22
Estimated Overlapping Debt Statement.................. 23
Debt Ratios .............................................................. 25
Other Obligations .................................................... 25
TAXING PROCEDURES AND TAX BASE
ANALYSIS............................................................. 26
General..................................................................... 26
Property Tax Code and County-Wide Appraisal
District ............................................................... 26
Property Subject to Taxation by the County........... 26
Residential Homestead Exemptions ....................... 26
Freeport Goods and Goods-in-Transit Exemption . 26
Tax Abatement ........................................................ 27
Pollution Control ..................................................... 27
Valuation of Property for Taxation......................... 27
County and Taxpayer Remedies ............................. 28
Levy and Collection of Taxes ................................. 28
Countys Rights in the Event of Tax Delinquencies28
Tax Rate Limitations............................................... 29
Historical Analysis of Tax Collection..................... 30
Delinquent Tax Collection Procedures................... 31
Tax Rate Distribution.............................................. 31
Analysis of Tax Base............................................... 31
Top Ten Principal Taxpayers.................................. 32
Tax Adequacy.......................................................... 32
SELECTED FINANCIAL DATA................................ 33
Historical Operations of the Countys General
Fund................................................................... 33
Special Revenue Funds ........................................... 34
Debt Service Funds ................................................. 35
Pension Fund ........................................................... 35
THE COUNTY............................................................. 36
Administration of the County ................................. 36
Commissioners Court............................................. 36
Consultants .............................................................. 36
TAX MATTERS FOR THE SERIES 2010A
CERTIFICATES..................................................... 36
Exemption of Interest .............................................. 36
Tax Accounting Treatment of Original Issue
Premium............................................................. 37
TAX MATTERS FOR SERIES 2010B
CERTIFICATES..................................................... 38
General..................................................................... 38
CONTINUING DISCLOSURE OF INFORMATION39
Annual Reports........................................................ 39
Material Event Notices............................................ 40
Limitations and Amendments ................................. 40
Compliance with Prior Undertakings ..................... 40
OTHER CONSIDERATIONS ..................................... 41
Environmental Regulations..................................... 41
Air Quality............................................................... 41
Groundwater Conservation District ........................ 41
GENERAL CONSIDERATIONS................................ 41
Sources and Compilation of Information................ 41
Updating of Official Statement ............................... 42
OTHER INFORMATION............................................ 42
Litigation ................................................................. 42
Registration and Qualification of Certificates for
Sale..................................................................... 42
Legal Investments and Eligibility To Secure Public
Funds in Texas................................................... 42
Legal Opinions ........................................................ 42
Financial Advisor .................................................... 43
Forward-Looking Statements Disclaimer............... 43
Miscellaneous.......................................................... 43
Concluding Statement ............................................. 44

Appendix A - Economic and Demographic Information
Appendix B - Excerpts from Comprehensive Annual Financial Report of Montgomery County, Texas for the
Fiscal Year Ended September 30, 2009
Appendix C - Form of Legal Opinions

4
HOU:3051425.3
INTRODUCTION
This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance
of $9,055,000 Montgomery County, Texas, Certificates of Obligation, Series 2010A (the Series 2010A
Certificates) and the $23,395,000 Montgomery County, Texas, Certificates of Obligation, Taxable Series 2010B
(Direct Subsidy Build America Bonds) (the Taxable Series 2010B Certificates, together with the Series 2010A
Certificates, the Certificates). Capitalized terms used in this Official Statement have the same meanings assigned
to such terms in the order authorizing the issuance of the Certificates (the Order), except as otherwise indicated
herein. There follows in this Official Statement descriptions of the Certificates and certain information regarding the
County and its finances. All descriptions of documents contained herein are only summaries and are qualified in
their entirety by reference to each such document. Copies of such documents may be obtained from the Countys
Financial Advisor, RBC Capital Markets Corporation, Houston, Texas.
This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as
statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of
opinion, or as to the likelihood that they will be realized. However, the County has agreed to keep this Official
Statement current by amendment or sticker to reflect material changes in the affairs of the County and to the extent
that information actually comes to its attention, the other matters described in this Official Statement until delivery
of the Certificates to the Underwriters and thereafter only as specified in GENERAL CONSIDERATIONS
Updating of Official Statement and CONTINUING DISCLOSURE OF INFORMATION.
SALE AND DISTRIBUTION OF THE CERTIFICATES
Sale of the Certificates
Wells Fargo Securities, FirstSouthwest, and Jeffries & Company, Inc. (collectively, the Underwriters) have agreed
to purchase the Series 2010A Certificates from the County pursuant to a purchase agreement with the County for a
price of $9,956,330.90 (representing the par amount of the Series 2010A Certificates, plus a premium of
$957,924.65, and less an Underwriters discount of $56,593.75) plus accrued interest on the Series 2010A
Certificates to the date of delivery. The Underwriters obligation is to purchase all of the Series 2010A Certificates
if any are purchased.
The Underwriters have agreed to purchase the Taxable Series 2010B Certificates from the County pursuant to a
purchase agreement with the County for a price of $23,219,537.50 (representing the par amount of the Series 2010B
Certificates, less an Underwriters discount of $175,462.50) plus accrued interest on the Series 2010B Certificates to
the date of delivery. The Underwriters obligation is to purchase all of the Series 2010B Certificates if any are
purchased.
Wells Fargo Securities is the trade name for certain capital markets and investment banking services of Wells Fargo
& Company and its subsidiaries, including Wells Fargo Bank, N.A.
Prices and Marketability
The delivery of the Certificates is conditioned upon the receipt by the County of a certificate executed and delivered
by the Underwriters 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 person who is a bondhouse, broker or similar person acting in the capacity of underwriter or
wholesaler. The County has no control over trading of the Certificates after a bona fide offering of the Certificates
is made by the Underwriters at the yields specified on the inside cover page hereof. Information concerning
reoffering yields or prices is the responsibility of the Underwriters.
The prices and other terms respecting the offering and sale of the Certificates may be changed from time to time by
the Underwriters after the Certificates are released for sale, and the Certificates may be offered and sold at prices
other than the initial offering prices, including sales to dealers who may sell the Certificates into investment
accounts. IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
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.

5
HOU:3051425.3
Securities Laws
No registration statement relating to the Certificates has been filed with the 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 County 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.
Ratings
In connection with the sale of the Certificates, the County has made application to Moodys Investors Service, Inc.
(Moodys) and Standard & Poors Ratings Group, A Division of the McGraw-Hill Companies, Inc. (S&P) for
ratings on the Certificates, and the ratings of Aa2 and AA, respectively, have been assigned to the Certificates.
An explanation of the significance of such ratings may be obtained from Moodys and S&P. The ratings reflect only
the view of Moodys and S&P, and the County makes no representation as to the appropriateness of such ratings.
There is no assurance that such ratings will continue for any period of time or that they will not be revised
downward or withdrawn entirely if, in the judgment of Moodys or S&P, circumstances so warrant. Any such
downward revision or withdrawal of any of the ratings may have an adverse effect on the market price of the
Certificates.

6
HOU:3051425.3
OFFICIAL STATEMENT SUMMARY
The following material is a summary of certain information contained herein and is qualified in its entirety by the
detailed information and financial statements appearing elsewhere in this Official Statement. The reader should
refer particularly to sections that are indicated for more complete information.
The Issuer ...................................................... Montgomery County, Texas, a political subdivision of the State of
Texas. See THE COUNTY.
The Series 2010A Certificates ....................... $9,055,000 Montgomery County, Texas Certificates of Obligation,
Series 2010A (Mental Health Treatment Facility) (the Series 2010A
Certificates) are dated September 1, 2010 and mature March 1 in each
of the years 2012 through 2022 inclusive. See THE CERTIFICATES
General.
The Series 2010B Certificates ....................... $23,395,000 Montgomery County, Texas Certificates of Obligation,
Taxable Series 2010B (Direct Subsidy Build America Bonds) (the
Taxable Series 2010B Certificates and together with the Series
2010A Certificates, the Certificates) (Mental Health Treatment
Facility) are dated September 1, 2010. The Taxable Series 2010B
Certificates include $3,225,000 of serial certificates maturing March 1
in each of the years 2023 through 2025 inclusive and $20,170,000 of
term certificates maturing March 1 in 2030 and 2039 (the Term
Certificates). See THE CERTIFICATES General
Payment of Interest........................................ Interest on the Certificates accrues from September 1, 2010, and is
payable March 1, 2011, and each September 1 and March 1 thereafter
until maturity or upon prior redemption. See THE CERTIFICATES
General.
Optional Redemption..................................... The Certificates maturing on March 1, 2020 and thereafter are subject
to optional redemption in whole, or from time to time in part, on March
1, 2019, or any date thereafter at the price of par plus accrued interest
to the date of redemption. See THE CERTIFICATES Optional
Redemption.
Mandatory Redemption ................................. The Term Certificates are subject to mandatory redemption. See THE
CERTIFICATES - Mandatory Redemption.
Extraordinary Redemption .. ......................... The Taxable Series 2010B Certificates are subject to extraordinary
optional redemption on any date up to and including March 1, 2019 in
whole or in part in principal amounts of $5,000 or any integral multiple
thereof. See THE CERTIFICATES Extraordinary Optional
Redemption.
Source of Payment......................................... Principal of and interest on the Certificates are payable from the
proceeds of a continuing, direct annual ad valorem tax levied, within
the limits prescribed by law, against all taxable property in the County
and from the pledge of a subordinate lien on the net revenues of the
Countys park system. See THE CERTIFICATES Source of
Payment of the Certificates and TAXING PROCEDURES AND
TAX BASE ANALYSIS Tax Rate Limitations.
Authorization of the Certificates ................... The Certificates are being issued pursuant to an order authorizing
issuance of the Certificates adopted by the Montgomery County
Commissioners Court (the Order) and the Texas Constitution and
laws of the State of Texas, particularly Subchapter C of Chapter 271,
Texas Local Government Code, as amended. See THE
CERTIFICATES Authority for Issuance.

7
HOU:3051425.3
Use of Proceeds ............................................. Proceeds of the sale of the Certificates will be used for (i) the
construction of a 100-bed forensic psychiatric hospital located at 700
Hilbig Road, Conroe, Texas 77301 and (ii) payment of professional
services and payment of the costs of issuance of the Certificates. See
PLAN OF FINANCE Purpose.
Tax Exemption .............................................. In the opinion of Bond Counsel, interest on the Series 2010A
Certificates is excludable from gross income for federal income tax
purposes under existing law and is not includable in the computation of
alternative minimum taxable income for individuals. See TAX
MATTERS herein for a discussion of the opinion of Bond Counsel.
Interest to be paid on the Taxable Series 2010B Certificates will be
included in gross income for federal income tax purposes. See TAX
MATTERS FOR BUILD AMERICA BONDS.
Book-Entry-Only System.............................. The definitive Certificates will be initially registered and delivered
only to Cede & Co., the nominee of DTC pursuant to the Book-Entry-
Only System described herein. Beneficial ownership of the 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. See THE CERTIFICATES Book-Entry-
Only System.
Payment Record............................................. The County has never defaulted on the timely payment of principal of
and interest on any of its outstanding debt.
Ratings........................................................... Moodys Investors Service, Inc. ................................................. Aa2
Standard & Poors Ratings Services ............................................AA





[The remainder of this page intentionally left blank.]


8
HOU:3051425.3
SELECTED FINANCIAL INFORMATION
(Unaudited)

2010 Certified Taxable Assessed Valuation $ 32,954,421,238
(a)

(100% of Market Value as of January 1, 2010)
See TAXING PROCEDURES AND TAX BASE ANALYSIS

2009 Certified Taxable Assessed Valuation $ 32,645,245,355
(a)

(100% of Market Value as of January 1, 2009)
See TAXING PROCEDURES AND TAX BASE ANALYSIS

Direct Debt:
Outstanding Direct Debt (as of July 1, 2010) $ 403,170,000
(b)



Plus: Certificates of Obligation, Series 2010A 9,055,000
Plus: Certificates of Obligation, Taxable Series 2010B 23,395,000
Plus: Pass-Through Toll and Limited Tax Bonds, Series 2010 36,100,000
(c)
*
Plus: Unlimited Tax Refunding Bonds, Series 2010 43,380,000
(d)

Less: The Refunded Bonds (43,555,000)

Total Direct Debt $ 471,545,000

Estimated Overlapping Debt $ 2,407,096,989

Total Direct and Estimated Overlapping Debt $ 2,878,641,989

Interest & Sinking Fund Balance (as of July 31, 2010) $ 18,966,408

Ratio of Direct Debt to..: 2010 Certified Taxable Assessed Valuation ($32,954,421,238) 1.432%
2009 Certified Taxable Assessed Valuation ($32,645,245,355) 1.445%
First Quarter 2010 Estimated Population (451,714) $ 1,043.90

Ratio of Direct and Estimated
Overlapping Debt to: 2010 Certified Taxable Assessed Valuation ($32,954,421,238) 8.736%
2009 Certified Taxable Assessed Valuation ($32,645,245,355) 8.818%
First Quarter 2010 Estimated Population (451,714) $ 6,372.71

Estimated Annual Debt
Service Requirements: Average (2010-2039) $ 25,575,729
Maximum (2019) $ 38,452,596
_____________________________
* Preliminary, subject to change.
(a)

Certified by the Montgomery Central Appraisal District (the Appraisal District).
(b)

Includes the bonds to be refunded by the Countys Unlimited Tax Refunding Bonds, Series 2010.
(c)

Expected to be delivered on October 12, 2010.
(d)

The Countys Unlimited Tax Refunding Bonds, Series 2010 were sold on July 30, 2010 and are expected to
be delivered on August 31, 2010.


[Remainder of page intentionally left blank]

9
HOU:3051425.3
PRELIMINARY OFFICIAL STATEMENT
Relating to

$9,055,000
MONTGOMERY COUNTY, TEXAS
Certificates of Obligation, Series 2010A
(Mental Health Treatment Facility)

$23,395,000
MONTGOMERY COUNTY, TEXAS
Certificates of Obligation,
Taxable Series 2010B
(Direct Subsidy Build America Bonds)
(Mental Health Treatment Facility)
PLAN OF FINANCE
Purpose
Proceeds from the sale of the $9,055,000 Montgomery County, Texas, Certificates of Obligation, Series 2010A (the
Series 2010A Certificates) and the $23,395,000 Montgomery County, Texas, Certificates of Obligation, Taxable
Series 2010B (Direct Subsidy Build America Bonds) (the Taxable Series 2010B Certificates, together with the
Series 2010A Certificates, the Certificates ) will be used for (i) the construction of a 100-bed forensic psychiatric
hospital located at 700 Hilbig Road, Conroe, Texas 77301, and (ii) for payment of professional services and
payment of the costs of issuance of the Certificates.
Concurrent County Debt Issuances
The County expects to issue its $36,100,000* Pass-Through Toll Revenue and Limited Tax Bonds, Series 2010 (the
Pass-Through Toll Bonds) on October 12, 2010. The Countys $43,380,000 Unlimited Tax Refunding Bonds,
Series 2010 (the Refunding Bonds) were sold on July 31, 2010 are expected to be delivered on August 31, 2010.
Proceeds from the sale of the Pass-Through Toll Bonds will be used to finance certain road improvements within the
County and to pay the costs of issuance of the Pass-Through Toll Bonds. Proceeds from the sale of the Refunding
Bonds will be used to refund certain outstanding obligations of the County (the Refunded Bonds) and to pay the
costs of issuance of the Refunding Bonds. See THE CERTIFICATES Future Borrowing for additional
information regarding the Countys future finance plans.
Sources and Uses of Funds
Series 2010A Certificates
Sources of Funds
Par Amount $ 9,055,000.00
Net Reoffering Discount 957,924.65
Accrued Interest 19,616.67
Total Sources $ 10,032,541.32

Uses of Funds
Deposit to Construction Fund $ 8,705,000.00
Deposit to Capitalized Interest Fund 1,167,562.02
Underwriters Discount 56,593.75
Costs of Issuance 83,768.88
Deposit to Interest and Sinking Fund 19,616.67
Total Uses $ 10,032,541.32


10
HOU:3051425.3

Taxable Series 2010B Certificates
Sources of Funds
Par Amount $ 23,395,000.00
Accrued Interest 67,590.21
Total Sources $ 23,462,590.21

Uses of Funds
Deposit to Construction Fund $ 23,095,000.00
Underwriters Discount 175,462.50
Costs of Issuance 124,537.50
Deposit to Interest and Sinking Fund 67,590.21
Total Uses $ 23,462,590.21

THE CERTIFICATES
General
The Certificates are dated September 1, 2010, and mature on March 1 in each of the years and in the amounts shown
on the inside cover page hereof. The Certificates will bear interest at the respective rates shown on the inside cover
page of this Official Statement, which interest will be computed on the basis of a 360-day year of twelve 30-day
months, and will be payable on March 1 and September 1 (each an Interest Payment Date), commencing March
1, 2011. The definitive Certificates will be issued only in fully registered form in any integral multiple of $5,000 for
any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository
Trust Company (DTC) pursuant to the Book-Entry-Only System described herein. No physical delivery of the
Certificates will be made to the beneficial owners thereof. Principal of and interest on the Certificates will be
payable by Regions Bank, Houston, 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 Book-Entry-Only System herein.
In the event the Book-Entry-Only-System is discontinued, the Certificates may be transferred and exchanged on the
bond register kept by the Paying Agent/Registrar upon surrender and reissuance. The Certificates are exchangeable
for an equal principal amount of Certificates of the same maturity in any authorized denomination upon surrender of
the Certificates to be exchanged at the principal payment office of the Paying Agent/Registrar. No service charge
will be made for any transfer, but the County may require payment of a sum sufficient to cover any tax or
governmental charge payable in connection therewith.
Designation of Taxable Series 2010B Certificates as Build America Bonds.
The County has designated the Taxable Series 2010B Certificates as Build America Bonds (BABs) under and
pursuant to the federal American Recovery and Reinvestment Act of 2009 (the Recovery Act), and in accordance
with the guidance included in the Internal Revenue Services Notice 2009-26, effective as of April 3, 2009, and
intends to irrevocably elect to receive directly from the United States Department of the Treasury (the U.S.
Treasury) direct subsidy payments equal to 35% of the interest payable by the County on the Obligations
designated as BABs contemporaneously with each interest payment date. Under the Stimulus Act, the County is
entitled to receive the subsidy payments on application to the U.S. Treasury, if (1) the County uses 100% of the
proceeds of the BABs (net of permitted costs of issuance) and investment earnings on such proceeds for
capitalizable expenditures and (2) the County complies with the same conditions regarding use and investment of
proceeds of the BABs as those applicable to obligations the interest on which is excludable from gross income for
federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986 (the Code). See TAX
MATTERS FOR BUILD AMERICA BONDS. The County intends to apply and expects to qualify for each federal
interest subsidy payment. The County will deposit the subsidy payments into a special subaccount within the interest
and sinking fund for the BABs to be used to reduce the amount of regularly scheduled debt service payments;
provided, however, that such subsidy payments will not be pledged as security to pay debt service on the BABs.

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If the County fails to comply with the conditions of the U.S. Treasury for the continued receipt of the subsidy
payments throughout the term of the BABs, it may no longer receive the subsidy payments and could be subject to a
claim for return of previously received subsidy payments. The subsidy payments do not constitute a full faith and
credit guarantee of the United States Government, but are required to be paid by the U.S. Treasury under the
Recovery Act. No assurances are provided that the County will receive the subsidy payments. The amount of any
subsidy payment is subject to legislative changes by Congress. In addition, subsidy payments may be subject to
offset against certain amounts that may, for unrelated reasons, be owed by the County to an agency of the United
States of America.
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 fifteenth day of the preceding month.
In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date
for such interest payment (a Special Record Date) will be established by the Paying Agent/Registrar, if and when
funds for the payment of such interest have been received from the County. Notice of the Special Record Date and
of the scheduled payment date of the past due interest (Special Payment Date, which shall be 15 days after the
Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail,
first class postage prepaid, to the address of each holder of a Certificate (Certificate-holder) 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.
Optional Redemption
The County reserves the right, at its option, to redeem Certificates having stated maturities on or after March 1, 2020
in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on March 1, 2019 or any date
thereafter at the par value thereof plus accrued interest to the date of redemption. If less than all of the Certificates
are to be redeemed, the County shall determine the principal amount and maturities to be redeemed and shall direct
the Paying Agent/Registrar to select by lot or other customary method that results in a random selection, the
Certificates or portions thereof within a maturity, to be redeemed.
Not less than 30 days prior to a redemption date for the Certificates, the County shall cause a notice of redemption to
be sent by United States mail, first class, postage prepaid, to the registered owners of the Certificates to be
redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the
Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice.
ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN,
WHETHER OR NOT THE REGISTERED 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 County, so long as a Book-Entry-Only System is used for the Certificates, will
send any notice of redemption, notice of proposed amendment to the Order or other notices with respect to the
Certificates only to DTC. Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect
participant to notify 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
County will reduce the outstanding principal amount of such Certificates held by DTC.

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Mandatory Redemption
The Taxable Series 2010B Certificates maturing in 2030 and 2039 (the, Term Certificates) are subject to
mandatory sinking fund redemption and will be redeemed by the County prior to their scheduled maturities on
March 1 in the years and in the amounts set forth below at a redemption price equal to the principal amount
redeemed plus accrued interest to the mandatory redemption date (the Maturity Redemption Date or Mandatory
Redemption Dates):

$6,110,000 Term Certificates Maturing on March 1, 2030

Mandatory Redemption Date Principal Amount
March 1, 2026 $1,140,000
March 1, 2027 1,180,000
March 1, 2028 1,220,000
March 1, 2029 1,265,000
March 1, 2030 (Final Maturity) 1,305,000

$14,060,000 Term Certificates Maturing on March 1, 2039

Mandatory Redemption Date Principal Amount
March 1, 2031 $1,350,000
March 1, 2032 1,400,000
March 1, 2033 1,450,000
March 1, 2034 1,505,000
March 1, 2035 1,555,000
March 1, 2036 1,610,000
March 1, 2037 1,670,000
March 1, 2038 1,730,000
March 1, 2039 (Final Maturity) 1,790,000
The particular Certificates to be mandatorily redeemed will be selected by lot or other customary random selection
method. The principal amount of any Term Certificate to be mandatorily redeemed on such Mandatory Redemption
Date will 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 County 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.
Extraordinary Optional Redemption
Up to and including March 1, 2019, the Taxable Series 2010B Certificates are subject to redemption prior to
maturity at the option of the County, in whole or in part, in principal amounts of $5,000 or any integral thereof on
any date on or after the occurrence of an Extraordinary Event (defined herein) at a redemption price equal to the
greater of: (a) the issue price of the principal amount of the Taxable Series 2010B Certificates to be redeemed,
provided that such amount must be at least equal to the par amount of the Taxable Series 2010B Certificates to be
redeemed; and (b) the sum of the present value of the remaining scheduled payments of principal and interest to the
earlier of the stated maturity or the optional redemption date (March 1, 2019) of the Taxable Series 2010B
Certificates to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the
redemption date, discounted to the redemption date on a semi-annual basis, assuming a 360-day year consisting of
twelve 30-day months, at the Treasury Rate, plus 100 basis points, plus, in each case, accrued and unpaid interest to
the redemption date on the Taxable Series 2010B Certificates to be redeemed.
Extraordinary Event means any change to Section 54AA or Section 6431 of the Code (as such Sections were
added by Section 1531 of the Recovery Act, pertaining to Build America Bonds) pursuant to which the Interest
Subsidy Payments in connection with the Taxable Series 2010B Certificates are reduced or eliminated.
The Treasury Rate is, as of any redemption date, the yield to maturity as of such redemption date of United States
Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two (2) Business Days prior to the

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redemption date (excluding inflation indexed securities) (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the period from the redemption date to the
maturity date of the Bonds to be redeemed; provided, however, that if the period from the redemption date to such
maturity date is less than one (1) year, the weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one (1) year will be used.
At the request of the Paying Agent/Registrar, the redemption price of the Taxable Series 2010B Certificates to be
redeemed at the option of the County will be determined by an independent accounting firm, investment banking
firm or financial advisor retained by the County at the Countys expense to calculate such redemption price. The
Paying Agent/Registrar and the County may conclusively rely on the determination of such redemption price by
such independent accounting firm, investment banking firm or financial advisor and will not be liable for such
reliance.
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 (DTC),
New York, New York, while the Certificates are registered in its nominees name. The information in this section
concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such
as this Official Statement. The County and the Underwriters believe the source of such information to be reliable,
but take no responsibility for the accuracy or completeness thereof.
The County cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the
Certificates, or redemption or other notices, to DTC Participant, (2) DTC Participants or others will distribute debt
service payments paid to DTC or its nominee (as the registered owner of the Certificates), or redemption or other
notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the
manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and
Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on
file with DTC.
DTC will act initially as securities depository for the Certificates. The Certificates will be issued as fully-registered
securities registered in the name of Cede & Co. (DTCs 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 worlds 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
1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues,
corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTCs
participants (Direct Participants) deposit with DTC. DTC also facilitates the post-trade settlement among Direct
Participants of sales and other securities transactions in deposited securities, through electronic computerized book
entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement
of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The
Depository Trust & Clearing Corporation (DTCC). DTCC is the holding company for DTC, National Securities
Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC
is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear
through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (Indirect
Participants). DTC has Standard & Poors highest rating: AAA. The DTC Rules applicable to its Participants are on
file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com
and www.dtc.org.
Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive
a credit for the Certificates on DTCs 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 purchase.

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Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as
well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial
Owner entered into the transaction.
Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct or
Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the 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 DTCs 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; DTCs 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 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
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 a maturity are being redeemed,
DTCs practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be
redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates
unless authorized by a Direct Participant in accordance with DTCs Procedures. Under its usual procedures, DTC
mails an Omnibus Proxy to the County as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.s consenting or voting rights to those Direct Participants to whose accounts the Certificates are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, redemption proceeds and interest payments on the Certificates will be made to Cede &
Co., or such other nominee as may be requested by an authorized representative of DTC. DTCs practice is to credit
Direct Participants accounts upon DTCs receipt of funds and corresponding detail information from the County or
the Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTCs records.
Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices,
as is the case with securities held for the accounts of customers in bearer form or registered in street name, and
will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or the
County, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of
principal, premium, if any, redemption proceeds and interest payments to Cede & Co. (or such other nominee as
may be requested by an authorized representative of DTC) is the responsibility of the County or the Paying
Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving
reasonable notice to the County. Under such circumstances, in the event that a successor securities depository is not
obtained, Certificates are required to be printed and delivered.
The County 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 in accordance with the Order. 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

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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 Order will be given only to DTC.
Use of Certain Terms in Other Sections of this Official Statement
In reading this Official Statement it should be understood that while the 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 Order will be given only to DTC.
Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed
as to accuracy or completeness by, and is not to be construed as a representation by, the County or the Underwriters.
Effect of Termination of Book-Entry-Only System
In the event that the Book-Entry-Only System is discontinued printed Certificates will be issued to the registered
owners and the Certificates will be subject to transfer, exchange and registration provisions as set forth in the Order
and summarized under Transfer, Exchange and Registration below.
Authority for Issuance
The Certificates are issued pursuant to the Constitution and the laws of the State of Texas (the State), including
particularly Subchapter C of Chapter 271, Texas Local Government Code, as amended, and the Order passed by the
Commissioners Court of the County, authorizing the issuance of the Certificates.
Source of Payment of the Certificates
The Certificates are payable from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits
prescribed by law, against taxable property located within the County. Article VIII, Section 9 of the Texas
Constitution imposes a limit of $0.80 per $100 assessed valuation for all purposes of a countys General Fund,
Permanent Improvement Fund, Road and Bridge Fund and Jury Fund including debt service on certain bonds,
warrants, certificates of obligation or other debt issued against such funds. Administratively, the Attorney General
of Texas will not approve limited tax obligations in an amount which produces debt service requirements exceeding
that which can be paid from $0.40 of such $0.80 maximum tax rate calculated at 90% collection. The Certificates
are limited tax obligations payable from this constitutional tax. The issuance of the Certificates will not exceed the
constitutionally authorized taxable rate stated above. See also, TAXING PROCEDURES AND TAX BASE
ANALYSIS - Tax Rate Limitations.
The Certificates are further payable from a pledge of a subordinate lien on the revenues of the Countys park system
after payment of all operation and maintenance expenses thereof (the Net Revenues). The lien on such Net
Revenues is junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of
the County heretofore or hereafter issued by the County and designated as having a pledge senior to the pledge of
the Net Revenues of the Certificates. The County anticipates paying the principal and interest on the Certificates
from ad valorem taxes as described above and the County makes no assurances that there will be any Net Revenues
of the park system available to pay debt service on the Certificates. In the Order authorizing the issuance of the
Certificates, the County reserves the right to issue additional obligations payable in whole or in part from the Net
Revenues.
Paying Agent/Registrar
The initial Paying Agent/Registrar is Regions Bank, Houston, Texas. In the Order, the County retains the right to
replace the Paying Agent/Registrar. The County covenants to maintain and provide a Paying Agent/Registrar at all
times until the Certificates are duly paid and any successor Paying Agent/Registrar shall be a commercial bank or
trust company organized under the laws of the State or other entity duly qualified and legally authorized to serve as
and perform the duties and services of Paying Agent/Registrar for the Certificates. Upon any change in the Paying
Agent/Registrar for the Certificates, the County agrees to promptly cause a written notice thereof to be sent to each
registered owner of the Certificates by United States mail, first class, postage prepaid, which notice shall also give
the address of the new Paying Agent/Registrar.

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Principal of the Certificates is payable to the registered holder (the Registered Owner) at the designated corporate
trust office of the Paying Agent/Registrar upon surrender of the Certificates for payment at maturity or prior
redemption. Interest on the Certificates is payable by check or draft, dated as of the interest payment date, and
mailed by the Paying Agent/Registrar to the Registered Owners as shown on the records of the Paying
Agent/Registrar at the close of business on the Record Date (identified below) or by such other arrangement
acceptable to the Paying Agent/Registrar requested by and at the expense and risk of the Registered Owner. If the
date for the payment of the principal of or interest on the Certificates shall be a Saturday, Sunday, a legal holiday, or
a day when banking institutions in the city where the designated corporate office of the Paying Agent/Registrar is
not such a Saturday, Sunday, legal holiday, or day when banking institutions are authorized to close; and payment
on such date shall have the same force and effect as if made on the original date payment was due.
Transfer, Exchange and Registration
In the event the Book-Entry-Only System should be discontinued, printed certificates shall be delivered to the
registered owner and thereafter the Certificates may be transferred and exchanged on the registration books of the
Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar and such transfer or
exchange shall be without expense or service charge to the registered owner, except for any tax or other
governmental charges required to be paid with respect to such registration, exchange and transfer. 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. See Book-Entry-Only System herein for a description
of the system to be utilized initially in regard to ownership and transferability of the Certificates.
Amendments
The County may, without the consent of or notice to any Certificate-holders, from time to time and at any time,
amend the Order in any manner not detrimental to the interests of the Certificate-holders, including the curing of any
ambiguity, inconsistency, or formal defect or omission herein. In addition, the County may, with the consent of
Certificate-holders holding a majority in aggregate principal amount of the Certificates then Outstanding, amend,
add to, or rescind any of the provisions of the Order; provided that, without the consent of all Certificate-holders of
Outstanding Certificates, no such amendment, addition, or rescission shall (1) extend the time or times of payment
of the principal of, premium, if any, and interest on the Certificates, reduce the principal amount thereof, the
redemption price or the rate of interest thereon, or in any other way modify the terms of payment of the principal of,
premium, if any, or interest on the Certificates, (2) give any preference to any Certificate over any other Certificate,
or (3) reduce the aggregate principal amount of Certificates required to be held by Certificate-holders for consent to
any such amendment, addition, or rescission.
Defeasance of Certificates
The Order provides that the County may defease the provisions thereof and discharge its obligation to the registered
owners of any or all of the Certificates to pay principal, interest and redemption premium, if any, thereon in any
manner permitted by law, including by depositing with the Registrar, or if authorized by Texas law with any
national bank having trust powers and having combined capital and surplus of at least $50 million or with the State
Treasurer of the State either: (i) cash in an amount equal to the principal amount and redemption premium, if any,
of such Certificates plus interest thereon to the date of maturity or redemption, or (ii) pursuant to an escrow or trust
agreement, cash and/or direct obligations of, or obligations the principal of and interest on which are guaranteed by,
or, to the extent permitted by law, secured by the pledge of direct obligations of, the United States of America, in
principal amounts and maturities and bearing interest at rates sufficient to provide for the timely payment of the
principal amount and redemption premium, if any, of such Certificates plus interest thereon to the date of maturity
or redemption; provided, however, that if any of such Certificates are to be redeemed prior to their respective dates
of Stated Maturity, provision must have been made for giving notice of redemption as provided in the Order. Upon
such deposit, such Certificates shall no longer be regarded to be outstanding or unpaid. Any surplus amounts not
required to accomplish such defeasance shall be returned to the County.
Certificate-holders Remedies
The Order does not provide for the appointment of a trustee to represent the interests of the Certificate-holders upon
any failure of the County to perform in accordance with the terms of the Order or upon any other condition and, in
the event of any such failure to perform, the certificate-holders would be responsible for the initiation and cost of
any legal action to enforce performance of the Order. Furthermore, the Order 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

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Certificates upon the failure of the County to observe any covenant under the Order. A certificate-holder of
Certificates could seek a judgment against the County 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
County and a suit for monetary damages could be vulnerable to the defense of sovereign immunity. A certificate-
holders only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the
County 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 Order. 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 certificate-holder could be required to enforce such remedy on a periodic basis.
The County 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 County avail itself of
Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court
(which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the
Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding
brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Order
and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors, including
rights afforded to creditors under the Bankruptcy Code.
Future Borrowing
The County expects to issue its $36,100,000
*
Pass-Through Toll Revenue and Limited Tax Bonds, Series 2010 (the
Pass-Through Toll Bonds) on October 12, 2010. The Countys $43,380,000 Unlimited Tax Refunding Bonds,
Series 2010 (the Refunding Bonds) were sold on July 31, 2010 are expected to be delivered on August 31, 2010.
Proceeds from the sale of the Pass-Through Toll Bonds will be used to finance certain road improvements within the
County and to pay the costs of issuance of the Pass-Through Toll Bonds. Proceeds from the sale of the Refunding
Bonds will be used to refund certain outstanding obligations of the County and to pay the costs of issuance of the
Refunding Bonds.
The Commissioners Court has created the Montgomery County Toll Road Authority (the Authority). The
Authority was created with the intended primary function of oversight of County toll roads. In addition, the
Authority is authorized to and may issue debt in the future for the construction and maintenance of certain toll roads
in the County. Pursuant to its articles of formation and relevant State law, the Authority is able to charge toll
revenues for the payment of its bonds. In addition, the Authority would be able to use tax revenues for the payment
of Authority bonds, but only after the imposition of a tax has been approved by voters in the County. The County
and the Authority currently have no plans to request County voters approve the imposition of such a tax. To date,
the Authority has not issued any debt.
Depending on the rate of development within the County, changes in assessed valuation and the amounts, interest
rates, maturities and time of issuance of additional bonds or certificates, increases in the Countys annual ad valorem
tax rate may be required to provide for the payment of the principal of and interest on the Countys outstanding debt,
including the Certificates and any future bonds or certificates of obligation the County may issue.

