OFFICIAL STATEMENT DATED MARCH 31, 2003 IN THE OPINION OF BOND COUNSEL, INTEREST ON THE BONDS IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES UNDER EXISTING LAW AND THE BONDS ARE NOT PRIVATE ACTIVITY BONDS. SEE “TAX MATTERS - TAX EXEMPTION” FOR A DISCUSSION OF THE OPINION OF BOND COUNSEL, INCLUDING A DESCRIPTION OF ALTERNATIVE MINIMUM TAX CONSEQUENCES FOR CORPORATIONS. NEW ISSUES: BOOK-ENTRY-ONLY Ratings: Standard & Poor’s Ratings Group (Ambac) - “AAA”: ‘Moody's Investors Service (Ambac) - “Aaa” $24,000,000 $10,000,000 MONTGOMERY COUNTY, TEXAS MONTGOMERY COUNTY, TEXAS Unlimited Tax Road Bonds Limited Tax Library Bonds Series 2003A. Series 2003B Dated: April 1, 2003 Due; March 1, as shown on the inside cover page hereof ‘The $24,00,000 Montgomery County, Texas, Unlimited Tax Road Bonds, Series 20034 (the “Series A Bonds") and the $10,000,000 Montgomery County, Texas, Limited Tax Library Bonds, Series 2003B (the “Series B Bonds") (the Seties A Bonds and the Series B Bonds are referred to herein collectively as the “Bonds"), are being issued by the Commissioners Court of Montgomery County (the “County”) pursuant to the terms of two separate orders adopted by the Commissioners Court of the County. ‘The Series A Bonds are payable from an ‘nnual ad valorem tax on all taxable property in the County, without limit as to tate or amount. The Series B Bonds are payable ftom an annual ad valorem fax on all taxable property in the County, within the limits prescribed by law. See “THE BONDS - Source of Payment” and “TAXING PROCEDURES AND TAX BASE ANALYSIS - Tax Rate Limitations.” Interest on the Bonds will accrue from April 1, 2003, and will be payable March | and September | of each year, commencing March 1, 2004. Principal of the Bonds is payable at Bunk One, N.A.. the paying agentregistrar (the “Paying AgeatRegistrar”). The Bonds are initially registered ané delivered only to Cede & Co.. the nominee of ‘The Depository Trust Company (“DTC") pursuant to the Book-Entry-Only System described herein. Beneficial ‘ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical ‘livery of the Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds wrll be payable by the Paying Agent’Regisrar to Cede & Co,, which will make distribution of the amounts 90 paid to the beneficial owners of the Bonds. See “THE BONDS - Book-Entry-Only Systens” herein, Interest on the Bonds is payable to the registered ovmers (initially Cede && Co.) appearing on the registration books of the Paying Agent/Registrar on the 15th day of the month preceding each interest payment date (the “Record Date") See “THE BONDS - General.” Payment ofthe principal of end interest on the Bonds when due will be insured by 2 financial guaranty insurance policy to be issued by Ambac Assurance Company simultaneously with the delivery ofthe Bonds. Ambac See Principal Amounts, Maturities, Interest Rates, and Prices on the Following Page “The proceeds of the Series A Bonds will be used for road improvements within the County and payment of the costs of issuance incurred in connection with the sale ofthe Series A Bonds. Proceeds of the Series B Bonds witl bbe used to construct library improvements for the County and pay costs of issuance of the Series B Bonds. See “THE BONDS - Purpose of the Bonds and Use of Proceeds.” ‘The Bonds are offered when, as and if issued by the County and accepted by the Underwriters, subject to the approval of legality by the Attorney General of the State of Texas and by Vinson & Elkins L.L.P.. Houston, Texas, Bond Counsel, Certain legal matters will be passed upon for the Underwriters by Fulbright & Jaworski LLLP, Houston, Texas, Counsel for the Underwriters. It is expected that the Bonds will be delivered on or about May 1, 2003, ‘UBS PAINEWEBBER INC. FIRST SOUTHWEST COMPANY JPMORGANPRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES UNLIMITED TAX ROAD BONDS, SERIES 20034, $24,000,000 Term Bonds Due March 1, 2026(b)(c) 5.00% Initial Reoffering Price 100.456% LIMITED TAX LIBRARY BONDS, SERIES 2003B $7,250,000 Serial Bonds Initial Initial Maturity Principal ‘Interest ~—-Reofiering «Maturity Principal ©—=—nterest_ © -Reoffering (March 1) Amount Rate _Yield(@)_(March1)__Amount Rate Yield @) 2006 $100,000 1.95% 2015(6) $445,000 4.125% 422% 2007 30,000 240 2016() 460,000 4.250 432 2008 340,000 277 2017(b) 485,000 4375 442 2009 350,000 3.10 2018() 505,000 4.500 451 2010 365,000 342 2019() $30,000 4.500 4.60 2011 375,000 3.69 2020) $50,000 4.600 4.69 2012 395,000, 3.84 2021() $80,000 4.700 478 2013 410,000 397 2022() 605,000 4.750 485 201406) 425,000 410 @ ) © $2,750,000 Term Bonds Due March 1, 2026(b) 5.00% Initial Reoffering Price 100.456% The init yields will be established by and are the sole responsibility of the Underwriters (herein after defined) and may subsequently be changed. Subject to optional redemption as described herein. See “THE BONDS - Optional Redemption.” Subject to mandatory redemption as described herein, See “THE BONDS - Mandatory Redemption.”COUNTY OFFICIALS Elected Officials ‘Commissioners’ Court ‘Alan B, Sadler County Judge ‘Mike Meador (Commissioner, Precinct 1 Craig Doyal (Commissioner, Precinct 2 Emest E. Chance Commissioner, Precinct 3 Ed Rinehart Commissioner, Precinct 4 Other Elected and Appointed Officials Name osition JR. Moore, I. Tax Assessor - Collector Martha N. Gustavsen County Treasurer Linda R, Breazeale County Auditor ‘Mark Bosma Purchasing Agent David Walker County Attomey Consultants and Advisors Auditors Hereford, Lynch, Sellars & Kirkham, CPA. Conroe, Texas - Vinson & Elkins LLP. Houston, Texas Bond Counsel. Disclosure Counsel. vw Andrews & Kurth LLP. Houston, Texas Financial Advisor «.... RBC Dain Rauscher Ine. Houston, Texas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 sel 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 80 or to any person to whom it is unlawful to make such offer or solicitation, IN CONNECTION WITH THE OFFERING OF THE BONDS, 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 OTHERWISE 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 hes 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. ‘TABLE OF CONTENTS Page INTRODUCTION, Legal Investments. SALE AND DISTRIBUTION OF THE BONDS. Investment Policies Sale of the Series A Bonds. Sale of the Series B Bonds. Prices and Marketability. Securities Laws. Ratings... FINANCIAL GUARANTY INSURANCE. Payment Pursuant to Financial Guaranty Policy. a “Ambac Assurance Corporatio Available Information. Incorporation of Certain Documents by Reference OFFICIAL STATEMENT SUMMARY THE BONDS General ron Book-Entry-Only System Use of Certain Terms in Other Sections of this Official Statement, Optional Redemption, ‘Mandatory Redemption... ‘Notice of Redemption.. Source of Payment of the Bon Purpose of the Bonds and Use of Proceed. Authorization for the Series A Bonds. ‘Authorization ofthe Series B Bonds... Future Borowing, Registered Owners’ Ret ‘Legal Investments in Tex no INVESTMENT AUTHORITY AND INVESTMENT OBIECTIVES OF THE COUNTY, 4 DEBT SERVICE REQUIREMENTS... COUNTY DEBT... General ne Indebtedness... Estimated Overlapping Debt Statement Debt Ratios. Other Obligations... ‘TAXING PROCEDURES AND T. ANALYSIS, General Property Tax Code and County Wide Appraisal District non Property Subject to Taxation bythe County onn<.20 Residential Homestead Exemptions. Freeport Goods Exemption. ‘Tax Abatement... Pollution Control... ‘Valuation of Property for Taxation. ‘County and Taxpayer Remedies. Levy and Collection of Taxes, County's Rights ine Event of Tax Deingences23 ‘Tax Rate Limitations... Historical Analysis of Tax Colleton. Delinquent Tax Collection Procedures. Tax Rate Distribution. Analysis of Tax Base nn ‘Top Ten Principal Taxpayers Tax Adequacy tet SELECTED FINANCIAL DATA vss 02Historical Operations ofthe County's Genet Fund. . Special Revenue Funds Debt Service Funds. Pension Fund, Financial Statements. THE COUNTY nn ‘Administration ofthe County. Commissionsr’s Cour. Consultants nance LEGAL MATTERS [Legal Opinions. we No Materiel Adverse Change... 3 ginal Issue Appendix A - Economic and Demographic Information Discount Bonds eon. 32 CONTINUING DISCLOSURE OF INFORMATION 33 Annual Reports Material Event Notices Availability of Information from NRMSIR and SD. Limitations and Amendment... Compliance with Prior Undertakings OTHER CONSIDERATIONS. ‘Recent Management Initiatives Environmental Regulations. ‘Air Quality... Pending Legislative Session GENERAL CONSIDERATIONS, Sourees and Compilation of Information. 37 ‘Updating of Oficial Statement... ‘CONCLUDING STATEMENT. ‘Appendix B - Excerpts from Comprehensive Annual Financial Report of Montgomery County, Texas for the Fiscal Year Ended September 30, 2002 Appendix C - Form of Legal Opinions Appendix D- Specimen of Financial Guaranty Insurance PolicyINTRODUCTION Alt of the summaries of the statues, resolutions, order, policies, contacts, audits, engineering and other related reports set forth in this Official Statement are made 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, copies of which are available from the County 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 Officiel ‘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 atention, the other matters described in this Official Statement until delivery of the Bonds to the Underwriters and thereafter omly 2s specified in “GENERAL CONSIDERATIONS - Updating ‘of Official Statement” and “CONTINUING DISCLOSURE OF INFORMATION.” SALE AND DISTRIBUTION OF THE BONDS Sale of the Series A Bonds UBS PaineWebberInc., First Southwest Company, and JPMorgan (collectively, the “Underwriters”) have agreed to ppurchase the Series A’ Bonds from the County pursuant to a bond purchase agreement with the County for $23,955,840.00 (representing the par amount of the Bonds, plus a net premium of $109,440.00, tess an Underuniters’ discount of $153,600.00) plus accrued interest on the Series A Bonds to the date of delivery. The Underwriters’ obligation isto purchase all ofthe Series A Bonds if any ae purchased. Sale of the Series B Bonds UBS Paine Webber Inc., First Southwest Company, and JPMorgan (collectively, the “Underwriters”) have agreed to purchase the Series B Bonds from the County pursuant to a bond purchase agreement with the County for $9,920,009.25 (representing the par amount of the Bonds, phis a net premium of $3,009.25, less an Underwriters’ discount of $83,000.00) plus accrued interest on the Series B Bonds to the date of delivery. The Underwriters’ obligation isto purchase all of the Series B Bonds if any are purchased Prices and Marketability The delivery of the Bonds is conditioned upon the receipt by the County ofa certificate executed and delivered by the Underuriters on or before the date of delivery of the Bonds stating the prices at which a substantial emount of the Bonds 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 ofthe Bonds after a bona fide offering of the Bonds is made by the Underwriters at the yields specified on the inside cover page. Information conceming reoffering yields or prices is the responsibility of the Underwriters. “The prices and other terms respecting the offering and sale ofthe Bonds may be changed from time to time by the Underwriters after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering prices, including seles to dealers who may sell the Bonds into investment accounts. IN CONNECTION WITH THE OFFERING OF THE BONDS, 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 OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Securities Laws For purposes of compliance with Rule 152-12 of the Securities and Exchange Commission, this document, as may be supplemented ot amended by the County ftom time to time, may be teated as an OFFICIAL STATEMENT with respect to the Bonds described herein “deemed final” by the County es ofthe date hereof (or of any such supplement ‘or amendment) except for the omission of certain information referred to in the succeeding sentence. This document, when further supplemented by adding information specifying the interest rates and certain other information relating to the Bonds, shall constitute a “FINAL OFFICIAL STATEMENT” of the County with respect to the Bonds, as such term is defined in Rule 1502-12.[No registration statement relating to the Bonds has been filed withthe Securities and Exchange Commission under tne Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas i reliance upon various exemptions contained therein; nor have the Bonds been registered or quslified under the securities laws of any other jurisdiction. The County fssumes no responsibility for registration or qualification of the Bonds under the securities laws of any other jurisdiction in which the Bonds may be offered, sold or otherwise wansferred. This disclaimer of responsibility for ‘etistration or qualification forsale or ether disposition of the Bonds shall not be construed as an interpretation of ‘any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdictions. Ratings Tn connection with the sale of the Bonds, the County has made application to Moody's Investors Service, In. ("Moody's") and Standard & Poor's Ratings Group, 2 Division of the McGraw-Hill Companies, Inc. (“SAP”) for ratings, andthe ratings of “Aaa” and “AAA", respectively, have been assigned to the Bonds. An explanation ofthe significance of such ratings may be obtained fiom Moody's and S&P. The ratings reflect only the view of Moody’s and S&P, and the County makes no representation as tothe 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, inthe judgment of Moody's or S&P, circumstances so warrant. Any such downward revision or withdrawal ofthe ratings may have an adverse effect on the market price ofthe Bonds. FINANCIAL GUARANTY INSURANCE, ‘Payment Pursuant to Financial Guaranty Insurance Policy ‘Ambec Assurance Corporation ("Ambac Assurance") has made commitment to issue 2 financial guaranty insurance policy (the “Financial Guaranty Insurance Policy”) relating to the Bonds effective as of the date of ‘issuance of the Bonds. Under the terms ofthe Financial Guaranty Insurance Policy, Ambac Assurance will pay to ‘The Bank of New York, in New York, New York or any successor thereto (the “Tnsurance Trustee") that portion of the principal of and interest on the Bonds which shall become Due for Payment but shall be unpeid by reason of ‘Nonpayment by the Issuer (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the Registrar. The insurance will extend for the tenm of the Bonds, and, once isoued, cannot be canceled by Ambac Assurance. ‘The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dats for payment, inthe case of interest. Ifthe Bonds become subject to mandatory redemption and insufficient fimds are available for redemption of all outstanding Bonds, Ambec Assurance will main obligated to pay principe of end interest on outstanding Bonds on the originally scheduled interest and prinipel payment dates including mandatory sinking fund redemption dates. In the event of any acceleration ofthe principal of the Bonds, the insured payments will be made at such times and in such amounts as would have been made bad there not been an acceleration. In the event the Registrar has notice that any payment of principal of or interest on a Bond which has become Due for Payment and which is made to a Bondholder by or on behalf ofthe Issuer has been deemed a preferential wansfer and theretofore recovered from its registered owner pursuant to the United States Bankruptey Code in accordance ‘with a final, nonappealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available. ‘The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment, as defined in the Policy. Specifically, the Financial Guaranty Insurance Policy does not cover: 1 ‘payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity. 2. payment of any redemption, prepayment or acceleration premium. 3 nonpayment of principal or interest caused by the insolvency or negligence of any Registrar, if any,If it becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Bonds to be registered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of interest pursuant to the Financial Guaranty Insurance Policy ‘requires proof of Bondholder entitlement to interest payments and an appropriate assignment of the Bondholder's right to payment to Ambac Assurance. ‘Upon payment of the insurance benefits, Ambac Assurance will become the owner of the Bond, appurtenant coupon, if any, or right to payment of principal or interest on such Bond and will be fully subrogated to the surrendering Bondholder’s rights to payment. Ambac Assurance Corporation ‘Ambac Assurance Corporation ("Ambac Assurance”) is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin and licensed to do business in 50 states, the District of Columbia, the Territory of Guam and the Commonwealth of Puerto Rico, with admitted assets of approximately §6,115,000,000 (unaudited) and statutory capital of approximately $3,703,000,000 (anaudited) as of December 31, 2002. Statutory capital consists of Ambac Assurance’s policyholders’ surplus and statutory contingency reserve. Standard & Poor's Credit Market Services, 2 Division of The McGraw-Hill ‘Companies, Moody's Investors Service and Fitch, Inc. have each assigned a triple-A financial strength rating to ‘Ambac Assurance. ‘Ambac Assurance has obtained a ruling from the Infernal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially identical to those contained in its financisl guaranty insurance policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Issuer of the Bonds. ‘Ambac Assurance makes no representation regarding the Bonds or the advisability of investing in the Bonds and ‘makes no representation regarding, nor has it participated in the preparation of, the Official Statement other than the information supplied by Ambac Assurance and presented under the heading "FINANCIAL GUARANTY INSURANCE" and in "APPENDIX D." Available Information ‘The parent company of Ambac Assurance, Ambac Financial Group, Ine. (the “Company"), is subject to the {informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC". These reports, proxy statements and other information can be read and copied at the SEC's public reference room at 450 Filth Street, N.W., Washington, D.C, 20549. Please call the SEC at 1-800-SEC- (0330. for further information on the public reference room The SEC maintains an internet site at Iitp/iwwwsee.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read atthe offices of the New York Stock Exchange, Inc, (the *NYSE"), 20 Broad Sueet, New York, New York 10005, Copies of Ambac Assurance's financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ambac Assurance’s administrative offices and its telephone number are One State Street Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340, Incorporation of Certain Documents by Reference ‘The following documents filed by the Company with the SEC (Fle No. 1-10777) ate incomporated by reference in this Official Statement; 1) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and filed ‘on March 26, 2002; 2) The Company's Current Report on Form &K dated April 17, 2002 and filed on April 18, 2002: 3) ‘The Company's Quarterly Report on Form 10-O for the fiscal quarterly period ended March 31, 2002 and filed on May 13, 2002;4a) 5) 9 n 3 % 10) u) 12) ‘The Company's Current Report on Form §-K dated July 17, 2002, and filed on July 19, 2002; "The Company's Current Report on Form §:K dated August 14, 2002 and filed on August 14, 2002; ‘The Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 30, 2002, and filed on August 14, 2002; ‘The Company's Current Report on Form $-K dated October 16, 2002 and filed on October 17, 2002; ‘The Company's Quarterly Report oa Form 10-Q for the fiscal quarterly period ended September 30, 2002 and filed on November 14, 2002; ‘The Company's Current Report on Form 8-K dated November 18, 2002 and filed on November 20, 2002; ‘The Company's Current Report on Form 8-K dated January 23, 2003 and filed on January 24, 2003; ‘The Company's Current Report on Form 8K dated February 23, 2003 and filed on February 28, 2002; and ‘The Company's Current Report on Form 8-K dated February 25, 2003 and filed on March 4, 2008. All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in "Available Information.”OFFICIAL STATEMENT SUMMARY The following material is a summary of certain information contained herein and is qualified in its entircty by the derailed information and financial statements appearing elsewhere in this Official Statement. The reader should refer particularly to sections that arc indicated for more complete information. The Issuer .. .. Montgomery County, Texas, a political subdivision of the State of ‘Texas. See “THE COUNTY.” The Series A Bonds swonneee $24,000,000 Unlimited Tax Road Bonds, Series 2003A. The Series A. Bonds ate dated April 1, 2003 and mature March 1 in the year 2026. ‘See “THE BONDS - General.” {$10,000,000 Limited Tax Library Bonds, Series 20038. ‘The Series B ‘Bonds are dated April 1, 2003 and mature March 1 in each of the years 2006 through 2022 and March 1, 2026. See “THE BONDS - General.” Payment of Interest onsen vn Taterest on the Bonds accrues from April 1,2003, and is payable ‘March 1, 2004, and on each March 1 and September { therenfter until ‘maturity or upon prior redemption. See “THE BONDS - General.” .. The Bonds maturing on March 1, 2014 and thereafter are subject to ‘optional redemption in whole, or from time to time in part, on March 1, 2013 or any date thereafter at par plus accrued interest to the date of redemption, The Series 2003A ‘Term Bonds and the Series 20038 Term Bonds maturing March 1, 2026 are subject to mandatory redemption as described herein. See “THE BONDS — Optional Redemption,” and “Mandatory Redemption.” Principal of and interest on the Series A Bonds are payable from the proceeds of a continuing, direct anmual ad valorem tax levied, without limit as to rate or emount, against all taxable property in the County. Principal of and interest on the Scries B Bonds are payable from the proceeds of 2 continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against taxable property in the County See “THE BONDS - Source of Payment’ and “TAXING PROCEDURES AND TAX BASE ANALYSIS ~ Tax Rate Limitations.” ‘The proceeds of the Series A Bonds will be used for certain County road improvements and to pay the costs of issuance of the Series A Bonds. Proceeds of the Series Bonds will be used to construct library improvements and to pay the cosis of issuance of the Series B Bonds. See “THE BONDS - Purpose of the Bonds and Use of Proceeds” Payment Recotdnsnminesnn sven The County has never defaulted on the timely payment of principal of and interest on any ofits outstanding debt ‘Ambac Assurance Corporation ("Ambac"). See "FINANCIAL, GUARANTY INSURANCE.” su Moody's Investors Service, Inc. (Ambac) “Aaa Standard & Poor's Ratings Group (Ambac) ABA” ‘The Series B Bonds .. Optional Redemption Source of Payment... Use of Proceed nnn i Financial Guaranty Insurance. Ratings‘SELECTED FINANCIAL INFORMATION (Unaudited) 2002 Certified Taxable Assessed Valuation... $16,341,436,074 (a) (100% of Market Vale as of January 1, 2002) ‘See “TAXING PROCEDURES AND TAX BASE ANALYSIS” Direct Debt: ‘Outstanding Direct Debt (as of March 15, 2003)... S 97,966,530 ‘The Series A Bonds. : 24,000,000 ‘The Series B Bonds 410,000,000 “The Series 2003 Certificates of Obligation von 11,600,000 (0) Total Direct Debt. S_ 143,566,530 Estimated Overlapping Debt... 5,197 ‘Total Direct and Estimated Overlapping Debt. SLAGLG2L727 Interest & Sinking Fund Balance (as of March 15, 2003)... $518,613 Ratio of Direct Debt to... 2002 Certified Taxable Assessed Valuation. (516341, 3607). 