*
Preliminary, subject to change.

18
HOU:3051425.3
INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE COUNTY
The County invests its investable funds in investments authorized by Texas law in accordance with investment
policies approved by the Commissioners Court of the County. Both State law and the Countys investment policies
are subject to change from time to time.
Legal Investments
Under State law, the County is authorized to invest in (1) obligations of the United States or its agencies and
instrumentalities, including letters of credit; (2) direct obligations of the State or its agencies and instrumentalities;
(3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States,
the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other
obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of,
the State or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies,
counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized
investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of
Israel; (7) (a) certificates of deposit and share certificates issued by a depository institution that has its main office or
a branch office in the State of Texas, that are (i) guaranteed or insured by the Federal Deposit Insurance Corporation
or the National Credit Union Share Insurance Fund or their respective successors, or are secured as to principal by
obligations described in clauses (1) through (6) above or in any other manner and amount provided by law for
County deposits, and (b) certificates of deposit or share certificates issued by a depository institution that has its
main office or a branch office in the State of Texas that participate in the Certificate of Account Registry Service;
(8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations
described in clause (1), and are placed through a primary government securities dealer or a financial institution
doing business in the State, (9) 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 (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are
pledged to the County, held in the Countys name and deposited at the time the investment is made with the County
or a third party designated by the County; (iii) a loan made under the program is placed through either a primary
government securities dealer or a financial institution doing business in the State; and (iv) the agreement to lend
securities has a term of one year or less, (10) certain bankers acceptances with the remaining term of 270 days or
less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by
at least one nationally recognized credit rating agency, (11) commercial paper with a stated maturity of 270 days or
less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or
(b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit
issued by a U.S. or state bank, (12) no-load money market mutual funds registered with and regulated by the
Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and
include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (13) no-
load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity
of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as
to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its
equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined
termination date and are secured by obligations, including letters of credit, of the United States or its agencies and
instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than
the prohibited obligations described in the next succeeding paragraph.
The County may invest in such obligations directly or through government investment pools that invest solely in
such obligations provided that the pools are rated no lower than AAA or AAA-m or an equivalent by at least one
nationally recognized rating service. The County may also contract with an investment management firm registered
under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to
provide for the investment and management of its public funds or other funds under its control for a term up to two
years, but the County retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a
contract, the County must do so by order, ordinance, or resolution. The County is specifically prohibited from
investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of
the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents

19
HOU:3051425.3
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 County is required to invest its funds under written investment policies that primarily
emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality
and capability of investment management; and that include a list of authorized investments for County funds, the
maximum allowable stated maturity of any individual investment, the maximum dollar-weighted average maturity
allowed for pooled fund groups and methods to monitor the market price of such authorized investments. All
County funds must be invested consistent with a formally adopted Investment Strategy Statement that specifically
addresses each funds investment. Each Investment Strategy Statement is required to describe its objectives
concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability
of each investment, (5) diversification of the portfolio, and (6) yield.
Under Texas law, County investments must be made with judgment and care, under prevailing circumstances, that
a person of prudence, discretion, and intelligence would exercise in the management of the persons own affairs, not
for speculation, but for investment, considering the probable safety of capital and the probable income to be
derived. At least quarterly, the investment officers of the County are required to submit an investment report
detailing: (1) the investment position of the County, (2) the beginning market value, any additions and changes to
market value and the ending value for each pooled fund group, (3) the book value and market value of each
separately invested asset at the beginning and end of the reporting period, by the type of asset and fund type, (4) the
maturity date of each separately invested asset having a maturity date, (5) the account or fund or pooled fund group
for which each individual investment was acquired, and (6) the compliance of the investment portfolio as it related
to: (a) adopted investment strategy statements and (b) the provisions of Chapter 2256, Texas Government Code, as
amended. No person may invest County funds without express written authority from the Commissioners Court of
the County.
Under State law, the County is additionally required to: (1) annually review its adopted policies and strategies, (2)
require any investment officers with personal business relationships or family relationships with firms seeking to sell
securities to the County to disclose the relationship and file a statement with the Texas Ethics Commission and the
County, (3) require the registered principal of firms seeking to sell securities to the County to: (a) receive and review
the Countys investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to
preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) in
conjunction with its annual financial audit, perform a compliance audit of the management controls on investments
and adherence to the Countys investment policy, (5) restrict reverse repurchase agreements to not more than 90
days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse
repurchase agreement, (6) restrict the investment in non-money market mutual funds in the aggregate to no more
than 15% of the Countys monthly average fund balance, excluding bond proceeds and reserves and other funds held
for debt service, (7) require local government investment pools to conform to the new disclosure, rating, net asset
value, yield calculation, and advisory board requirements and (8) provide specific investment training for the
Treasurer, the chief financial officer (if not the Treasurer) and the investment officer.
The County has adopted an investment policy in accordance with State law. Under the current County investment
policy, the following instruments are the only authorized investments for County funds: Time Deposits; Certificates
of Deposit; Money Market Investment Accounts; Negotiable Order of Withdrawal (NOW) Accounts; United States
Treasury Bills; United States Government Securities, as defined in Section 2256.009, Texas Government Code, as
amended; fully collateralized direct repurchase agreements as defined in as defined in Section 2256.011, Texas
Government Code, as amended; Discount Government Agencies, excluding Federal Home Loan Mortgage
Corporation (Freddie Mac); and, any Public Funds Pool authorized by State law. No funds of the County will be
invested in securities such as reverse repurchase agreements and the County will not trade in options or futures
contracts.

20
HOU:3051425.3
The Countys investment balances on May 31, 2010 were as follows:
Carrying Amount Market Value
U. S. Treasuries $10,002,703 $10,002,703
State Treasurers Investment Pool (TEXPOOL) 27,962,461 27,962,461
Local Government Investment Pool (LONE-STAR) 15,855,514 15,855,514
Local Government Investment Pool (TexSTAR) 21,010,940 21,010,940
Money Market Mutual Fund (ICT) 41,803,654 41,803,654
Money Market Mutual Fund (AIM) 34,024,726 34,024,726
Money Market Mutual Fund (BPIF) 4,924,389 4,924,389
Total Investments $155,584,387 $155,584,387





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21
HOU:3051425.3
DEBT SERVICE REQUIREMENTS
The following schedule sets forth the current total debt service requirements of the County less the debt service requirements of the Refunded Bonds plus the
principal and interest requirements on the Certificates, the Refunding Bonds and the Pass-Through Toll Bonds (Road Bonds) .

Fiscal Total Less: Total
Year Debt Refunded Debt
30-Sep Service Principal Interest Principal Interest(a) Bonds Principal Interest Principal Interest(c) Service
2010 $26,061,428 (d) $1,088,875 $24,972,553
2011 28,813,288 $353,100 $814,462 2,177,750 $2,066,133 $1,737,313 31,606,545
2012 31,274,171 $685,000 342,825 790,805 2,177,750 1,907,200 $1,540,000 1,854,825 36,217,077
2013 32,416,890 705,000 321,975 790,805 2,177,750 1,907,200 2,610,000 1,745,888 38,320,008
2014 32,418,938 730,000 300,450 790,805 2,177,750 1,907,200 2,750,000 1,605,188 38,324,830
2015 32,425,648 750,000 278,250 790,805 2,177,750 1,907,200 2,900,000 1,456,875 38,331,028
2016 32,428,154 780,000 251,400 790,805 2,177,750 1,907,200 3,055,000 1,300,556 38,335,366
2017 32,421,421 810,000 219,600 790,805 2,177,750 1,907,200 3,220,000 1,135,838 38,327,114
2018 32,420,968 845,000 186,500 790,805 2,177,750 1,907,200 3,395,000 962,194 38,329,917
2019 32,426,521 875,000 152,100 790,805 2,177,750 1,907,200 3,575,000 779,231 38,328,108
2020 32,426,411 915,000 116,300 790,805 2,177,750 1,907,200 3,770,000 586,425 38,334,392
2021 28,280,736 955,000 74,125 790,805 2,177,750 1,907,200 3,215,000 403,069 33,448,185
2022 28,300,284 1,005,000 25,125 790,805 2,177,750 1,907,200 420,000 307,650 30,578,315
2023 28,293,203 $1,045,000 776,558 2,177,750 1,907,200 445,000 284,944 30,574,155
2024 28,298,150 1,075,000 747,131 2,177,750 1,907,200 465,000 261,056 30,575,787
2025 28,275,494 1,105,000 715,987 2,177,750 1,907,200 490,000 235,988 30,551,918
2026 28,281,659 1,140,000 680,758 2,177,750 1,907,200 515,000 209,606 30,556,474
2027 28,283,341 1,180,000 641,550 2,177,750 1,907,200 540,000 181,913 30,556,253
2028 27,415,559 1,220,000 600,990 2,177,750 1,907,200 575,000 152,644 29,693,643
2029 27,446,813 1,265,000 558,994 22,881,875 $21,215,000 1,437,900 605,000 121,669 29,768,500
2030 27,441,650 1,305,000 515,561 22,878,000 22,165,000 484,300 635,000 89,119 29,757,629
2031 20,451,594 1,350,000 469,814 670,000 54,863 22,996,270
2032 20,076,144 1,400,000 421,551 710,000 18,638 22,626,332
2033 1,450,000 371,534 1,821,534
2034 1,505,000 319,673 1,824,673
2035 1,555,000 265,970 1,820,970
2036 1,610,000 210,425 1,820,425
2037 1,670,000 152,861 1,822,861
2038 1,730,000 93,191 1,823,191
2039 1,790,000 31,415 1,821,415
Total $666,378,464 $9,055,000 $2,621,750 $23,395,000 $17,087,281 $86,048,250 $43,380,000 $36,410,733 $36,100,000 $15,485,488 $763,865,466
(a) Assumes reciept of the Federal Subsidy of 35%.
(b) The Series 2010 Refunding Bonds are expected to close on August 31, 2010.
(c) The Series 2010 Road Bonds are expected to close on October 12, 2010. Interest is estimated at market rates of illustration purposes only.
(d) As of June 1, 2010, the County has $9,949,796 of total debt service payments remaining for fiscal year 2010.
Refunding Bonds (b) Plus: Series 2010A COs Plus: Series 2010B COs Road Bonds
Plus: Series 2010 Plus: Series 2010


Estimated Average Annual Requirements (2010-2039) ................................ $25,462,182
Estimated Maximum Annual Requirement (2016) ........................................
$38,335,366

22
HOU:3051425.3
COUNTY DEBT
General
The following tables and calculations relate to the Certificates and to all other debt of the County. The County and
various other political subdivisions of government which overlap all or a portion of the County are empowered to
incur debt to be paid from revenues raised or to be raised by taxation against all or a portion of the property within
the County.
Indebtedness
2010 Certified Taxable Assessed Valuation..................................................................................... $ 32,954,421,238
(a)

(100% of Market Value as of January 1, 2010)
See TAXING PROCEDURES AND TAX BASE ANALYSIS

2009 Certified Taxable Assessed Valuation..................................................................................... $ 32,645,245,355
(a)

(100% of Market Value as of January 1, 2009)
See TAXING PROCEDURES AND TAX BASE ANALYSIS

Direct Debt:
Outstanding Direct Debt (as of July 1, 2010) $ 403,170,000
(b)



Plus: Certificates of Obligation, Series 2010A 9,055,000
Plus: Certificates of Obligation, Taxable Series 2010B 23,395,000
Plus: Pass-Through Toll and Limited Tax Bonds, Series 2010 36,100,000
(c)
*
Plus: Unlimited Tax Refunding Bonds, Series 2010 43,380,000
(d)
*
Less: The Refunded Bonds (43,555,000)*

Total Direct Debt $ 471,545,000

Interest & Sinking Fund Balance (as of July 31, 2010) .................................................................... $ 18,966,408
______________________________
* Preliminary, subject to change.
(a) Certified by the Montgomery Central Appraisal District (the Appraisal District).
(b)

Includes the bonds to be refunded by the Countys Unlimited Tax Refunding Bonds, Series 2010.
(c)

Expected to be delivered on October 12, 2010.
(d)

The Countys Unlimited Tax Refunding Bonds, Series 2010 were sold on July 31, 2010 and are expected to
be delivered on August 31, 2010.

23
HOU:3051425.3
Estimated Overlapping Debt Statement
Other governmental entities whose boundaries overlap the County have outstanding bonds or other debt payable
from ad valorem taxes levied against property within the County. The following statement of direct and estimated
overlapping ad valorem tax debt was developed from information contained in Texas Municipal Reports,
published by the Municipal Advisory Council of Texas. Except for the amounts relating to the County, the County
has not independently verified the accuracy or completeness of such information, and no person is entitled to rely
upon such information as being accurate or complete. Furthermore, certain of the entities listed below may have
issued additional debt since the dates stated in this table, and such entities may have programs requiring the issuance
of substantial amounts of additional debt, the amount of which cannot be determined. Political subdivisions
overlapping with the boundaries of the County are authorized by Texas law to levy and collect ad valorem taxes for
operation, maintenance and/or general revenue purposes in addition to taxes for payment of their debt, and some are
presently levying and collecting such taxes.
Gross Debt Overlapping
Taxing Jurisdiction 5/31/2010 Percent Amount
Cleveland ISD $40,630,884 1.92% $780,113
Cleveland, City of $8,045,000 0.05% 4,023
Clovercreek MUD 1,530,000 100.00% 1,530,000
Conroe ISD 851,325,000 100.00% 851,325,000
Conroe, City of 84,055,000 100.00% 84,055,000
Corinthian Point MUD #2 1,000,000 100.00% 1,000,000
E. Montgomery Co MUD #3 7,775,000 100.00% 7,775,000
East Plantation UD 3,500,000 100.00% 3,500,000
Far Hills UD 2,585,000 100.00% 2,585,000
Grand Oaks MUD 1,975,000 100.00% 1,975,000
Harris-Montgomery Co MUD # 386 21,230,000 9.19% 1,951,037
Houston, City of 2,978,575,265 0.21% 6,255,008
Kings Manor MUD 16,910,000 65.17% 11,020,247
Lazy River Improvement Dist 970,000 100.00% 970,000
Lone Star College System 439,290,000 23.35% 102,574,215
Magnolia ISD 171,683,881 100.00% 171,683,881
Magnolia, City of 2,130,000 100.00% 2,130,000
Montgomery Co DD # 6 129,990 100.00% 129,990
Montgomery Co DD # 10 9,580,000 100.00% 9,580,000
Montgomery Co MUD # 7 7,350,000 100.00% 7,350,000
Montgomery Co MUD # 9 6,644,200 100.00% 6,644,200
Montgomery Co MUD # 15 7,275,000 100.00% 7,275,000
Montgomery Co MUD # 18 24,845,000 100.00% 24,845,000
Montgomery Co MUD # 24 200,000 100.00% 200,000
Montgomery Co MUD # 39 18,130,000 100.00% 18,130,000
Montgomery Co MUD # 40 3,410,000 100.00% 3,410,000
Montgomery Co MUD # 42 1,620,000 100.00% 1,620,000
Montgomery Co MUD # 46 109,020,000 100.00% 109,020,000
Montgomery Co MUD # 47 37,050,000 100.00% 37,050,000
Montgomery Co MUD # 56 2,387,880 100.00% 2,387,880
Montgomery Co MUD # 60 26,150,000 100.00% 26,150,000
Montgomery Co MUD # 67 19,960,000 100.00% 19,960,000
Montgomery Co MUD # 83 17,770,000 100.00% 17,770,000
Montgomery Co MUD # 84 8,250,000 100.00% 8,250,000
Montgomery Co MUD # 89 28,225,000 100.00% 28,225,000
Montgomery Co MUD # 90 5,680,000 100.00% 5,680,000

24
HOU:3051425.3
Gross Debt Overlapping
Taxing Jurisdiction 5/31/2010 Percent Amount
Montgomery Co MUD # 92 1,785,000 100.00% 1,785,000
Montgomery Co MUD # 94 31,675,000 100.00% 31,675,000
Montgomery Co MUD # 98 2,670,000 100.00% 2,670,000
Montgomery Co MUD # 99 3,200,000 100.00% 3,200,000
Montgomery Co MUD # 107 9,460,000 100.00% 9,460,000
Montgomery Co MUD # 115 3,460,000 100.00% 3,460,000
Montgomery Co UD # 2 6,545,000 100.00% 6,545,000
Montgomery Co UD # 3 685,000 100.00% 685,000
Montgomery Co UD # 4 1,565,000 100.00% 1,565,000
Montgomery WC&ID # 1 3,225,000 100.00% 3,225,000
Montgomery ISD 140,684,766 100.00% 140,684,766
Montgomery, City of 3,840,000 100.00% 3,840,000
New Caney ISD 205,705,492 97.43% 200,418,861
New Caney MUD 19,470,000 100.00% 19,470,000
Oak Ridge N, City of 7,645,000 100.00% 7,645,000
Panorama Village, City of 3,795,000 100.00% 3,795,000
Point Aquarius MUD 11,205,000 100.00% 11,205,000
Porter MUD 12,535,000 100.00% 12,535,000
Rayford Rd MUD 28,345,000 100.00% 28,345,000
Richards ISD 120,000 26.37% 31,644
River Plantation MUD 205,000 100.00% 205,000
Roman Forest Cons MUD 1,775,000 100.00% 1,775,000
Roman Forest PUD # 4 765,000 100.00% 765,000
Shenandoah, City of 27,520,000 100.00% 27,520,000
Southern Montg Co MUD 10,510,000 100.00% 10,510,000
Splendora ISD 45,376,366 100.00% 45,376,366
Splendora, City of 3,200,000 100.00% 3,200,000
Spring Creek UD 24,415,000 100.00% 24,415,000
Stanley Lake MUD 11,150,000 100.00% 11,150,000
Texas National MUD 975,000 100.00% 975,000
The Woodlands Metro Ctr ID 18,785,000 100.00% 18,785,000
The Woodlands MUD # 2 1,075,000 100.00% 1,075,000
The Woodlands RUD # 1 70,135,000 100.00% 70,135,000
Tomball ISD 254,815,000 8.53% 21,735,720
Valley Ranch MUD #1 4,700,000 100.00% 4,700,000
Willis ISD 83,441,426 98.10% 81,856,039
Willis, City of 5,755,000 100.00% 5,755,000
Woodbranch Village, City 133,000 100.00% 133,000

Total Estimated Overlapping Debt

$2,407,096,989
Montgomery County Direct Debt

471,545,000(a)
Total Direct and Estimated Overlapping Debt $2,878,641,989
______________________________
(a) Includes the Certificates, the Pass-Through Toll Bonds, the Refunding Bonds and excludes the Refunded
Bonds.

25
HOU:3051425.3
Debt Ratios



Direct Debt
Direct and
Estimated
Overlapping
Debt
2010 Certified Taxable Assessed Valuation ($32,954,421,238) 1.432% 8.736%
2009 Certified Taxable Assessed Valuation ($32,645,245,355) 1.445% 8.818%
Per Capita First Quarter 2010 Estimated Population (451,714) $1,043.90 $6,372.71
Other Obligations
The County has entered into various lease-purchase agreements for the purchase of heavy road equipment, police
vehicles, animal control vehicles, two community buildings, and a countywide communication system consisting of
infrastructure and equipment to effectively upgrade towers and radios for all first responders in the County.
Fiscal Year
Ending
General
Fund
Special
Revenue Funds
Total
All Funds
2010 $ 26,665 $ 86,354 $ 113,019
2011 2,675,429 762,972 3,438,401
2012 1,880,933 1,138,358 3,019,291
2013 1,771,416 1,052,004 2,823,420
2014 1,771,416 482,173 2,253,589
2015 1,771,416 386,629 2,158,045
2016 1,771,416 386,629 2,158,045
2017 1,771,416 386,629 2,158,045
2018 1,771,416 386,629 2,158,045
2019 1,771,416 386,629 2,158,045
2020 -0- 386,629 386,629
Total $16,982,939 $5,841,635 $22,824,574

In addition, in September of 2006, the Montgomery County Jail Financing Corporation (the Corporation) was
created by the County to facilitate the construction of a jail facility. The Corporation issued $44.8 million Lease
Revenue Bonds in June of 2007. The jail facility was completed in June of 2008. The County has entered into a
lease-purchase agreement with the Corporation to purchase the jail facility and the County will make such lease
payments in part from anticipated revenues paid to the County under federal inmate housing contracts between the
County and both the U.S. Marshal Service and Immigration and Customs Enforcement (ICE). The lease payments
received by the Corporation will be used to pay debt service on the Corporations bonds. The lease payments will
be paid over a twenty year term as set forth below:

Fiscal Year
Ending
General Fund
2011 $3,443,480
2012 3,443,480
2013 3,443,480
2014 3,443,480
2015-2028 48,208,720
Total $61,982,640


26
HOU:3051425.3
TAXING PROCEDURES AND TAX BASE ANALYSIS
General
One of the Countys principal sources of operational revenue and its principal source of funds for debt service
payments is the receipts from ad valorem taxation. See COUNTY DEBT and SELECTED FINANCIAL
DATA. The following is a recapitulation of (a) the Texas Property Tax Code, including methodology, limitations,
remedies and procedures; (b) historical analysis of collection and trends of County tax receipts and provisions for
delinquencies; (c) an analysis of the County tax base, including relative property composition, principal taxpayers
and adequacy of the County tax base to service debt requirements; and, (d) taxation that may add to the County
taxpayers tax costs.
Property Tax Code and County-Wide Appraisal District
The Texas Property Tax Code (the Property Tax Code) specifies the taxing procedures of all political subdivisions
of the State, including the County. Provisions of the Property Tax Code are complex and are not fully summarized
here.
The Property Tax Code requires, among other matters, county-wide appraisal and equalization of taxable property
values and establishes in each county of the State an appraisal district with the responsibility for recording and
appraising property for all taxing units within a county and an appraisal review board with responsibility for
reviewing and equalizing the values established by the appraisal district. The Montgomery Central Appraisal
District (the Appraisal District) has the responsibility for appraising property for all taxing units within
Montgomery County, including the County. Such appraisal values are subject to review, change and approval by
the Montgomery Central Districts Appraisal Review Board (the Appraisal Review Board).
Property Subject to Taxation by the County
Except for certain exemptions provided by Texas law, all real property, tangible personal property held or used for
the production of income, mobile homes and certain categories of intangible personal property with a tax situs in the
County are subject to taxation by the County. Principal categories of exempt property include, but are not limited
to: property owned by the State or its political subdivisions if the property is used for public purposes; property
exempt from ad valorem taxation by federal law; certain household goods, family supplies, and personal effects;
certain goods, wares and merchandise in transit; farm products owned by the producer; certain property of charitable
organizations, youth development associations, religious organizations, and qualified schools; designated historical
sites; and, most individually owned automobiles. In addition, the County may, by its own action, or shall, if required
by voters at an election, exempt residential homesteads of persons sixty-five (65) years or older and of certain
disabled persons to the extent deemed advisable by the Commissioners Court. The County is authorized by statute
to disregard exemptions for the disabled and elderly if granting the exemption would impair the Countys obligation
to pay tax supported debt incurred prior to adoption of the exemption by the County. Furthermore, the County must
grant exemptions to disabled veterans or certain surviving dependents of disabled veterans. Such disabled veterans
exemptions resulted in a loss of approximately $65,047,320 of the 2009 assessed value.
Residential Homestead Exemptions
The Property Tax Code authorizes the governing body of each political subdivision in the State to exempt up to
twenty percent (20%) of the market value of residential homesteads from ad valorem taxation. Where ad valorem
taxes have previously been pledged for the payment of debt, the governing body of a political subdivision may
continue to levy and collect taxes against the exempt value of the homesteads until the debt is discharged, if the
cessation of the levy would impair the obligations of the contract by which the debt was created. The adoption of a
homestead exemption may be considered each year, but must be adopted by May 1. The County, in addition to the
aforementioned mandatory veterans exemption, does give a flat $35,000 reduction to the appraised market value on
residential homesteads of persons 65 years and older. Such homestead exemptions resulted in a loss of
approximately $814,741,159 of the 2009 assessed value. The County does not grant any other exemptions to
residential property.
Freeport Goods and Goods-in-Transit Exemption
Article VIII, Section 1-j of the Texas Constitution provides that goods, wares, merchandise, other tangible property
and ores, other than oil, natural gas and other petroleum products, which have been acquired or brought into the
State for assembling, storing, manufacturing, processing or fabricating and shipped out of the State within 175 days

27
HOU:3051425.3
(freeport goods) are exempt from taxation unless action to tax was taken by the governing body of the political
subdivision prior to April 1, 1990. Decisions to tax may be reversed in the future while decisions to exempt freeport
property are not subject to reversal. Such freeport exemptions resulted in a loss of approximately $361,133,467 of
the 2009 assessed value.
Effective January 1, 2008, a Goods-in-Transit Exemption may apply to certain tangible personal property that is
acquired in or imported into Texas for assembling, storing, manufacturing or fabricating purposes which are
destined to be forwarded to another location in Texas not later than 175 days after acquisition or importation, so
long as the location where said goods are detained is not directly or indirectly owned by the owner of the goods.
The County, prior to January 1, 2008 (or in any year thereafter) may take action to allow taxation of goods-in-transit
in which event the exemption would not be available. On September 10, 2007, the Commissioners Court adopted a
resolution allowing the taxation of goods-in-transit and denying the Goods-in-Transit Exemption.
Tax Abatement
The County and other tax entities may enter into tax abatements by creating tax reinvestment zones to encourage
economic development. Prior to entering into a tax abatement agreement, each entity must adopt guidelines and
criteria for establishing tax abatement, which each entity will follow in granting tax abatement to owners of
property. The tax abatement agreements may exempt from ad valorem taxation by each of the applicable taxing
jurisdictions, including the County, for a period of up to ten (10) years, all or any part of any increase in the assessed
valuation of property covered by the agreement over its assessed valuation in the year in which the agreement is
executed, on the condition that the property owner make specified improvements or repairs to the property in
conformity with the terms of the tax abatement. As of September 30, 2005, each taxing jurisdiction has discretion to
determine terms for its tax abatement agreements without regard to the terms approved by other taxing jurisdictions.
The County currently has entered into 18 tax abatement agreements with various companies covering a total of
$475,333,987 of abated assessed value.
Pollution Control
The Property Code also provides for an exemption from ad valorem taxation for certain pollution control property.
Such pollution control exemption resulted in a loss of approximately $35,069,024 of assessed value on the 2009 tax
roll..
Valuation of Property for Taxation
Generally, property in the County 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
County in establishing its tax rolls and tax rate. Appraisals under the Property Tax Code are to be based on one
hundred percent (100%) of market value, as such is defined in the Property Tax Code.
The Property Tax Code permits land designated for agricultural use, open space or timberland to be appraised at its
value based on the lands capacity to produce agricultural or timber products rather than at its fair market value. The
Property Tax Code permits under certain circumstances that residential real property inventory held by a person in
the trade or business be valued at the price all such property would bring if sold as a unit to a purchaser who would
continue the business. Landowners wishing to avail themselves of the agricultural use, open space or timberland
designation or residential real property inventory designation must apply for the designation and the appraiser is
required by the Property Tax Code to act on each claimants right to the designation individually. A claimant may
waive the special valuation as to taxation by some political subdivisions while claiming its valuation as to another.
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 County can collect taxes based on the new use, including taxes for the previous three
(3) years for agricultural use and taxes for the previous five (5) years for open space land and timberland. The total
loss in value due to grants of agricultural use and open-space land appraisal from the 2009 tax roll was
approximately $1,050,461,938.
The Property 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. It is not known what frequency of reappraisal will be utilized by the Appraisal District or
whether reappraisals will be conducted on a zone or county-wide basis. The County does receive yearly a
preliminary estimate of values to be used in its budget process, which provides both the value of new improvements
as well as value of increase of current property. While such yearly estimates of appraised values may serve to

28
HOU:3051425.3
indicate the rate and extent of growth of taxable values within the County, they cannot be used for establishing a tax
rate within the County until such time as the Appraisal District formally by certification includes such values on its
appraisal roll.
County and Taxpayer Remedies
Under certain circumstances taxpayers and taxing units (such as the County) may appeal the orders of the Appraisal
Review Board by filing a petition for review in State district court. In such event, the value of the property in
question will be determined by the court or by a jury if requested by any party. Additionally, taxing units may bring
suit against the Appraisal District to compel compliance with the Property Tax Code.
The Property Tax Code sets forth notice and hearing procedures for certain tax rate increases which could result in
the repeal of certain tax increases. The Property Tax Code also establishes a procedure for notice to property
owners of reappraisals reflecting increased property value, appraisals which are higher than renditions, and
appraisals of property not previously on an appraisal roll.
Levy and Collection of Taxes
The County is responsible for the collection of its taxes, unless it elects to transfer such functions to another
governmental entity. Before the later of September 30 or the 60th day after the date the certified appraisal roll is
received by the County, the rate of taxation is set by the Commissioners Court based upon the valuation of property
within the County as of the preceding January 1 and the amount required to be raised for debt service, maintenance
purposes and authorized contractual obligations.
The Commissioners Court may under certain circumstances be required to advertise and hold a public hearing
within the County on a proposed tax rate before the Commissioners Court can hold a public meeting to vote on the
tax rate. If the tax rate adopted exceeds by more than 8% the rate needed to pay debt service and certain contractual
obligations and to produce, when applied to the property which was on the prior years roll, the prior years total
taxes levied for purposes other than debt service and such contractual obligations (the rollback rate), such excess
portion of the levy may, subject to constitutional restrictions on the impairment of existing obligations, be repealed
at an election within the County held upon petition of 10% of the Countys qualified voters and the tax rate adopted
for the current year be reduced to the rollback rate.
The County is prohibited from adopting a tax rate that exceeds the lower of the rollback tax rate or the effective tax
rate until it has held two (2) public hearing on the proposed tax rate and has otherwise complied with the Property
Tax Code. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad
valorem taxes and the calculation of the various defined tax rates.
Taxes are due on receipt of the tax bill, and become delinquent after January 31 of the following year, or on the first
day of the calendar month next following the expiration of twenty-one (21) days after mailing of the tax bills,
whichever occurs later. A delinquent tax account incurs an initial penalty of six percent (6%) of the amount of the
tax and accrues an additional penalty of one percent (1%) per month up to July 1, at which time the total penalty
becomes twelve percent (12%). In addition, delinquent taxes accrue interest at one percent (1%) per month. If the
tax is not paid by April 1 (on business personal property) and by July 1 (on real property), an additional penalty of
up to twenty percent (20%) may under certain circumstances be imposed by the County. The Property Tax Code
also makes provision for the split payment of taxes, discounts for early payments, partial payments of taxes and the
postponement of the delinquency date of taxes under certain circumstances. The County does not permit such
payments, except for those property owners who are over the age of 65 as provided in the Property Tax Code.
Countys Rights in the Event of Tax Delinquencies
Taxes levied by the County are a personal obligation of the owner of the property. On January 1 of each year, a tax
lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed for the year on
the property. The lien exists in favor of the State and each taxing unit, including the County, having power to tax
the property. The Countys tax lien is on a parity with tax liens of such other taxing units (see COUNTY DEBT -
Estimated Overlapping Debt Statement). 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 County 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.