88% 2002 Estimated Population (320,000)... s 449 Ratio of Direct end Estimated ‘Overlapping Debt to......: 2002 Certified Taxable Assessed Valuation ($16,341,436,074)... 8.33 % 2002 Estimated Population (320,000) ner $4,255 Annual Debt Service Requirements....: Average (2003-2026). $10,560,505 ‘Maxirmum (2017) S 11,894,245 (& Centified by the Montgomery Central Appraisal District (the “Appraisal District”) (b) Concurrently with the issuance of the Bonds, the County is issuing $11,600,000 Certificates of Obligation, Series 2003 (the “Certificates”). See “COUNTY DEBT — Indebtedness” herein.(OFFICIAL STATEMENT Relating to $24,000,000 $10,000,000 MONTGOMERY COUNTY, TEXAS MONTGOMERY COUNTY, TEXAS UNLIMITED TAX ROAD BONDS LIMITED TAX LIBRARY BONDS ‘SERIES 20034, SERIES 20038 ‘THE BONDS General The following isa description of some ofthe terms and contitions of the Bonds, which description is qualified in its entirety by the form of the Bonds contained in the Orders authorizing the issuance of the Bonds (collectively, the “Orders"). A copy of the Orders may be obtained upon request to the County. Certain tems not defined elsewhere in this Official Statement are defined in the Orders, ‘The Bonds will be issuable in fully registered form (without coupons) and purchases of Bonds are required to be in the denomination of $5,000, or any integral multiple thercof, The Bonds will bear interest at the respective rates shown on the inside cover page of this Offical Statement, caleulated om the basis ofa 360-day year composed of 12 ‘months of 30 days each, The Bonds will mature in the respective amounts and on the respective dates shown on the inside cover page of this Official Statement. The Bonds will be dated and will bear interest from April 1, 2003, Interest on the Bonds will be payable semiannually on each March 1 and September 1 (cach an “Interest Payment Date”), commencing March 1, 2004. Interest on the Bonds is payable on each Interest Payment Date by the Paying ‘Agent/Registrar to registered owners as shown on the records of the Paying Agent/Registar as of the close of business on the 15th day of the month next preceding the Interest Payment Date (the “Record Date”). The principal of the Bonds will be payable upon surrender of the Bonds for payment at Bank One, N.A. (the “Paying Agent/Registrar") at its principal payment office in Austin, Texas. Inthe event ofa nonpayment of interest on the Bonds on a schediuled payment date and for 30 days thereafter, a new record date (the “Special Record Date”) for such intrest payment willbe established by the Paying Agent/Registrar, if and when finds for the payment of such interest have been received from or on belialf of the County. Notice of the Special Record Date and of the scheduled payment date of the past due interest (svhich shall be 15 days after the Special Record Date) shall be sent a last five business days prior to the Special Record Date by United States mal, first-class postage prepaid, tothe address of each registered owner of a Bond appearing on the Register atthe close of business on the last business day next preceding the date of mailing of such notice Book-Entry-Only System This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interesi on the Bonds are to be paid to and eredited by The Depository Trust Company (“DIC”), New York, ‘New York, while the Bonds are registered in its nomince name. The information in thi section concerning DTC and the Book Eniry-Only System has been provided by DTC for use in disclosure documents suck as this Official Statement. The County believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The County cannot and does not give any assurance that (I) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DIC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or is nominee (as the registered owner of the Bonds), or redemption or other notices, fo the Beneficial Owmers, or that they will do so on a timely basis, or (3) DTC will serve and act inthe manner described 1m this Official Statement. The curren! rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on {file with DTC. ‘The Depository Trust Company, New York, New York, will act as securities depository for the Bonds. The Bonds vill be issued as fully-registered Bonds in the name of Cede & Co. (DTC’s partnership nominee) or such other name ‘as may be requested by an authorized representative of DTC. One fally-registered certificate will be issued for each ‘maturity of each series of the Bonds, in the aggregate principsl amount of such maturity, and will be deposited with DIC.DIC, the world’s largest depository, isa limited-purpose trust company organized under the New York Banking Lave, a “banking organization” within the meaning of the New York Banking Law, « 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 tnd provides asset servicing for over 2 million issues of U.S. and non U.S. equity issues, corporate and municipal debt issues, and money market instruments fom over 55 countries that DTC’s participants (“Direct Participants") deposit with DTC. DTC also facilitates the post-rade settlement among Direct Participants of sales and other securities transactions in deposited securities, through clectronic 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-US. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in tum, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc. the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-US. Securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or ‘maintain a custodial relationship with # Direct Participant, either directly or indirectly ( “Indirect Participants”). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at wwrw.dtec.com, Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records, The ownership interest of cach actual purchaser of each Bond (“Beneficial Owner") isin tum to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details ofthe transaction as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction, Transfers of ownership interests in the Bonds are to be accomplished by entries made on the hooks of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, ll Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co, or such other name as may be requested by an authorized representative of DTC. ‘The deposit of Bonds with DTC snd their registration in the name of Cede & Co, o such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Bencfcial Owners of the Bonds; DTC’s records reflect only the ientty ofthe Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners, Direct and Indirect Participants will remain responsible for keeping account oftheir holdings on behalf oftheir 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 govemed by arrangements among them, subject to any statutory or regulatory requisements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Bencficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. Jn the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. ‘Redemption notices shall be sent to DTC. If less than all of the Bonds within « maturity are being redecmed, DTC's practice isto determine by lot the amount ofthe interest of each Direct Participant in such issue to be redeemed. ‘Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an ‘Omnibus Proxy to the County as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).Prinefpal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DIC. DTC's practice is to credit Direct Participants’ accounts upon DIC’s receipt of funds and corresponding detail information from the County or Agent, on payable date in ‘ccordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners twill be governed by standing instructions and customary practices, as isthe cese with Bonds held for the accounts of ‘customers in bearer form or registered in “steet name,” and will be the responsibility of such Participant and not of DIC, Paying Agent, or the County, subject to any statutory or regulatory requirements as may be in effect from time to time, Payments of principal and interest to Cede & Co, (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the County or Paying Agent. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and reimbursement of such payments 10 the Beneficial Owners will be the responsibilty of Direct and Indirect Participant. DIC may discontinue providing its services as depository with respect to the Bonds at any time by siving reasonable notice to the County or Paying Agent. Under such circumstances, in the event that a successor 4, ‘AMO LUO yuo} oaMos, ‘MonD9N10. xe. Jo sISKTeUY FEOHONSIEL zo07Delinquent Tax Collection Procedures In addition to the legal procedures and penalties described under “County's Rights in the Event of Tax Delinquencies,” the County has retained a Delinquent Tax Attorney on a contract basis to file suit to collect dolinguent taxes due the County, The fees due such attomey for acting as Delinquent Tax Attomey are payable fom an additional penalty imposed upon the delinquent taxpayer, not to exceed 20% of the tax due, ‘Tax Rate Distribution: ‘Tax Years 2002 2001 2000 1999 1998 1397 General Fund 80.3568 0.3509 90.3446 $0.3498 $0.3583, $0.3669 Special Revenue Fund 00525.-«=«O074G OHS TAG OTHG 074 Debt Service Fund 0.0617, 0.0455 0.0555, 0.0503 0.0568 0.0482 joao «Goo S07? Suea7 Maso] Sg.aa7 Analysis of Tax Base - Tax Base Diseibution~ 2002 Tax Rol 2001 Tax Ral 2000 Tax Ral! Type of Popersy no = iam oust % Residential sii2ss,s12e — s890% —-$ 9,795,263 580 8 8524587662 134% Tats Tract Tooesae702 573 12944924 '33.721,605 $34 Acreage ss920382 458 869,066906 s5e.122085 69 Farm 8 Ranch 68275005 ORR ien087 49 12050629 083 Industrial & Commercial 154145580 1127 1,704 630.755 yalgosnens 974 Oi, Gas, Minerals Taezs2010 072 isades710 ‘s9s0340 089 Uiltie ar70sss8 281 sa6044969 2.58 ais.oi6236 3.07 Bisines Personal 1498714697785 1ate08s.764 8.68 1269498803 888 special Inventory aosigost = 032 Ssa7eo4 033 $5692.67 O38 Other Personal (2) osasoa38 050 8560265 033, 7aT39.00 (OS? Exempt Property 1aResI83s3__ 6.74 106234526 _637 seisis.oos_— _6.62 ToalAscesed Value “SIS LORMISESS “TODO ~Sigaeis964a2 —“TOO.00% Sigase p16” 1000057 Lest Exemption 21768 569.759 21364,560,500 1981 s68.878 Total Tunable Value (6) TST6341 36078 314297235982 312.536.32518 G@) Includes personal propeny. (b) Represents values initially certified by the Montgomery Central Appraisal District; may have been subsequently adjusted. 2s‘Top Ten Principal Taxpayers Provided by the Montgomery Central Appraisal District, Certain of the top ten principal taxpayers may own additional property thet 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 ros. 2002 2001 2000 Taxpayer ‘Type of Property Tax Roll Tax Roll Tax Roll “The Woodlands Companies Land Development 303,925,359 $331,655,255 _$342,377,806 Gulf States Utilities Electric Utility 149,768,280 148,171,247 135,978,380 Columbia Regional Medical Center/Kingwood Medical Plaza Hospital 108,922,394 101,209,300 178,183,762 ‘TXU Communications Telephone Telephone Utility 85,626,501, 80,375,477 76,672,400 Mitchell Resorts, Inc/Mitehell Frey Land Development 85,081,835 78944911 41,6794 Wal-Mart Stores Ine. Retail Shopping Center 80,500,143 71379,967 @ Huntsman Petrochemical Corp. Chemical Productions 75,373,855 89,372,160 96,750,318, Southwestem Bell Telephone Co. Telephone Utility 65,415,360 62,177,502 36,281,832 Eckerd Drugs/Distribution Center Retail Drug Distribution 52,798,015 155,767,590 59,761,504 ‘Anadarko Petroleum Corp. OiVGas Exploration 47,130,190 @ @ Hughes Tool Company Manufacturer @ 34,630,779 35,616 819 Exxon Corp. it Properties (a) (a 53,752,951 Total SHGASSI GD “SUPER SRA TSS I776.965.219 Percentage of Respective Certified Assessed Valuation 642 1% LIN {Gy Nota top tea principal wxpaye in such tx year according tothe Montgomery Central Appraisal District. ‘Tax Adequacy Average Annual Debt Service Requirements (2003/2026). 