29
HOU:3051425.3
At any time after taxes on property become delinquent, the County may file suit to foreclose the lien securing
payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real
property, the County 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 right (a taxpayer may
redeem property within six months for non-homestead property and within two years of foreclosure for homestead)
or by bankruptcy proceedings which restrict the collection of taxpayer debts.
Tax Rate Limitations
General Operation; Limited Tax Bonds, Time Warrants and Certificates of Obligation . . . The Texas Constitution
(Article VIII, Section 9) imposes a limit of $0.80 per $100 assessed valuation for all purposes of a countys General
Fund, Permanent Improvement Fund, Road and Bridge Fund and Jury Fund, including debt service on bonds,
warrants, certificates of obligation or other debt issued against such funds. Administratively, the Attorney General
of Texas will not approve limited tax obligations in an amount which produces debt service requirements exceeding
that which can be paid from $0.40 of the foregoing $0.80 maximum tax rate calculated at 90% collection. The
Certificates are issued as limited tax obligations payable from this Constitutional tax.
Road Bonds . . . Unlimited tax rate authorized for debt service by Article III, Section 52 of the Texas Constitution;
however, total debt cannot exceed 25% of assessed valuation. The Road Bonds are unlimited tax road bonds.
Road Maintenance (Special Road and Bridge Tax) . . . Tax rate imposed by Article VIII, Section 9 of the Texas
Constitution and by statute as $0.15 per $100 assessed valuation, no part of which may be used for debt service.
The County currently does not levy a tax under this provision.
Farm-To-Market and Flood Control Purposes . . . Tax rate imposed by Article VIII, Section 1-a of the Texas
Constitution and by statute as $0.30 per $100 assessed valuation after the mandatory $3,000 homestead exemption,
no allocation prescribed by statutes between debt service and maintenance. The County currently does not levy a
tax under this provision.





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30
HOU:3051425.3
Historical Analysis of Tax Collection
Source: For Tax Years 2000 through 2008, Montgomery County, Texas Comprehensive Annual Financial Report Fiscal Year Ended September 30, 2009. For
Tax Year 2009, unaudited estimates provided by the County.

Tax
Year
Adjusted Taxable
Assessed
Valuation
Tax Rate
Per $100
of
Assessed
Valuation
Total Tax
Levy
Current Tax
Collections
(a)

Percent
of Levy
Collected
Delinquent
Tax
Collections
Total Tax
Collections
Percent of
Total Tax
Collectio
ns to Tax
Levy
Outstanding
Delinquent
Taxes
Percent of
Delinquent
Taxes to
Tax Levy
Fiscal
Year
2000 $12,536,525,138 $0.4747 $59,831,094 $58,384,869 97.6% $1,547,076 $59,931,945 100.2% $6,232,148 10.4% 2001
2001 14,282,028,148 0.4710 67,447,935 65,714,723 97.4 1,608,717 67,323,440 99.8 6,471,525 9.6 2002
2002 16,289,381,371 0.4710 77,043,931 75,232,037 97.6 1,784,876 77,016,913 100.0 6,587,183 8.5 2003
2003 17,592,455,375 0.4828 85,764,910 83,960,577 97.9 1,839,076 85,799,653 100.0 6,109,116 7.1 2004
2004 18,968,230,832 0.4963 94,513,506 92,527,246 97.9 1,856,421 94,383,667 99.9 6,043,917 6.4 2005
2005 19,150,202,773 0.4963 104,074,236 102,113,249 98.1 1,788,843 103,902,092 99.8 5,840,603 5.6 2006
2006 23,371,824,109 0.4913 114,138,148 112,640,155 98.7 1,771,160 114,411,315 100.2 5,578,532 4.9 2007
2007 26,780,335,911 0.4888 129,601,440 127,903,113 98.7 1,840,224 129,743,337 100.1 6,054,333 4.7 2008
2008 30,282,116,745 0.4838 144,971,850 142,781,596 98.5 2,059,087 144,840,683 99.9 5,920,754 4.1 2009
2009 32,645,245,355
(b)
0.4838 155,423,969 150,309,011 96.7
(c)
1,214,236 151,523,247 97.5 8,947,968
(c)
5.8 2010

______________________________
(a) Taxes levied in any year which are collected from October 1 through June 30 are shown as current collections. Such amounts include collections of
the current levy after February 1, which is the date taxes become legally delinquent..
(b) Value may differ from that shown in the Countys financial statements and elsewhere in this Official Statement due to subsequent adjustments.
(c) Partial year collections through May 31, 2010.


31
HOU:3051425.3
Delinquent Tax Collection Procedures
In addition to the legal procedures and penalties described under Countys Rights in the Event of Tax
Delinquencies, the County has retained a Delinquent Tax Attorney on a contract basis to file suit to collect
delinquent taxes due the County. The fees due such attorney for acting as Delinquent Tax Attorney are payable
from an additional penalty imposed upon the delinquent taxpayer, not to exceed 20% of the tax due.
Tax Rate Distribution

Tax Years 2009 2008 2007 2006 2005

General Fund $0.3647 $0.3566 $0.3630 $0.3611 $0.3896
Special Revenue Fund 0.0464 0.0495 0.0478 0.0478 0.0528
Debt Service Fund 0.0727 0.0777 0.0780 0.0824 0.0566
$0.4838 $0.4838 $0.4888 $0.4913 $0.4963

Analysis of Tax Base
- Tax Base Distribution -

2009 Tax Roll 2008 Tax Roll 2007 Tax Roll
Type of Property Amount % Amount % Amount %

Residential $23,886,272,622 63.63% $23,133,786,163 64.09% $20,002,401,228 62.46%
Acreage, Lots & Tracts 2,884,574,449 7.68% 3,062,122,517 8.48% 2,897,760,042 9.05%
Farm & Ranch 454,277,104 1.21% 431,285,935 1.19% 385,524,998 1.20%
Industrial & Commercial 4,125,702,424 10.99% 3,696,804,690 10.24% 3,339,918,343 10.43%
Oil, Gas, Minerals 159,485,720 0.42% 165,649,220 0.46% 135,564,900 0.42%
Utilities 536,632,850 1.43% 537,889,365 1.49% 515,272,732 1.61%
Business Personal 3,076,214,597 8.19% 2,774,904,432 7.69% 2,499,564,739 7.80%
Special Inventory 182,733,235 0.49% 113,504,841 0.31% 155,086,099 0.48%
Other Personal 128,065,618 0.34% 126,464,243 0.35% 114,540,671 0.36%
Exempt Property 2,108,191,541 5.62% 2,054,208,451 5.69% 1,979,670,539 6.18%
Total Assessed Value $37,542,150,160 100.00% $36,096,619,857 100.00% $32,025,304,291 100.00%
Less Exemption 4,896,904,805 5,814,696,285 5,261,539,081
Total Taxable Value (a) $32,645,245,355 $30,281,923,572 $26,763,765,210

______________________________
(a) Represents values initially certified by the Montgomery Central Appraisal District; may have been subsequently
adjusted.





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32
HOU:3051425.3
Top Ten Principal Taxpayers
Provided by the Montgomery Central Appraisal District. Certain of the top ten principal taxpayers may own
additional property that is not included in the assessed value figures shown in this table as a result of the way such
property is accounted for on the Appraisal District tax rolls.
2009 2008 2007
Taxpayer Type of Property Tax Roll Tax Roll Tax Roll

Wal-Mart Real Estate Trust/Sams Club Retail

$193,731,273 $198,577,178 $189,878,210
Entergy Texas Inc. Electric Utility

185,446,743 181,314,335 176,514,177
The Woodlands Land Development L.P. Land Development

155,411,116 126,191,731 121,923,947
Columbia Conroe Regional Medical
Center/Kingwood Medical Plaza

Medical

146,262,620 120,493,084 122,408,109
Consolidated Communications of Texas Co. Communications/Utility

77,999,490 77,999,490 84,646,310
Huntsman Petrochemical Corp. Industrial

64,095,700 63,440,790 67,397,526
The Woodlands Mall Associates Retail

61,956,137 62,029,770 62,156,387
Canrig Drilling Technologies

59,619,970 (a) (a)
Wapiti Operating LLC

57,864,730 (a) (a)
Hughes Christensen Co.

54,712,691 (a) (a)
Devon Energy Operating Company Oil/Gas Exploration

(a) 58,871,620 58,638,020
Southwestern Bell Telephone Co. Telephone Utility

(a) 54,430,440 57,132,520
Inland American Lodging Woodlands L.P. Hotel/Conference Center

(a) 52,097,680 (a)
McKesson Corporation Manufacturing

(a) (a) 51,017,953


Total

$1,057,100,470 $995,446,118 $991,713,159


Percentage of Respective Certified Assessed Valuation

3.23% 3.29% 3.70%

Tax Adequacy
Estimated Average Annual Debt Service Requirements (2010-2039)................................... $25,462,182
$0.082 Tax Rate on the 2010 Certified Taxable Assessed Valuation @
95% collection produces..............................................................................................

$25,671,494
$0.083 Tax Rate on the 2009 Certified Taxable Assessed Valuation @
95% collection produces..............................................................................................

$25,740,776
Estimated Maximum Annual Debt Service Requirement (2019) .......................................... $38,335,366
$0.123 Tax Rate on the 2010 Certified Taxable Assessed Valuation @
95% collection produces..............................................................................................

$38,507,241
$0.124 Tax Rate on the 2009 Certified Taxable Assessed Valuation @
95% collection produces..............................................................................................

$38,456,099


33
HOU:3051425.3
SELECTED FINANCIAL DATA
Historical Operations of the Countys General Fund
The following is a condensed statement of revenues and expenditures of the Countys General Fund for the past five
fiscal years. The inclusion of the following table is not intended to imply that any revenues of the County, other
than receipts from ad valorem taxes provided in the Order, are pledged to pay principal and interest on the
Certificates.
2009 2008 2007 2006 2005
REVENUES:
Taxes 109,089,627 $ 98,955,742 $ $86,721,116 $83,559,237 $74,921,693
Licenses and Permits 1,364,234 1,375,221 1,363,580 1,381,107 1,261,058
Fees 12,444,656 13,376,504 14,529,676 13,595,913 10,954,243
Intergovernmental 6,521,185 5,533,821 4,052,777 6,132,239 4,943,706
Charges for Services 486,253 449,802 282,712 215,307 223,454
Interest 567,010 2,149,826 2,293,789 1,577,838 842,272
Contract Reimbursements 11,806,882 10,968,433 10,237,033 8,975,993 7,898,265
Inmate Housing 23,895,939 3,566,886 1,607,241 1,356,977 50,430
Fines and Forfeitures 186,594 125,152 100,719 144,680 208,906
Miscellaneous 1,808,654 1,390,327 1,420,777 1,335,673 1,441,802
Total Revenues 168,171,034 137,891,714 122,609,420 118,274,964 102,745,829
EXPENDITURES:
Current:
General Administration 16,216,725 12,905,900 12,178,369 12,140,648 11,853,571
Judicial 13,675,907 12,020,750 10,958,487 10,554,612 9,329,190
Legal Services 2,131,350 1,985,918 1,864,419 1,802,081 1,550,243
Elections 1,258,713 1,606,046 1,373,213 3,144,556 650,970
Financial Administration 5,624,961 5,251,827 4,966,523 4,751,654 4,359,609
Public Facilities 44,144,809 25,448,843 22,477,341 20,439,889 15,795,553
Public Safety 52,813,275 61,944,932 43,108,422 39,835,125 37,682,264
Health and Welfare 5,757,396 6,369,418 4,755,954 4,972,143 4,468,792
Conservation 511,141 481,849 449,468 449,853 400,034
Miscellaneous 1,156,114 1,070,696 2,846,822 3,009,024 4,519,314
Total Expenditures 143,290,391 129,086,179 104,979,018 101,099,585 90,609,540
Excess/(Deficiency) Revenues Over Expenditures 24,880,643 8,805,535 17,630,402 17,175,379 12,136,289
OTHER FINANCING
SOURCES (USES)
Transfers In 4,261,744 1,032,407 7,653,868 2,488,663 2,394,165
Transfers Out (20,404,477) (17,281,134) (21,940,546) (12,739,072) (10,761,411)
Capital Lease Financing 428,465 16,515,427 567,596 108,758 1,264,452
Total Other Financing
Sources (Uses) (15,714,268) 266,700 (13,719,082) (10,141,651) (7,102,794)
9,166,375 9,072,235 3,911,320 7,033,728 5,033,495
Fund Balance, October 1 25,847,632 20,763,060 16,851,740 9,818,012 4,784,517
Change in Accounting Principle - (3,987,663) - - -
Fund Balance, September 30 $ 35,014,007 $ 25,847,632 $ 20,763,060 $ 16,851,740 $ 9,818,012
Net Changes in Fund Balance
Fiscal Year Ended September 30,
_______________________________
Source: The Countys audited financial statements.





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34
HOU:3051425.3
Special Revenue Funds
The Special Revenue Funds are the funding source for annual road and bridge construction and maintenance. The
County is divided into four precincts, each of which is provided with a separate, annual Road and Bridge Fund
Budget. Each precinct Road and Bridge Budget is administered by the County Commissioner elected from that
precinct, subject to approval of the Commissioners Court. The primary sources of revenues for the Special
Revenue Funds include ad valorem taxes and auto registration licenses and grants. The table below summarizes the
revenues and expenditures of the Special Revenue Funds for the past five fiscal years, including the Road and
Bridge Fund, as reported in the Countys Annual Financial Reports. The Special Revenue Funds are not available to
pay debt service on the Certificates.
2009 2008 2007 2006 2005
REVENUES:
Taxes $15,140,793 $13,013,191 $11,471,034 $11,279,476 $10,272,809
Licenses and Permits 6,752,702 6,438,708 6,539,568 6,324,084 5,829,066
Fees 1,582,833 1,326,060 389,963 369,937 291,010
Intergovernmental 27,557,653 19,643,062 12,229,811 6,526,440 4,809,944
Charges for Services 1,608,201 1,478,107 1,400,351 1,263,797 985,150
Interest 49,183 242,843 159,366 158,654 83,706
Contract Reimbursements 319,772 169,827 148,852 129,703 127,838
Fines and Forfeitures 3,005,625 1,901,412 1,832,655 1,865,356 2,129,271
Miscellaneous 932,691 2,187,468 664,126 635,722 772,139
Total Revenues 56,949,453 46,400,678 34,835,726 28,553,169 25,300,933

EXPENDITURES:
Current Operating
General Administration 831,646 626,519 115,045 108,590 102,903
Judicial 8,119,808 6,483,955 6,221,345 6,067,142 5,204,608
Legal Services 418,861 411,911 363,820 311,692 270,554
Public Safety 2,996,076 2,539,767 2,076,202 3,932,060 2,308,455
Health and Welfare 24,479,241 11,482,218 4,127,271 2,024,746 2,510,329
Culture and Recreation 8,008,564 7,314,312 7,812,017 6,948,700 6,102,610
Conservation 334,147 321,959 296,299 196,349 307,650
Public Transportation 20,469,397 18,991,837 17,161,732 17,390,668 16,857,418
65,657,740 48,172,478 38,173,731 36,979,947 33,664,527
Revenues Over (Under) -
Expenditures (8,708,287) (1,771,800) (3,338,005) (8,426,778) (8,363,594)
OTHER FINANCING
SOURCES (USES)
Transfers In 15,785,356 16,969,998 21,890,020 12,738,216 11,217,213
(3,435,321) (2,758,501) (21,543,946) (1,080,836) (2,381,676)
704,683 83,594 3,386,301 153,771 -
Total Other Financing
Sources 13,054,718 14,295,091 3,732,375 11,811,151 8,835,537
Excess (Deficiency) of Revenues

4,346,431 12,523,291 394,370 3,384,373 471,943
Fund Balance, October 1 22,669,716 6,158,762 5,764,392 2,380,019 1,908,076
Change in Accounting Principle - 3,987,663 - - -
Fund Balance, September 30 $27,016,147 $22,669,716 $6,158,762 $5,764,392 $2,380,019
& Other Sources Over
Expenditures & Other Uses
Fiscal Year Ended September 30,
Transfers Out
Capital Lease Financing

__________________________
Source: The Countys audited financial statements.

35
HOU:3051425.3
Debt Service Funds
The Debt Service Funds are the funding source for annual payments of principal and interest on the Countys
outstanding debt. The primary source of revenue for the Debt Service Funds is ad valorem taxes. The table below
summarizes the revenues and expenditures of the Debt Service Funds, as reported in the year-end financial
statements for the past five years.

2009 2008 2007 2006 2005
REVENUES:
Taxes $23,262, 487 $20,683, 280 $19,111, 318 $11, 895,634 $11, 687,384
Interest 173, 329 96, 163 44, 437 159,996 318,995
Total Revenue 23,435, 816 20,779, 443 $19,155, 755 $12, 055,630 $12, 006,379
EXPENDITURES:
Debt Service:
Pr incipal Retirement 6,557, 918 4,598, 741 5,305, 000 3, 830,069 3, 034,930
Interest and Fiscal Charges 18,713, 749 16,021, 976 13,989, 627 8, 285,966 8, 087,980
Issuance Costs 526, 074 214, 338 593, 627 - 618,647
Total Expenditures 25,797, 741 20,835, 055 19,888, 254 12, 116,035 11, 741,557
Revenues Over ( Under)
Expenditur es (2,361, 925) (55, 612) (732, 499) (60,405) 264,822
OTHER FINANCING
SOURCES ( USES)
Transfers In 3,074, 923 1,939, 219 510, 395 164,474 -
Issuance of General Oblgn Bonds 6,364, 713 - - - -
Issuance of Refunding Bonds - 9,855, 000 41,495, 000 - 45, 850,000
Premium on Debt Issuance 567, 755 400, 427 940, 880 - 3, 772,220
Payment to Refunded Bond
Escrow Agent - (10,211, 444) (41,706, 307) - (49, 904,606)
Discount on Debt Issuance - - (120, 633) - -
Total Other Financing
Sources (Uses) 10,007, 391 1,983, 202 1,119, 335 164,474 (282,386)
Excess (Deficiency) Revenues
& Other Sources Over
Expenditur es & Other Uses 7,645, 466 1,927, 590 386, 836 104,069 (17,564)
Fund Balances, October 1 4,561, 190 2,633, 600 2,246, 764 2, 142,695 2, 160,259
Fund Balances, September 30 $12,206, 656 $4,561, 190 $2,633, 600 $2, 246,764 $2, 142,695
Fiscal Year Ended September 30,


________________________
Source: The Countys audited financial statements.
Pension Fund
The County provides pension, disability and death benefits for all of its full-time and part time regular employees
through a non traditional, joint contributory, defined benefit plan in the statewide Texas County and District
Retirement System (TCDRS).
Under the State law governing TCDRS, the contribution rate of the County is adopted annually based on an
actuarially determined rate. The contribution rates for the county were 9.65% for the final three months of calendar
year 2008, and 9.69% for the first nine months of calendar year 2009. For the accounting year ended September 30,
2009, both the pension cost of the TCDRS plan and the Countys actual contributions to the plan were $8,227,056.
The deposit rate payable by employee members was 6.0% for the calendar year 2009. For more information refer
to Note 13 of Appendix B Excerpts from Montgomery Countys Audited Financial Statements for the Fiscal Year
ended September 30, 2009.

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HOU:3051425.3
THE COUNTY
Administration of the County
The officials having responsibility for the administration of the County are the County Judge and the four County
Commissioners who comprise the Commissioners Court. Among its duties as the governing body of the County,
Commissioners Court approves the Countys budget, determines the Countys tax rates, approves contracts, calls
elections, and determines when to issue bonds or other obligations. Each Commissioner represents one of the four
precincts into which the County is divided and is elected by the voters of such precinct for a four-year term.
The County Judge is the presiding officer of the Commissioners Court and is elected for a four-year term by the
voters of the County. Judge Alan B. Sadler has served as County Judge since 1990.
Other officials having responsibility for the financial administration of the County are the County Tax Assessor-
Collector, County Treasurer and County Auditor.
The County Tax Assessor/Collector, J. R. Moore, Jr., was appointed County Tax Assessor/Collector in April 1987,
and elected to such post in 1988, 1992, 1996, 2000, 2004 and again in 2008 to serve a four-year term. Mr. Moore
attended North Texas State University and the University of Houston, majoring in Political Science/Government.
Mr. Moore received his state certification as a Professional Tax-Assessor Collector in 1991.
The County Treasurer, Martha N. Gustavsen, was elected County Treasurer in 2007 to serve a four-year term. Ms.
Gustavsen has served as County Treasurer since 1987. She attended Alvin Junior College, majoring in Accounting.
The County Auditor, Phyllis L. Martin, was appointed County Auditor on January 1, 2007, after serving as an
assistant county auditor since 2003. Ms. Martin earned a B.B.A. in Accounting and a Masters in Accountancy from
the University of Houston.
Commissioners Court

Commissioner

Position
Years
Served
Terms Expire
December 31

Alan B. Sadler
Mike Meador
Craig Doyal
Ernest E. Chance
Ed Rinehart
County Judge
Commissioner - Precinct 1
Commissioner - Precinct 2
Commissioner - Precinct 3
Commissioner - Precinct 4
20
16
7
23
10
2010
2012
2010
2012
2010
Consultants
Bond Counsel .......................................................................................................Andrews Kurth LLP.
Houston, Texas
Financial Advisor ............................................................................RBC Capital Markets Corporation
Houston, Texas
Auditors (Certified Public Accountants) ............................. Hereford, Lynch, Sellars, & Kirkham, PC
Conroe, Texas
Disclosure Counsel................................................................................................Andrews Kurth LLP
Houston, Texas
TAX MATTERS FOR THE SERIES 2010A CERTIFICATES
Exemption of Interest
In the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel for the County in connection with the
Countys issuance of the Series 2010A Certificates, interest on the Series 2010A Certificates (1) is 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) is not includable in the federal alternative minimum taxable income of
individuals or corporations.

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HOU:3051425.3
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 Series 2010A Certificates. Such authorities are subject to change
and any such change could prospectively or retroactively result in the inclusion of the interest on the Series 2010A
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 County with certain covenants
of the respective Order and relied on representations by the County with respect to matters solely within the
knowledge of the County, which Bond Counsel has not independently verified. The covenants and representations
relate to, among other things, the use of Series 2010A Certificates proceeds and any facilities financed therewith, the
source of repayment of the Series 2010A Certificates, the investment of proceeds of the Series 2010A Certificates
and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of
proceeds of the Series 2010A Certificates and certain other amounts be paid periodically to the United States and
that the County file an information report with the Internal Revenue Service (the Service). If the County should
fail to comply with the covenants in the Order, or if its representations relating to the Series 2010A Certificates that
are contained in the Order should be determined to be inaccurate or incomplete, interest on the Series 2010A
Certificates could become taxable from the date of delivery of the Series 2010A Certificates, regardless of the date
on which the event causing such taxability occurs.
Except as stated above, Bond Counsel will not express any 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
Series 2010A Certificates. The opinions of Bond Counsel are not a guarantee of a result, but represent the legal
judgment of such firm based upon review of existing statutes, regulations, published rulings and court decisions and
the representations and covenants of the County described above. No ruling has been sought from the Internal
Revenue Service (the Service) with respect to the matters addressed in the opinions of Bound Counsel, and such
opinions are 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 Series 2010A Certificates is commenced, under current
procedures the Service is likely to treat the County as the taxpayer, and the owners of the Series 2010A
Certificates would have no right to participate in the audit process. In responding to or defending an audit of the tax-
exempt status of the interest on the Series 2010A Certificates, the County may have different or conflicting interests
from the owners of the Series 2010A Certificates. Public awareness of any future audit of the Series 2010A
Certificates could adversely affect the value and liquidity of the Series 2010A 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 Series 2010A Certificates, received or accrued during the year. Prospective
purchasers of the Series 2010A Certificates should be aware that the ownership of tax-exempt obligations, such as
the Series 2010A 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 and individuals otherwise eligible for the earned income
tax credit. Such prospective purchasers should consult their own tax advisors as to the consequences of investing in
the Series 2010A Certificates.
Tax Accounting Treatment of Original Issue Premium
Each maturity of the Series 2010A Certificates (the Premium Series 2010A Certificates) is offered at an initial
offering price which exceeds the stated redemption price payable at the maturity of Premium Series 2010A
Certificates. If a substantial amount of any maturity of the Premium Series 2010A 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 Premium Series 2010A Certificates
of such maturity will be considered for federal income tax purposes to have bond premium equal to the amount of
such excess. The basis for federal income tax purposes of a Premium Series 2010A Certificates in the hands of an
initial purchaser who purchases such Premium Series 2010A Certificates in the initial offering must be reduced each
year and upon the sale or other taxable disposition of the Premium Series 2010A Certificates 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 Series

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HOU:3051425.3
2010A Certificates 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. The amount of bond premium on a
Premium Series 2010A Certificates which is amortizable each year (or shorter period in the event of a sale or
disposition of a Premium Series 2010A Certificates) is determined under special tax accounting rules which use a
constant yield throughout the term of the Premium Series 2010A Certificates based on the initial purchasers
original basis in such Series 2010A Certificates.
The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner
of Premium Series 2010A Certificates not purchased in the initial offering or which are purchased at a price other
than the initial offering price for the Series 2010A Certificates of the same maturity may be determined according to
rules which differ from those described above. Moreover, all prospective purchasers of Premium Series 2010A
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 Series 2010A Certificates.
TAX MATTERS FOR SERIES 2010B CERTIFICATES
General
The following is a general summary of United States federal income tax consequences of the purchase and
ownership of the Taxable Series 2010B Certificates (the BABs). The discussion is based upon laws, Treasury
Regulations, rulings and decisions now in effect, all of which are subject to change (possibly with retroactive effect)
or possibly differing interpretations. No assurances can be given that future changes in the law will not alter the
conclusions reached herein. The discussion below does not purport to deal with United States federal income tax
consequences applicable to all categories of investors. Further, this summary does not discuss all aspects of United
States federal income taxation that may be relevant to a particular investor in the BABs in light of the investors
particular personal investment circumstances or to certain types of investors subject to special treatment under
United States federal income tax laws (including insurance companies, tax exempt organizations, financial
institutions, broker-dealers, and persons who have hedged the risk of owning the BABs). The summary is therefore
limited to certain issues relating to initial investors who will hold the BABs as capital assets within the meaning of
section 1221 of the Code, and acquire such BABs for investment and not as a dealer or for resale. This summary
addresses certain federal income tax consequences applicable to beneficial owners of the BABs who are United
States persons within the meaning of section 7701(a)(30) of the Code (United States persons) and, except as
discussed below, does not address any consequences to persons other than United States persons. Prospective
investors should note that no rulings have been or will be sought from the IRS with respect to any of the U.S. federal
income tax consequences discussed below, and the discussion below is not binding on the IRS.
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL,
STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM FROM THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE BABS.
INTERNAL REVENUE SERVICE CIRCULAR 230 NOTICE . . . You should be aware that: (i) the discussion
with respect to United States federal tax matters for BABs in this Official Statement was not intended or written to
be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the
taxpayer; (ii) such discussion was written to support the promotion or marketing (within the meaning of IRS
Circular 230) of the transactions or matters addressed by such discussion; and (iii) each taxpayer should seek advice
based on his or her particular circumstances from an independent tax advisor.
This notice is given solely for purposes of ensuring compliance with IRS Circular 230.
STATED INTEREST ON THE BABS . . . The stated interest on the BABs will be included in the gross income,
as defined in section 61 of the Code, of the beneficial owners thereof and be subject to U.S. federal income taxation
when paid or accrued, depending on the tax accounting method applicable to the beneficial owners thereof.
DISPOSITION OF BABS . . . A beneficial owner of BABs will generally recognize gain or loss on the redemption,
sale or exchange of a BAB equal to the difference between the redemption or sales price (exclusive of the amount
paid for accrued interest) and the beneficial owners adjusted tax basis in the BAB. Generally, the beneficial owners
adjusted tax basis in a BAB will be the beneficial owners initial cost, increased by any original issue discount
previously included in the beneficial owners income to the date of disposition and reduced by any amortized bond
premium. Any gain or loss generally will be capital gain or loss and will be long-term or short-term, depending on
the beneficial owners holding period for the BAB.

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HOU:3051425.3
Typically, a defeasance of the BABs will not relieve the County of its obligation to pay the principal of and interest
on the BABs, and consequently, a constructive disposition of the defeased BABs should not result. However, under
certain circumstances, a defeasance of a BAB may result in a reissuance thereof for U.S. federal income tax
purposes, and if such reissuance should result, a beneficial owner of a BAB may recognize taxable gain or loss as
described above, even if such owner does not receive any cash with respect to such defeasance.
BACKUP WITHHOLDING . . . Under section 3406 of the Code, a beneficial owner of the BABs who is a United
States person, as defined in section 7701(a)(30) of the Code, may, under certain circumstances, be subject to
backup withholding with respect to current or accrued interest on the BABs or with respect to proceeds received
from a disposition of BABs. This withholding applies if such beneficial owner of BABs: (i) fails to furnish to the
payor such beneficial owners social security number or other taxpayer identification number (TIN); (ii) furnishes
the payor an incorrect TIN; (iii) fails to report properly interest, dividends, or other reportable payments as defined
in the Code; or (iv) under certain circumstances, fails to provide the payor with a certified statement, signed under
penalty of perjury, that the TIN provided to the payor is correct and that such beneficial owner is not subject to
backup withholding. Backup withholding will not apply, however, with respect to payments made to certain
beneficial owners of the BABs. Beneficial owners of the BABs should consult their own tax advisors regarding
their qualification for exemption from backup withholding and the procedures for obtaining such exemption.
CONTINUING DISCLOSURE OF INFORMATION
In the Order, the County has made the following agreements for the benefit of the holders and beneficial owners of
the Certificates. The County is required to observe the agreements for so long as it remains obligated to advance
funds to pay the Certificates. Under the agreement, the County will be obligated to provide certain updated financial
information and operating data annually, and timely notice of specified material events, to the Municipal Securities
Rule Making Board (MSRB). This information will be available free of charge from the MSRB via the Electronic
Municipal Market Access (EMMA) system at www.emma.msrb.org.
In order to provide certain continuing disclosure with respect to the Certificates in accordance with Rule 15c2-12 of
the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may
be amended from time to time (Rule 15c2-12), the County has entered into a Disclosure Dissemination Agent
Agreement (Disclosure Dissemination Agreement) for the benefit of the Holders of the Certificates with Digital
Assurance Certification, L.L.C. (DAC), under which the County has designated DAC as Disclosure Dissemination
Agent.
The Disclosure Dissemination Agent has only the duties specifically set forth in the Disclosure Dissemination
Agreement. The Disclosure Dissemination Agents obligation to deliver the information at the times and with the
contents described in the Disclosure Dissemination Agreement is limited to the extent the County has provided such
information to the Disclosure Dissemination Agent as required by this Disclosure Dissemination Agreement. The
Disclosure Dissemination Agent has no duty with respect to the content of any disclosures or notice made pursuant
to the terms of the Disclosure Dissemination Agreement. The Disclosure Dissemination Agent has no duty or
obligation to review or verify any information in the Annual Report, Audited Financial Statements, notice of Notice
Event or Voluntary Report, or any other information, disclosures or notices provided to it by the County and shall
not be deemed to be acting in any fiduciary capacity for the County, the Holders of the Certificates or any other
party. The Disclosure Dissemination Agent has no responsibility for the Countys failure to report to the Disclosure
Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination
Agent shall have no duty to determine or liability for failing to determine whether the County has complied with the
Disclosure Dissemination Agreement. The Disclosure Dissemination Agent may conclusively rely upon
certifications of the County at all times.
Annual Reports
The County will annually provide certain updated financial information and operating data to the MSRB annually in
electronic format as prescribed by the MSRB. The information to be updated includes all quantitative financial
information and operating data with respect to the County as follows: (i) annual audited financial statements of the
County set forth in APPENDIX B of this Official Statement and (ii) information of the general type included in this
Official Statement under the headings INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF
THE COUNTY, DEBT SERVICE REQUIREMENTS, COUNTY DEBT (except Estimated Overlapping
Debt Statement), TAXING PROCEDURES AND TAX BASE ANALYSIS and SELECTED FINANCIAL
DATA. The County will update and provide this information within six months after the end of each fiscal year.