81.069 Tax Rate on the 2002 Cerifed Taxable Assessed Vahtion @ 95% collection produces.. Maxirmum Annual Debt Service Requirement (2017). $0.07 Tax Rete on the 2002 Certified Taxable Assested Valuation oe 95% collection produces... 26 $10,560,505 $10,711,811 $11,894,245 $11,953,760REVENUES: Taxes Licenses and Permits Fees Intergovernmental Changes for Services Interest Contract Reimbursements Inmate Housing Fines and Forfeitures Miscellaneous Total Revennes EXPENDITURES: Current Operating General Administration Judicial Legal Services Elections Financial Administration Public Fecilities Public Safety Hialth and Welfare Conservation Miscellaneous ‘Total Expenditures Revenues Over (Under) Expenditures OTHER FINANCING ‘SOURCES (USES) ‘Operating Transfers In Operating Transfers Out Capital Lease Financing Total Other Financing Sources (Uses) Excess (Deficiency) of Revenues ‘& Other Sources Over Expenditures & Other Uses Fund Balance, October 1 Prior Period Adjustment Fund Balance, September 30 @ &) SELECTED FINANCIAL DATA Historical Operations of the County’s General Fund ‘The following is a condensed statement of revenues and expenditures ofthe County's General Fund for the past five fiscal years. ‘The inclusion ofthe following table is not intended to imply that any revenues of the County, other than receipts from ad valorem taxes provided in the Orders, ae pledged to pay principal and interest on the Bonds, 2002 $51,699,023 $45,085,824 1,008,293 836,716 8,424,846 7,864,483 3,142,936 2.987.471 43,641 46,704 526,280 976,658 7,351,963 6,160,532 448,159 375,313 268,176 85,772 1,236,497 $64,955,970 lst86.967_ sre 00.284 $12,483,544 $7,836,648, 71193,141 6,248,769 1,256,805 1,293,004 588,836 450,201 3,464,350 3,151,028, 5,418,380 5,055,180, 36,576,664 32,832,981 3,090,614 2,980,563 496,430 330,751 6,427.786(a) $76,996550 $64,116,173, 8(2,896,266) $839,797 § 4358590 $3,164,957 (7]049,597) (6,889,609) 5,943,007 33,203 $3,252,000 $3,691,449) $355,734 — $(2,851,652) 1,097,068 5,703,369 -0-__(0.754,659(b) STM «$1,097,068 with year-end salary and benefits 27 $40,538,799 930,023, 7,071,332 1,847,699 43.415 1,237,869 5,647,519 1,356,444 101,070 2.173.758 360,947,928 $ 7,357,810 5,071,310 1,564,559 441,851 2,749,449 4,092,645 30,419,689 2,876,932 299,612 2,352,687 357,226,548 § 3,721,384 $513,716 (7,128,768) 403,300 $(6.211,752) (2,490,368) 8,193,737 $5,703,369, $37,960,190 863,748 6,513,476 1,802,522 44,990 1,331,702 5,435,479, 2,777,248 93,370 £666,960 358,489,685 5 7,973,044 4921769 1asi.658 330,022 2,686,189 3,651,170 28,050,258 2749,366 "72,788 3,017,333, 354993557 $ 3,496,128 s 0 (4,918,647) 86,998 $(4,831,649 $1,335,521) 9,529,258 0 Sea 1998 $35,558,675 757,348 5,528,613 1,633,717 37,356 1,279,417 5368.916 2/890,089 95,676 3,127,051 26,528,964 2.376495 264,074 1,820,432 550272, 8 4,148,273 8 472,066 (5,016,705) 1,209,800 $0334.83) S(_ 813,434) 8,715,824 oe $9,529,258 ‘See Notes the Financial Satement ~ Nove 17 in APPENDIX B ~ Financial Statements ofthe County ‘Adjustment represents the accumulated effect of non-ecorded expenditures on the fund balnce associated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 seperate, 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 County's Annual Financial Reports. The Special Revenue Funds are not available to pay debt service on the Bonds. Fiscal Year Ended September 30, 2002 2001 2000 REVENUES: ‘Taxes $10,929,103 $ 9,685,592 $ 8,591,101 § 7,872,827 $ 7,230,736 Licenses and Permits 5,839,958 5,297,922 5,273,694 «4,994,424 4,668,745. Fees 736,880 302,108 282,684 191,074 185,957 Intergovernmental 2,983,643 2,801,193 2,289,541 2,556,161 1,444,040 ‘Charges for Services 1,035,153 ‘901,792 "740,504 772,264 716,623, Interest 96,254 338,997 370,721 310,629 281,106 Fines and Forfeitures 1,302,043 1,550,884 «1,558,364 1,454,280 1,051,293 Miscellaneous 539,882, 336,494 557.763, 602,817 270,663, Total Revenues $H962916 FI Ais.982 F19,664372 “$1G, 754,476 "815,849,163 EXPENDITURES: Current Operating General Administration § 146408 $131,098 $145,563 $168,164 $155,229 Judicial 3,101,705 2,830,131 2,679,160 1,979,076 1,846,106 Legal Services 195,995, 175,201 143,643, 142,172 110,837 Public Safety 441,745, 405,693 437574 511,176 565,489 Health and Welfare 3,221,639 4,005,031. 2,130,690 2,201,593, 1,375,542 Culture and Recreation «4,281,759 4,253,302 3,615,564 317301 2,829,968 Conservation 113,216 48,500 oe 0 0 Public Transportation 19,224)885 16,353,845 16,606,255 14,823,006 12,551,584 DSS. Issuance Cost 0 10,456 -0- SHO7IT Ss 828200798. F0S,773,.905, S3.144BS “$19.43 Revenues Over (Under) Expenditures $(7,764.437) $(6,787,816) $6,109,533) $ (4,388,012) $13,585,597) OTHER FINANCING ‘SOURCES (USES) Operating TransfersIn $9,532,372 $6,880,609 $ 5.623428 $ 4.918647 § 4,813,611 Operating Transfers Out (4.358.590) G,164,799) (953,637) 0 (363,050) ‘Capital Lease Financing __2.287,507__2.364.393_1,256,892 102,716 350,838 ‘Total Other Financing Sources (Uses) $ 7461287 _ $6,089,203 $ 5,926,683 $ 5,021,363 _$ 4,801,399 Excess (Deficiency) of Revenues & Other Sources Over Expenditures & Other Uses § (303,148) $ (698,613) $ (182,850) $633,351 1,215,802 Fund Balance, October | $ 5047343 $5,745,956 § 6,041,139 § 5,407,788 $4,191,986 Prior Period Adjustment o 0. (112333) 0. o Fund Balance, September 30 "S4744,195_ $5,047,343 33407, 35,745.956 “S$ 6041139 28Debt Service Funds ‘The Debt Service Funds are the funding source for annual payments of principal and interest on the County's outstanding debt. The primary source of fevenue for the Debt Service Funds are ad valorem taxes. The table below summarizes the revenues and expenditures of the Debt Service Funds, which includes debt service funds for South Montgomery County Road District No, 1, 28 reported in the year-end financial reports for the past five years, REVENUES: Taxes Interest ‘Total Revenue EXPENDITURES: Debt Service Principal Retirement Interest and Fiscal Charges Issuance Costs Capital Leases Total Expenditures Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES) Operating Transfer In Proceeds of Refunding Bonds Payment to Refunded Bond Escrow Agent ‘Total Other Financing Sources (Uses) Excess (Deficiency) Revenues ‘& Other Sources Over Expenditures & Other Uses Fund Balances, October | Residual Equity Transfer Fund Balances, September 20 Pension Fund 2003 $ 6,537,150 180,697, ven 807 5 3,013,999 4,375,933 52,036 671,807 Ens $ (1,396,826) 8 0. 3,800,000 97,248 $ (1,299,578) 2,860,746 19.793 Fiscal Yes 2001 $7,010,079 85,061 37,095,140. $3,335,000 3,191,279 0- 0- SE SA6279 $548,861 1,500,000 0 $2,048,861 811,885 0. S230 TIS Ended September 30, Bi 1995. $ 6465227 — § 6,766,997 29.071 54,033 ¥Ga94298 $6,821,080, $ 3,123,227 § 3,031,236 3,564,820 3,849,657 o- De $ (193,749) $ (59,863) $ 0 8 o 0. a oe 38 S (193,749) S$ (59,863) 1,005,634 1,065,497 - An Saws ToS 36,380,893, TE 35,780,936 104042 $2,589,398 3,074,921 O- 0 S5GG19 S$ 220,659 8 0. 0 0. $ o $220,659 844,838 —t $1,065,497 ‘The County provides pension, disability, and death bencfits for all of its full-time employees through a nontraditional, joint contributory, defined contribution plan in the state-wide 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 calendar 2002 are 8.78% for the employer and 6.0% for the employee. The County's total payroll in fiscal year 2002 was $49,043,952, and the County's contributions of $4,143,325 were based on a covered payroll of $46,879,876, For more information, refer to Note 14 of Appendix B - Excerpts from Comprehensive Annual Financial Report of the County. In 1997, the County approved the implementation of a deferred compensation plan pursuant to Section 457 of the Intemal Revenue Code. A third party administrator (Diversified investment Advisors, Ine.) and a plan trustee (investors’ Bank and Trust Company) were chosen to administer the benefit plan.Financial Statements Excerpts from the County's Comprehensive Annual Financial Report for the fiscal year ended September 30, 2002 are attached hereto in Appendix B. The entire Comprehensive Annual Financial Report for 2002 and preceding years are available, for a fee, upon request of the County. ‘THE COUNTY Administration of the County ‘The officials having responsibilty 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 County's budget, determines the County's 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 Commissioner Precinct for a four- ‘year term. ‘The County Judge isthe presiding officer of the Commissioners’ Court and is elected for a four-year term by the voters of the County, Other officials having responsiblity for the financial administration of the County are the County Tax Assessor-Collector, County Treasurer, County Auditor and Purchasing Agent. ‘The County Tax Assessor/Colleetor, J. R. Moore, Jr, was appointed County Tax Assessor/Collector in April 1987, and elected to such post in 1988, 1992, 1996 and again in 2000 to serve a four-year term. Mr. Moore attended Nosth Texas State University and the University of Houston, majoring in Political Science/Government. Mr. Moore received his sate certification as a Professional Tax-Assessor Collector in 1991. ‘The County Treasurer, Martha N, Gustavsen, was elected County Treasurer in 1987, 1991, 1995, and again in 1999 to serve a four-year term. She attended Alvin Junior College, majoring in Accounting, ‘The County Auditor, Linda R. Breazcale, was first appointed County Auditor in October 1986, She has been reappointed for two year terms since 1986. She attended Sam Honston State University, majoring in accounting, and bas plans to pursue an MBA. ‘The Purchasing Agent, Mark Bosma, was appointed in May 1992 to a two-year term as Purchasing Agent and reappointed for two year terms since 1992, He is a graduate of Sem Houston State University. Commissioner's Court Years ‘Terms Expire Commissioner Position Seed December 31 ‘Alan B, Sadler ‘County Judge R 2006 Mike Meador Commissioner Precinct 1 7 2004 Craig Doyal Commissioner - Precinet2 1 2006 Eamest E. Chance Comnnissioner - Precinct 3 4 2004 Bd Rinehart, Commissioner - Precinct 4 4 2006 Consultants Bond Counsel Vinson & Elkins L.L.P, Houston, Texas Financial Advisor... 