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HOU:3051425.3
The County may provide updated information in full text or may incorporate by reference certain other publicly
available documents, as permitted by SEC Rule 15c2-12 (the Rule). The updated information will include audited
financial statements, if the County commissions an audit and it is completed by the required time. If audited
financial statements are not available by the required time, the County will provide unaudited financial statements
by the required time, and will provide audited financial statements when and if the audit report becomes available.
Any such financial statements will be prepared in accordance with the accounting principles described in Appendix
B or such other accounting principles as the County may be required to employ from time to time pursuant to state
law or regulation.
The Countys current fiscal year end is September 30. Accordingly, it must provide updated information by
March 31 of each year thereafter, unless the County changes its fiscal year. If the County changes its fiscal year, it
will notify the MSRB.
Material Event Notices
The County will also provide timely notices of certain events to the MSRB. The County will provide notice of any
of the following events with respect to the Certificates, if such event is material to a decision to purchase or sell
Certificates: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled
draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements
reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6)
adverse tax opinions or events affecting the tax-exempt status of the Certificates; (7) modifications to rights of the
holder of the Certificates; (8) bond calls; (9) defeasances; (10) release, substitution or sale of property securing
repayment of the Certificates; and (11) rating changes. In addition, the County will provide timely notice of any
failure by the County to provide information, data or financial statements in accordance with its agreement described
above under - Annual Reports. The County will provide each notice described in this paragraph to the MSRB.
Limitations and Amendments
The County has agreed to update information and to provide notices of material events only as described above.
The County has not agreed to provide other information that may be relevant or material to a complete presentation
of its financial results of operations, condition or prospects or agreed to update any information that is provided,
except as described above. The County makes no representation or warranty concerning such information or
concerning its usefulness to a decision to invest in or sell Certificates at any future date. The County disclaims any
contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure
agreement or from any statement made pursuant to its agreement, although holders of Certificates may seek a writ of
mandamus to compel the County to comply with its agreement.
The continuing disclosure agreement may be amended by the County from time to time to adapt to changed
circumstances that arise from a change in legal requirements, a change in law or a change in the identity, nature,
status or type of operations of the County, but only if (1) the provisions, as so amended, would have permitted an
underwriter to purchase or sell Certificates in the primary offering of the Certificates in compliance with the Rule,
taking into account any amendments or interpretations of the Rule since such offering as well as such changed
circumstances and (2) either (a) the holders of a majority in aggregate principal amount (or any greater amount
required by any other provision of the Order that authorizes such an amendment) of the outstanding Certificates
consent to such amendment or (b) a person that is unaffiliated with the County (such as nationally recognized bond
counsel) determines that such amendment will not materially impair the interest of the holders and beneficial owners
of the Certificates. The County may also amend or repeal the provisions of its continuing disclosure agreement if
the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that
such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not
prevent an underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates. If
the County amends its agreement, it must include with the next financial information and operating data provided in
accordance with its agreement described above under Annual Reports an explanation, in narrative form, of the
reasons for the amendment and of the impact of any change in the type of information and operating data provided.
Compliance with Prior Undertakings
The County has complied in all material respects with its previous continuing disclosure agreements made in
accordance with the Rule, except that due to an administrative oversight the County filed a notice of material event
(refunding of certain obligations which occurred on July 20, 2005) on June 16, 2006. The County has implemented
procedures to insure timely filing of future reports.

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HOU:3051425.3
OTHER CONSIDERATIONS
Environmental Regulations
The County is subject to the environmental regulations of the State and the United States. These regulations are
subject to change, and the County may be required to expend substantial funds to meet the requirements of such
regulatory authorities.
Air Quality
Air quality control measures required by the United States Environmental Protection Agency (the EPA) and the
Texas Commission on Environmental Quality (TCEQ) may impact new industrial, commercial and residential
development in Houston and adjacent areas. Under the Clean Air Act (CAA) Amendments of 1990, the eight-
county Houston-Galveston area (HGB area) Harris, Galveston, Brazoria, Chambers, Fort Bend, Waller,
Montgomery and Liberty counties was designated by the EPA as a moderate ozone nonattainment area. Such areas
are required to demonstrate progress in reducing ozone concentrations each year until the EPA eight hour ozone
standards are met. Compliance with EPAs 8-hour standard for ozone must be achieved by June 15, 2010 for areas
designated as moderate. However, on June 15, 2007, the Governor requested the EPA to reclassify the HGB area
since attainment by 2010 was impracticable. If this request is granted, the HGB area will be designated a severe
nonattainment area with a new attainment date of June 15, 2019.
To provide for reductions in ozone concentrations, the EPA and the TCEQ have imposed increasingly stringent
limits on sources of air emissions and require any new source of significant air emissions to provide for a net
reduction of air emissions. If the HGB area fails to demonstrate progress in reducing ozone concentrations or fails to
meet EPAs standards, EPA may impose a moratorium on the awarding of federal highway construction grants and
other federal grants for certain public works construction projects, as well as severe emissions offset requirements
on new major sources of air emissions for which construction has not already commenced.
In order to comply with the EPAs standards for the HGB area, the TCEQ has established a state implementation
plan (SIP) setting emission control requirements, some of which regulate the inspection and use of automobiles.
These types of measures could impact how people travel, what distances people are willing to travel, where people
choose to live and work, and what jobs are available in the HGB area. In response to the 8 hour non-attainment
designations, the TCEQ adopted a SIP revision plan on May 23, 2007 that sought to implement additional controls
in order to reduce NOx and VOCs. This means that additional control strategies will need to be implemented in
order to achieve attainment. It is still uncertain as to whether or when the EPA will approve the SIP revision package
and the reclassification request, and it is possible that these additional controls or rejection of the SIP could have a
negative impact on the HGB areas economic growth and development.
Groundwater Conservation District
In 2001, the Texas Legislature created the Lone Star Groundwater Conservation District (the Conservation
District), with boundaries that are co-terminus with the boundaries of the County, to regulate the withdrawal of
groundwater within the Conservation District in order to provide for the conservation, preservation, protection,
recharging, and prevention of waste of Conservation District groundwater. Conservation District regulations that
require conversion to surface water can be costly to industries, municipalities and other groundwater well operators
since the process of converting from a groundwater supply to a surface water supply can result in substantial capital
expenditures. As a result, the per unit cost of supplying surface water is substantially higher due to the cost of
treatment. As a result of the measures implemented by the Conservation District, the cost of development and
ongoing operations in the County may be more expensive as compared to other geographic areas.
GENERAL CONSIDERATIONS
Sources and Compilation of Information
The information contained in this Official Statement has been obtained primarily from the County 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 County. The summaries of the statutes, orders, policies, and other related
documents are included herein subject to all of 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.

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HOU:3051425.3
Updating of Official Statement
The County will keep the Official Statement current by amendment or sticker to reflect material changes in the
affairs of the County and, to the extent that information comes to its attention, to the other matters described in the
Official Statement, until the delivery of the Certificates to the Underwriters. All changes in the affairs of the County
and other matters described in the Official Statement subsequent to the delivery of the Certificates to the
Underwriters and all information with respect to the resale of the Certificates shall be the responsibility of the
Underwriters except as described herein under CONTINUING DISCLOSURE OF INFORMATION.
This Official Statement was duly authorized and approved by the Commissioners Court of Montgomery County, as
of the date specified on the first page hereof.
OTHER INFORMATION
Litigation
According to the County, there are currently a number of lawsuits pending against the County, but none of such
actions are expected to result in recovery against the County for an amount outside the applicable insurance policy
limits and County-held reserves. The County believes that none of the currently outstanding lawsuits, if decided
adversely to the County, would have a material adverse effect on the financial condition of the County.
Registration and Qualification of Certificates for Sale
The sale of the Certificates has not been registered under the Federal Securities Act of 1933, as amended, in reliance
upon the exemption provided thereunder by Section 3(a)(2); and the Certificates have not been qualified under the
Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been
qualified under the securities acts of any jurisdiction. The County assumes no responsibility for qualification of the
Certificates under the securities laws of any jurisdiction in which the Certificates may be sold, assigned, pledged,
hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition
of the Certificates shall not be construed as an interpretation of any kind with regard to the availability of any
exemption from securities registration provisions.
Legal Investments and Eligibility To Secure Public Funds in Texas
Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the
Certificates are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal
and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of
municipalities or other political subdivisions or public agencies of the State. With respect to investment in the
Certificates by municipalities or other political subdivisions or public agencies of the State, the Public Funds
Investment Act, Chapter 2256, Texas Government Code, requires that the Certificates be assigned a rating of A or
its equivalent as to investment quality by a national rating agency. See OTHER INFORMATION - Ratings herein.
In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the
Certificates are legal investments for state banks, savings banks, trust companies with a capital of one million dollars
or more, and savings and loan associations. The Certificates are eligible to secure deposits of any public funds of the
State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market
value. No review by the County has been made of the laws in other states to determine whether the Certificates are
legal investments for various institutions in those states.
Legal Opinions
The County will furnish a complete transcript of proceedings had incident to the authorization and issuance of the
Certificates, including the unqualified approving legal opinion of the Attorney General of Texas approving the
Initial Certificate and to the effect that the Certificates are valid and legally binding obligations of the County, and
based upon examination of such transcript of proceedings, the approving legal opinion of Bond Counsel, to like
effect and to the effect that the interest on the Certificates will be excludable from gross income for federal income
tax purposes under Section 103(a) of the Code, subject to the matters described under TAX MATTERS herein,
including the alternative minimum tax on corporations. Bond Counsel has reviewed the information appearing in
this Official Statement under THE CERTIFICATES (except for Book-Entry-Only System, Certificate-holders
Remedies and Future Borrowing), OTHER INFORMATION Legal Opinions, TAX MATTERS, TAX
MATTERS FOR BUILD AMERICA BONDS and CONTINUING DISCLOSURE OF INFORMATION (except
Compliance with Prior Undertakings), OTHER INFORMATION - Legal Investments and Eligibility To Secure

43
HOU:3051425.3
Public Funds in Texas, OTHER INFORMATION - Legal Opinions, solely to determine whether such information
fairly summarizes matters of law and the provisions of the documents referred to therein. Bond Counsel has not,
however, independently verified any of the factual information contained in this Official Statement nor has it
conducted an investigation of the affairs of the County for the purpose of passing upon the accuracy or completeness
of this Official Statement. No person or entity is entitled to rely upon Bond Counsels 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 information contained herein. The legal fees 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 of Bond Counsel 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. Certain legal matters will be passed
upon for the County by Andrews Kurth LLP, Houston, Texas, Disclosure Counsel. Certain legal matters will be
passed upon for the Underwriters by Allen Boone Humphries Robinson LLP, Counsel to the Underwriters. The legal
fees to be paid to Disclosure Counsel and Counsel to the Underwriters for services rendered in connection with the
issuance of the Certificates is contingent on the sale and delivery of the Certificates. The legal opinion 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 that expression of professional judgment, of the transaction opined upon,
or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the
outcome of any legal dispute that may arise out of the transaction.
Financial Advisor
RBC Capital Markets Corporation is employed as Financial Advisor to the County in connection with the issuance
of the Certificates. The Financial Advisors fee for services rendered with respect to the sale of the Certificates is
contingent upon the issuance and delivery of the Certificates.
Forward-Looking Statements Disclaimer
The statements contained in this Official Statement and in any other information provided by the County that are not
purely historical are forward-looking statements, including statements regarding the Countys expectations, hopes,
intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking
statements. All forward-looking statements included in this Official Statement are based on information available to
the County on the date hereof, and the County assumes no obligation to update any such forward-looking
statements. The Countys actual results could differ materially from those discussed in such forward-looking
statements. The forward-looking statements included herein are necessarily based on various assumptions and
estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to
the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social,
economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or
omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and
legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve
judgments with respect to, among other things, future economic, competitive, and market conditions and future
business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the
control of the County. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Official Statement will prove to be accurate.
Miscellaneous
The financial data and other information contained herein have been obtained from the Countys records, audited
financial statements and other sources which are believed to be reliable. There is no guarantee that any of the
assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and
orders contained in this Official Statement are made subject to all of the provisions of such statutes, documents and
orders. These summaries do not purport to be complete statements of such provisions and reference is made to such
documents for further information. Reference is made to original documents in all respects. The Order authorizing
the issuance of the Certificates has also approved the form and content of this Official Statement and any addenda,
supplement or amendment thereto and authorized its further use in the reoffering of the Certificates by the
Underwriters.

44
HOU:3051425.3
Concluding Statement
To the extent that any statements made in this Official Statement involve matters of opinion or estimates, whether or
not expressly stated to be such, they are made as such and not as representations of fact or certainty and no
representation is made that any of these statements have been or will be realized. Information in this Official
Statement has been derived by the County from official and other sources and is believed by the County to be
accurate and reliable. Information other than that obtained from official records of the County has not been
independently confirmed or verified by the County and its accuracy is not guaranteed.
Neither this Official Statement nor any statement that may have been made orally or in writing is to be
construed as or as part of a contract with the original purchasers or subsequent owners of the Certificates.
____________________________________
County Judge
Montgomery County, Texas
ATTEST:
____________________________________
County Clerk
Montgomery County, Texas

A-1
HOU:3051425.3
APPENDIX A
ECONOMIC AND DEMOGRAPHIC INFORMATION
The following information has been derived from various sources, including Texas Municipal Reports, the South
Montgomery County Woodlands Economic Development Partnership, U.S. Census data, Greater Conroe Economic
Development Council, Conroe Chamber of Commerce, and City and County officials. While such sources are
believed to be reliable, no representation is made as to the accuracy thereof.
- General -
Montgomery County, Texas (the County), a component of the Houston Metropolitan Area, has an economy based
on mineral production (oil, gas, sand, and gravel), agriculture (horses, ratite bird, cattle, hay, swine, greenhouse
nurseries, and also blueberries and peaches), and lumbering (timber products). The County was created and
organized in 1837 and consists of approximately 1,044 square miles of rolling, densely forested land. Many
residents of the County work in the City of Houston.
According to the U.S. Census Bureau, the County had a population in 1970 of 49,479, in 1980 of 127,722, in 1990
of 182,201, and in 2000 of 293,768, representing an increase of 61.2% from 1990 to 2000.
Cities within the County are Chateau Woods, Conroe, Cut n Shoot, Magnolia, Montgomery, New Caney, Oak
Ridge North, Panorama Village, Patton Village, Pinehurst, Porter, Porter Heights, Roman Forest, Shenandoah,
Splendora, Stagecoach, Willis, Woodbranch Village, Woodloch and the planned residential and business community
called The Woodlands.
School districts within the County are Conroe ISD, Magnolia ISD, Montgomery ISD, New Caney ISD, Splendora
ISD and Willis ISD. The largest school district is Conroe ISD, comprising approximately 333 square miles, located
in south central Montgomery County adjacent to the northern boundary of Harris County, and includes such
communities as the City of Conroe, The Woodlands, Timber Lakes, Cut and Shoot, Woodloch, Chateau Woods, and
Oak Ridge North. Conroe ISD operates 7 senior high schools, 6 junior high schools, 9 intermediate schools, and 26
elementary schools and has a 2007-2008 school year enrollment of approximately 46,500 students. A satellite
campus of North Harris Montgomery County College (the College) is located in Montgomery County.
The County owns and operates the Lone Star Executive Airport which is a full-service facility located four miles
from Conroe. Houstons Intercontinental Airport, located nearby in Harris County, offers international travel for
passengers and cargo.
The following is a list of some of the firms in Montgomery County with a total number of employees in excess of
500. Such industry and employment data was provided by the South Montgomery County Woodlands Economic
Development Partnership, the Greater Conroe Economic Development Council and the Conroe Chamber of
Commerce.
EMPLOYERS OF 500-599

Name Name
Bearden Wallpapering Peet Junior High School
Chevron Phillips Chemical Co. Memorial Hermann, The Woodlands Hospital
Hughes & Christenson Wal-Mart Supercenter
Inkjet Wiesner Buick GMC Pontiac
Lexicon Genetics, inc. Woodlands Resort and Conference Center
Maersk Sealand
EMPLOYERS OF 1,000+

Name Name
Anadarko Energy Services Corporation Conroe Regional Medical Center
Anadarko Petroleum Corporation Hewitt Associates, LLC




A-2

HOU:3051425.3
CITY OF CONROE
The City of Conroe (the City), the county seat of Montgomery County, is located in southeast Texas and is
approximately 35 miles north of Houston. Conroe is serviced by Interstate 45, Texas 75 (north-south), Texas 105
(east-west) and Loop 336 which encircles Greater Conroe. The City is the principal center of commerce in
Montgomery County. The Citys population has increased from 27,610 in 1990 to 36,811 in 2000 representing a
33% growth rate.
In 1973, Lake Conroe was completed, forming a 21,000 acre reservoir which is owned by the San Jacinto River
Authority and the City of Houston. The recreational and development opportunities afforded by the lake have had
economic impact on the Conroe and Montgomery County economies.
THE WOODLANDS
The Woodlands is a community being developed approximately 27-32 miles north of downtown Houston. Located
within a 28,000-acre tract of densely forested land, the community is generally situated adjacent to and west of
Interstate Highway 45, south of FM 1488, and north of Spring Creek, the boundary line between Montgomery and
Harris Counties. Additional acreage, known as The Woodlands Trade Center (Trade Center), is adjacent to and
east of Interstate Highway 45 between Texas State Highway 242 and FM 1488.
The Woodlands is located in a market sector of the greater Houston metropolitan area containing approximately 150
residential developments. Residential developments located in the market sector offer a variety of housing ranging
in price generally from $70,000 to in excess of $2 million. The majority of these subdivisions offer some
recreational facilities (e.g., swimming pools and clubhouses) and a few provide golf and tennis facilities. In some
cases, schools are located within the subdivisions.
Formal opening of The Woodlands occurred in October, 1974. Substantial development, as more fully described
herein, has occurred in the Village of Grogans Mill, the Village of Panther Creek, the Village of Cochrans
Crossing, the Village of Indian Springs, the Village of Alden Bridge, Carlton Woods, the Village of Sterling Ridge,
and College Park, which are eight of the nine residential villages planned for The Woodlands; parts of the Town
Center, Research Forest, College Park; and the Trade Center. The ninth residential village, Creekside Park, is
undergoing its initial phase of development with lots available in Carlton Woods Creekside Park. These areas
currently have a population of approximately 83,884 people, and 1,511 employers provide employment for
approximately 42,190 people.
ECONOMIC AND GROWTH INDICATORS

U.S. Census of Population (a)
Montgomery County City of Conroe, TX
Number % Change Number % Change
1930 14,588 -15.84 2,457 +32.24
1940 23,055 +58.04 4,624 +88.20
1950 24,504 +6.28 7,298 +57.83
1960 26,839 +9.53 9,192 +25.95
1970 49,479 +84.35 11,969 +30.21
1980 127,722 +158.04 20,447 +70.83
1990 182,201 +42.65 27,610 +35.03
2000 293,768 +61.23 36,811 +33.32

______________________________
(a) 2000 Census of Population and Housing, U.S. Dept. of Commerce, Bureau of the Census.


A-3

HOU:3051425.3

Summary of Montgomery County Building Permit Activity

Fiscal Commercial Estimated Residential Estimated
Year Permits Value (000) Permits Value (000)

1993 212 $80,822 2,136 $229,973
1994 219 81,625 2,551 228,930
1995 179 61,863 2,645 255,858
1996 248 67,209 3,967 389,573
1997 273 85,628 3,745 411,856
1998 491 159,956 4,902 580,483
1999 376 66,170 3,925 440,938
2000 395 920,414 3,209 483,754
2001 373 194,996 3,419 501,635
2002 495 207,333 4,252 610,797
2003 437 508,691 5,132 774,983
2004 507 242,667 6,062 906,083
2005 291 242,817 5,274 845,354
2006 300 212,823 6,292 1,064,136
2007 353 279,659 4,951 923,000
2008 290 482,159 3,409 724,714
2009 175 674,173 2,280 411,390
______________________________
Source: Montgomery County Engineer.
Employment Statistics
Montgomery County
2010(a) 2009 2008 2007 2006
Labor Force 219,580 217,384 211,730 202,521 195,018
Employed 202,217 202,227 202,574 194,629 186,429
Unemployed 17,363 15,157 9,156 7,892 8,589
Rate 7.9% 7.0% 4.3% 3.9% 4.4%
____________
(a) As of June 30, 2010.


B-1
HOU:3051425.3

APPENDIX B

EXCERPTS FROM COMPREHENSIVE ANNUAL FINANCIAL REPORT OF
MONTGOMERY COUNTY, TEXAS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2009

MONTGOMERY COUNTY
TEXAS
Comprehensive Annual Financial Report
For the Fiscal Year Ended
September 30, 2009
MONTGOMERY COUNTY, TEXAS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 2009
Prepared by
THE MONTGOMERY COUNTY AUDITOR'S OFFICE
Phyllis L. Martin
County Auditor
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Montgomery County, Texas
Office of the County Auditor
501 North Thompson, Suite 205, Conroe, Texas 77301
P. O. Box 539, Conroe, Texas 77305
March 30, 2010
Phyllis L. Martin
County Auditor
Peggie Rushing
1
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Assistant County Auditor
The Board of District Judges
The Commissioners' Court
Montgomery County, Texas
Honorable Judges and Commissioners:
The Comprehensive Annual Financial Report of Montgomery County, Texas, for the year ended
September 30, 2009, is submitted herewith. This report was prepared by the County Auditor in
accordance with generally accepted accounting principles as promulgated by the Governmental
Accounting Standards Board, and is in compliance with Chapter 114.025 and Chapter 115.045 of the
Local Government Code.
Responsibility for both the accuracy of the presented data and the completeness and fairness of the
presentation, including all disclosures, rests with the County. To provide a reasonable basis for making
this representation, Montgomery County management has established a comprehensive internal control
framework designed both to protect governmental assets from loss, theft, or misuse, and to compile
sufficient reliable information for the preparation of the County's fmancial statements in conformity with
Generally Accepted Accounting Principles (GAAP). Montgomery County's comprehensive framework,
because the cost of internal controls should not outweigh their benefits, has been designed to provide
reasonable, rather than absolute, assurance that the financial statements will be free from material
misstatement. We believe the data as presented is accurate in all material aspects; that it is presented in a
manner designed to fairly set forth the financial position and results of operations of Montgomery County
as measured by the financial activity of its various funds; and that all disclosures necessary to enable the
reader to gain the maximum understanding of the County's financial activity have been included.
Montgomery County's financial statements have been audited by Hereford, Lynch, Sellars & Kirkham,
P.c., a firm of licensed certified public accountants. The goal of the independent audit was to provide
reasonable assurance that the financial statements of the County for the fiscal year ended September 30,
2009 are free of material misstatement. The independent audit involved examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements; assessing the accounting
principles used and significant estimates made by management; and evaluating the overall financial
presentation. The independent auditor concluded, based on the audit, that there was a reasonable basis for
rendering an unqualified opinion that the financial statements of Montgomery County for the year ended
September 30, 2009 are fairly presented in conformity with GAAP. The independent auditor's report is
presented as the first component of the financial section of this report.
The independent audit of the financial statements of Montgomery County was a part of a broader,
federally mandated "Single Audit" designed to meet the special needs of federal grantor agencies. The
standards governing Single Audit engagements require the independent auditor to report not only on the
Tele: (936) 539-7820"'Fax (936) 788-8390"'Email: Phyllis.Martin@mctx.org
1
fair presentation of the financial statements, but also on the government's internal controls and
compliance with legal requirements. Specific emphasis was placed on internal controls and compliance
with laws and regulations involving the administration of federal awards. This Single Audit Report is
available as a separate report from Montgomery County.
GAAP require that management provide a narrative introduction, overview, and analysis to accompany
the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This
letter of transmittal is designed to compliment MD&A and should be read in conjunction with it.
Montgomery County's MD&A can be found immediately following the report of the independent
auditors.
Profile of Montgomery County
Montgomery County was created in 1837, and is located on the southern edge of the Big Thicket,
approximately forty miles north of metropolitan Houston. The County provides a full range of services,
including police protection, legal and judicial services, construction and maintenance of roads and
bridges, public health service, and facilities for recreational and cultural use. The County operates a full
service airport as a reliever to nearby Bush Intercontinental Airport. Three major rail lines intersect in the
county seat of Conroe. The Lone Star College System offers both 2- and 4-year degree plans in
partnership with several universities throughout the state. Scenic Lake Conroe sits among some 1,090
square miles of rolling hills and grassy meadows to create an atmosphere of rural America nestled
securely beside its urban neighbors.
The County operates as specified under the Constitution of the State of Texas, and in accordance with the
provisions of the State Statutes of Texas, which provide for a Commissioners' Court consisting of the
County Judge and four Commissioners, each of whom is elected from four geographical precincts. The
County Judge is elected for a four-year term, and the Commissioners for four-year staggered tenns.
The U.S. Census Bureau reported the 1990 population for Montgomery County to be 180,394, and the
year 2000 population to be 293,768. At September 30,2009 the reported population was 439,709. This
50% growth in ten years was evident in the increased demand for service at the county level.
Montgomery County maintains strict budgetary controls to ensure compliance with legal provisions in the
annual appropriated budget approved by the governing body. Activities of the General Fund, the Special
Revenue Funds, and the Debt Service Funds are included in the annual appropriated budget. Budget to
actual comparisons are provided in this report for all funds for which an annual appropriated budget is
adopted. According to the budget laws of the State of Texas, expenditures may not exceed the amount
appropriated for each fund. The County Auditor is responsible for compiling and presenting a budget to
Commissioners' Court for their consideration and approval, adhering to a calendar established by the
statutes of the State of Texas. In keeping with those statutes, the ad valorem tax levy cannot be
established until the budget is adopted. In Montgomery County, the budget is adopted by September 1 of
each year. Once adopted, the budget is enforced by the County Auditor, as provided by statute.
Factors Affecting Financial Condition
The infonnation presented in the financial statements of Montgomery County is best understood when it
is considered from the broader perspective of the specific environment within which Montgomery County
operates.
Local economy- The County's economy has historically been based on mineral production (oil, gas,
sand, and gravel), agriculture (horses, cattle, greenhouse nurseries), and lumbering (timber products).
Commercial construction has continued to increase as a result of several large shopping centers being
developed along the Interstate 45 corridor. Investments made in Texas highways recently have assisted in
attracting new and diverse businesses to the County. The Woodlands, a planned community in south
Tele: (936) 539-7820"'Fax (936) 788-8390...Email: Phyllis.Martin@mctx.org
2
Montgomery County, is home to energy, biomedical, and technology businesses, causing continued
growth in the southern part of the County.
Long-term financial planning- The Commissioners' Court continues to be very active in infrastructure
development, specifically road improvements, to help insure economic growth. In the second half of
calendar year 2005, the County executed an agreement with the Texas Department of Transportation that
is facilitating the improvement of five separate state-owned roads. This "pass-thru toll" agreement
provides for the County to pledge local funds to improve these roads, with a partial reimbursement from
state highway funds at a later date. The County pledged $100 million of the Series 2006 $160 million
voter-approved road bonds, as well as an additional $88 million of future bonds to leverage the federal
funds for the projects in the hopes of gaining an estimated $232 million in improvements for the citizens
of Montgomery County.
As part of this future planning, the Commissioners' Court created the Montgomery County Toll Road
Authority ("MCTRA") in August 2006. The MCTRA will be charged with the task of collecting tolls
from vehicles traveling on that portion of State Highway 242 which connects with Interstate 45 in
southern Montgomery County. This project will improve one of the specific roads listed in the agreement
with the Texas Department of Transportation, and is expected to be completed in early 2010. Revenues
generated by the authority are anticipated to be used to either retire a portion of the debt related to the
construction or to fund future improvements.
Recognizing the immediate as well as future need for more bed space in the county jail, Commissioners'
Court created the Jail Financing Corporation in September 2006. The primary purpose of the new entity
was to raise the funds necessary to construct a 1,100-bed detention facility adjacent to the existing jail.
The Corporation issued $45 million in lease-revenue bonds during 2007, and construction has been
completed. The facility is being leased to the County by the Corporation to initially house federal inmates
under the terms of an intergovernmental agreement (IGA) with the federal government. Revenues
received from housing the federal inmates are, in tum, being used to retire the outstanding bonds. The
County has freed additional bed space by transferring federal inmates from the existing jail to the new
facility.
In an effort to combat the increasing inflationary cost on medical claims and to control utilization of plan
benefits by participants, the County will open an employee/retiree health clinic, which will allow the
County to pay for minor medical services at substantially reduced pricing. The clinic will also be
modeled to offer Health Risk Assessments (HRA) which will allow for identification and education for
the prevention of medical conditions by the employee/retiree population. With proper maintenance of
certain medical conditions, the employer sponsored medical plan will be less apt to incur large claims.
In addition to traditional medical claims, the Clinic will offer immediate medical services for Workers
Compensation injuries. A large percentage of workers compensation claims could be resolved at the clinic
and the employee would be released back to work. This method of service would allow for a reduction of
workers compensation claim cost and workers compensation indemnity payments for the County.
If all components of the medical clinic are implemented, including a pharmacy, the County should
achieve substantial savings now and in the future.
Cash management policies and practices- The County's investment function operates within the
guidelines of a written policy as required by the Public Funds Investment Act. An investment committee
comprised of the County Treasurer, Tax Assessor-Collector, District Clerk, and a member of
Commissioners' Court oversees the investment activities for the County. The County Auditor and
County Attorney are advisors to the committee. Commissioners' Court has designated the County
Treasurer the investment officer for the County.
Specific investment strategies have been identified for each group of funds. Strategies emphasize safety
of principal as well as liquidity. Demand deposits are covered by pledged collateral maintained in
Tele: (936) 539-7820...Fax (936) 788-8390---Email: Phyllis.Martin@mctx.org
3
safekeeping accounts. Special attention is paid to timing maturities to be consistent with construction
project draws and regular operating expenditures.
Risk Management- The County retains various levels of risk, and accounts for the associated
expenditures in the General Fund. The portions of risk that are not transferred to third party coverage are
self-funded by the County under formal arrangements. Additional information concerning the County's
risk management activities is included in the notes to the financial statements.
Pension and other post-employment benefits- The County provides retirement, disability, and death
benefits for all of its full-time regular employees through a nontraditional defined benefit pension plan in
the statewide Texas County and District Retirement System (TCDRS). Detailed information on the
retirement plan and other post-employment benefits can be found in the notes to the financial statements.
Awards and Acknowledgments
Montgomery County is one of 13 Texas counties receiving awards for Best Practices from the Texas
Association of Counties (TAC) Leadership Foundation. The award is presented to counties developing
innovative programs to deliver quality services and protect taxpayer dollars. Commissioner Ed Chance of
Montgomery County Precinct 3 received a 2009 County Best Practices award for Community
Improvement for the Spring Creek Greenway Wetlands Mitigation Program, which helped create more
that 350 acres of nature preserves via nontraditional funding.
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a
Certificate of Achievement for Excellence in Financial Reporting to Montgomery County for its
Comprehensive Annual Financial Report (CAFR) for the fiscal year ended September 30,2008. This was
the twenty-first consecutive year that the County 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 this report would not have been possible without the efficient and dedicated services of
all County departments. I want to express my appreciation to the entire staff of the Office of County
Auditor for their continued efforts. I also wish to commend the members of the Commissioners' Court
for conducting the financial operations of Montgomery County in a responsible manner, while meeting
the increasing demands for public service.
Respectfully submitted,
Phyllis L. Martin
Montgomery County Auditor
PLM/ab
Tele: (936) 539-7820---Fax (936) 788-8390"'Email: Phyllis.Martin@mctx.org
4
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
Montgomery County
Texas
For its Comprehensive Armual
Financial Report
for the Fiscal Year Ended
September 30, 2008
A Certificate of Achievement for Excellence in Financial
Reporting is presented by the Government Finance Officers
Association of the United States and Canada to
government units and public employee retirement
systems whose comprehensive annual financial
reports (CAFRs) achieve the highest
standards in government accounting
and financial reporting.
President
Executive Director
5
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MONTGOMERY COUNTY, TEXAS ORGANIZATION CHART
I
VOTERS
I I I I I
COUNTY DISTRICT
JUSTICES OF
TAX ASSESSOR COUNTY COUNTY COURT DISTRICT
SHERIFF
ATTORNEY ATTORNEY
THE
COLLECTOR TREASURER JUDGES (5) JUDGES (7)
PEACE (5)
I I I I I
CONSTABLES COUNTY DISTRICT COMMISSIONERS
COUNTY JUDGE
ADULT
(5) CLERK CLERK (4) PROBATION
I I
I
COMMISSIONERS' COURT
COUNTY
AUDITOR
I I I I
ANIMAL CONTROL BUILDING
COLLECTIONS
INFORMATION
DIRECTOR OF INFRASTRUCTURE I
&SHELTER MAINTENANCE TECHNOLOGY
INTERGOVERNMENTAL:
AIRPORT
CHILD WELFARE
I I
MAINTENANCE
f--
I I CRIME STOPPERS
DISPUTE RESOLUTION
COUNTY CUSTODIAL
ELECTIONS
EMERGENCY
D.P.S. SECRETARY POOL
ENGINEER SERVICES MANAGEMENT
CIVIC
f---
EXTENSION AGENTS
CENTER
LAW LIBRARY
I I I I
FIRE HUMAN
LIBRARY
RISK COMMUNITY
MARSHAL RESOURCES MANAGEMENT DEVELOPMENT
r---
JUVENILE BOARD
I ENVIRONMENTAL
HEALTH
-
VETERAN COUNTY COUNTY COURT DISTRICT
SERVICES JUDGE JUDGES (5) JUDGES (7)
PARKS -
JUVENILE
PROBATION
PURCHASING -
MONTGOMERY COUNTY, TEXAS
DIRECTORY OF OFFICIALS
SEPTEMBER 30, 2009
COMMISSIONERS' COURT:
Alan B. Sadler
Mike Meador
Craig Doyal
Ernest E. Chance
Ed Rinehart
DISTRICT COURTS:
Fred Edwards
Suzanne Stovall
Kathleen Hamilton
K. Michael Mayes
Tracy Gilbert
Michael T. Seiler
Brett Ligon
Barbara G. Adamick
COUNTY COURTS AT LAW:
Dennis Watson
Luther 1. Winfree
Patrice McDonald
Mary Ann Turner
Keith Stewart
David Walker
Mark Turnbull
JUSTICE COURTS:
Lanny Moriarty
Grady Trey Spikes
Mary E. Connelly
James Metts
Matthew Masden
LAW ENFORCEMENT:
Tommy Gage
Donnie O. Chumley
Gene DeForest
Tim Holifield
Kenneth "Rowdy" Hayden
David H. Hill
FINANCIAL ADMINISTRAnON:
J.R. Moore, Jr.
Martha N. Gustavsen
Phyllis L. Martin
Carolyn Hooper
* Designates appointed official. All others are elected.
7
County Judge
Commissioner, Precinct #1
Commissioner, Precinct #2
Commissioner, Precinct #3
Commissioner, Precinct #4
Judge, 9
th
Judicial District
Judge 284
th
Judicial District
Judge 359
th
Judicial District
Judge, 410
th
Judicial District
Judge, 418
th
Judicial District
Judge, 435
th
Judicial District
District Attorney
District Clerk
Judge, County Court at Law #1
Judge, County Court at Law #2
Judge, County Court at Law #3
Judge, County Court at Law #4
Judge, County Court at Law #5
County Attorney
County Clerk
Justice of Peace, Precinct #1
Justice of Peace, Precinct #2
Justice of Peace, Precinct #3
Justice of Peace, Precinct #4
Justice of Peace, Precinct #5
Sheriff
Constable, Precinct #1
Constable, Precinct #2
Constable, Precinct #3
Constable, Precinct #4
Constable, Precinct #5
Tax Assessor-Collector
County Treasurer
County Auditor*
Purchasing Agent*
8
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1110 Loop 336 W., 4th Floor
P. O. Box 2548
Conroe, Texas 77305
Honorable County Judge and
Commissioners' Court
Montgomery County, Texas
Hereford, Lynch, Sellars & Kirkham
Certified Public Accountants A Professional Corporation
Members of the
American Institute of Certified Public Accountants
Texas Society of Certified Public Accountants
Private Companies Practice Section
of the AICPA Division for Firms
INDEPENDENT AUDITORS' REPORT
Conroe (936) 756-8127
Fax (936) 756-8132
Houston Metro 936-441-1338
We have audited the accompanying financial statements of the governmental activities, each major fund,
and the aggregate remaining fund information of Montgomery County, Texas (the "County") as of and for
the year then ended September 30, 2009, which collectively comprise the County's basic fmancial
statements as listed in the table of contents. These financial statements are the responsibility of
Montgomery County, Texas's management. Our responsibility is to express an opinion on these fmancial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the fmancial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective fmancial position of the governmental activities, each major fund, and the aggregate remaining
fund information of the County, as of September 30, 2009, and the respective changes in fmancial position
thereof and the respective budgetary comparison for the General Fund and Major Special Revenue Funds
for the year then ended in conformity with accounting principles generally accepted in the United States of
America.
In accordance with Government Auditing Standards, we will issue at a later date, a report on our
consideration of Montgomery County, Texas's internal control over financial reporting and on our tests of
its compliance with certain provisions of laws, regulations, contracts and grant agreements and other
matters. The purpose of that report is to describe the scope of our testing of internal control over financial
reporting and compliance and the results of that testing and not to provide an opinion on the internal control
over fmancial reporting or on compliance. That report is an integral part of an audit performed in accordance
with Government Auditing Standards and should be considered in assessing the results of our audit.
9
The management's discussion and analysis on pages 11-26 is not a required part of the basic financial
statements but is supplementary information required by accounting principles generally accepted in the
United States of America. We have applied certain limited procedures, which consisted principally of
inquiries of management regarding the methods of measurement and presentation of the required
supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the County's basic financial statements. The introductory section, additional supplementary
information, combining and individual nonmajor fund financial statements and schedules, schedules of
capital assets used in the operation of governmental funds, and statistical tables are presented for purposes
of additional analysis and are not a required part of the basic financial statements. The combining and
individual nonmajor fund financial statements and schedules and additional supplementary information as
listed in the table of contents have been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic
financial statements taken as a whole. The introductory section, schedules of capital assets used in the
operation of governmental funds, and statistical tables have not been subjected to the auditing procedures
applied in the audit of the basic financial statements and, accordingly, we express no opinion on them.
7 I ~ , L ~ , Sdtatu &' J : : ~ , 'P. e.
HEREFORD, LYNCH, SELLARS & KIRKHAM, P.C.
Certified Public Accountants
Conroe, Texas
March 22, 2010
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion and analysis provides readers of the financial statements of Montgomery County, Texas
(the County) with a narrative overview and analysis of the County's financial activities for the fiscal year
ended September 30,2009. The intent of this discussion and analysis is to evaluate the current activities,
resulting changes, and currently known facts of the County as a whole. Readers of this discussion and
analysis should consider the information presented here in conjunction with additional information that is
furnished in the accompanying letter of transmittal, which can be found on pages 1-4 of this report. This
discussion should also be read in conjunction with the basic financial statements and the notes to those
financial statements (which immediately follow this discussion). The discussion and analysis includes
comparative data for the prior year.
FINANCIAL IDGHLIGHTS
The assets of the County exceeded its liabilities at the close of the fiscal year by $340,086,887
(net assets). Of this amount, $8,311,363 is restricted for specific purposes. With the presentation
of the investment in capital assets, unrestricted net assets becomes a negative $45,241,159.
Analysis of the negative unrestricted net assets reveals that a large portion of debt was used to
purchase land for road expansion projects that are a joint undertaking with the State. In these
instances of expansion of State-owned roads, the County will report the debt at this time, but not
the asset.
The revenues of the County's government-wide activities were $303,838,462 and expenses were
$309,504,935. Rapid growth in the county brought about uncommon infrastructure
contributions, adding to a decrease in net assets of $5,666,473.
At September 30, 2009, the County's governmental funds reported combined ending fund
balances of$165,312,349, an increase of$3,217,716 in comparison with the prior year. From the
ending fund balance, $104,577,975 is reserved for specific purposes. Approximately 37% of the
ending balance, $60,734,374, is available for spending at the government's discretion.
At September 30, 2009, unreserved, undesignated fund balance for the General Fund was
$27,492,281, or 19.2% of total General Fund expenditures.
The County's total bonded debt increased by $49,382,911 (12.2%) during the current fiscal year.
This increase was brought about by the issuance of $56,190,000 in general obligation bonds.
As of fiscal year 2009, the County reported other post-employment benefit obligations (OPEB)
of $7,968,357 as a result of implementing GASB Statement No. 45 "Accounting and Financial
Reporting by Employers for Post-Employment Benefits Other Than Pensions."
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to Montgomery County's basic
financial statements, which are comprised of three components: 1) government-wide financial
statements, 2) fund financial statements, and 3) notes to the financial statements. This report also
contains additional supplementary information to the financial statements themselves.
Government-Wide Financial Statements
The Statement of Net Assets and the Statement of Activities, the two government-wide financial
statements, are designed to provide readers with a broad overview of Montgomery County's finances,
similar to the financial statements of a private-sector business. Both of these statements are presented
using the full accrual basis of accounting; therefore, revenues are reported when they are earned and
expenses are reported when the goods and services are received, regardless of the timing of cash being
received or disbursed. These statements include capital assets of the County (including infrastructure
added since implementing GASB 34 in fiscal year 2003 and the portion of GASB 34 as it pertains to
retroactive infrastructure reporting) as well as all liabilities (including long-term debt). Additionally,
11
certain eliminations have occurred as prescribed by GASB 34 in regards to interfund activity, payables
and receivables.
The Statement of Net Assets presents information on all of Montgomery County's assets and liabilities,
with the difference between the two being reported as net assets. This statement is similar to that of the
balance sheet of a private-sector business (with primary sections in a business balance sheet being assets,
liabilities, and equity). The GASB believes that, over time, increases or decreases in the net assets may
serve as a useful indicator of whether the financial position of the County is improving or deteriorating.
The Statement of Activities presents the County's revenues and expenses for the year, with the difference
between the two resulting in the change in net assets for the fiscal year ended September 30,2009. All
changes in net assets are reported as soon as the underlying event giving rise to the change occurs,
regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement
for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and
earned but unused vacation leave). Because the statement of activities separates program revenue
(revenue generated by specific programs through fees, fines, forfeitures, charges for services, or grants
received) from general revenue (revenue provided by taxes and other sources not tied to a particular
program), it shows to what extent each function has to rely on general revenues for funding. The
governmental functions of the County include general administration, judicial, legal services, elections,
financial administration, public facilities, public safety, health and welfare, culture and recreation,
conservation, public transportation, miscellaneous, and debt service.
Government-wide financial statements include not only the activities of the County itself (known as the
primary government), but also those of a legally separate component unit: the Montgomery County Jail
Financing Corporation. The County Commissioners' Court acts as the Board of Directors for the
component unit whose activities are blended with those of the primary government because they function
as part of the County government.
The government-wide financial statements can be found on pages 28-29 of this report.
Fund Financial Statements
The fund financial statements focus on the County's most significant funds (major funds) rather than fund
types, or the County as a whole. A fund is a grouping of related accounts that is used to maintain control
over resources that have been segregated for specific activities or objectives. Montgomery County, like
other state and local governments, uses fund accounting to ensure and demonstrate compliance with
finance-related legal requirements. All of the funds of the County can be divided into two categories:
governmental funds and fiduciary funds.
1) Governmental funds are maintained to account for the government's operating and financing
activities. The measurement focus is on available resources.
2) Fiduciary funds are used to account for resources that are held by the government as a trustee
or agent for parties outside of the government. The resources of fiduciary funds cannot be
used to support the government's own programs.
Governmental funds are used to account for those functions reported as governmental activities in the
government-wide financial statements. As mentioned earlier, government-wide financial statements are
reported using full accrual accounting; governmental fund financial statements focus on near-term inflows
and outflows of expendable resources, as well as balances of available resources. In other words, revenue
is reported when earned, provided it is collectible within the reporting period or soon enough afterward to
be used to pay liabilities of the current period. Likewise, liabilities are recognized as expenditures only
when payment is due since they must be liquidated with available cash. Such information is useful in
comparing a government's near-term financing requirements to near-term resources available.
12
The focus of governmental funds is narrower than that of the government-wide financial statements;
therefore it is useful to compare the information presented for governmental funds with similar
information presented for governmental activities in the government-wide financial statements. By doing
so, readers should better understand the results and long-term impact of the government's near-term
financing decisions. The user is assisted in this comparison between the two bases of accounting by way
of a reconciliation statement between the governmental fund balance sheet and the government-wide
statement of net assets, as well as a reconciliation statement between the governmental fund statement of
revenues, expenditures, and changes in fund balances and the government-wide statement of activities.
Montgomery County maintained 34 individual governmental funds during the fiscal year ended
September 30,2009. Information is presented separately in the governmental fund balance sheet and in
the governmental fund statement of revenues, expenditures, and changes in fund balances for the General
Fund, the Road and Bridge Fund, the Capital Projects Revenue/Tax Bonds Series 2009 Fund, the FEMA
Disaster Grants Fund, and the Capital Projects Road Bonds Series 2008B Fund, all of which are
considered to be major funds. Data from the remaining governmental funds (i.e., nonmajor funds) is
combined into a single, aggregated presentation. Individual fund data for each nonmajor governmental
fund is provided in the form of combining schedules, which are included in the Other Supplementary
Information section following the notes to the financial statements.
Montgomery County utilizes and maintains budgetary controls over its operating funds. Budgetary
controls are used to ensure compliance with legal provisions required under state statute governing the
annual appropriated budget. Budgets for governmental funds are established in accordance with state
law, and by county policy are adopted at the department level for the General Fund, all Special Revenue
Funds, and the Debt Service Fund using the primary categories of salaries, benefits, supplies, services,
and capital outlay. A budgetary comparison statement is provided in the financial section for the General
Fund and the Road and Bridge Special Revenue Fund. Budgetary comparison schedules for the Debt
Service Fund and all nonmajor special revenue funds are provided as supplementary information. These
budgetary comparisons can be used to demonstrate compliance with the budget both in its original and
final forms.
The basic governmental fund financial statements can be found on pages 30-40 of this report.
Fiduciary funds are used to account for resources held for the benefit of parties other than the County
itself. Agency funds are the only fiduciary fund type used by Montgomery County, and they are not
reflected in the government-wide financial statements because the resources of those funds are not
available to support the programs and expenses of the County. The basis of accounting used for fiduciary
funds is the full accrual basis, much like that of the government-wide statements.
The basic fiduciary fund financial statements can be found on page 41 of this report.
Notes to the financial statements provide additional information that is essential to a full understanding
of the data provided in the government-wide and fund financial statements. As such, the notes are an
integral part of the basic financial statements. They focus on the primary government's governmental
activities, major funds, and nonmajor funds in the aggregate.
The notes to the financial statements can be found on pages 43-66 of this report.
Additional supplementary information is comprised of the General Fund final budget versus actual at
the depmiment level. This comparative data can be found on pages 68-80 of this rep01i.
Other supplementary information includes combining financial statements for nonmajor governmental
and fiduciary funds. These funds are totaled by fund type and presented in a single column in the basic
financial statements. They are not reported individually, as with major funds, on the governmental fund
financial statements.
13
Other supplementary information can be found on pages 82-131 of this report.
GOVERNMENT-WIDE FINANCIAL ANALYSIS
As noted earlier, the GASB believes that net assets may serve over time as a useful indicator of a
government's financial position. Montgomery County's assets exceeded liabilities by $340,086,887 at
September 30, 2009, as shown in the table below. This amount represents a decrease through
governmental activities of$5,666,473 from the net assets at September 30,2008.
Montgomery County, Texas
Net Assets - Governmental Activities
FY2009 FY2008
Current and other assets
Capital assets
Total assets
Long-term liabilities outstanding
Other liabilities
Total liabilities
Net assets:
Invested in capital assets,
net of related debt
Restricted
Unrestricted
Total net assets
$ 238,561,124
637,534,650
876,095,774
498,777,660
37,231,227
536,008,887
377,016,683
8,311,363
(45,241,159)
$ 340,086,887
$ 230,963,963
590,403,599
821,367,562
439,396,902
36,217,300
475,613,202
399,738,541
7,656,130
(61,641,311)
$ 345,753,360
The County's total assets of $876,095,774 are largely comprised of investments of $146,002,874, or 17%,
and capital assets net of accumulated depreciation of $637,534,650, or 73%. The capital assets of the
County include land, buildings, improvements other than buildings, equipment, and infrastructure (roads,
bridges, signs, etc.). Capital assets are non-liquid assets that provide services to citizens; as a result, these
assets cannot be utilized to satisfy County obligations.
As in last year, long-term debt of $498,777,660 comprises the largest portion of the County's total
liabilities of $536,008,887, at 93%. Of total long-term liabilities, $15,983,848 is due within one year,
with the remainder of $482,793,812 being due over a period oftime greater than one year. A more in-
depth discussion of long-terril debt can be found in the notes to the financial statements.
The County's assets exceeded its liabilities by $340,086,887 (net assets) as of September 30, 2009.
Roughly 2.4%, or $8,311,363, of the County's net assets represents restricted net assets. These resources
are subject to external restrictions on how they may be used. Restrictions include statutory requirements,
bond covenants, and granting conditions. Of those restricted net assets, $6,139 is restricted for capital
projects and $8,305,224 is restricted for debt service of compensated absences and arbitrage rebate. The
most significant portion ($377,016,683) of the County's net assets reflects its investment in capital assets,
net of related debt. Although unrestricted net assets is negative for government-wide net assets, it should
be noted that the County's budgeted fund financial statements continue to reflect positive unreserved fund
balances.
Montgomery County's governmental activities decreased net assets by $5,666,473. The key components
of this decrease are detailed on the following page.
14
Montgomery County, Texas
Governmental Activities
FY2009 FY2008
Revenues:
Program revenues:
Fees, fines, forfeitures, and charges for services $ 69,002,276 $ 45,404,012
Operating grants and contributions:
Federal 24,040,424 9,854,432
State 4,592,044 4,455,863
Other 807,457 1,065,910
Capital grants and contributions:
Federal 3,960,185 8,897,916
State 383,198 30,108
Other 51,505,298 51,501,839
General revenues:
Property taxes 145,696,133 131,600,844
Other taxes 1,719,903 1,610,605
Other general revenues 2,131,544 7,1l6,094
Total revenues 303,838,462 261,537,623
Expenses: ,-
General administration 22,046,369 16,822,168
Judicial 22,794,440 15,894,641
Legal services 2,678,359 2,445,787
Elections 1,694,067 1,947,963
Financial administration 5,917,962 5,088,713
Public facilities 41,255,267 19,887,748
Public safety 55,941,218 51,558,472
Health and welfare 29,039,919 16,301,079
Culture and recreation 9,981,330 8,697,389
Conservation 341,910 825,476
Public transportation 95,536,899 76,212,732
Miscellaneous 1,156,1l4 1,070,696
Debt service interest and fiscal charges 21,121,081 15,998,167
Total expenses 309,504,935 232,751,031
Change in net assets (5,666,473) 28,786,592
Net assets - beginning 345,753,360 316,966,768
Net assets - ending $ 340,086,887 $ 345,753,360
The County's total revenues of $303,838,462 were all from governmental activities. Property tax revenue
accounts for $145,696,133, or 48%, and is an increase over last year of $14,095,289. Despite difficult
economic times, Montgomery County continues to see increased appraisal values and subsequent tax
collections. However, interest rates have plummeted, causing a reduction in other general revenues of
$4,984,550.
Program revenues of fees, fines, forfeitures, and charges for services comprise $69,002,276, or 23%; and
grants and contributions encompass $85,288,606, or 28% of total government-wide revenues. This
represents an increase in program revenues of $33,080,802. Contributing to this rise, the new Joe Corley
Detention Facility has become fully operational and accommodates a growing number of federal
detainees. As such, related revenues from federal agencies have grown at an astounding rate. The large
FEMA disaster grants received during fiscal year 2009 were also factors underlying the boosted revenues.
These grants were accepted to facilitate the County's recovery from Hurricane Ike, which is further
detailed in the comparison of revenues and expenditures discussion.
Expenses for the year totaled $309,504,935. The public facilities function totaled $41,255,267, or 13.3%
of this total. This function saw an increase over the previous year of 107%. This unusually steep rise was
15
primarily due to the completion of the new detention facility in 2008. The first full year of operations for
this facility was 2009, thus its operation resulted in a disproportionate increase in expenses.
The public transportation function accounted for $95,536,899, or 31% of the total government-wide
expenses. The increase in spending in the public transportation function ($19,324,167) continues to be
due to the several large road construction projects the County has undertaken. These projects are
primarily for the widening and improvement of State-owned roads, creating inflated expenditures in the
public transportation function, with no offsetting asset capitalization.
As previously mentioned, a substantial level of FEMA Disaster Grants funds were received during the
current year and were used to assist the citizens of Montgomery County in the resurgence following
Hurricane Ike. The fund in which these expenses are comprised is part of the health and welfare function
($29,039,919) and contributes greatly to the $12,738,840 increase when compared to fiscal year 2008.
The judicial function rose to $22,794,440, or 7.4%, of the total expenses for governmental activities in
2009. This was due in large part to the addition of a fifth county court at law and a new district court,
dedicated to the adjudication of family law matters. Moreover, the district court that was initiated during
2008 for cases involving sexual predators completed its first full year of activity this year. These new
courts were an integral aspect of the $6,899,799 upsurge ofjudicial function expenses.
The government's ending net assets of $340,086,887 represent a decrease of $5,666,473 from the prior
year's $345,753,360 in net assets. The County's change in net assets is summarized by the following
chart:
Montgomery County, Texas
Change in Net Assets
FY2009 FY2008
Governmentalfunds activity:
Total revenues
Total expenditures
Excess (Deficiency) of revenues over expenditures
Capital lease financing
Issuance of certificates of obligation
Issuance of general obligation bonds
Payment to refunded bond escrow agent
Premiums on obligations, net
Net change in fund balance
Government-wide activity:
Difference between current year's capital outlay
expenditures and depreciation expense
Net effect of capital asset sales, donations, trade-ins, etc.
Revenues not reported in funds because they do not
provide current-period financial resources
Long-term debt not reported in funds because it does
not affect the current period
Expenses not reported in the funds because they do not
use current-period financial resources
Total change in net assets
$ 249,079,005 $ 208,706,577
306,697,975 293,231,315
(57,618,970) (84,524,738)
1,133,148 16,599,021
33,050,000
56,190,000 56,690,000
(10,211,444)
3,513,538 1,868,429
3,217,716 13,471,268
(4,283,101) 52,373,421
51,414,149 50,783,445
3,345,305 2,047,598
(49,986,219) ( 87,864,370)
(9,374,323) (2,024,770)
$ (5,666,473) $ 28,786,592
This change in net assets begins with the current year's differences between governmental revenues and
expenditures ($57,618,970), along with other financing sources and uses ($60,836,686). Differences
between capital assets added during the year and the depreciation related to all capital assets recorded,
along with the effect of various capital assets transactions, such as dispositions and donations
($47,131,048) also affect this change.
16
along with the effect of various capital assets transactions, such as dispositions and donations
($47,131,048) also affect this change.
Other factors influencing the change in net assets are those revenues and expenses that do not provide or
require the use of current financial resources ($6,029,018). GASB 34 dictates that the County record an
allowance for accounts that are unlikely to be collected. These allowances for doubtful accounts combine
with items, such as deferrals of long-term balances not being paid in the current year, to constitute further
changes in net assets. Additionally, long-term debt, whether being issued or retired, has an effect on the
change in net assets ($49,986,219). During the fiscal year, the County issued new debt and paid off a
portion of its existing debt. These financings represent further changes in the net assets of the County.
The overall financial position of the County has improved over the last year. As mentioned earlier, there
is a decrease in net assets of $5,666,473. However, the increase of $11,821,921 in the combined fund
balance of Montgomery County's two major operating funds would indicate an improvement in overall
financial position. Despite this progress, total operating fund balance is neither where management
desires nor intends for it to be. As part of long-range planning, management has pledged to continue
increasing the level of the operating funds' fund balances until such time as they represent between 20
and 25 percent of annual operating costs.
The following chart depicts expenses and program revenues for the fiscal year ending September 30, 2009
for governmental activities.
n01e below See b('low
Expenses and Program Revenues - Governmental Activities
II Expense
42 J
40
38
36 t-----==---
34
32
30