5 [RBC Dain Rauscher Ine Houston, Texas ‘Auditors (Certified Public Accountants) Hereford, Lynch, Sellars & Kirkham, PC Conroe, Texas Disclosure Counsel. wowAndrews & Kurth LLP. Houston, Texas 30LEGAL MATTERS Legal Opinions ‘The County will furnish the Underwriters a transcript of certain certified proceedings incident to the authorization and issuance of each series of the Bonds, including a certified copy of the unqualified approving opinion of the ‘Attomey General of Texas, as recorded inthe register of the Comptroller of Public Accounts ofthe State of Texas, to the effect that such Bonds, which the Attomey General will have examined, are valid and binding obligations of the County under the Constitution and laws of the State of Texas. The County also will furnish the approving legel opinion of Vinson & Elkins LL.P., Bond Counsel foreach series, in substantially the forms attached as Appendix C to this Official Statement, No Material Adverse Change ‘The obligations of the Underwriters to accept delivery and pay for the Bonds, and of the County to deliver the Bonds tare subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse change in the condition (financial or otherwise) of the County subsequent to the date of sale from that set forth or contemplated in the Official Statement, as it may have been supplemented or amended through the date of sale. LITIGATION ‘According to the County, there are currently a number of Iawsuits 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 ¢ material adverse effect on the financial condition of the County. ‘TAX MATTERS ‘Tax Exemption In the opinion of Vinson & Elkins L.LP., Bond Counsel, (i interest on the Bonds is excludable from gross income for federal income tax purposes under existing law (i) certain “original issue discount” on the Bonds ts excludable from gross income for federal income tax purposes under existing law as described more fully in "Tax Accounting ‘Treatment of Original Issue Discount Bonds,” and (ii) the Bonds are not “private activity bonds” under the Internal Revenue Code of 1986, 25 amended (the “Code”), within the meaning of the Code and interest on the Bonds will not ‘be subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations. ‘The Code imposes « number of requirements that must be satisfied for interest on state or local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of proceeds and the source of repayment, limitations on the investment of proceeds prior to expenditure, a requirement that excess arbitrage carned on the investment of proceeds be paid periedicaly to the United States, and a requirement that the County file an information report with the Internal Revenue Service, The County has covenanted in the Orders that it will comply with these requirements. Bond Counsel's opinion will assume continuing compliance with the covenants of the Orders pertaining 10 those sections of the Code thet affect the exclusion from gross income of interest on the Bonds for federal income tax purposes and, in addition, will rely on representations by the County, the County's financial advisor and the Underwriters with respect to matters solely within the knowledge of the County, the County's financial advisor and the Underwriters, respectively, which Bond Counsel has not independently verified. If the County should fil to comply with the Covenants in the Orders or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable fom the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occuss. ‘The Code also imposes a 20% altemative minimum tax on the “alternative minimum taxable income” of & corporation if the amount of such alternative minimum tax is greater than the amount of the corporation's regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S corporation, regulated investment company, REIT, REMIC or FASIT), includes 75% of the amount by which its “adjusted current earings” exceeds its othet “alternative minimum taxable income.” Because interest on tax-exempt ‘obligations, such as the Bonds, is included in a corporation’s “adjusted current earnings,” ownership of the Bonds could subject « corporation to alternative minimum tax consequences. 31Under the Code, taxpayers are required to report on their retums the amount of tax-exempt interest, such as interest ‘on the Bonds, received or acerued during the year Except as stated above and as stated below in “Tax Accounting Treatment of Original Issue Discount Bonds” Bond ‘Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on, ot disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institution, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in 2 FASIT that holds tax-exempt obligations, and individuals otherwise qualifying for the eared income credit. In addition, certain foreign corporations doing business in the United States may be subject to the “branch profits tax” on their effectively connected earnings and profits, including tax-exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences, Bond Counsel's opinions are based on existing law, which is subject to change. Such opinions are further based on Bond Counsel's knowledge of facts as of the date thereof, Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts of circumstances that may thereafter come to Bond Counsel's attention or to reflect, ‘any changes in any law that may theresfter occur or become effective. Moreover, Bond Counsel’s opinions are not @ (guarantee of result and are not binding on the Internal Revenue Service (the “Serviee"); rather, such opinions represent Bond Counsel's legal judgment based upon its review of existing law and in reliance upon the representations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing ‘udit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service ‘will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published poceclures the Service is likely to teat the Issuer as the taxpayer and the Owners may not have a right to participate in such audit, Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the ‘Bonds during the pendency of the audit regardless ofthe ultimate outcome of the audit, ‘Tax Accounting Treatment of Original Issue Discount Bonds ‘The initial public offering price for certain of the Bonds may be less than the principal amount thereof (the “Original Issue Discount Bonds”) In the opinion of Bond Counsel, under existing law and based upon the assumptions hereinafter stated: (a) The difference between (i) the amount payable atthe maturity of each Original Issue Discount Bond and (i) the initial offering price to the public of such Original Issue Discount Bonds constitutes original issue discount with respect to such Original Issue Discount Bond in the hands of any owner who has purchased such ‘Original Issue Discount Bond inthe initial public offering of the Bonds; end (©) Such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Bond continues to be owned by such. owner. In the event ofthe redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount reslized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount atlocable to the period for ‘which such Original Issue Discount Bond was beld by such inital owner is includable in gross income, Becsuse original issue discount is treated as imeret for federal income tax purposes, the discussion regarding interest on the Bonds under the caption “Tax Exemption” generally applies, except as otherwise provided below, to original isoue discount on an Original Issue Discount Bond held by an owner who purchased such Bond at the intial offering price in the intiel public offering of the Bonde, and should be considered in connection with the discussion in this portion of the Official Statement. In rendering the foregoing opinion, Bond Counsel will assume, in reliance upon certain representations of the Underwriters that (a) the Underwriters have purchased the Bonds for contemporaneous sale to the public and (b) all of the Original Issue Discount Bonds have been initially offered, and a substantial amount of each maturity thereof 32has been sold to the general public in arm’s-length transactions for a cash price (and with no other consideration being included) equal to the initial offering prices thereof. Neither the County nor Bond Counsel warrants that the Original Issue Discount Bonds will be offered and sold in accordance with such assumptions. Under existing law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semi-annual anniversery dates of the date of the Bonds and ratably within each such six-monti period) and the accrued amount is added to an inital owner’s basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such ovmer upon the redemption, sale or other disposition tBereof, The eroount to be added to bass foreach accrual period is equal to (a) the sum of the issue price and the ‘amount of original issue discount accrued in prior periods mulplied by the yield to stated maturity determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the acenisl period) Iess (b) the amouuts payable as current intrest during such accrual period on such Bond. “The federal income tax consequences of the purchase, owmership and redemption, sale or other disposition of Griginal Issue Discount Bonds which are not purchased in the initial offering atthe initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect tothe determination for federal, state and local income tax purposes of interest acerued upon redemption, sale or other disposition of such Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Bonds. CONTINUING DISCLOSURE OF INFORMATION In the Orders, the County has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The County is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. 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 certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors, 1n order to provide certsin continaing disclosure with respect to the Bonds in accordance with Rule 152-12 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 15e2-12"), the County has entered into a Disclosure Dissemination Agent ‘Agreement (“Disclosure Dissemination Agreement”) for the benefit of the Holders of the Bonds 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 Agent's 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 daty 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 rot be deemed to be acting in any fiduciary capacity for the County, the Holders of the Bonds or any other party ‘The Disclosure Dissemination Agent has no Tesponsibiity for the County's 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 all NRMSIRs and any SID as defined below. The information to be updated includes all quantitative financial information and operating date with respect to the County as follows: (j) annual audited financial etatements of the County set forth in APPENDIX B of this Official Statement and (i) information of the general type included in this Official Statement tnder the headings “INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE COUNTY,” 33“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. The County will provide the updated information to each nationally recognized municipal securities information repository (NRMSIR") and to the Texas Municipal Advisory Council, the state information depository (“SID”) designated by the State of Texas and approved by the staff of the SEC. “The County may provide updated information in fll text or may incorporate by reference certain other publicly available docaments, as permited 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 ststements when and if the audit report becomes available. ‘Any such financial statements Will be prepared in accordance with the accounting principles described in Appendix BB or such other accounting principles asthe County may be required to employ from time to time pursuant to state Jaw or regulation “The County's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31, 2004 and March 31 of each year thereafter, unless the County changes its fiscal year. If the County changes its fiscal year, it wll notify each NRMSIR and any SID of te change, Material Event Notices ‘The County will also provide timely notices of certain events to certain information vendors. The County will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of eredit or liquidity providers, or their failure 10 perform; (6) adverse tax opinions or events affecting the tax-exempt status ofthe Bonds; (7) modifications to rights Of the holder of the Bonds; (8) Bond calls; (9) defeasances; (10) release, substitution or sale of property securing repayment of the Bonds; and (11) rating changes. In additior, the County will provide timely notice of any failure ‘by the County to provide information, data or financial statements in accordance with its agreement described above under “= Annual Reports.” The County will provide each notice described in this paragraph to any SID and to either cach NRSMIR or the Municipal Securities Rulemaking Board (“MSRB"”). Availability of Information from NRMSIR and SID ‘The County has agreed to provide the foregoing information only to the NRMSIR and the SID. The information will be available to holders of Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who have done $0. ‘The Municipal Advisory Council of Texas has been designated by the Stats of Texas asa SID and the SEC staff has determined that itis s qualified SID. The address of the Municipal Advisory Council of Texas is 600 West 8th Stree, P.O. Box 2177, Austin, Texas 78768-2177, and its telephone number is (512) 476-6947. 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 werranty concerning such information or conceming its usefulness to decision to invest in or sell Bonds at any future date, The County disclaims any contractual or tot liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the 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 Bonds in the primary offering of the Bonds 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 « majority in aggregate principal emount (or any greater amount required by any 34other provision of the Orders that authorizes such an amendment) of the outstanding Bonds consent to such amendment or (b) a person that is unaffiliated with the County (such as nationally recognized bond counsel) determines that such amendment wil not materially impair the interest of the holders and beneficial owners of the Bonds. ‘The County may also ariend of repeal the provisions of is 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 invalié but only if and tothe exten thatthe provisions of this sentence would not prevent fm underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds. If the County amends its agreement, t must include withthe next financial information end operating data provided in accordance ‘with its agreement described above under “Annual Reports” an explanation, in narrative form, of the reasons forthe 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 agseements made in accordance withthe Rule, except that the County filed its report due March 31, 2002 on May 9, 2002 and filed & notice of material event (upgrade in rating which occured in December 2000) on May 9, 2002. OTHER CONSIDERATIONS Recent Management Initiatives “The County has recently implemented several new programs and initiatives for the purpose of establishing beter ‘management control. The County has created and staffed 2 new risk management department which is in the process of reviewing and improving certain existing County risk management policies and procedures and is also Geveloping additional new risk management procedures. At the direction of the risk management department, the ‘County recently implemented a self-funded workers’ corapensetion insurance program and the County curertly also anticipates participating in a comprehensive self-funded insurance program, which utilizes a governmental pooled ‘arrangement, to cover other significant risk, such as property, casualty and liability, i the near furuze, In addition, the County recently established a Contract Review Committee, consisting of 2 representative from each of the financial, risk management, legal and procurement departments for the purpose of oversight and review of new County contracts. This Committee is intended to provide the County with cost-benefit and risk management analysis of each significant contract the County enters. The County has also estzlished a policy of budgeting and ‘appropriating County funds for the purpose of increasing the County's General Fund balance. The County appropriated $2,000,000 for this parpose in fiscal year 2003 and intends to continue budgeting funds for this purpose until the County's Genoral Fund balance is suficient to fund several months of County operating expenses. Finally, the County has recently retained the services of a consultant forthe purpose of establishing Jong range plans related to the use and development of County office space and personnel distribution, the use and development of County facilites, and the use, development and maintenance of the County road system, The County has elso identified several other areas for which it intends to establish long range plans. 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 curtail new industrial, commercial and residential development in Houston and adjacent areas. Under the Clean Air Act Amendments of 1990, the eight-county Houston-Galveston Consolidated Metropolitan Statistical Area (“CMSA”) has been designated by the EPA as # severe ozone nonattainment area. Such areas art required to demonstrate progress in reducing ozone concentrations each year until the EPA “I-hour” standards are met, and compliance with EPA’s {-hour standards must occur no later than the year 2007. To provide for annual reductions in ozone concentrations, the EPA and the TCEQ have imposed increasingly stringent addtional volatile organic compound and nitrogen oxide (“NOx”) emission limits on existing stationary sources of ait emissions. In addition, any new source of significant air emissions, such as a new industrial plant, must provide for a net reduction of air emissions by arranging for other industries to reduce their ‘emissions by 1.3 times the amount of pollutants proposed to be emitted by the new source. Due to the magnitude of air emissions reductions needed as well as shortage of economically reasonable control options, the development of 351 successful air quality compliance plan has been and continues to be extremely challenging and will inevitably impact a wide cross-section of the business and residential community. Ifthe Houston-Galveston arce feils to demonstrate progress in reducing ozone concentrations or fails to meet EPA’s standards by 2007, EPA may impose a moratocium 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 hydrocarbon emissions for which construction has not already commenced, ‘The TCEQ has developed a State Implementation Plan ("SIP") that is intended to help the Houston-Galveston CMSA achieve compliance with the EPA I-hour ozone standard by 2007. The SIP was adopted by the TCEQ on December 6, 2000, and approved by EPA on October 15, 2001. Compliance dates for emission controls specified in the recently approved SIP are generally set for between 2002 and 2006, depending on the rule. Major emission reduction projects in the SIP include the following: (1) implementation of a NOx emissions banking and trading system that will cap overall point source emissions of NOx; (2) reductions in speed limits on highways within the onattainment ares; (3) other transportation control measures designed to reduce the overall use of automobiles ‘within the Houston-Galveston ozone nonattainment area; (4) improved vehicle inspection to identify and require repairs of high-pollutant emitting vehicles; (5) implementation of cleaner diesel fuel standards; (6) institution of California small engine standards; (7) an approximately 90% reduction in NOx emissions from industrial and commercial point sources; (8) enforceable commitments to develop further control measures such as diesel emulsion (specialty fuel) and tailpipe contols for heavy-duty equipment; ad (9) voluntary commitments to reduce emissions from local government pollution sources and other sources through the Voluntary Mobile Emissions Program (-VME"), "Subsequently the TCEQ has proposed revised standards relating to NOx emissions, which have received substantial support from within the regulated community. The revised standards would reduce from 90% to 80% the required reduction from industrial and commercial point sources, while imposing higher standards on the emission of highly volatile NOx emissions. Many of these measures could impact how people travel, whet distances people are willing to wavel, where people choose to live and work and what jobs are available in the Houston- Galveston area. In addition to the “I-hour” ozone standard deadtine for 2007, the EPA will likely adopt rules regarding an “8-hout” ‘ozone standard and soot standards in the next several years, The Supreme Court recently ruled on a lawsuit filed by the American Trucking Association regarding the new ozone and soot standards. The Court upheld EPA’s ability to adopt these standards, but set new procedural requirements for EPA to follow. The new ozone and soot standards ‘will potentially require TCEQ to develop additional pollution coatrols that will further impact the area's economic growth and development. Other threats to economic growth and development include lawsuits filed under the Clean Air Act by plaintiffs seeking to require emission reduction measures that are even more stringent than those adopted by TCEQ end approved by EPA. In August of 2000, Environmental Defense, Sierra Club, and several local environmental groups filed 2 lawsuit challenging the manner in which Houston ensures tha its future transportation plans conform with the ‘goals of the Clean Air Act. Although this suit was scttled in a manner that protected road and transit development, the same groups filed moze lawsuits on January 14, 2002, challenging portions of the recently approved SIP. The plaintiffs are secking to compel the early adoption of additional emission reduction measures, many of which could ‘make it more difficult for businesses to construct or expand industrial facilities or which could result in travel restrictions or other limitations on the actions of businesses, governmental entities and private citizens, Any successfil court challenge to the EPA-approved SIP could result in the imposition of even more stringent air emission controls that could threaten continued growth and development in the Houston-Galveston area. It remains to be seen exactly what steps will ultimately be required to meet federal air quality standards, how the EPA may respond to developments as they occur, and what impact such steps and any EPA responses may have ‘upon the economy and the business and residential communities in the CMSA. Pending Legislative Session ‘The Texas Legislature is now meeting in its biennial regular session ending June 2, 2003. Certain legislation, if ‘enacted, may affect the operations of the County. The County cannot predict which, if any, of such legislation will be adopted or whether any such legislation will have a material adverse effect on the County. 