24 i----==----
22
20 -
18
16
14
12
10
Ii
* Public safety expenses and revenues have each been decreased by $21 million
and public transportation expenses and revenues have each been decreased
$55million, for the purpose of a more easily read chart. No other expenses or
revenues have been ahcred in any way and arc accurate as shown.
Key elements of the analysis of government-wide program revenues and expenses as they relate to each
function reflect the following:
Program revenues of$154,290,882 are comprised in large part (39.6%) of public transportation's
revenues of $61,080,547 and public safety's revenues of $21,369,269 (13.8%). The public
facilities function comprises 16% of program revenues with $24,728,408, the judicial function
17
makes up 7.3% of program revenues with $11,287,953, and the general administration function
covers 3.5% of program revenues with $5,402,968. The expenses of tbese functions account for
31%, 18%, 13.3%,7.3%, and 7.1%, respectively. As expected, general revenues provided the
required support and coverage in areas where expenses exceeded revenues.
The public transportation function experienced an increase in expenses of $19,324,167 while
realizing a decrease in revenues of $5,955,185. The increase in expenses is the result of an
aggressive effort on the part of commissioners to improve and expand roads, many of which are
state-owned, located in the County. These roads, because they are not owned by the County,
cannot be shown as capital assets in the government-wide analysis; this creates a large expense,
with no corresponding asset.
On September 13, 2008, Hurricane Ike slammed into the Houston metropolitan area, leaving a
wide swathe of destruction in its wake. After a Presidentially-declared disaster, the Federal
Emergency Management Agency (FEMA) moved into the area to provide cleanup and debris
removal assistance. During a difficult and continued recovery hampered by power outages, the
County provided assistance to citizens at many levels. The public safety, public facilities, general
administration, public transportation and health and welfare functions continued to experience
increased expenses while coping with an influx of citizens and officials. The County provided
varied services such as debris removal and disposal, staging areas for utility companies to
coordinate restoration of power to homes and businesses, and housing of FEMA officials.
The following chart depicts revenues of the governmental activities for the fiscal year ended September
30,2009.
Revenues by Source - Governmental Activities
Fees, fines, forfeitures, and charges for
services
22.71%
Other grants and contributions
17.21%
State grants and conlJibutions __"{
1,64%
Federal grants and contributionsJ
9.22%
I-__Property taxes
47.95%
Other taxes
0 5 7 ~
Other general revenues
0.7%
GOVERNMENTAL FUND FINANCIAL ANALYSIS
Montgomery County uses fund accounting to ensure and demonstrate compliance with finance-related
legal requirements.
Governmental funds are a means of providing information on near-term inflows, outflows, and balances
of usable resources. Such information is useful in assessing Montgomery County's financing
18
As of September 30, 2009, the County's governmental funds reported combined ending unreserved,
undesignated fund balances of $54,389,999, an increase of $7,236,727 in comparison with the prior year.
This unreserved, undesignated fund balance is available for spending at the County's discretion. The
remainder of fund balance is reserved or designated to indicate that it is not available for new spending
because it has already been committed. These commitments can be to fund capital projects
($91,075,384), pay debt service ($12,206,656), reflect inventories ($85,034), and reflect prepaid items
($1,210,901). Commitments also come in the form of designations that will fund encumbrances from the
prior year ($344,375) and the OPEB obligation ($6,000,000). On September 30, 2009, the total fund
balance of the General Fund (the chief operating fund of the County) was $35,014,007. Of that amount,
$27,492,281 was available for spending at the County's discretion, $312,358 was designated for
encumbrances, $6,000,000 was designated for the OPEB liability, and $1,209,368 was reserved for
prepaid items.
Total assets in the General Fund amounted to $79,758,641, accounting for 33.8% of total governmental
fund assets. The total assets of other major funds include Road and Bridge Special Revenue Fund
($11,966,623), Capital Projects Revenue/Tax Bonds Series 2009 Fund ($47,284,630), FEMA Disaster
Grants Fund ($7,769,181), and Capital Projects Road Bonds Series 2008B Fund ($25,932,782).
Together, all major funds account for $172,711,857 (73.2%) of the County's $236,014,455 in total assets.
The fund balance of the County's General Fund grew by $9,166,375 during the current fiscal year. Key
factors in this growth are as follows:
The Commissioners' Court, as part of long-range planning, budgeted a $2,000,000 fund balance
Increase.
An increase in the appraised value of real and personal property boosted ad valorem tax revenues
$10,409,290.
The County has multiple contracts with outside entities for security services through the offices of
the Sheriff and the Constables. Increases in the number of contracts generated larger than
expected reimbursements from these organizations, resulting in an increase to contract
reimbursements of $838,448 over the past year.
The Road and Bridge Special Revenue Fund has a total fund balance of $8,662,252 which is reported as
$85,034 reserved for inventory, $2,099 designated for encumbrances, and $8,575,119 unreserved,
undesignated. The unreserved, undesignated portion of the fund balance increased $2,639,256 during the
current year due to focus by the Commissioners for various capital projects that were paid through the
capital projects funds.
The Capital Projects Road Bonds Series 2008B Fund has a fund balance of $22,612,860 at the end of the
fiscal year. The decrease of $11,123,819 is due to the swift progress of road construction projects
throughout the county.
GENERAL FUND BUDGETARY HIGHLIGHTS
The published budget of Montgomery County for fiscal 2009 was prepared on a modified accrual basis,
and includes all elements required by Texas Local Government Code Section 111.034, applicable to
counties of population more than 225,000 that do not have an appointed County Budget Officer. The
original adopted budget of the General Fund includes revenues of $149,458,482 and expenditures of
$132,019,269. The General Fund's final budget, as amended, contains revenues of $168,949,372 and
expenditures of $163, 160,615.
19
The following table presents the changes between the original adopted budget and the final budget for the
General Fund as of September 30, 2009.
General Fund
Budget Variances
Year Ended September 30, 2009
Variance with
Original Budget
Original Budget Final Budget Positive (Negative)
Revenues:
Taxes $ 107,978,169 $ 108,964,699 $ 986,530
Licenses and Permits 1,348,924 1,442,538 93,614
Fees 11,762,114 11,203,417 (558,697)
Intergovernmental 135,207 7,184,513 7,049,306
Charges for Services 611,468 611,968 500
Interest 1,888,572 1,888,572
Contract Reimbursements 6,414,168 11,798,651 5,384,483
Inmate Housing 18,319,850 23,895,939 5,576,089
Fines and Forfeitures 49,466 49,466
Miscellaneous 950,544 1,909,609 959,065
Total Revenues 149,458,482 168,949,372 19,490,890
Expenditures:
General Administration 16,005,356 21,320,680 (5,315,324)
Judicial 14,210,547 14,021,163 189,384
Legal Services 2,216,298 2,266,160 (49,862)
Elections 1,072,979 1,309,045 (236,066)
Financial Administration 6,257,896 6,322,208 (64,312)
Public Facilities 38,864,921 46,304,849 (7,439,928)
Public Safety 46,406,116 60,936,851 (14,530,735)
Health and Welfare 4,268,394 5,935,540 (1,667,146)
Conservation 516,762 537,771 (21,009)
Miscellaneous 2,200,000 4,206,348 (2,006,348)
Total Expenditures 132,019,269 163,160,615 (31,141,346)
Excess Revenues Over Expenditures 17,439,213 5,788,757 (11,650,456)
Other Financing Sources/(Uses):
Transfers In 971,017 971,017
Transfers Out (834,846) (834,846)
Capital Lease Financing 428,465 428,465
Total Other Financing Sources/(Uses) 564,636 564,636
Net Change in Fund Balances 17,439,213 6,353,393 (11,085,820)
Fund Balance - Beginning 25,847,632 25,847,632
Fund Balance - Ending $ 43,286,845 $ 32,201,025 $ (11,085,820)
Final budgeted revenues were higher than originally planned by $19,490,890. The final amended budget
for taxes increased $986,530 over the original budget due to an aggressive collection eff011, which
resulted in higher than originally expected collections of current and delinquent taxes, along with the
penalties and interest associated with those delinquent taxes. Intergovernmental revenue contained
$7,049,306 more in the final budget than in the original budget. This increase is largely due to the receipt
of several large federal and state grants during the year that were not foreseen at the time the original
budget was adopted.
The final budget for contract reimbursements was $5,384,483 more than the original budget. The
increase in the anticipated revenue was primarily due to a $4,622,226 budgeted contract reimbursement
for the Community Supervision and Corrections Department's salary and fringe benefits. During the
original budget process, Commissioners' Court does not budget for funds that are not at the discretion of
20
the County to spend. Since this contract reimbursement is earmarked for specific purposes, it is not
included in the original budget.
During the course of the fiscal year, the County entered into several contracts for law enforcement
services with local agencies. These contracts were also contributing factors to the increase in the budget.
An increase of $5,576,089 in the final budget for inmate housing was due to the Joe Corley Detention
Facility operating at a higher capacity than expected, allowing for more federal inmates to be housed at
the facility.
The originally unanticipated revenue partially offset the expenditure differences of $31,141,346 between
the original budget and the final amended budget. The general administration function had a final
expenditure budget that is $5,315,324 higher than the original budget. This increase was due in large part
to employee health coverage in the County's self-insured benefit plan. Estimated reserves are required
for self-insurance programs, which are recorded as they become available. At the time of the original
budget process, these amounts were not readily identifiable.
The public facilities function had a final budget $7,439,928 higher than the original budget. As stated, the
Joe Corley Detention Facility has operated at a higher than anticipated occupancy rate, resulting in a need
to budget additional operating expenses.
Funds that were originally scheduled in prior fiscal years were not included in the original budget for
fiscal year 2009. This practice reflects the County's policy of letting encumbrances lapse at year-end and
re-appropriating them in the current year. This policy created increases in the amended budget for
carryovers from the prior year in the general administration, judicial, legal services, elections, public
facilities, health and welfare, culture and recreation, conservation, public safety, and miscellaneous
functions.
A $14,530,735 increase in the final budget over the original budget for expenditures in the public safety
function was the result of several factors, including encumbrance carryovers as mentioned above.
Included in the public safety function is the Community Supervision and Corrections Department
(CSCD), which is not a County department. However, the County has entered into a contract with the
CSCD that enables those employees to participate in the County's employee benefit plan. CSCD
reimburses the County 100% of the costs associated with said participation. Management believes
inclusion of 100% reimbursed contracts in the original budget would unnecessarily inflate revenues and
expenditures because the revenues will always be sufficient to cover the expenditures. The County has
elected not to include these amounts in the original, adopted budget each year.
Also contributing to the budgeted variances for the public safety function is the County's participation in
several contracts with local agencies for law enforcement services. During the course of the fiscal year,
additional interlocal agreements were created with local agencies for the performance of security services.
These additional contracts created increased expenditures for the County, but also created an increase in
the revenue line supporting the associated expenditure.
The health and welfare function had final budgeted expenditures $1,667,146 higher than the original
budget for expenditures. This function includes a grant that is managed by the University of Texas
Medical Branch for the County. The grant is pass-through in nature, ultimately resulting in a
corresponding revenue for the expense incurred. To prevent any increase in taxes for the constituents of
the County for this grant-funded cost, the expense is not budgeted until the revenue is budgeted, which
was after the original budget process.
The increase of expenditures in the final amended budget over the original budget that was not covered by
the revenues' increase was repOlted as a decrease in the final amended budgeted net change in fund
balances. This amount was a total variance of$11,085,820.
21
The following table presents the differences between the final amended budget and actual expenditures
for the General Fund as of September 30,2009.
General Fund
Budget Variances
Year Ended September 30,2009
Variance with Final
Budget Positive
Final Budget Actual (Negative)
Revenues:
Taxes $ 108,964,699 $ 109,089,627 $ 124,928
Licenses and Permits 1,442,538 1,364,234 (78,304)
Fees 11,203,417 12,444,656 1,241,239
Intergovernmental 7,184,513 6,521,185 (663,328)
Charges for Services 611,968 486,253 (125,715)
Interest 1,888,572 567,010 (1,321,562)
Contract Reimbursements 11,798,651 11,806,882 8,231
Inmate Housing 23,895,939 23,895,939
Fines and Forfeitures 49,466 186,594 137,128
Miscellaneous 1,909,609 1,808,654 (100,955)
Total Revenues 168,949,372 168,171,034 (778,338)
Expenditures:
General Administration 21,320,680 16,216,725 5,103,955
Judicial 14,021,163 13,675,907 345,256
Legal Services 2,266,160 2,131,350 134,810
Elections 1,309,045 1,258,713 50,332
Financial Administration 6,322,208 5,624,961 697,247
Public Facilities 46,304,849 44,144,809 2,160,040
Public Safety 60,936,851 52,813,275 8,123,576
Health and Welfare 5,935,540 5,757,396 178,144
Conservation 537,771 511,141 26,630
Miscellaneous 4,206,348 1,156,114 3,050,234
Total Expenditures 163,160,615 143,290,391 19,870,224
Excess Revenues Over Expenditures 5,788,757 24,880,643 19,091,886
Other Financing Sources/(Uses):
Transfers In 971,017 4,261,744 3,290,727
Transfers Out (834,846) (20,404,477) (19,569,631)
Capital Lease Financing 428,465 428,465
Total Other Financing Sources/(Uses) 564,636 (15,714,268) (16,278,904)
Net Change in Fund Balances 6,353,393 9,166,375 2,812,982
Fund Balance - Beginning 25,847,632 25,847,632
Fund Balance - Ending $ 32,201,025 $ 35,014,007 $ 2,812,982
Actual revenues fell short of budgeted revenues by $778,338. Although the County received higher than
expected fee revenues, which. came in $1,241,239 over the fmal budget, a decline in interest earnings of
$1,321,562 negated any tangible benefit. Exacerbating this unexpected deficiency, intergovernmental
revenues were $663,328 lower than budgeted. The County's policy for multiple year grants is to budget
the entire grant in the year in which it is awarded. In the case of Homeland Security grants, which span
multiple County fiscal years, $3,512,336 was budgeted, of which $2,362,144 was spent during the fiscal
year.
Actual expenditures were $19,870,224 lower than final budgeted expenditures. The general
administration function contributed $5,103,955 toward that amount. The risk management department of
the County is charged with recording costs of various liability and property claims and settlements.
During the fiscal year, costs of those claims were significantly lower than had been anticipated at the time
of the budget process.
22
The public facilities function had expenditures that were $2,160,040 less than was approved in the final
amended budget. As fiscal year 2009 was the first full year of operations for the new Joe Corley
Detention Facility, the cost savings of freeing bed space at the County's own Jail were higher than
anticipated.
All departments in the public safety function of the General Fund expended less than was approved in the
final amended budget by $8,123,576. The difference is primarily due to the fact that grants that span
multiple County fiscal years or are awarded late in the fiscal year contain monies that are spent in
subsequent years. However, the Sheriffs department's continued difficulty retaining qualified staff also
caused public safety to expend less than anticipated.
The miscellaneous function showed actual expenditures less than the final budget by $3,050,234. This
was due in large part to the funding of anticipated salary increases. At the time an increase is approved,
the funds are transferred to the appropriate department or function. Therefore, actual expenditures in the
miscellaneous function were far less than originally budgeted.
The actual net change in fund balance was $2,812,982 greater than anticipated with the final budget. This
is the result of a reduction in actual expenditures that included sufficient amounts to cover transfers to
other funds as well as the decrease in actual revenues. The Jury Special Revenue Fund and the Memorial
Library Special Revenue Fund received $6,182,610 and $7,700,000, respectively, more than shown in the
final budget. In both of these funds, the emphasis is on providing a service. In the case of the Jury
Special Revenue Fund, that service is in the form of a court system. The Memorial Library Special
Revenue Fund's emphasis is on culture and recreation. These funds are not expected in any year to
provide enough revenues to adequately fund their own services. Therefore, it is anticipated that the
General Fund will service the expenditures of those funds every year. Transfers in and out simply
provide a mechanism to move funds from one self-balancing set of accounts (a fund) to another self-
balancing set of accounts.
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital Assets
Montgomery County's investment in capital assets for its governmental activities as of September 30,
2009 amounted to $637,534,650 (net of accumulated depreciation). This investment in capital assets
includes land, buildings, improvements, equipment, infrastructure that was purchased, completed or
donated since the fiscal year ending September 30, 1981, and construction in progress.
Major capital asset events during the current fiscal year included the following:
Additions to land (less deletions) totaled $1,866,974 and included purchases of land for the
Spring Creek Greenway and a new mental health detention facility.
Additions to the buildings category (less deletions) of $31,609,390 included a donated building
that will be used to provide instruction and training on a variety of horticultural topics to the local
community.
Vehicles, vehicle modifications, and other various equipment items were purchased at a cost of
$4,734,885. To support the County's commitment to law enforcement, 148 in-car video systems
were purchased at a cost of $948,340.
A variety of projects for both new infrastructure construction and for expansion or updating of
existing infrastructure were ongoing during the year. Infrastructure projects completed in 2009
amounted to $16,490,991 of the overall $67,952,243 increase to infrastructure.
Montgomery County is the 34
th
fastest growing county in the United States and the fourth fastest
growing in Texas!. This brisk growth brings with it a need for vast improvements to a rural
1 http://www.cenSlis.gov
23
---------------------------------------------------
infrastructure system. Development frequently comes with donations in the form of roads.
Infrastructure donations for the year totaled $51,461,252.
Projects that were capitalized from ongoing construction throughout the year, including a
detention facility, totaled $36,827,915. Additional expenditures of$16,349,101 were incurred for
construction that was in progress throughout the year.
Increases in assets were offset by depreciation expense of $47,268,651.
Montgomery County, Texas
Capital Assets
(net of depreciation)
September 30, 2009
with Comparative Totals for September 30, 2008
Land
Buildings
Improvements
Equipment
Infrastructure
Construction in Progress
Total
Value of Capital Asset Net of
Accumulated Depreciation
FY 2009 FY 2008
$ 13,758,369 $ 11,891,395
148,142,034 121,968,821
14,363,211 8,939,070
29,123,885 30,915,808
428,884,907 392,947,448
3,262,244 23,741,057
$637,534,650 $ 590,403,599
Increase
(Decrease)
$ 1,866,974
26,173,213
5,424,141
(1,791,923)
35,937,459
(20,478,813)
$ 47,131,051
Montgomery County is in the process of constructing a new Spring Creek Gateway complex in the
southern part of the County. This complex furthers the County's efforts of improving services to its
citizens in the areas of conservation and local nature preserves. By September 30, 2009, $241,962 had
been spent on the new facility.
Efforts to assist constituents in obtaining services and the County's obligation to provide those services in
a rapidly growing county come with many challenges. In 2009, the Commissioner's Court has met some
of those challenges by completing construction on a new administration building and an accompanying
parking garage. The new administration building now houses the Commissioner's Court Room and
County Judge's offices as well as various general administration and financial administration offices. The
new administration building also houses Montgomery County Community Development, the County
Engineer and Environmental Health. By September 30,2009, $19,620,393 had been spent.
The County has committed to multiple road construction projects in fiscal year 2009. In 2005, the voters
of Montgomery County approved $160,000,000 in road bonds to fund road improvements throughout the
county. The bonds will be issued in phases to fund road construction as the need arises. The final portion
of the original authorized road bonds were issued in the second half of fiscal year 2008. However, there
is a continued financial need to achieve completion of the activities.
Additional information on the County's capital assets can be found in Note 7 starting on page 54 of this
report.
Long-Term Debt
At September 30, 2009, Montgomery County had total bonded debt outstanding of $453,043,601.
Commissioners' Court continues to keep maturity dates confined to no more than 22 years. Despite
turbulent economic conditions, the County was able to maintain an underlying rating by Standard and
Poor's Corporation during the current fiscal year of "AA".
The County issues three types of debt; general obligation bonds are approved by the voters of the County
while lease-revenue bonds and certificates of obligation are approved by Commissioners' Court. Of the
24
County's total debt, $337,600,000 corresponds to general obligation debt, $43,758,601 is in the form of
lease revenue bonds and $71,685,000 represents certificates of obligation. Montgomery County's total
bonded debt had a increase of$49,382,91 1 during 2009.
The following table represents the entire long-term debt of the County at September 30, 2009 on a
comparative basis.
Montgomery County, Texas
Governmental Activities
Outstanding Long-Term Debt
FY2009 FY2008
General obligation bonds
Lease revenue bonds
Certificates of obligation
Accreted interest
Capital Leases
Premiums, net of discounts
Compensated absences
Arbitrage rebate
OPEB Liability
Total
$ 337,600,000
43,758,601
71,685,000
17,409,156
12,051,322
8,305,224
7,968,357
$ 498,777,660
$ 285,396,527
44,834,989
73,180,000
249,174
19,053,887
9,064,658
7,262,318
355,349
$ 439,396,902
Debt activity in 2009 included an issue of $56,190,000 in general obligation bonds. The County retired
$6,807,089 in debt through scheduled principal payments made during the year.
The County is authorized under Article III, Section 52 of the State Constitution to issue bonds payable
from ad valorem taxes for the construction and maintenance of roads. There is no constitutional or
statutory limit as to rate on bonds issued pursuant to such constitutional provision. However, the amount
of bonds that may be issued is limited to 25% of the assessed valuation of real property in the County.
The current debt limitation for the County is $6,299,203,272, which is significantly in excess of the
County's outstanding debt obligation, despite the increases in debt issuance during 2009.
Additional information on Montgomery County's long-term debt can be found in Note 9 beginning on
page 56 of this report.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGET AND RATES
The unemployment rate for the County is currently 7.6%2, which is an increase from a rate of
4.7% a year ago. This compares favorably to the State's average unemployment rate of 8.1%3
and the national average rate of9.8%4.
The Commissioners' Court enacted a small reduction in operating expenses in most departments
in response to the depressed economic environment.
Commissioners' Court did not approve any merit increases in salary in fiscal year 2010.
Increased demand for law enforcement services propelled Commissioners' Court to bring the
annualized budget in the Sheriffs department to $67,966,902 in fiscal year 2010, up from
$61,836,349 in 2009.
The estimated debt service obligation increased by $168,851 in fiscal year 2010 to $23,191,701.
Commissioners' Court has made a commitment to increase the County's fund balance by
$1,500,000 during the next fiscal year, as well as increase the fund balance by at least $1,500,000
2 The Work Source. http://www.wrksolutions.com/employer/lmi/unemploymentrates/LAUSHISTORY.pdf.
3 The Work Source. http://www.wrksolutions.com/employer/lmi/unemploymentrates/LAUSHISTORY.pdf.
4 U.S. Department of Labor, Bureau of Labor Statistics. http://data.bls.govIPDQ/servlet/SurveyOutputServlet.
25
in subsequent years. This commitment is intended to provide the County with a strong equity
base.
All of these factors were considered in preparing the Adopted Budget of Montgomery County, Texas for
the fiscal year ending September 30,2010.
REQUESTS FOR INFORMATION
This financial report is designed to provide a general overview of Montgomery County's finances for all
those with an interest in the government's finances. Questions concerning any of the information
provided in this report or requests for additional financial information should be addressed to the
Montgomery County Auditor, P. O. Box 539, Conroe, Texas 77305-0539.
26
BASIC FINANCIAL STATEMENTS
27
MONTGOMERY COUNTY, TEXAS
Statement of Net Assets
September 30, 2009
ASSETS:
Cash
Investments, at Fair Value
Cash, Restricted
Cash, Restricted for Retainage
Receivables:
Taxes (net)
Accounts (net)
Due from Other Governments
Inventory, at Cost
Deferred Charges
Prepaid Items
Capital Assets, net of accumulated depreciation
Land
Buildings
Improvements
Equipment
Infrastructure
Construction in Progress
Total Assets
LIABILITIES:
Accounts Payable
Retainage Payable
Accrued Interest Payable
Due to Other Governments
Unearned Revenue
Noncurrent Liabilities:
Due within one year
Due in more than one year
Total Liabilities
NET ASSETS:
Invested in Capital Assets, net of related debt
Restricted for:
Capital Projects
Debt Service
Unrestricted
Total Net Assets
See accompanying notes to the financial statements.
28
EXHIBIT I
Governmental Activities
$ 21,779,391
146,002,874
440,638
104,594
5,802,340
21,020,807
26,459,750
85,034
15,654,795
1,210,901
13,758,369
148,142,034
14,363,211
29,123,885
428,884,907
3,262,244
876,095,774
27,178,104
1,391,448
2,882,766
2,013,671
3,765,238
15,983,848
482,793,812
536,008,887
377,016,683
6,139
8,305,224
(45,241,159)
$ 340,086,887
MONTGOMERY COUNTY, TEXAS
Statement of Activities
Year Ended September 30, 2009
Program Revenues
EXHIBIT II
Functions/Programs Expenses
Fees, Fines,
Forfeitures,
and Charges
for Services
Operating Capital
Grants and Grants and
Contributions Contributions
Net (Expense)
Revenue and
Changes in
Net Assets
$ 22,046,369 $ 5,402,968 $ $
22,794,440 10,475,877 812,076
2,678,359 501,896 53
1,694,067 1,131 507,112 381
5,917,962 2,268,952
41,255,267 24,717,702 10,706
55,941,218 15,388,348 3,034,409 2,946,512
29,039,919 1,478,897 24,873,551 287,325
9,981,330 323,520 134,015 21,249
341,910 23,655
95,536,899 8,442,985 55,054 52,582,508
1,156,114
Primary Government:
Governmental Activities:
Current:
General Administration
Judicial
Legal Services
Elections
Financial Administration
Public Facilities
Public Safety
Health and Welfare
Culture and Recreation
Conservation
Public Transportation
Miscellaneous
Debt Service Interest and
Fiscal Charges
Total Governmental Activities
21,121,081
$309,504,935
=$=6=9,=00=2=,2=76= = = $ = 2 9 ~ , 4 = 3 = = 9 ,==92=5= $ 55,848,681
$ (16,643,401)
(11,506,487)
(2,176,410)
(1,185,443)
(3,649,010)
(16,526,859)
(34,571,949)
(2,400,146)
(9,502,546)
(318,255)
(34,456,352)
(1,156,114)
(21,121,081)
(155,214,053)
General Revenues:
Property Taxes
Other Taxes
Mixed Beverage Taxes
Bingo Taxes
Vehicle Weight Tax
Insurance Reimbursements
Unrestricted Investment Earnings
Gain on Sale of Capital Assets
Total General Revenues
Change in Net Assets
Net Assets - Beginning
Net Assets - Ending
See accompanying notes to the financial statements.
29
145,696,133
151,792
1,250,051
162,769
155,291
343,348
1,667,591
120,605
149,547,580
(5,666,473)
345,753,360
$ 340,086,887
----------------
MONTGOMERY COUNTY, TEXAS
Balance Sheet
Governmental Funds
September 30, 2009
EXHIBIT III
Road
General and Bridge
ASSETS:
Cash $ 11,146,580 $ 511,407
Investments, at Fair Value 44,530,317 7,728,664
Cash, Restricted
Cash, Restricted for Retainage 13,579 19,605
Receivables:
Taxes (net) 4,270,173 592,565
Accounts (net) 2,618,105 504,298
Due from Other Funds 6,926,788 2,415,393
Due from Other Governments 9,043,731 109,657
Inventory, at Cost 85,034
Prepaid Items 1,209,368
TOTAL ASSETS $ 79,758,641 $ 11,966,623
LIABILITIES AND FUND BALANCES:
Liabilities:
Accounts Payable $ 14,623,697 $ 1,204,557
Retainage Payable 13,579 19,605
Due to Other Funds 20,634,201 1,480,845
Due to Other Governments 2,013,671
Deferred Revenue 7,459,486 599,364
Total liabilities 44,744,634 3,304,371
Fund Balances:
Reserved for:
Prepaid Items 1,209,368
Capital Projects
Inventory 85,034
Debt Service
Unreserved, designated for:
Encumbrances 312,358 2,099
OPEB Obligation 6,000,000
Unreserved, undesignated, repol1ed in:
General Fund 27,492,281
Special Revenue Funds 8,575,119
Total Fund Balances 35,014,007 8,662,252
TOTAL LIABILITIES AND
FUND BALANCES $ 79,758,641 $ 11,966,623
See accompanying notes to the financial statements.
30
Revenue/Tax FEMA Disaster Road Bonds Other Total
Bonds Series 2009 Grants Series 2008B Governmental Funds Governmental Funds
$ 168,734 $ $ 1,583 $ 9,951,087 $ 21,779,391
43,256,443 21,284,591 29,202,859 146,002,874
440,638 440,638
15,044 56,366 104,594
939,602 5,802,340
88 371 203,547 3,326,409
21,460,343 30,802,524
3,844,321 7,769,181 4,646,237 1,046,623 26,459,750
85,034
1,533 1,210,901
$ 47,284,630 $ 7,769,181 $ 25,932,782 $ 63,302,598 $ 236,014,455
$ 2,971,230 $ 318,225 $ 3,319,922 $ 4,740,473 $ 27,178,104
15,044 1,343,220 1,391,448
7,354,866 1,332,612 30,802,524
2,013,671
17,169 1,240,340 9,316,359
2,986,274 7,690,260 3,319,922 8,656,645 70,702,106
1,533 1,210,901
44,298,356 22,612,860 24,164,168 91,075,384
85,034
12,206,656 12,206,656
29,918 344,375
6,000,000
27,492,281
78,921 18,243,678 26,897,718
44,298,356 78,921 22,612,860 54,645,953 165,312,349
$ 47,284,630 $ 7,769,181 $ 25,932,782 $ 63,302,598 $ 236,014,455
31
32
MONTGOMERY COUNTY, TEXAS
Reconciliation of the Balance Sheet of the Governmental Funds
to the Statement of Net Assets
Year Ended September 30, 2009
Total fund balances - governmental funds (page 31) $ 165,312,349
Amounts reported for governmental activities in
the statement of net assets are different because:
Bond issuance costs are expenditures in the funds
but are amortized over the life of the bonds in
government-wide statements. 15,654,796
Capital assets used in governmental activities are
not financial resources and therefore are not reported in
the funds. These capital assets (net of accumulated
depreciation) consist of:
Land 13,758,369
Buildings 148,142,034
Improvements 14,363,211
Equipment 29,123,885
Infrastructure 428,884,907
Construction in Progress 3,262,244
Total Capital Assets 637,534,650
Other long term assets that were not available to
pay for current-period expenditures were deferred in the
funds. These assets consist of fines and fees receivable,
net of allowance. 17,694,398
Property taxes earned that are not available to pay for
current-period expenditures are deferred in the funds. 5,551,120
Some liabilities are not due and payable in the current
period and therefore are not reported in the funds. Those
liabilities consist of:
Interest payable (2,882,766)
Bonds and capital leases payable (482,504,079)
OPEB Liability (7,968,357)
Arbitrage payable
Compensated absences (8,305,224)
Total future period liabilities (501,660,426)
Net assets of governmental activities $ 340,086,887
See accompanying notes to the financial statements.
33
MONTGOMERY COUNTY, TEXAS
Statement of Revenues, Expenditures, and Changes in Fund Balances
Governmental Funds
Year Ended September 30, 2009
EXHIBIT IV
Road
REVENUES: General and Bridge
Taxes $ 109,089,627 $ 15,140,793
Licenses and Permits 1,364,234 6,522,263
Fees 12,444,656 228,670
Intergovernmental 6,521,185 159,853
Charges for Services 486,253
Interest 567,010 34,892
Contract Reimbursements 11,806,882
Inmate Housing 23,895,939
Fines and Forfeitures 186,594 1,110,826
Miscellaneous 1,808,654 817,302
TOTAL REVENUES 168,171,034 24,014,599
EXPENDITURES:
Current:
General Administration 16,216,725
Judicial 13,675,907
Legal Services 2,131,350
Elections 1,258,713
Financial Administration 5,624,961
Public Facilities 44,144,809
Public Safety 52,813,275
Health and Welfare 5,757,396
Culture and Recreation
Conservation 511,141 334,147
Public Transportation 19,887,498
Miscellaneous 1,156,114
Capital Projects
Debt Service:
Principal Retirement
Interest and Fiscal Charges
Issuance Costs
TOTAL EXPENDITURES 143,290,391 20,221,645
Excess (Deficiency) Revenues
Over Expenditures 24,880,643 3,792,954
OTHER FINANCING SOURCES/fUSES):
Transfers In 4,261,744 374,335
Transfers Out (20,404,477) (2,216,426)
Capital Lease Financing 428,465 704,683
Issuance of General Obligation Debt
Premium on Debt Issuance
TOTAL OTHER FINANCING
SOURCES/fUSES) (15,714,268) (1,137,408)
Net Change in Fund Balances 9,166,375 2,655,546
Fund Balances at Beginning of Year 25,847,632 6,006,706
FUND BALANCES AT END OF YEAR $ 35,014,007 $ 8,662,252
See accompanying notes to the financial statements.
34
Other Total
Revenue/Tax FEMA Disaster Road Bonds Governmental Governmental
Bonds Series 2009 Grants Series 2008B Funds Funds
$ $ $ $ 23,262,487 $ 147,492,907
230,439 8,116,936
1,354,163 14,027,489
19,594,567 7,803,233 34,078,838
1,608,201 2,094,454
6,662 157,566 546,094 1,312,224
319,772 12,126,654
23,895,939
1,894,799 3,192,219
32,503 82,886 2,741,345
6,662 19,627,070 157,566 37,102,074 249,079,005
831,646 17,048,371
8,119,808 21,795,715
418,861 2,550,211
1,258,713
5,624,961
44,144,809
2,996,076 55,809,351
19,604,310 4,874,931 30,236,637
8,008,564 8,008,564
845,288
581,899 20,469,397
1,156,114
7,740,379 11,281,160 52,191,142 71,212,681
6,557,918 6,557,918
18,713,749 18,713,749
738,997 225 526,274 1,265,496
8,479,376 19,604,310 11,281,385 103,820,868 306,697,975
(8,472,714) 22,760 (11,123,819) (66,718,794) (57,618,970)
20,176,667 24,812,746
(2,191,843) (24,812,746)
1,133,148
49,825,287 6,364,713 56,190,000
2,945,783 567,755 3,513,538
52,771,070 24,917,292 60,836,686
44,298,356 22,760 (11,123,819) (41,801,502) 3,217,716
56,161 33,736,679 96,447,455 162,094,633
$ 44,298,356 $ 78,921 $ 22,612,860 $ 54,645,953 $ 165,312,349
3S
36
MONTGOMERY COUNTY, TEXAS
Reconciliation of the Statement of Revenues, Expenditures,
and Changes in Fund Balances of the Governmental Funds
to the Statement of Activities
Year Ended September 30, 2009
Amounts reported for governmental activities in the statement of activities (page 29)
are different because:
Net change in fund balances - total governmental funds (page 35)
Governmental funds report capital outlays as expenditures.
However, in the statement of activities the cost of those assets is
allocated over their estimated useful lives and reported as depreciation
expense. This is the amount by which capital outlays exceeded
depreciation in the current period.
The net effect of various miscellaneous transactions involving
capital assets (Le., sales, trade-ins, seizures, and donations) is to increase
net assets.
Revenues in the statement of activities that do not provide
current financial resources are not reported as revenues in the funds.
The issuance oflong-term debt (e.g., bonds, leases) provides
current financial resources to governmental funds, while the repayment
of the principal oflong-term debt consumes the current financial
resources of governmental funds. Neither transaction, however, has any
effect on net assets. Also, governmental funds report the effect of
issuance costs, premiums, discounts, and similar items when debt is first
issued, whereas these amounts are deferred and amortized in the
statement of activities. This amount is the net effect of these differences
in the treatment oflong-term debt and related items.
$ 3,217,716
(4,283,101)
51,414,149
3,345,305
(49,986,219)
Some expenses reported in the statement of activities do not
require the use of current financial resources and, therefore, are not
reported as expenditures in governmental funds.
The changes in these expenditures are as follows:
Compensated absences
Bond interest owed but not yet paid
Amortization of debt service
Agency fund receivables
OPEB Obligation
Change in net assets of governmental activities (page 29)
See accompanying notes to the financial statements.
37
(1,042,906)
167,663
(446,111)
(84,612)
(7,968,357)
$
(9,374,323)
(5,666,473)
MONTGOMERY COUNTY, TEXAS
Statement of Revenues, Expenditures, and Changes in Fund Balances
Budget (GAAP Basis) and Actual
Major Governmental Funds
Year Ended September 30, 2009
EXHIBIT V
Page 2 of3
Road and Bridge Fund
Variance with
Original Final Final Budget
Budget Budget Actual Positive (Negative)
REVENUES:
Taxes $14,990,350 $14,990,350 $15,140,793 $ 150,443
Licenses and Permits 6,530,664 6,530,664 6,522,263 (8,401)
Fees 212,350 228,670 16,320
Intergovernrnental 130,000 146,574 159,853 13,279
Charges for Services
Interest 105,000 105,000 34,892 (70,108)
Contract Reimbursements
Inmate Housing
Fines and Forfeitures 1,000,000 1,000,000 1,110,826 110,826
Miscellaneous 90,000 476,868 817,302 340,434
TOTAL REVENUES 22,846,014 23,461,806 24,014,599 552,793
EXPENDITURES:
Current:
General Administration
Judicial
Legal Services
Elections
Financial Administration
Public Facilities
Public Safety
Health and Welfare
Conservation 322,807 347,508 334,147 13,361
Public Transportation 19,911,453 26,917,406 19,887,498 7,029,908
Miscellaneous
TOTAL EXPENDITURES 20,234,260 27,264,914 20,221,645 7,043,269
Excess (Deficiency) Revenues Over
Expenditures 2,611,754 (3,803,108) 3,792,954 7,596,062
OTHER FINANCING SOURCES/
(USES):
Transfers In 374,335 374,335
Transfers Out (205,926) (2,216,426) (2,010,500)
Capital Lease Financing 704,683 704,683
TOTAL OTHER FINANCING
SOURCES 873,092 0,137,408) (2,010,500)
Net Change in Fund Balances 2,611,754 (2,930,016) 2,655,546 5,585,562
Fund Balances at Beginning of Year 6,006,706 6,006,706 6,006,706
FUND BALANCES AT END OF YEAR $ 8,618,460 $ 3,076,690 $ 8,662,252 $ 5,585,562
See accompanying notes to the financial statements.
39
MONTGOMERY COUNTY, TEXAS
Statement of Assets and Liabilities
Fiduciary Funds
September 30, 2009
EXHIBIT VI
Agency Funds
ASSETS:
Cash $ 14,822,449
Investments, at Fair Value 848,772
Accounts Receivable 85,210
TOTAL ASSETS $ 15,756,431
LIABILITIES:
Accounts Payable $ 10,805,374
Due to Other Governments 4,951,057
TOTAL LIABILITIES $ 15,756,431
See accompanying notes to the financial statements.
41
------------ ------- ------ -- ------------- - - - - ~ - - ~ ~ --. -------- --------- -
!
42
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The financial statements of Montgomery County, Texas have been prepared in conformity with
generally accepted accounting principles (GAAP) as applied to local government units in the United
States of America. The Governmental Accounting Standards Board (GASB) is the accepted
standard-setting body for establishing governmental accounting and financial reporting principles.
Following is a summary of the more significant policies.
A) REPORTING ENTITY:
Montgomery County, Texas (the County) was created in 1837. The County is a political
subdivision of the State of Texas. The Commissioners' Court, composed of the County Judge
and four Commissioners, governs the County. The following services are provided for the
citizens: public safety, road and bridge construction and maintenance, health and social services,
culture and recreation, public improvements, environmental protection, and administrative
services.
In 1991, GASB issued Statement No. 14, The Financial Reporting Entity, which established
standards for defining and reporting on the financial reporting entity. The discussion that
follows sets forth the guidelines for an entity's inclusion in the County's financial statements.
The definition of the reporting entity is based primarily on the notion of financial
accountability. The elected officials governing Montgomery County are accountable to their
constituents for their public policy decisions, regardless of whether those decisions are carried
out directly through the operations of the County or by their appointees through the operations of
a separate entity. Therefore, the County is not only financially accountable for the organizations
that make up its legal entity, it is also financially accountable for legally separate organizations if
its officials appoint a voting majority of an organization's governing body and either, it is able to
impose its will on that organization or, there is a potential for the organization to provide specific
financial benefits to, or to impose specific financial burdens on, the County.
Depending upon the significance of the County's financial and operational relationships with
various separate entities, the organizations are classified as blended or discrete component units,
related organizations, joint ventures, or jointly governed organizations, and the financial
disclosure is treated accordingly.
Blended Component Units- Legally separate entities that either a) have the same governing
body as the governing body of the primary government or b) provide services entirely, or almost
entirely, to the primary government must be reported in the financial statements of the primary
government as blended component units.
Montgomery County Jail Financing Corporation:
The Montgomery County Jail Financing Corporation was created by the Commissioners' Court
of the County in September 2006 as a 501(c)2 Title Holding Entity. The Corporation's Board of
Directors and Officers are comprised of the members of Commissioners' Court. The
Corporation's stated purpose is to provide financing for the construction of an 1,100-bed
detention facility, which will subsequently be sold to the County in a lease-purchase transaction.
The Corporation's financial transactions have been reported in the Debt Service Funds and the
Capital Project Funds of the County.
Related Organizations- Where the Commissioners' Court is responsible for appomtmg a
majority of the members of a board of another organization, but the County's accountability does
43
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
not extend beyond making such appointments, disclosure is made in the form of the relation
between the County and such organization.
Montgomery County Emergency Service Districts No. 1-14:
The emergency service districts are organized under the statutes of the State of Texas as political
subdivisions of the State to provide protection from fire for life and property. Commissioners'
Court appoints a five-member board for each district, and must approve the issuance of any long-
term debt for each. Individual boards retain authority to levy taxes and approve or modify annual
appropriation budgets. Inasmuch as each district is required by state law to have audited
financial statements prepared, and because the exercise of authority by Commissioners' Court is
of a compliant nature rather than substantive, these entities are not included in the County's
financial statements.
Montgomery County Housing Authority:
The Montgomery County Housing Authority is organized as a public corporation pursuant to
Chapter 392 of the Statutes of the State of Texas, Local Government Code. Its stated mission is
the development, acquisition, leasing and administration of federally assisted housing programs
under the direction of the U.S. Department of Housing and Urban Development.
Commissioners' Court appoints a five-member board for the corporation, but may not remove a
member at-will. There is also no financial interdependence between the corporation and the
County. The corporation issues a separate financial report, which may be obtained from its
offices at 521 N. Thompson Street, Conroe, Texas, 77301.
B) IMPLEMENTATION OF NEW STANDARD:
In the current year, the County implemented the following new standard:
GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment
Benefits Other Thank Pensions, " which established standards for the measurement, recognition,
and display of OPEB expense/expenditures and related liabilities (assets) as well as information
disclosed in notes to the financial statements or presented as required supplementary information
(RSI) in the financial reports of state and local governmental employers. For more information,
see Note 14 beginning on page 64.
C) FINANCIAL STATEMENT PRESENTATION, MEASUREMENT FOCUS AND BASIS OF
ACCOUNTING:
Government-wide Statements
Government-wide financial statements consist of the Statement of Net Assets and the Statement
of Activities. These statements report information on all of the non-fiduciary activities of the
primary government and its blended component unit. The effect of inter-fund transfers has been
removed from these statements, but continues to be reflected on the fund statements.
Governmental activities are supported mainly by taxes and intergovernmental revenues.
The Statement of Activities demonstrates the degree to which the direct expenses of a given
function are offset by program revenues. Direct expenses are those that are clearly identifiable
with a specific function. Program revenues include 1) charges to customers or applicants who
purchase, use or directly benefit from goods, services or privileges provided by a given function,
and 2) grants and contributions that are restricted to meeting the operational or capital
requirements of a particular function. Taxes and other items not properly included in program
revenues are reported as general revenues.
The government-wide financial statements are reported using the economic resources
measurement focus and the accrual basis of accounting. Revenues are recorded when earned and
44
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
expenses are recorded when a liability is incurred, regardless of the timing of related cash flows.
Property taxes are recognized as revenues in the year for which they are levied. Major revenue
types, which have been accrued, are district and county clerk fees, justice of the peace fines,
revenue from investments, intergovernmental revenue and charges for services. Grants are
recognized as revenue when all applicable eligibility requirements are met.
Fund-level Statements
Separate fund financial statements are provided for governmental funds and fiduciary funds even
though the latter are excluded from the government-wide financial statements. Major individual
governmental funds are reported in separate columns in the fund financial statements. Non-
major funds are aggregated into a single column in the fund financial statements. Detailed
statements for non-major funds are presented within the Combining and Individual Fund
Statements and Schedules.
Governmental fund level financial statements are reported using current financial resources
measurement focus and the modified accrual basis of accounting. Revenues are recognized as
soon as they are both measurable and available. Revenues are considered available when they
are collectible within the current period or soon enough thereafter to pay liabilities of the current
period. Measurable and available revenues include revenues expected to be received within 60
days after the fiscal year ends. Receivables which are measurable but not collectible within 60
days after the end of the fiscal year are reported as deferred revenue. Property taxes levied prior
to September 30, 2008 that were due October 1,2008, have been assessed to finance the budget
of the fiscal year ending September 30, 2009. In accordance with the modified accrual basis of
accounting, the balances outstanding at September 30, 2009, and beyond the 60 days after year
end have been reflected as deferred revenue and taxes receivable in the fund financial statements.
Property taxes and interest earned as of September 30 and received within 60 days of year end
are accrued as income in the current period. Expenditures generally are recorded when a liability
is incurred; however, debt service expenditures, claims and judgments, and compensated
absences are recorded only when payment is made.
Fiduciary fund level financial statements include fiduciary funds which are classified into
private purpose trust and agency funds. The County has only agency funds which are used to
account for assets held by the County as an agent for individuals, private organizations, other
governments and other funds. Agency funds do not involve a fonnal trust agreement. Agency
funds are custodial in nature (assets equal liabilities) and do not involve measurement of results
of operations.
The County reports the following major governmental funds:
The General Fund is the general operating fund of the County and is always classified as a
major fund. The General Fund is used to account for all financial resources except those
required to be accounted for in another fund. Major revenue sources include property taxes,
charges for services, and intergovernmental revenues. Primary expenditures are for general and
financial administration, public safety, judicial operations, health and welfare, and capital
acquisition.
The Road and Bridge Special Revenue Fund is used to account for rehabilitation, repair and
maintenance of the County's roadways and bridges. The Road and Bridge Fund is financed by a
designated part of the annual property tax levy, as well as certain statutory fees. Although this
fund does not meet the minimum criteria for mandatory major fund reporting for the current year,
the County has elected to report it as a major fund to enhance consistency with other years.
45
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
The FEMA Disaster Grants Fund is used to account for grants from the Federal Emergency
Management Agency. The purpose of these grants is to assist the County in recovering from
federally declared disasters.
The Capital Projects-Road Bonds, Series 200gB Fund is used to account for the final phase of
variable rate road construction bonds approved in 2005 by the voters of the County. The bonds
were remarketed in 2009 to set a fixed rate of 3%. The $34,705,000 in proceeds will be used to
satisfy the County's obligation under a "pass-through toll" agreement with the State of Texas to
improve six specific state-owned roads in the County.
The Capital Projects-Revenue/Tax Bonds, Series 2009 Fund is used to account for fixed rate
road construction bonds approved in 2009 by the voters of the County. The $56,190,000 in
proceeds will be used to satisfy the County's obligation under a "pass-through toll" agreement
with the State of Texas to improve four specific state-owned roads in the County as well as direct
connectors to two additional roads of the state highway system.
The County reports the following nonmajor governmental funds:
Special Revenue Funds are used to account for specific revenue sources (other than capital
projects) that are restricted to expenditures for specified purposes. These restrictions exist both
externally (by agreement with other entities or by statute) and internally (by policy of
Commissioners' Court).
Debt Service Funds are used to account for the receipt and disbursement of funds to retire debt
resulting from the issuance of general obligation bonds, certificates of obligation and lease
revenue bonds. Financing is provided by a specific annual property tax levy, the investment
interest earned thereon and lease payments to the Jail Financing Corporation for the lease
purchase of the Joe Corley Detention Facility.
Capital Project Funds are used to account for financial resources to be used for the acquisition
or construction of major capital assets and infrastructure. Existing projects include construction
of an administration building, parking garage, road construction, airport improvements, and
various remodeling plans.
The County reports the followingfiduciary funds:
Agency Funds are used to account for assets held by the County as custodian for individuals and
other governmental units, such as officials' fee accounts, inmate funds, cash bail bonds, and
other similar arrangements.
D) ASSETS, LIABILITIES, AND FUND EQUITY:
1. Cash and Investment
Cash and cash equivalents include amounts in demand deposits as well as bank ce11ificates
with a maturity date within three months of the date acquired by the County.
The County is authorized by the Public Funds Investment Act of 1987 to invest idle funds in
a) obligations of the United States and its agencies or instrumentalities, b) obligations of the
State of Texas, c) obligations of states, agencies, political subdivisions, and municipalities
having a rating of not less than A, and d) fully collateralized direct repurchase agreements.
The County reports its investments as required by GASB Statement No. 31 Accounting and
Financial Reportingfor Certain Investments andfor External Investment Pools. Investments
46
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
with a maturity of less than a year at acquisition are reported at amortized cost. Investments
in open-end mutual funds are reported at fair value, as determined by the funds' current share
prices. This value also approximates cost. Additionally, the County's investments in the
state's public funds investment pool are reported at fair value based on the value per share of
the pool's underlying portfolio. Historically, the value per share in this public fund
investment pool has approximated cost; therefore, the County's investments in this pool are
reported at amortized cost.
2. Receivables
Property taxes are recognized as revenues in the period for which they are levied, regardless
of the lien date. Property taxes for the County are levied based on taxable value on the lien
date of January 1 prior to September 30 of the same year. They become due October 1 of
that same year and delinquent after January 31 of the following year. Accordingly,
receivables and revenues for prior-year levies delinquent at year end are reflected on the
government-wide statement based on the full accrual method of accounting and under the
modified accrual method in the fund statements.
Accounts receivable from other governments include amounts due from grantors in regards
to approved grants for specific programs and reimbursements for services performed by the
County. Program grants are recorded as receivables and revenues at the time all eligibility
requirements have been met and reimbursable costs are incurred.
Reimbursements for services performed are recorded as receivables and revenues when they
become eligible for accrual in the government-wide statements. Included are fines and costs
assessed by court action and billable services for certain contracts.
Receivables are shown net of an allowance for uncollectibles.
3. Inter-fund Transactions