36GENERAL CONSIDERATIONS Sources and Compilation of Information ‘The information contained in this Official Statement hes 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. Bond Counsel was not requested to participate and did not participate in the preparation of this Official Statement, however, such firm has reviewed the information hercin contained under the captions “THE BONDS” (except the subsections “Book-Entry-Only System,” “Purpose of the Bonds and Use of Proceeds” and “Future Borrowing”), SLEGAL MATTERS,” “TAX MATTERS,” and “CONTINUING DISCLOSURE OF INFORMATION" (except the subsection “Compliance With Prior Undertakings”) solely to determine whether such information fairly and accurately describes the Bonds and the Orders, and is correct as to matters of law. Bond Counsel has neither independently verified information contained in this Official Statement not conducted an investigation of the affairs of the County for the purpose of passing upon the accuracy or completeness ofthis Official Statement. No person is entitled to rely upon the limited participation of such firm as an assumption of responsiblity for, or an expression of ‘opinion of any kind with regard fo, the accuracy or completeness of sny ofthe other information contained herein. ‘Updating of Official Statement ‘The County will keep the Official Statement current by amendment ot sticker to reflect material changes in the affairs of the County and, tothe extent that information comes to its attention, to the other matters described in the Official Statement, until the delivery of the Bonds to the Underwriters. All changes in the affairs of the County and ‘other matters described in the Official Statement subsequent tothe delivery of the Bonds to the Underwriters and all information with respect to the sesale of the Bonds 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. CONCLUDING STATEMENT ‘To the extent that any statements made in this Offical 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 ffom 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 Bonds. ‘si Alan B. Sadler County Judge Montgomery County, Texas ATTEST: ‘)——-Mark Turnbull County Clerk ‘Montgomery County, Texas 37APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION ‘The following information has been derived ftom various sources, including the Texas Almanac 2002-2003, Texas ‘Municipal Reports, the South Montgomery County Woodlands Economic Development Partnership, U.S. Census ata, 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 hurseries, 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 Cane, Osk Ridge North, Panorama Village, Patton Village, Pinchurst, Porter, Porter Heights, Roman Forest, Shenandoah, Spiendore, Szsgecoach, Wills, Woodbranch Village, Woodloch and the planned residential and business community called The Woodlands. ‘School districis within the County are Conroe ISD, Magnolia ISD, Montgomery ISD, New Caney ISD, Splendore ISD and Willi ISD. The largest school district is Conroe ISD, comprising approximately 333 square miles, located im south central Montgomery County adjacent to the northera 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 5 senior high schools, 6 junior high schools, 7 intermediate schools, and 22 elementary schools and has a 2000-2001 school year enrollment of approximately 35,108. A satellite campus of North Harris Montgomery County College (the “College”) is located in Montgomery County. ‘The County owns and operates the Montgomery County Airport which is a full-service facility located four miles from Conroe. Houston's Intercontinental Airport, located nearby in Harris County, offers intemational travel for passengers and cargo. The County is serviced by three railroads (Union Pacific, A. T. and SantaFe). ‘The following is a list of some of the firms in Montgomery County with a total number of employees in excess of 100. 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 100-499 Name Name Allstate Insurance Company Jobn Cooper School “Associated Building Services Jostra Bentley Ball-Metal Contsiner Lowe's Borden Dairy Tyondell Chemical Chicago Bridge & fron Marin-Brower Co. ‘Commercial Coating SVC Maverick Tube Corp. Conroe Courier Multi-shot BWC Company Conservatek Pantellos Group Crown Cork & Seal Co. R&M Energy Systems Dal Tile Corp Regent Care Center Demontrond Auto Country Ine Rigaku MSC Devon Energy RLX Technologies Eckerd Drug Distibution Center Rockwell Automation Entergy Sadler Clinic Exalt, Inc, Sawyer CrystalEMPLOYERS OF 100-499 (Continued) Name Name First Bank of Conroe Sigma-Genosys GE Bew Sparkler Filters Gullo Ford-Mercury Ine. Tetra Technologies Gullo Mazde Inc. The Forum atthe Woodlands Gullo Toyota Conroe ‘The Woodlands Health Care Center HEB Pantry Foods ‘The Woodlands Operating Company Healthsouth Rehab Hospital Tuboscope Vetco Intl. Inc Huntsman Chemical Corp ‘TXU Communication Interfaith Unidynamies EMPLOYERS OF 500-999 Name Name Chevron Phillips Chemical Co. Maersk Sealand Hughes Christensen Memorial Hermann, The Woodlands Hospital Lexicon Genetics, Ine ‘Woodlands Resort & Conference Center EMPLOYERS OF 1,000+ Name Name Anadarko Petroleum Corporation Howitt Associates, LLC Conroe Regional Medical Ceater 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 City’s population has increased ftom 27,610 in 1990 to 36,811 in 2000 representing « 33% growth rate Jn 1973, Lake Conroe was completed, forming a 21,000 acte 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. Banks within the City of Conroe according to the 2001-2002 Greenbook — The Texas Financial Institutional Directory and Fact Book are Bank of America Texas, N.A.; Bank One, National Association; First Bank of Conroe, NA Wells Fargo Bank of Texas, N.A. First National Bank; Klein Bank; Compass Bank; Woodforest National Bank; and JPMorgan Chase Bank.‘THE WOODLANDS General ‘The Woodlands is a community being developed approximately 27 miles north of downtown Houston. Located within a 25,000-acre tract of densely forested land, the community is generally situated adjacent to and west of LH. 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 LH. 45 between State Highway 242 and FM 1488. The formal opening of The Woodlands occurred in mid-October 1974 Residential developments located in The Woodlands offer a variety of new bousing ranging in price generally from '$87,000 to in excess of $1,000,000. The recreational facilities in The Woodlands include open space (including ‘wildlife corridors, 86 miles of hike and bike paths, park land and lakes); 117 holes of golf; The Woodlands Athletic Center (including swimming, diving, tennis and gym); « YMCA; and, the Cynthia Woods Mitchell Pavilion, an amphitheater with seating capacity of 17,000. In some cases, schools are located within the residential villages ‘These areas currently have 2 popilation of more than 70,000 people, and an estimated 1,030 employers provide ‘employment for approximately 27,000 people.ULS. Census of Population (2) 1930 1940 1950 1960 1970 1980 1990 2000 ECONOMIC AND GROWTH INDICATORS Montgomery County City of Conroe, TX ‘Number % Change Number fs Change 14,588 “15.84 2,457 132.24 23,055, 458.04 4,624 +88.20 24,504 46.28 7,298 457.83 26,839 4953 9,192 425.95 49,479 48435 11,969 +3021 127,722 4158.04 20,447 +7083 182,201 442.65 27610 $35.03 293,768 961.23 36,811 333.32 @ 2000 Census of Population and Housing, U.S. Dept. of Commerce, Bureau of the Census Marketing Survey of Buying Power ~ Marketing Survey of Buying Power - Montgomery Conroe County Population (000s) 387 3169 ‘% of Population by Age Group 6 18-24 138 8 625-34 169 28 635-49 D8 249 %450-Over 217 248 ‘amber of Households (000°s) Bs ms Retail Sales (000's) Total Retail Sales $1,401,095 $3,769,424 Food 144078 478,198 Eating and Drinking Places 69,052 278,165 General Merchandise 128,131 680,447 Fumiture, Furnishings, Appliances 35,508 164,880 Automotive 750,269 1,194,267 Effective Buying Income (“EB”) Total Effective Buying income (000's) $611,158 $6,870,741 Median Household EB 34,507 48,403 ‘% Household EBI $20,000 t $34,999 287 183, $35,000 - $49,599 182 73 $530,000 and Over 309 477 Buying Power Index 0.0201 0.1180 (@ Siatistcal data Bom “Gales & Marketing Management ~ 2002 Survey of Buying Power,” copyright in 2002 Houston ‘SMSA 43454 102 157 239 22 1,517.0 $57,405,015 7,043,078 5,836,004, 6,380,555 3,666,060 18,227,017 992,114,874 46,204 198 180 449 1.6461 Sales & Marketing Management Survey of Buying Power. Further reproduction is forbidden.‘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 3,419 301,635 2002 495, 207,333 4252 610,797 ‘Audited Financial Statement ~ Statistical Section.APPENDIX B EXCERPTS FROM COMPREHENSIVE ANNUAL FINANCIAL REPORT OF MONTGOMERY COUNTY, TEXAS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002 MONTGOMERY COUNTY, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT SEPTEMBER 30, 2002 PREPARED BY: Linda R. Breazeale Montgomery County AuditorOME] com INSIVE ANNUAL FINANCIAL REPO) ‘YEAR ENDED SEPTEMBER 30, 2002 TABLE O} ‘TEN! INTRODUCTORY SECTION Directory of Offici Organization Chart. County Auditor's Leter of Transmit. FINANCIAL SECTION Independent Auditors’ Report... General Purpose Financial Stateme! Combined Balance Sheet - All Fund Types and Account Groups. 7 Combined Statement of Revenues, Expenditures ‘and Changes in Fund Balance - All Governmental Fund Types... Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget (GAAP Basis) and Actual - General, Special Revenue and Debt Service Fund Types. .-++e2ceseeeeees Notes to Financial Statements. .. Combining, Individual Fund and Account Group, Financial Statements and Schedules: General Fund Comparative Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance - Budget (GAAP Basis) and Actual, Schedule of Revenues and Other Financing Sources - Budget (GAAP Basis) and Actual. ...... Schedule of Expenditures and Other Financing Uses - Budget (GAAP Basis) and Actual. . SEA sterol EXHIBIT SCHEDULE Al Ad AS Ad PAGE 4 18 20 2B 45 aT 48 30INTRODUCTORY SECTIONMONTGOMERY COUNTY, TEXAS DIRECTORY OF OFFICIALS SEPTEMBER 30, 2002 COMMISSIONERS’ COURT: ‘Alan B. Sadler County Judge Mike Meador Commissioner, Precinct #1 Craig Doyal Commissioner, Precinct #2 Emest E. Chance Commissioner, Precinct #3 Ed Rinehart Commissioner, Precinet #4 DISTRICT COURT: Fred Edwards Judge, 9th Judicial District Suzanne Stovall Judge, 221st Judicial District Olen Underwood Judge, 284th Judicial District James H. Keeshan Judge, 359th Judicial District K. Michael Mayes Judge, 410th Judicial District Michael McDougal District Attorney Barbara G. Adamick District Clerk COUNTY COURT AT LAW: Dennis Watson Judge, County Court at Law #1 Luther J. Winfree Judge, County Court at Law #2 E, Mason Martin Judge, County Court at Law #3 Mary Ann Turner Judge, County Court at Law #4 David Walker County Attorney Mark Tumbull County Clerk JUSTICE COUR’ John Kleimann Justice of Peace, Precinct #1 Grady Trey Spikes Justice of Peace, Precinct #2 Mary B. Connelly Justice of Peace, Precinct #3 Cynthia F. MeMillian Justice of Peace, Precinct #4 Carolyn Cox Iustice of Peace, Precinct #5 LAW ENFORCEMENT: Guy Williams Sheriff Donnie ©. Chumley Constable, Precinct #1 Gene DeForest Constable, Precinct #2 Tim Holifield Constable, Precinct #3 Travis L. Bishop Constable, Precinct #4 David H. Hill Constable, Precinct #5 FINANCIAL ADMINISTRATION IR. Moore, ir. Tex Assessor-Collector Martha N. Gustavsen County Treasurer Linda R. Breazeale County Auditor* Mark Bosma Purchasing Agent* * Designates appointed official. All others are elected.NOUvaOud SUNSANE SHINS swoussyio2} | _nvuanaa, ‘@ssoanr A9RULSIG 1) sa9anr [INSWSOVNVA INaWdOTaAaG Wana sonva SAID NoUwaoud nay wonany ALNn09, 4uno9 09. AONAOWENS ALINAWWOD guvog sTINaANE finanaovnvw] — [Sa0unos: HiWwan sR want Anuar JWANaMNOMIAN “AUvaErT VT RYBSNOD YBLVMGNNOYS SINSOV NOISNALXS Twisavn | WaaNIONS ood ANviayoas ‘sda aula snouosa ALNOD, NOLLMOSaY aindsia INSOV ‘SU3dd018 AWRIO Jonisviioune auVvsTaM CHO ‘SaOIRUaS TW IN War iaHs e “TWANAINNSAROOREUNL awiao1sn9 nig una, AyOsIy JoRINOD TWwaINy, Te ssoanr we tonuisid SUBNOISSIMINOD ‘GUVOH ONISVHOUNE “BuNOD SYANOISSINHOT (sissoanr LoRUSIO a) Wsasanr (e)s0vaa SHE waa aT ‘s37@V1SNOD anus, 4402.09 30 sz9usnr Aonuisia AINNOS WOLDaTION asunsvaea| woanr ‘SUaNOISSINMOD ANBOLIV AANUOLLV wOSSaSsY XVI AANNOO ALNNOD, unos LoRusia AINNOD, Soot T I i] SUSLOA NOILWZINVDUO SVXAL ‘ALNNOD AMSIWNODLNOW‘Wands Grit Supervisor Gener edeet James Robey, Supervisor Montgomery County, Texas ‘Accounts Payable inda R, Breazeale ‘Oma of county Auditor ‘Garo! Stroud, Supervisor: a County Auditor Incemal Ault egg Rushing Juan Tobe, Sunerisor \iministrative Assistant March 1, 2003 ‘Fiduciary Compliance 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, 2002, is submitted herewith. This report was prepared by the County Auditor. Responsibility for both the accuracy of the presented data and the completeness and faimess of the presentation inchuding all disclosures rests with the County. We believe the