Outstanding balances of lending and borrowing type activities between funds are classified
as "due from other funds" and "due to other funds," respectively, on the fund financial
statements. Inter-fund activity has been eliminated for the government-wide statements.
4. Inventories and Prepaid Items
Inventory is valued at cost using the first-in, first-out (FIFO) method. Inventory in the Road
and Bridge Fund consists of expendable paving materials held for consumption in
accordance with several contracts. The cost is recorded as an expenditure at the time
individual inventory items are consumed.
Certain payments to vendors reflect costs applicable to future accounting periods and
recorded as prepaid items in both government-wide and fund financial statements.
In the fund financial statements, reported inventories and prepaid items are offset by a
reservation of fund balance, which indicates they do not represent "available spendable
resources" even though they are a component of current assets.
5. Capital Assets
Capital assets, which include land, buildings, improvements, equipment, infrastructure, and
construction in progress, are reported in the government-wide financial statements. By
policy of the Commissioners' Court, acquisitions are capitalized when they cost at least
$1,000 and have a useful life in excess of five years. Buildings and building improvements
require a cost of at least $5,000 and a useful life in excess of 5 years. The policy applied to
47
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
infrastructure acquisitions requires a cost of at least $10,000 and a useful life in excess of
five years. Infrastructure assets include county-owned roads, drainage improvements,
bridges, signals, and runways. Capital assets are recorded at historical cost if purchased or
constructed. Donated capital assets are recorded at estimated fair market value on the date of
donation.
The costs of normal maintenance and repair that do not add to the value of the asset or
materially extend the asset's life are expensed rather than capitalized.
Capital assets, including infrastructure, are depreciated using the straight-line method over
the following estimated useful lives (in years):
Assets
Buildings
Improvements
Equipment
Infrastructure
Years
5-50
5-30
5-15
5-50
6. Payables
Amounts due to suppliers for trade purchases and amounts due to employees for salaries and
benefits are presented on both the government-wide statements and the fund statements as
accounts payable. Amounts due to various contractors for funds previously deducted from
construction draws are presented as retainage payable. Both categories represent current
liabilities.
7. Deferred Revenue
The County records deferred revenue for uncollected taxes, received but unearned grant
revenues and other miscellaneous fee revenues in the fund financial statements. In the
government-wide statements, tax revenues are not deferred, but are recognized in the year of
levy.
8. Long-term Obligations
In the government-wide financial statements, long-term debt and other long-tenn obligations
are reported as liabilities in the applicable governmental activities. Bond premiums and
discounts, as well as issuance costs, are deferred and amortized over the life of the bonds
using the straight-line method. Bonds payable are reported net of the applicable bond
premium or discount. Bond issuance costs are reported as deferred charges and amortized
over the term of the related debt.
In the fund financial statements, governmental fund types recognize bond premiums and
discounts, as well as bond issuance costs, during the current period. The face amount of debt
issued is reported as other financing sources. Premiums received on debt issuances are
reported as other financing sources while discounts on issuances are reported as other
financing uses. Issuance costs, whether or not withheld from the actual debt proceeds
received, are reported as debt service expenditures.
9. Compensated Absences
A liability for unused vacation and compensatory time for all full-time regular employees is
calculated and reported in the government-wide financial statements. For financial reporting
purposes, the following criteria have been applied in considering the accrual of the liability
associated with compensated absences: a) leave or compensation is attributable to services
48
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
already rendered, and b) leave or compensation is not contingent on a specific event (such as
illness).
GASB Interpretation No.6 indicates that liabilities for compensated absences should only be
recognized in the fund statements to the extent the liabilities have matured and are payable
out of current available resources. Compensated absences are accrued in the government-
wide statements.
Each full-time regular employee earns ten days of excused leave per year, and from ten to
twenty-five days of vacation time may be earned per year. A maximum of sixty days for
excused leave may be accrued, and for those employees hired prior to September 1987, the
number of days of excused leave accrued at September 30, 1987, may be paid only upon
retirement. A maximum of twenty-five days of vacation may be accrued, and is paid upon
retirement, resignation, or discharge from the County. Compensatory time is earned in
accordance with the provisions ofthe Fair Labor Standards Act, as it applies to government
employees.
10. Arbitrage Rebate
The Tax Reform Act of 1986 established regulations for the rebate to the federal government
of arbitrage earnings on local government bonds. Issuing governments must calculate any
rebate due and remit the amount due at least every five years. There were no arbitrage rebate
payments made during fiscal year 2009.
11. Net Assets/Fund Balance (reserved, restricted)
For the government-wide financial statements, restricted net assets represent externally
imposed restrictions by creditors, grantors, contributors or laws or regulations of other
governments. They may also represent restrictions imposed by law through constitutional
provisions or enabling legislation.
For the fund financial statements, reserved fund balances represent those portions of fund
equity not available for appropriation or that are legally segregated for a specific future use.
Fund reservations include debt service, capital projects, prepaid items, and inventories.
Generally, resources that are reserved in the fund financial statements are broader in scope
than resources that are restricted However, in some instances, there may be some resources
that would be considered restricted in the government-wide financial statements, but not
considered reserved in the fund financial statements.
12. Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2- RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS:
The governmental fund statement of revenues, expenditures, and changes in fund balances includes a
reconciliation between net changes in fund balances - total governmental funds and changes in
net assets of governmental activities as reported in the government-wide statement of activities.
Several of the elements of that reconciliation are more fully explained below.
49
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
"Governmental funds report capital outlays as expenditures. However, in the statement ofactivities
the cost of those assets is allocated over their estimated useful lives and reported as depreciation
expense." The details of this difference are as follows:
Capital outlay
Depreciation expense
Net adjustment to decrease net changes in fund balances-
total governmental funds to arrive at changes in net assets
of governmental activities
$ 43,500,962
(47,784,063)
$ (4,283,101)
"The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins,
seizures, and donations) is to increase net assets." The details of this difference are as follows:
In the statement of activities, only the gain on the sale of capital assets is
reported. However, in the governmental funds, the proceeds from the sale
increase financial resources. Thus, the change in net assets differs from the
change in fund balance by the cost of the capital assets sold.
The acquisition of capital assets by seizure and by donations increase net assets
in the statement of activities, but do not appear in the governmental funds
because they are not financial resources.
$ 163,446
51,250,703
Net adjustment to increase net changes in fund balances-total governmental
funds to arrive at changes in net assets of governmental activities $ 51,414,149
5,062,915
249,174
1,495,000
2,777,879
$ (56,190,000)
(3,513,538)
(1,133,148)
1,265,499
"The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to
governmental funds, while the repayment of the principal of long-term debt consumes the current
financial resources of governmental funds. Neither transaction, however, has any effect on net
assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and
similar items when debt is first issued, whereas these amounts are deferred and amortized in the
statement ofactivities." The details of this difference are as follows:
Debt issued or incurred:
Issuance of general obligation bonds
Premium on bonds issues, net
Capital lease financing
Issuance Costs for new debt
Principal repayments:
General obligation debt
Accreted Interest
Certificates of obligation debt
Capital leases
Net adjustment to increase net changes in fund balances-total governmental
funds to arrive at changes in net assets of governmental activities
50
$ (49,986,219)
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
"Some expenses reported in the statement of activities do not require the use of current financial
resources and, therefore, are not reported as expenditures in governmental funds." The details of
this difference are as follows:
Compensated absences
Accrued interest
Amortization of gain on refunding bonds
Amortization of accrued interest on refunding bonds
Amortization of issuance costs
Amortization of bond discounts
Amortization of bond premiums
Reduction of receivable for reimbursement of county expenditures
Other Post Employment Benefits
Net adjustment to decrease net changes in fund balances-
total governmental funds to arrive at changes in net assets
of governmental activities
$
$
(1,042,906)
167,662
191,595
(670,753)
(493,827)
(22,249)
549,123
(84,612)
(7,968,357)
(9,374,324)
NOTE 3- STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY:
A) BUDGETS AND BUDGETARY ACCOUNTING:
The budget law of the State of Texas provides that "the amounts budgeted for the current
expenditures from the various funds of the County shall not exceed the balances in said funds
plus the anticipated revenues for the current year for which the budget is made as estimated by
the County Auditor." In addition, the law states that the Commissioners' Court "may, upon
proper application, transfer an existing budget surplus during the year to a budget of like kind
and fund, but no such transfer shall increase the total of the budget."
The budget is prepared by the County Auditor and adopted by the Commissioners' Court
following departmental budget reviews and a public hearing. A copy of the budget must be filed
with the Clerk of the County Court and made available to the public. The Commissioners' Court
must provide for a public hearing on the budget on some date within ten calendar days after the
filing of the budget and prior to its adoption.
The budget is legally adopted by an order of the Commissioners' Court on a basis consistent with
generally accepted accounting principles. The legal level of control (as set forth by statute) is
total resources as appropriated to each fund. Any expenditure that alters the total budgeted
amounts of a fund must be approved by Commissioners' Court, and the budget amended. The
annual budget is monitored and reported in the financial statements at the function level, as
management believes that this provides for a more thorough disclosure of the County's
operations. In addition, management files notice of all line item transfers for public record.
For fiscal year 2009, formal budgets were adopted for the General Fund, the Special Revenue
Funds, and the Debt Service Fund. Formal budgetary integration is not employed for Capital
Project Funds, and legal budgets are not adopted, because budgetary control is achieved through
legally binding construction contracts. All appropriations lapse at fiscal year end with the
exception of grant awards and certain ongoing projects.
The Commissioners' Court may approve expenditures as an amendment to the budget to meet an
unusual and unforeseen condition that could not have been included in the original budget
through the use of reasonably diligent thought and attention. Such expenditures would include
51
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
the re-appropriation of approved but unexpended amounts for encumbrances, grants, and certain
projects from the previous fiscal year. In fiscal 2009, budget amendments totaling $17,594,705
were approved that met these criteria.
The Commissioners' Court may also adopt a supplemental budget for the limited purpose of
spending proceeds that become available for disbursement in a fiscal year, but are not included in
the budget for that budget year. Included in this category are public or private grants or aid
money, revenue from intergovernmental contracts, and proceeds from the issuance of debt. In
fiscal 2009, supplemental appropriations were approved in the amounts of $28,578,077,
$5,384,483, and $1,133,148 for grants received, intergovernmental contracts executed, and
capital leases approved, respectively.
NOTE 4- DEPOSITS AND INVESTMENTS:
A) DEPOSITS:
Custodial Credit Risk - deposits. In the case of deposits, this is the risk that in the event of a
bank failure, the government's deposits may not be returned to it. The County does not have a
policy for custodial credit risk. As of September 30,2009, the County's bank balance (collected
funds) was $41,779,355. At that same date, none of the County's bank balance was exposed to
custodial credit risk since the County's deposits were insured and collateralized by securities
pledged by the depository and held by third party agents of the County in the County's name.
B) INVESTMENTS:
As of September 30, 2009, the County had the following investments:
Investment Type
State's Investment Pool (TEXPOOL)
Lone Star Investment Pool
Money Market Mutual Fund (lCT)
Money Market Mutual Fund (BPIF')
Money Market Mutual Fund (AIM)
Total Investments
Fair
Value
$ 11,354,253
15,841,130
72,252,505
7,969,318
39,434,440
$146,851,646
Weighted Average
Maturity (in years)
0.18
0.12
0.14
0.13
0.12
The County invested idle funds in a) the Government Portfolio of Investors' Cash Trust, b) the
Trust for Federal Securities (T-Fund - October 1, 2008 through February 8, 2009 and FedFund-
February 9, 2009 through September 30, 2009) with BlackRock Provident Institutional Funds,
and c) the Short-Term Investments Trust (STIT) Government and Agency Portfolio with AIM
Funds. These mutual funds share several characteristics that have a positive effect on the safety
of the County's funds, including:
SEC registration and regulation,
AAAm rating by Standard and Poor's,
Limitations on investments to direct obligations of the US Treasury, US
agencies, and its instrumentalities, and repurchase agreements
collateralized by same,
An average weighted maturity that is less than 90 days (0.25 years), and
A portfolio valuation of net assets that is maintained at $1 per share.
In September 2008, the U.S. Treasury Department announced the establishment of a temporary
guaranty program for the U.S. money market designed to enhance market confidence by
maintaining the standard $1 net asset value. Participation in the program provides additional
assurance to stakeholders of money market funds about the safety of their fund investments.
52
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
Through September 19, 2009, the U.S. Treasury insured the holdings of any publicly offered
eligible money market mutual fund. All mutual funds that the County has invested funds with
participated in the temporary guaranty program through the date of its expiration.
Additionally, funds were invested in the Texas Local Government Investment Pool (TexPool)
and Lone Star Investment Pool. These external investment pools were created in conformity
with certain acts in the Government Code of the Texas Civil Statutes. The financial operations
of the pools are managed by third-party investment services and oversight is provided by the
Comptroller of Public Accounts of the State of Texas, along with a statewide advisory board.
Although these pools are not SEC-registered, they adhere to the same standards as money market
mutual funds for limitations on its investments, the length of its average weighted maturity, and
the valuation of its net assets.
Custodial credit risk - investments. For an investment, this is the risk that, in the event of the
failure of the counterparty, the government will not be able to recover the value of its
investments or collateral securities that are in possession of an outside party. While the County
does not have an investment policy for custodial credit risk, there is no need for such policy
because of the nature of the County's investments. A third party institution is required to hold
the insured, registered securities underlying the county's investments in a safekeeping account in
the County's name.
Interest rate risk. In accordance with its written investment policy, the county manages its
exposures to declines in fair value by limiting the maturity of its investments to less than one
year at the time of purchase.
Credit risk. While state statutes allow for additional investments, the County's fonnal
investment policy authorizes the County to only invest in the following:
Obligations of the U.S. Treasury and Governmental Agencies,
Time deposits,
Negotiable Order of Withdrawal (NOW) Accounts,
Investment Pools rated AAA or AAAm by at least 1 nationally recognized rating service,
Certificates of Deposit, and
Money Market mutual funds.
As stated above, Standard and Poor's has rated the state's investment pool and the three mutual
fundsAAAm.
Concentration of credit risk. The County's investment policy does not have any provisions
regarding the amount that may be invested in anyone issuer. However, the Investment
Committee regularly reviews that saturation for anything in excess of 25%. At September 30,
2009, none of the County's total direct invested amounts were in Federal National Mortgage
Association, Federal Farm Credit Bank, or Federal Home Loan Bank.
NOTE 5- PROPERTY TAXES:
The County Tax Assessor-Collector bills and collects property taxes. Revenues are recognized in the
Governmental Funds when levied to the extent that they result in current receivables. Property taxes
are levied (assessed) and payable on October 1. They attach as an enforceable lien on property as of
January 1 of the following year and become delinquent on February 1.
The County is permitted by the Texas State Constitution (Article VIII, Section 9) and statutes to levy
taxes of up to $0.80 per $100 of assessed valuation for general governmental services and the
payment of long-tenn debt. The combined current tax rate for the year end was $0.4838 per $100,
which means that the County has a tax margin of $0.3162 per $100, and could raise up to
53
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
$95,918,723 in additional taxes from the present assessed valuation of $30,334,826,908 before the
limit is reached.
The thirty years' property taxes receivable at September 30, 2009, as reported by the Tax Assessor-
Collector are presented as follows:
General Fund
Road & Bridge Fund
Nonmajor Special Revenue Funds
Total Receivable
Taxes
Receivable
$4,357,319
604,658
958,777
$5,920,754
Less: Allowance
for Uncollectibles
$ 87,146
12,093
19,175
$118,414
Net Taxes
Receivable
$4,270,173
592,565
939,602
$5,802,340
NOTE 6- DUE FROM OTHER GOVERNMENTS:
Amounts due from other governments arise from funding received from federal and state grants, as
well as interlocal agreements with local governments. At September 30, 2009, the following
amounts were recorded as due to the County:
Federal State Local Total
General Fund $7,258,340 $ 822,240 $ 963,151 $9,043,731
Special Revenue Funds 8,396,621 409,539 109,425 8,915,585
Capital Project Funds 8,500,434 8,500,434
Total Due from Governments $15,654,961 $9,732,213 $1,072,576 $26,459,750
NOTE 7- CAPITAL ASSETS:
A) CHANGES IN CAPITAL ASSETS FOR YEAR ENDED SEPTEMBER 30,2009:
Governmental Activities Beginning Additions Deletions Ending
Balance
(1) (1)
Balance
Land $ 11,891,395 $ 2,164,121 $ (297,147) $ 13,758,369
Construction in Progress 23,741,057 23,699,168 (44,177,981) 3,262,244
Total Capital Assets
not being depreciated 35,632,452 25,863,289 (44,475,128) 17,020,613
Buildings 154,560,008 31,652,226 (42,836) 186,169,398
Improvements 14,730,266 6,915,507 (10,950) 21,634,823
Equipment 69,119,596 8,996,106 (4,261,221) 73,854,481
Infrastructure 965,012,336 68,585,997 (633,754) 1,032,964,579
Total Capital Assets
being depreciated 1,203,422,206 116,149,836 (4,948,761) 1,314,623,281
Less accumulated
depreciation for:
Buildings (32,591,187) (5,473,708) 37,531 (38,027,364)
Improvements (5,791,196) (1,371,488) (108,928) (7,271,612)
Equipment (38,203,788) (8,700,207) 2,173,399 (44,730,596)
Infrastructure (572,064,888) (32,238,660) 223,876 (604,079,672)
Total Capital Assets, net of
Accumulated depreciation $590,403,599 $94,229,062 $(47,098,011) $637,534,650
(1) Amounts representing transfers between categories are included in the columns for both additions and deletions.
54
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
B) DEPRECIATION EXPENSE:
Depreciation expense on capital assets is recorded in the Government-wide financial statements',
but not in the Fund financial statements. For the year ended September 30, 2009, the County
charged depreciation expense to functions/programs as follows:
Governmental activities:
General Administration
Judicial
Legal Services
Elections
Financial Administration
Public Facilities
Public Safety
Health and Welfare
Culture and Recreation
Conservation
Public Transportation
Total depreciation expense-governmental activities
$ 2,222,703
206,682
115,442
398,745
30,072
4,270,504
5,463,399
292,622
1,582,735
26,698
33,174,461
$47,784,063
C) CONSTRUCTION COMMITMENTS:
The County has entered into contracts for the construction, renovation, and improvement of real
property. The following projects were in progress at September 30, 2009:
Project
Various Road Projects
Airport Improvement
Park Improvements
Building Remodelings
Ed Chance Annex
Alan B. Sadler
Administration Building
Parking Garage
Status
Under construction
Under construction
Under construction
Underway
Under construction
Substantially complete
Substantially complete
Total
Commitment
$235,580,628
25,903,830
13,510,000
12,417,416
3,200,000
12,373,947
9,500,000
$312,485,821
Paid to Date
$181,398,753
19,434,614
11,522,701
10,265,770
1,805,608
11,854,776
9,242,594
$245,524,816
NOTE 8- DISAGGREGATION OF PAYABLE BALANCES:
A) DUE TO OTHER GOVERNMENTS:
The County records certain amounts due to other governments as a result of operating contracts
and overpayment of certain grant funds. At September 30, 2009, the following amounts were
due to other governments:
General
Fund Local
$2,013,671
Total
$ 2,013,671
B) DEFERRED REVENUES:
The County reports deferred revenues in the governmental funds that consist of two categories:
a) receivables for revenues that are not considered to be available to liquidate liabilities of the
current period, and b) resources that have been received, but not yet earned.
55
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
At the end of September 2009, deferred revenues were presented as follows:
Fund Property Unearned Total Deferred
Taxes Fees Revenues
General $ 4,073,380 $ 3,386,106 $ 7,459,486
Road & Bridge 599,364 599,364
FEMA 17,169 17,169
Other Nonmajor 878,376 361,964 1,240,340
Total $ 5,551,120 $ 3,765,239 $ 9,316,359
NOTE 9- LONG-TERM DEBT:
General long-term debt consists of general obligation bonds, lease-revenue bonds, certificates of
obligation, the County's accrued liability for compensated absences and compensatory time, capital
leases, and arbitrage due the federal government. Principal and interest payments on the County's
bonded debt, in general, are secured by ad valorem property taxes levied on all taxable property
within the County. The lease-revenue bonds are secured by a pledge of future revenues to be earned
under an agreement between the County and the Montgomery County Jail Financing Corporation.
Payments are recorded in the appropriate Debt Service Funds.
A) BONDED DEBT:
A summary of the long-term bonded debt, at September 30, 2009 is presented:
Interest Issue Maturity Bonds
Rate (%) Date Date Outstanding
GENERAL OBLIGATION BONDS:
Permanent Improvement, Series 2000 4.50-5.25 2000 2020 $ 300,000
Road Bonds, Series 2002A 4.00-4.50 2002 2022 6,330,000
Refunding Bonds, Series 2002B 3.00-4.50 2002 2011 995,000
Road Bonds, Series 2003A 5.00 2003 .2026 12,595,000
Library Bonds, Series 2003B 2.00-4.75 2003 2026 8,880,000
Refunding Bonds, Series 2005 4.00-5.00 2005 2020 43,225,000
Road Bonds Fixed Rate, Series 2006A 3.75-5.00 2006 2027 47,250,000
Road Bonds Adj. Rate, Series 2006B 5.00 2006 2030 63,750,000
Refunding Bonds, Series 2007 4.00-5.50 2007 2026 41,495,000
Lease Revenue Bonds, Series 2007 4.00-5.00 2007 2026 43,758,601
Road Bonds Fixed Rate, Series 2008A 3.50-5.00 2008 2030 12,030,000
Refunding Bonds, Series 2008 3.50-5.00 2008 2018 9,855,000
Road Bonds Adj. Rate, Series 2008B 3.00-6.00 2008 2032 34,705,000
Pass Through Toll Revenue and 3.00-5.00 2009 2032 56,190,000
Limited Tax Bonds, Series 2009
TOTAL GENERAL OBLIGATION BONDS PAYABLE $381,358,601
CERTIFICATESOF OBLIGATION:
Series 2001 4.65 2001 2011 $ 600,000
Series 2003 2.00-4.75 2003 2022 10,295,000
Series 2004 3.00-4.60 2004 2020 2,045,000
Series 2006 3.75-5.00 2006 2027 25,745,000
Series 2007 4.00-4.63 2008 2027 9,210,000
Series 2008 3.50-5.25 2008 2027 23,790,000
TOTAL CERTIFICATES OF OBLIGATION $ 71,685,000
TOTAL BONDED DEBT
$453,043,601
56
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
All of the County's outstanding bonded debt is assigned a fixed rate of interest, with the
exception of portions of the Series 2006B Road Bonds. The Series 2006B bonds were issued
with a variable rate of interest, initially set at 5.0%. The term rate set by the remarketing agent
(Goldman, Sachs and Co.) for the Series 2006B Road Bonds was set at 5.0% on September 2,
2008 and will be set again in September 2010.
B) CHANGES IN LONG-TERM DEBT:
The following schedule illustrates changes in long-term debt for the year ended September 30,
2009. Reductions to general obligation bonds include an annual accretion reduction of capital
appreciation bonds in the amount of $249,174. For each category, management has presented the
portion that will be due within one year.
Due
Beginning Ending Within
Governmental Activities: Balance Additions Reductions Balance One Year
Bonds payable:
General Obligation $330,480,690 $56,190,000 $(5,312,089) $381,358,601 $6,361,900
Certificates of obligation 73,180,000 (1,495,000) 71,685,000 1,555,000
Less deferred amounts:
Issuance discounts (378,521) 22,249 (356,272) (22,275)
Unamortized premiums 9,443,179 3,513,538 (549,123) 12,407,594 764,752
Total bonds payable 412,725,348 59,703,538 (7,333,963) 465,094,923 8,659,377
Capital leases 19,053,887 1,133,148 (2,777,879) 17,409,154 2,594,897
Arbitrage Rebate 355,349 (355,349)
OPEB Obligation 7,968,357 7,968,357
Compensated absences 7,262,318 5,426,300 (4,383,394) 8,305,224 4,729,574
Total Long-term Liabilities $439,396,902 $74,231,343 $(14,850,585) $498,777,660 $15,983,848
At year end, $1,186,373 of special revenue funds compensated absences are included in the
above amounts. The remaining balance ($7,118,851) will be liquidated by the general fund.
This follows the prior year allocation of liability between operating funds.
C) ANNUAL DEBT SERVICE REQUIREMENTS TO MATURITY:
The following table lists the amounts required to amortize bonded debt, by debt type.
Revenue Bonds
Maturity
2010
2011
2012
2013
2014
2015-2019
2020-2024
2025-2029
2030-2032
Total
General Obligation Bonds
Principal Interest
$ 4,860,000 $ 16,365,754
6,345,000 15,893,958
9,485,000 15,543,136
11,050,000 15,118,954
11,535,000 14,637,146
66,720,000 64,330,273
69,185,000 47,641,843
95,080,000 28,928,538
63,340,000 4,629,387
$337,600,000 $223,088,989
Principal
$ 1,501,900
1,569,862
1,640,899
1,715,150
1,792,762
10,256,620
12,796,950
12,484,458
$ 43,758,601
Interest
$ 1,941,581
1,873,619
1,802,582
1,728,330
1,650,718
6,960,782
4,420,451
1,289,463
$ 21,667,526
Certificates of Obligation
Principal Interest
$ 1,555,000 $ 3,280,674
3,390,000 3,184,330
3,195,000 3,051,035
3,330,000 2,917,936
3,465,000 2,781,792
19,635,000 11,437,438
22,475,000 6,296,942
14,640,000 1,054,328
$ 71,685,000 $ 34,004,475
D) PRIOR YEAR DEFEASANCE OF DEBT:
In prior years, the County defeased multiple debt issues by creating separate irrevocable trust
funds. New debt was issued and the proceeds were used to purchase U.S. government securities
that were placed in the trust funds. The investments and fixed earnings from the investments are
sufficient to fully service the defeased debt until it is called or matures. For financial reporting
purposes, the debt has been considered defeased and therefore removed from the govemment-
wide financial statements.
57
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
E) As of September 30,2009, defeased but outstanding debt from prior year refunding transactions
consisted of the following:
Series
Library and Refunding Bonds, Series 1992
Certificates of Obligation, 1996
Certificates of Obligation, 1997
Refunding Bonds, 1997
Certificates of Obligation, 1997A
Certificates of Obligation, 1998
Permanent Improvement Bonds, Series 2000
Road Bonds, Series 2002A
Road Bonds, Series 2003A
Road Bonds, Series 2004
Total Defeased but Outstanding
Amount
$ 1,600,000
1,310,000
2,040,000
3,822,847
6,315,000
13,990,000
12,300,000
17,245,000
11,405,000
10,205,000
$ 80,232,847
F) FUTURE BORROWING:
Montgomery County entered into a contract with the Texas Department of State Health Services
to construct a mental health treatment facility. In late spring 2010, the County will issue
approximately $31.2 million in combination limited tax and revenue bonds to fund construction
and equipping of the facility. At this time, the County expects that funds to retire this debt will
come from a special appropriation approved by the State.
Additionally, Montgomery County intends, in early summer 2010, to issue approximately $31
million in pass-thru toll revenue and limited tax bonds to fund the completion of projects
included in the previously mentioned pass-thru agreement with the State of Texas. The County
is hopeful that the pass-thru toll revenue stream to be received from the State will be sufficient to
service the debt on these bonds.
It is also the anticipation of the County to request financing in the amount of $3 million to
construct a community building in Montgomery Texas. The structure will house several social
service agencies, providing required services to the western part of the county. The financing is
anticipated to be retired over the course of ten years with funding to be received from HUD in
the form of Community Development Block Grants.
G) CONDUIT DEBT OBLIGATIONS:
Montgomery County Industrial Development Corporation and Harris County Health Facilities
Development Corporation issued bonds to provide financial assistance to private and public
sector entities engaged in activities that are deemed to be in the public interest. These bonds are
obligations of the issuing entities payable solely from the proceeds of the underlying financing
agreements and, in the opinion of legal counsel, do not represent indebtedness or liability to the
issuing entity, to Montgomery County, Texas, to the State of Texas, or to any political
subdivision; therefore, they are not reported as liabilities in the County's financial statements.
Montgomery County Industrial Development Corporation- The corporation issues industrial
revenue bonds that promote and encourage employment and public welfare. As of September
30, 2009, there were fourteen series of bonds outstanding. The aggregate principal amount
payable for the bonds issued prior to December 15, 1995, could not be determined; however, the
original issues totaled $44,895,000. The bonds will be repaid from sources defined in
underlying financing agreements between the corporation and the entities for whose benefit the
bonds were issued.
58
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
Harris County Health Facilities Development Corporation- The corporation issues bonds if
there is a public benefit or purpose that is necessary or convenient for health care, research, or
education. Its activity is included in this disclosure because its bonds have been issued for the
benefit of organizations located in Montgomery County. As of September 30,2009, there were
fifty-two (52) series of bonds outstanding with an aggregate principal payable of
$4,419,535,000. The bonds will be repaid from sources defined in the various underlying
financing agreements between the corporation and the entities for whose benefit the bonds were
issued.
H) CAPITAL LEASES:
The County has entered into capital lease agreements for the lease/purchase of certain heavy
road equipment, vehicles, and a building. Equipment with a value of $1,133,148 was acquired
during the current fiscal year under capital leases and recorded in the Capital Assets portion of
the government-wide financial statements. Depreciation expense for these assets is included as
part of the depreciation expense detailed in Note 7. The lease agreements are classified as
capital leases because title passes to the County at the end of the lease term, and are included as
leases payable in the Long-Term Debt portion of the government-wide statements. The present
value of future minimum capital lease payments at September 30, 2009 and the funds from
which they will be paid are as shown below:
Year
Ending
2010
2011
2012
2013
2014
2015-2018
Total Minimum Lease Payments
Less: amount representing interest
Present value-minimum lease payments
General
Fund
$2,730,846
2,675,429
1,880,933
1,771,416
1,771,416
7,085,663
17,915,703
2,688,899
$15,226,804
Special Revenue
Funds
$ 474,347
376,343
751,729
665,374
95,543
2,363,336
180,984
$ 2,182,352
NOTE 10- INTER-FUND RECEIVABLES, PAYABLES, AND TRANSFERS:
A) DUE FROM/DUE TO OTHER FUNDS:
Activity between funds that represents the current portion of lending/borrowing and inter-fund
charges for goods and services arrangements outstanding at fiscal year end are referred to as
"due from/due to other funds." Inter-fund balances are expected to be repaid within one year
from the date of the financial statements, and are routine in nature.
The composition of inter-fund balances as of September 30,2009 was as follows:
General Fund
Road and Bridge Fund
FEMA Disaster Grant Fund
Non-major Governmental Funds
Total
59
Receivables
$ 6,926,788
2,415,393
21,460,343
$ 30,802,524
Payables
$ 20,634,201
1,480,845
7,354,866
1,332,612
$ 30,802,524
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
B) TRANSFERS:
Transfers are used to a) move revenues from the fund that the statute or budget requires to
collect them to the fund that the statute or budget requires to expend them, b) move receipts
from bond refundings and residual balances from capital project funds to the Debt Service Fund
to pay debt obligations, and c) use unrestricted revenues collected in the General Fund to
finance various programs accounted for in other funds in accordance with budgetary
authorizations. Inter-fund transfers for the year ended September 30,2009 were:
Transfers In Transfers Out
General Fund $ 4,261,744 $ 20,404,477
Road and Bridge Fund 374,335 2,216,426
Nonmajor Governmental Funds 20,176,667 2,191,843
Total $ 24,812,746 $ 24,812,746
Although inter-fund activity is reported in the fund financial statements, it has been eliminated in the
government-wide financial statements.
NOTE 11- OPERATING LEASES:
The County is a party to several lease agreements. Significant terms are discussed below:
Office Space- The County leases 2,777 square feet of office space at the Montgomery County Annex
Building to the Lone Star Groundwater Conservation District for a period of sixty months with two
six-month extensions. The lessee has opted to exercise both available extensions setting the term of
this lease to January 1, 2005 through December 31,2010. The annual rent of $7,414 is recorded in
the General Fund. The building is recorded as a Capital Asset in the County's government-wide
financial statements at a cost of $5,400,367, less accumulated depreciation of $657,324. Following
is a schedule of lease payments receivable on office space leases through the ending dates of the
agreements:
Year Ending
September 30,
2010
Total Lease Payments Receivable
$ 7,414
$ 7,414
The County also leases office space at the East Montgomery County Community Development
Building to Lakewood Family Practice and/or Dr. N. K. Karimjee, M.D. for a period of seventy-two
months. The term of this lease is July 23,2007 through July 1,2014. The monthly rent of $2,500 is
recorded in the Community Development Fund. The building is recorded as a Capital Asset in the
County's government-wide financial statements at a cost of $2,073,560, less accumulated
depreciation of $291,186. Following is a schedule of lease payments receivable on office space
leases through the ending dates of the agreements:
Year Ending
September 30,
2010
2011
2012
2013
2014
Total Lease Payments Receivable
60
$ 30,000
30,000
30,000
30,000
22,500
$142,500
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
NOTE 12- RISK MANAGEMENT:
A) EMPLOYEE HEALTH BENEFITS:
Effective January, 1989, the County established a partially self-funded trust plan which offers
medical, dental, vision, and life insurance coverage to employees and their dependents. The
County maintains excess loss insurance, which limits annual claims paid from the plan to a
maximum of $175,000 per plan participant. This excess loss reinsurance policy includes a
contract provision that eliminates a large claim run off liability. A third party administrator is
employed by the plan to administer claims. A trustee has been engaged to receive employer and
employee contributions and to disburse payments to the providers of the plan. Costs relating to
the plan are recorded as expenditures in the General Fund. Liabilities are reported when it is
probable that a loss has occurred and the amount of the loss can be reasonably estimated.
The plan is funded to discharge liabilities as they become due. Claims incurred and reported, but
not paid at September 30, 2009, were $131,239. Claims incurred but not reported (IBNR) at
September 30, 2009, are estimated to be $3,315,426. Estimates are not based on actuarial
calculations, but rather on historical trends. Both amounts have been recorded as expenditures in
the General Fund and a liability has been established.
Changes in the health claims liability for the two fiscal years ended September 30, 2009 and
September 30, 2008 are as follows:
Unpaid claims, beginning of year
Incurred claims (including IBNR)
Claim payments
Unpaid claims, end of year
2009
$ 3,630,989
15,033,617
(15,217,940)
$ 3,446,666
2008
$ 3,405,475
15,045,440
(14,819,926)
$ 3,630,989
During the year ended September 30, 2009, the plan received contributions in the amounts of
$15,677,507 and $1,833,410 from the employer and employees, respectively. The contributions
made by employees included contributions by qualified retirees and certain former employees
covered by the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1986
(COBRA). Through the American Recovery and Reinvestment Act of 2009, $13,798 was also
received from the federal government as plan contributions. In addition to the claim payments
made, the plan also expended $561,388 in administrative costs and $1,929,710 for reinsurance
and insurance premiums.
B) WORKERS' COMPENSATION AND EMPLOYER'S LIABILITY:
As of January 1, 2003, the County established a partially self-funded program to cover claims by
employees arising from job related injuries. The program offers coverage at the statutorily
required limits required by the State of Texas. A third party administrator has been engaged by
the County to adjudicate claims, provide nurse case management, per-certification and bill
review. Excess loss insurance was purchased to limit the claims loss to the County to no more
than $250,000 per individual claim in 2009.
Costs associated with this program are recorded as expenditures in the General Fund. Liabilities
are recorded when it is probable that a loss has occurred and when an amount can be reasonably
estimated. During the year ended September 30, 2009, the County expended $56,950 for
administrative costs and $215,278 for excess loss insurance premiums.
Changes in the workers' compensation liability for the two fiscal years ended September 30,
2009 and September 30, 2008 are detailed on the following page.
61
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
2009 2008
Unpaid claims, beginning of year
Incurred claims (including IBNR)
Claim payments
Unpaid claims, end of year
$1,138,992
212,916
(391,385)
$ 960,523
$1,101,146
665,613
(627,767)
$1,138,992
C) PROPERTY, CASUALTY AND BOILER COVERAGE:
The County purchased reinsurance coverage for certain property including vehicle, equipment
and contents coverage for the fiscal year. Deductibles are maintained at the following levels:
Buildings and Contents $100,000
Boats and Vehicles with less than 6 wheels $ 10,000
Vehicles above 6 wheels $ 25,000
Boilers and HVAC systems $ 1,500
Total insured values exceed $256,000,000 for the first three coverages listed above and an
additional $50,000,000 for boilers and HVAC systems.
The County paid $416,855 in premiums in fiscal 2009, and recorded the expenditure in the
General Fund. Settled claims have not exceeded commercial coverage in any of the past two
fiscal years.
D) GENERAL AND OTHER LIABILITY COVERAGES:
The County purchased reinsurance coverage for General Liability, Auto Liability, Public
Officials' Liability, Law Enforcement Liability, Marine Liability, Crime Coverage, Employee
Benefits Liability and Airport Operators' Liability. Deductibles are maintained at the $100,000
level per occurrence by the type of coverage with the exception of the Airport Operators'
Liability, which has no deductible. The Public Officials' Liability and Employee Benefits
Liability are written on a "claims-made basis". Coverage limits are set at $1,000,000 per claim
by type of coverage. The Airport Operators' Liability was increased to $10,000,000 effective
March 19, 2009 with the addition of the new tower.
Effective December 1, 2003, the County began participating in an individual public entity risk
pool, for the coverages listed in subsections B, C, and D above, to transfer certain risks
associated with property, casualty, liability and workers' compensation. In addition to those
coverages, the County purchased an additional aggregate reinsurance policy. The aggregate
coverage loss fund is written on a claims-made basis and is capped at $1,795,000 for the fiscal
year. Note 15 describes the County's obligation under liability claims for 2009.
NOTE 13- EMPLOYEE RETIREMENT PLAN:
A) PLAN DESCRIPTION:
The County provides retirement, disability, and death benefits for all of its full-time employees
through a nontraditional defined benefit pension plan in the statewide Texas County and District
Retirement System (TCDRS). The TCDRS Board of Trustees is responsible for the
administration of the statewide agent multiple-employer public employee retirement system
consisting of 586 nontraditional defined benefit pension plans. TCDRS in the aggregate issues a
comprehensive annual financial report (CAFR) on a calendar year basis. The CAFR is available
upon written request from the TCDRS Board of Trustees at P. O. Box 2034, Austin, TX, 78768.
The plan provisions are adopted by the governing body of the County, within the options
available in the Texas state statutes governing TCDRS (TCDRS Act). Members can retire at
ages 60 and above with 8 or more years of service, with 30 years regardless of age, or when the
62
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
sum of their age and years of service equals 75 or more. Members are vested after 8 years of
service, but must leave their accumulated contributions in the plan to receive any employer-
financed benefit. Members who withdraw their personal contributions in a lump sum are not
entitled to any amounts contributed by the County.
Benefit amounts are determined by the sum of the employee's deposits to the plan, with interest,
and employer-financed monetary credits. The level of these monetary credits is adopted by the
Commissioners' Court of the County within the actuarial constraints imposed by the TCDRS Act
so that the resulting benefits can be expected to be adequately financed by the employer's
commitment to contribute. At retirement, death, or disability, the benefit is calculated by
converting the sum of the employee's accumulated deposits and the employer-financed monetary
credits to a monthly annuity using annuity purchase rates prescribed by the TCDRS Act.
B) FUNDING POLICY:
Montgomery County has elected the annually determined contribution rate (Variable Rate) plan
provisions of the TCDRS Act. The plan is funded by monthly contributions from both employee
members and the employer based on the covered payroll of employee members. Under the
TCDRS Act, the contribution rate of the employer is actuarially determined annually. The
County contributed using the actuarially determined rate of 9.65% for the months of the
accounting year in 2008, and 9.69% for the months of the accounting year in 2009.
The deposit rate payable by the employee members for calendar year 2009 was 6.0% as adopted
by the Commissioners' COUli. The employee deposit rate and the employer contribution rate
may be changed by the Commissioners' Court within the options available in the TCDRS Act.
C) ANNUAL PENSION COST:
For Montgomery County's accounting year ended September 30, 2009, the pension cost for the
TCDRS plan was $8,227,056, and the actual contributions were $8,227,056.
The annual required contributions were actuarially determined as a percent of the covered payroll
of the participating employees, and were in compliance with GASB Statement No. 27 parameters
based on the actuarial valuations as of December 31, 2006, and December 31, 2007, the basis for
determining the contributions rates for calendar years 2007 and 2008. The December 31, 2008
actuarial valuation is the most recent valuation.
D) ACTUARIAL VALUATION INFORMATION:
Actuarial valuation date 12/31/2006
Actuarial cost method Entry age
Amortization method Level percentage of
payroll, closed
Amortization period
Asset valuation method
15
SAF(2): 10-year
smoothed value
ESF(3): Fund value
12/31/2007
Entry age
Level percentage of
payroll, closed
15
SAF(2): 10-year
smoothed value
ESF(3): Fund value
12/3112008
Entry age
Level percentage
of payroll, closed
20
SAF(2): 10-year
smoothed value
ESF(3): Fund value
Actuarial assumptions:
Investment return (1)
Projected salary increase (1)
Inflation
Cost-of-living adjustments
(1) Includes inflation at the stated rate.
(2) Subdivision Accumulation Fund.
(3) Employee Savings Fund.
8.00%
5.30%
3.50%
0.00%
63
8.00%
5.30%
3.50%
0.00%
8.00%
5.30%
3.50%
0.00%
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
E) TREND INFORMATION:
Accounting Year
Ended
9/30107
9/30/08
9/30109
Annual Pension
Cost (APC)
$ 6,956,597
7,582,703
8,227,056
Percentage of APC
Contributed
100%
100%
100%
$
Net Pension
Obligation
UAAL as a
Percentage of
Covered
Payroll
((b-a)/c) (c) (alb) (b-a) (a)
F) SCHEDULE OF FUNDING PROGRESS FOR THE RETIREMENT PLAN FOR EMPLOYEES
OF MONTGOMERY COUNTY: (Amounts expressed in thousands)
Actuarial Actuarial Actuarial Unfunded Funded Annual
Valuation Value of Accrued AAL Ratio Covered
Date Assets Liability (UAAL) Payroll(1)
(AAL)
(b)
12/31106
12/31/07
12/31/08
$142,688
157,544
158,924
$160,421
175,573
191,861
$17,733
18,030
32,936
88.95%
89.73%
82.83%
$68,433
72,914
79,617
25.91%
24.73%
41.37%
(1) The annual covered payroll is based on the employee contributions received by TCDRS for the year ended with the
valuation date.
NOTE 14- OTHER POST-EMPLOYMENT BENEFITS (OPEB):
A) PLAN DESCRIPTION:
Effective January 1, 2000, Commissioners' Court adopted a plan to pay for health benefit
coverage for qualified retirees. To qualify for inclusion in the coverage, an individual must
currently attain 15 continuous years of full-time employment with the County and be eligible for
a retirement annuity from the Texas County and District Retirement System. The employee can
elect to waive health benefit coverage. The County is under no obligation to provide this
benefit, and the decision to do so is made by the Commissioners' Court on a year-to-year basis.
Additionally, the County offers an employee-funded health benefit to those who do not meet the
above criteria. The County is obligated to provide this benefit subject to requirements of Chapter
175 of the Texas Local Government Code. Contribution levels are determined by
Commissioner's Court on a year-to-year basis. The benefit level is the same as that for a full
time regular employee, as further disclosed in Note l2-A.
B) FUNDING POLICY:
Montgomery County's optional post-retirement benefit liability is recorded on a full accrual basis
in the government-wide statements. An actuarial study was performed in fiscal year 2008 to
prepare for disclosure of this liability in accordance with GASB 45. The projected liability
accrual for fiscal year 2009 has been recorded net of premium contributions received from retired
employees as required in the plan. Management funds this benefit on a "pay-as-you-go" basis. A
new actuarial study is planned for 2010.
Montgomery County records the annual required contribution of the employer (ARC), an amount
actuarially determined in accordance with GASB Statement 45. The ARC represents a level of
funding that, if paid on an ongoing basis, is projected to cover normal cost each year and
amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30
years.
During the year, the County incurred $1,486,835 in health care claims for retirees and their
dependents. For the year ended September 30, 2009, twenty-eight employees retired from
service with the County. Eighteen of those retirees met the qualifications stated above.
64
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
Currently, there are 146 retirees covered by this benefit. The actual cost recorded by the County
is included in Note 12. Retiree contributions for 2009 were $150,919, and the County paid the
remaining amount of claims. The current ARC is 10.7 percent of annual covered payroll.
C) SCHEDULE OF ACTUARIAL LIABILITIES AND FUNDING PROGRESS:
Actuarial valuations involve the use of estimates and assumptions about length of employee
service, mortality rates, and future costs of health care. The valuation will be updated every two
years and actual results will be compared with past expectations. As a result of these
comparisons, new estimates and assumptions will be made about future results of the plan.
Valuations are made based on the benefits in place at the time of the valuation. Any changes in
the benefits offered or the contribution rates would impact future valuations.
For 2009, the County's net annual OPEB cost (expense) is $7,968,357. The Annual Required
Contribution provided by the actuarial study ($6,759,947) has been adjusted to more accurately
reflect the current year liability by adding the estimated 2009 liability increase. The computed
increase was arrived at using the percentage increase of claims paid over those projected in the
study and applying said percentage (39.87%) to the provided liability. The following table
shows the calculation of the Net OPEB obligation:
September 30,
2009
Annual OPEB Cost:
Annual required contribution (ARC)
Adjustment to ARC
Annual OPEB cost
Claims Paid
Net OPEB obligation
Net OPEB obligation, October 1, 2008
Net OPEB obligation, September 30, 2009
Percentage of annual OPEB cost contributed
Funding Progress:
Actuarial valuation date
Actuarial value of assets
Actuarial accrued liability (AAL)
Funded ratio
Unfunded AAL (UAAL)
Annual covered payroll
UAAL as a percentage of covered payroll
$ 6,759,947
2,695,245
9,455,192
(1,486,835)
7,968,357
$ 7,968,357
16%
October 1,2008
$
$86,252,694
-%
$86,252,694
$62,670,379
137.6%
NOTE 15- CONTINGENT LIABILITIES:
A) GENERAL LIABILITIES:
For fiscal year 2009, the County participated in a public entity risk pool, to which certain losses
arising from liability claims were transferred. The premium for this coverage, $331,382, was
recorded in the General Fund. In addition, the County expended $101,098 for damages in
connection with thirty-six claims, for which the deductible had not been satisfied.
B) GRANTS:
The County receives various grant moneys that are subject to audit and adjustment by the grantor
agencies. Any disallowed expenditure will become a liability of the County. The amount, if any,
65
MONTGOMERY COUNTY, TEXAS
Notes to the Financial Statements
September 30, 2009
of expenditures that may be disallowed by the grantor cannot be determined at this time,
although the County expects such amounts, if any, to be immaterial.
C)
llhe County is a defendant in a number of lawsuits with claims for damages in excess of
$5,000,000. llhese claims result primarily from assertions by former employees that they were
wrongfully discharged, allegations by jail inmates that their rights were violated while
incarcerated in the County jail, and claims by individuals arising from property damages. llhe
County paid $25,238 for legal counsel to defend existing claims. llhe County intends to
vigorously contest all the cases, and legal counsel is of the opinion that the County will prevail in
all cases which may have a material effect on the financial position of the County. For additional
information on the County's coverage amounts see 12-D.
NOTE 16- NEW ACCOUNTING PRONOUNCEMENTS:
llhe Ciovernmental J\ccounting Standards Board (GJ\SB) has recently issued several new statements.
J\ listing follows of those that apply to the County. llhese statements will be implemented in
subsequent years, as required by the GJ\SB.
GJ\SB Statement 51, Accounting and Financial Reporting for Intangible Assets, establishes
accounting and reporting standards for intangible assets. llhis statement will be effective for the
County for the fiscal year ending September 30, 2010. Beginning ()ctober 1, 2009, Montgomery
County has modified its capitalization policy. llhese revisions allow for more accurate accounting of
intangible assets as a new major capital asset class with a cost threshold of $1,000 and a five-year (or
greater) estimated useful life. llwo new categories for intangible assets (easements and trademarks)
and a new category for machinery and equipment (patents) were also created.
CiJ\SB Statement 53, Accounting and Financial Reporting for Derivative Instruments,
establishes accounting and reporting standards for derivative instruments. llhis statement will be
effective for the County for the fiscal year ending September 30, 2010.
CiJ\SB Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions,
enhances balance sheet in formation and clarifies existing governmental fund type definitions. llhis
statement will be effective for the County for the fiscal year ending September 30, 2011.
NOTE 17- SUBSEQUENT EVENTS:
Montgomery County has entered into a contract with the llexas Department of State Health Services
for the construction of a new mental health facility. J\ construction contract has been awarded and
negotiations are underway to establish an operating agreement with the State of llexas to ensure
required licensing is obtained. J\s previously stated, the County will fund the project through limited
tax and revenue bonds projected to be issued in late spring 2010.
In anticipation of improvements to the runway at the I-one Star Executive J\irport, Montgomery
County has purchased approximately 30 acres of land valued at $740,952. llwo tracts of additional
land were donated to the County, totaling 69.4 acres of land. It is expected that the improved runway
will assist in drawing additional business interests to Montgomery County's ever-growing airport.
66

C-1
HOU:3051425.3
APPENDIX C
FORM OF LEGAL OPINION

600 Travis, Suite 4200
Houston, Texas 77002
713.220.4200 Phone
713.220.4285 Fax
andrewskurth.com



Austi n Bei j i ng Dal l as Houston London New York The Woodlands Washi ngton, DC

HOU:3048047.2
September 21, 2010
WE HAVE ACTED as Bond Counsel for Montgomery County, Texas (the County), in
connection with an issue of certificates of obligation (the Certificates) described as follows:
MONTGOMERY COUNTY, TEXAS CERTIFICATES OF OBLIGATION,
SERIES 2010A (Mental Health Treatment Facility), dated September 1, 2010, in
the aggregate principal amount of $9,055,000, maturing on March 1 in each year
from 2012 through 2022, inclusive. The Certificates are issuable in fully
registered form only, in denominations of $5,000 or integral multiples thereof,
bear interest and may be transferred and exchanged as set out in the Certificates
and in the order (the Order) adopted by the Commissioners Court of the County
authorizing their issuance.
WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with
respect to the legality and validity of the Certificates under the Constitution and laws of the State
of Texas and with respect to the exclusion of interest on the Bonds from gross income under
federal income tax law. In such capacity we have examined the Constitution and laws of the
State of Texas and a transcript of certain certified proceedings pertaining to the issuance of the
Certificates, as described in the Order. The transcript contains certified copies of certain
proceedings of the County, certain certifications and representations and other material facts
within the knowledge and control of the County, upon which we rely, and certain other
customary documents and instruments authorizing and relating to the issuance of the Certificates.
We have also examined executed Certificate No. R-1 of this issue.
WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified,
any original proceedings, records, data or other material, but have relied upon the transcript of
certified proceedings. We have not assumed any responsibility with respect to the financial
condition or capabilities of the County or the disclosure thereof in connection with the sale of the
Certificates. Our role in connection with the Countys Official Statement prepared for use in
connection with the sale of the Certificates has been limited as described therein.
BASED ON SUCH EXAMINATION, it is our opinion as follows:
(1) The transcript of certified proceedings evidences complete legal
authority for the issuance of the Certificates in full compliance with the
Constitution and laws of the State of Texas presently in effect; the Certificates
constitute valid and legally binding obligations of the County enforceable in
accordance with the terms and conditions thereof, except to the extent that the
rights and remedies of the owners of the Certificates may be limited by laws
heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization,
September 21, 2010
Page 2


HOU:3048047.2
moratorium or other similar laws affecting the rights of creditors of political
subdivisions and the exercise of judicial discretion in appropriate cases; and the
Certificates have been authorized and delivered in accordance with law; and
(2) The Certificates are payable, both as to principal and interest, from,
and secured by, the proceeds of a continuing, direct annual ad valorem tax, levied
within the limits prescribed by law, against taxable property within the County,
which taxes have been pledged irrevocably to pay the principal of and interest on
the Certificates; and
(3) The Certificates are further secured by a pledge of a subordinate lien
on certain available net revenues derived from the operation of the Countys park
system.
THE REVENUES TO BE derived from the operation of the Countys park system after
the payment of all operation and maintenance expenses thereof (the Net Revenues) are pledged
to the payment of the principal of and interest on the Certificates, to the extent that ad valorem
taxes may ever be insufficient or unavailable for said purpose; provided, however, that such
pledge is junior and subordinate in all respects to the pledge of Net Revenues to the payment of
any obligation of the County, whether authorized heretofore or hereafter, which the County
designates as having a pledge senior to the pledge of Net Revenues to the payment of the
Certificates.
THE COUNTY HAS RESERVED THE RIGHT to issue, for any lawful purpose at any
time, in one or more installments, bonds, certificates of obligation and other obligations of any
kind secured by a pledge of the Net Revenues that may be prior and superior in right to, on a
parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates.
ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, the Certificates
are not private activity bonds within the meaning of Section 141 of the Internal Revenue Code
of 1986, as amended to the date hereof. It is our further opinion that, assuming continuing
compliance after the date hereof by the County with the provisions of the Order and in reliance
upon representations and certifications of the County made in a the Federal Tax Certificate of
even date herewith pertaining to the use, expenditure, and investment of the proceeds of the
Certificates for federal income tax purposes and subject to the restrictions hereinafter described,
interest on the Certificates (1) will be excludable from gross income, as defined in Section 61 of
the Code, of the owners thereof pursuant to Section 103 of the Code, existing regulations,
published rulings, and court decisions thereunder, and (2) will not be included in the alternative
minimum taxable income of individuals or corporations. The opinion set forth in the first
sentence of this paragraph is subject to the condition that the County comply with all
requirements of the Internal Revenue Code of 1986, as amended (the Code), that must be
satisfied subsequent to the issuance of the Certificates in order that interest thereon be, or
continue to be, excluded from gross income for federal income tax purposes. The County has
covenanted in the Order to comply with each such requirement. Failure to comply with certain
of such requirements may cause the inclusion of interest on the Certificates in gross income for
federal income tax purposes to be retroactive to the date of issuance of the Certificates. The
September 21, 2010
Page 3


HOU:3048047.2
Code and the existing regulations, rulings and court decisions thereunder, upon which the
foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively
or retroactively result in the inclusion of the interest on the Certificates in gross income of the
owners thereof for federal income tax purposes.
EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or
local tax consequences under present law, or future legislation, resulting from the ownership of,
receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Prospective
purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such
as the Certificates, may result in collateral federal 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 financial asset
securitization investment trust that holds tax-exempt obligations and individuals otherwise
qualified for the earned income credit. For the foregoing reasons, prospective purchasers should
consult their tax advisors as to the consequences of investing in the Certificates.
OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such
opinions are further based on our knowledge of facts as of the date hereof. We assume no duty
to update or supplement our opinions to reflect any facts or circumstances that may thereafter
come to our attention or to reflect any changes in any law that may thereafter occur or become
effective. Moreover, our opinions are not a guarantee of result and are not binding on the
Internal Revenue Service; rather, such opinions represent our legal judgment based upon our
review of existing law that we deem relevant to such opinions and in reliance upon the
representations and covenants referenced above.



7867/7866



600 Travis, Suite 4200
Houston, Texas 77002
713.220.4200 Phone
713.220.4285 Fax
andrewskurth.com



Austin Bei jing Dallas Houston London New York The Woodlands Washington, DC
HOU:3052711.1
September 21, 2010
WE HAVE ACTED as Bond Counsel for Montgomery County, Texas (the County), in
connection with an issue of certificates of obligation (the Certificates) described as follows:
MONTGOMERY COUNTY, TEXAS CERTIFICATES OF
OBLIGATION, TAXABLE SERIES 2010B (Direct Subsidy Build America
Bonds) (Mental Health Treatment Facility), dated September 1, 2010, in the
aggregate principal amount of $ 23,395,000, maturing on March 1 in each year
from 2023 through 2025, inclusive, and on March 1 in the years 2030 and 2039.
The Certificates are issuable in fully registered form only, in denominations of
$5,000 or integral multiples thereof, bear interest and may be transferred and
exchanged as set out in the Certificates and in the order (the Order) adopted by
the Commissioners Court of the County authorizing their issuance.
WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with
respect to the legality and validity of the Certificate under the Constitution and laws of the State
of Texas. In such capacity we have examined the Constitution and laws of the State of Texas
and a transcript of certain certified proceedings pertaining to the issuance of the Certificates, as
described in the Order. The transcript contains certified copies of certain proceedings of the
County, certain certifications and representations and other material facts within the knowledge
and control of the County, upon which we rely, and certain other customary documents and
instruments authorizing and relating to the issuance of the Certificates. We have also examined
executed Certificate No. R-1 of this issue.
WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified,
any original proceedings, records, data or other material, but have relied upon the transcript of
certified proceedings. We have not assumed any responsibility with respect to the financial
condition or capabilities of the County or the disclosure thereof in connection with the sale of the
Certificates. Our role in connection with the Countys Official Statement prepared for use in
connection with the sale of the Certificates has been limited as described therein.
BASED ON SUCH EXAMINATION, it is our opinion as follows:
(1) The transcript of certified proceedings evidences complete legal
authority for the issuance of the Certificates in full compliance with the
Constitution and laws of the State of Texas presently in effect; the Certificates
constitute valid and legally binding obligations of the County enforceable in
accordance with the terms and conditions thereof, except to the extent that the
rights and remedies of the owners of the Certificates may be limited by laws
heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of creditors of political
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subdivisions and the exercise of judicial discretion in appropriate cases; and the
Certificates have been authorized and delivered in accordance with law; and
(2) The Certificates are payable, both as to principal and interest, from,
and secured by, the proceeds of a continuing, direct annual ad valorem tax, levied
within the limits prescribed by law, against taxable property within the County,
which taxes have been pledged irrevocably to pay the principal of and interest on
the Certificates; and
(3) The Certificates are further secured by a pledge of a subordinate lien
on certain available net revenues derived from the operation of the Countys park
system.
THE REVENUES TO BE derived from the operation of the Countys park system after
the payment of all operation and maintenance expenses thereof (the Net Revenues) are pledged
to the payment of the principal of and interest on the Certificates, to the extent that ad valorem
taxes may ever be insufficient or unavailable for said purpose; provided, however, that such
pledge is junior and subordinate in all respects to the pledge of Net Revenues to the payment of
any obligation of the County, whether authorized heretofore or hereafter, which the County
designates as having a pledge senior to the pledge of Net Revenues to the payment of the
Certificates.
THE COUNTY HAS RESERVED THE RIGHT to issue, for any lawful purpose at any
time, in one or more installments, bonds, certificates of obligation and other obligations of any
kind secured by a pledge of the Net Revenues that may be prior and superior in right to, on a
parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates.
WE CALL TO YOUR ATTENTION THAT interest on the Certificates is not excludable
from gross income for federal income tax purposes under existing law.
EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or
local tax consequences under present law, or future legislation, resulting from the ownership of,
receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. For the
foregoing reasons, prospective purchasers should consult their tax advisors as to the
consequences of investing in the Certificates.
OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such
opinions are further based on our knowledge of facts as of the date hereof. We assume no duty
to update or supplement our opinions to reflect any facts or circumstances that may thereafter
come to our attention or to reflect any changes in any law that may thereafter occur or become
effective. Moreover, our opinions are not a guarantee of result; rather, such opinions represent
our legal judgment based upon our review of existing law that we deem relevant to such opinions
and in reliance upon the representations and covenants referenced above.
IRS CIRCULAR 230 DISCLOSURE:
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TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE IRS, WE INFORM YOU THAT ANY
U.S. FEDERAL TAX ADVICE CONTAINED IN THIS COMMUNICATION (INCLUDING ANY ATTACHMENTS)
WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE CERTIFICATES AND IS NOT
INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF (I) AVOIDING
PENALTIES UNDER THE INTERNAL REVENUE CODE. OWNERS OF THE CERTIFICATES SHOULD SEEK
TAX ADVICE FROM AN INDEPENDENT TAX ADVISOR BASED ON EACH OWNERS PARTICULAR
CIRCUMSTANCES.

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