data as presented is accurate in all material aspects; that it is presented in 2 manner designed to fairly set forth the financial position and results of operation of Montgomery County as measured by the financial activity of its various funds; and that all disclosures necessary to cnabie the reader to gain the maximum understanding of the County's financial activity have been included. The report was prepared in accordance with generally accepted accounting principles as promulgated by the Governmental Accounting Standards Board and is in compliance with Paragraph 114.025 Vernon's Texas Codes Annotated (V.T.C.A.) Local Government Code. ‘The Comprehensive Annual Financial Report is presented in three sections: introductory, financial, and statistical. ‘The introductory section includes this transmittal letter, Montgomery County’s organizational chart and a list of principal officials. The financial section includes the general-purpose financial statements and the combining and individual fund and account group financial statements and schedules in addition to the independent auditors’ report on the financial statements and schedules. ‘The statistical section includes selected financial and demographic information, generally presented on a multi-year basis. This report includes all of the funds and account groups of the County. The County provides a full range of services. Included are police protection, legal and judicial services, construction and maintenance of roads and bridges, public health service, and facilities for recreational and cultural use. South Montgomery County Road District No. I is a component unit of the County, and accordingly, its financial transactions are & part of this report. Additional information relative to the inclusion or exclusion of certain entities is provided as a part of the notes to the financial statements in the financial section of this report. :ONOMIC. DITION UTLOOK Montgomery County was created in 1837, and is located on the southem edge of the Big Thicket, approximately forty miles north of metropolitan Houston. The County operates a full service airport and is also served by nearby Bush Intercontinental Airport for domestic and intemational travel. Three major rail lines intersect in the county seat of Conroe. The North Harris Montgomery Community College District, 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. ‘301 N. Thompson, Su. 202 ¢ Conroe, TX 77301 # + P. 0. Box $29 ¢ Conroe, TX 77305-0539 “ele: (936) 539-7820 « Fax: (936) 788-8390 + Ei: brenea@co.montgomery.0.05As visitors drive through the area, they may not be aware that Montgomery County holds a special place in the history of our state. In 1997, then-Governor George W. Bush signed a resolution that recognized Montgomery County as The Birthplace of the Lone Star Flag. This recognition was due the County because Charles Bellinger Stewart, made his home in western Montgomery County at the time his design for a flag was selected by the Third Congress of the Republic of Texas in 1839. A mural, depicting this and other historical county events, can be seen in multi-color on a cross-walk that connects the County Courthouse with an annex courts building, and spans State Highway 105 in downtown Conroe. ‘The County's economy is based on mineral production, agriculture, and timber. The U.S. Census Bureau reported the 1990 population for Montgomery County at 180,394, and the year 2000 population to be 293,768. This 63% growth was evident in the increased demand for service at the county level. This rate of growth, coupled with the slow-down in the national economy in the aftermath of September 11, 2001, led to 2 35% increase in the unemployment rate among the County's citizens. ‘Commercial construction continued to increase, as a result of several large shopping centers being developed along the Interstate 45 corridor through South Montgomery County. Residential construction permits increased again over last year by some 24%, Investments made in Texas highways recently have assisted in attracting new and diverse businesses to the County. The Woodlands, a planned community in south Montgomery County, is home to biomedical and technology businesses, causing continued growth in the southem part of the County. Evidence of this growth is seen in the inclusion of The Woodlands Companies at the top of the list of ten principal taxpayers in the County again during 2002 MAJOR INITIATIVES For the Year — In response to concerns by citizens that several county-owned ballfields would be lost to the ‘construction of the convention center and expo arena, the Commissioners” Court initiated the construction of a new complex consisting of twelve new fields complete with lighting for night play. The project was substantially complete at year end, and itis anticipated that its inaugural season will be the Spring of 2003, Total cost of the project was $2.4million. In October 2001, the County entered into a lease-purchase agreement for the construction of an addition to the East Montgomery County courthouse. The annex was completed in August 2002, and move-in was scheduled for September. Total cost of the renovation was $900,856, and was paid for with current funds. In May 2002, The County awarded a $1.6million contract for the construction of a multi-purpose community building to be located in the eastem section of the County. The 17,500 square foot facility will house several ‘non-profit organizations, and is being funded by a portion of the Community Development Block Grant from the U.S. Department of Housing and Urban Development. For the Future — Several construction projects were planned at year end. Many were focused on the use of the County’s road bonds. Right of way acquisitions were underway for the future expansion of FM 1314, A route and design study was commissioned for FM 1097 from Interstate 45 to Lake Conroe. And, # contract to perform an environmental assessment was awarded in connection with the widening of FM 1488, These projects will all be part of joint program with the Texas Department of Transportation. In July 2002, the Commissioners’ Court accepted the schematic design for a 4-story office building to be located on W. Phillips Street, adjacent to the Atrium Building which houses the county courts at law. Current plans call for housing the county and district attomeys in the new building, thereby relieving overcrowding in the downtown Administration Building, and freeing up space in the Atrium Building for the new County Court at Law No 4.In April 2003, the County will issue $10million in general obligation bonds for library improvements. This debt series was approved by voters in November 2002. Included in the projects to be funded by this debt will be renovation and construction of three facilities. The facilities master plan presented to commissioners in February 2002 anticipates improvements to and/or construction of nine facilities. Funding for the complete planned project will be sought in future bond elections, Department Focus ~ At the department level, the County focused time and resources to the implementation of various provisions of The Fair Defense Act, enacted by the 77 Session of the State Legislature in September 2001. The new law requires the County’s judges to create a plan to address a timely appointment of counsel for indigent defendants as well as a process for the systematic collection of data conceming all appointments. The County received a $91,000 grant from the Task Force on Indigent Defense to assist in carrying out its plan. One of the provisions of the act allows the County to utilize the services of an appointment designee to facilitate the assignment of counsel to defendants. In December 2001, the Commissioners’ Court funded a fulltime position to work under the direction of the judges in this effort. In August 2002, the judges approached the commissioners, seeking some assistance for that individual. The commissioners responded by creating the Office of Court Administration (OCA) and appointing a director to oversee the coordination of changes in laws such as this one. In addition, the director of OCA will be responsible for seeking out and making application for future grants to assist the County in continued compliance with the Fair Defense Act. FINANCIAL INFORMATION Internal Control Structure - The County's accounting records for general governmental operations are ‘maintained and the financial statements presented on a modified accrual basis. The Commissioners’ Court, who is the governing body, and the County Auditor, who is appointed by the District Judges, share the financial operating controls. The County Auditor has the basic responsibilities for maintaining the records of all financial transactions of the County and “examining, auditing end approving” all disbursements from County funds prior to their submission to the Commissioners’ Court for payment. The Commissioners’ Court sets the tax rate, establishes policies for County operations, approves contracts for the County, and develops and adopis the County budget within the resources as estimated by the County Auditor. In developing the County's accounting systems, consideration was given to the adequacy of intemal accounting controls. Intemal accounting controls are designed to provide reasonable, but not absolute, assurance regarding the safeguarding of assets against loss from unauthorized use or disposition and the reliability of financial records for preparing financial statements and maintaining accountability for assets. ‘The concept of reasonable assurance recognizes the cost of a control should not exceed the benefits likely to be derived therefrom and the evaluation of costs and benefits requires estimates and judgments by management, Intemal control evaluations occur within the above framework. We believe the County's internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transections. Budgetary Controls - Montgomery County maintains strict budgetary controls to ensure compliance with egal provisions in the annual appropriated budget approved by the governing body. Activities of the General Fund, the Special Revenue Funds, and the Debt Service Fund are included in the annual appropriated budget. According to the budget laws of the State of Texas, expenditures may not exceed the amount appropriated for each fund. The County Auditor is statutorily responsible for compiling and presenting a budget to Commissioners’ Court for their consideration and approval. Once adopted, the budget is enforced by the County Auditor.General Government Functions - The following schedule presents a summery of revenues recorded in the General Fund, Special Revenue Funds, and Debt Service Funds for the fiscal year ended September 30, 2002, as well as the amount and percentage of increases and decreases in relation to prior year revenues. Increase Increase Percent Decrease) Decrease) Revenue Source Amount __of Total From 2001___From 2001 Taxes $69,165,276 66.65% ‘$7,383,781 ‘11.95% Licenses and Permits 6848251 6.60 713,613 11.63% Fees 8,661,726 795,135 10.11% Intergovernmental 6,126,579 737915 13.69% Charges for Services 1,078,794 130298 13.74% Interest 803,231 (597,485) (42.66)% Contract Reimbursements 7,351,963 1191431 19.34% Inmate Housing 448,159 72846 19.41% Fines and Forfeitures 1,570,219 (66,437) (4.06)% Miscellaneous 1,726,849 46,142) (2.60)% Totals Revenues $103,781,047 SO 314955 11.04% ‘A continued increase in the tax base contributed to the 11% increase in tax collections, The increases in fees and charges for service were attributed to annual adjustments to the schedule of moneys to be collected for certain services. Intergovernmental revenues increased by 13% due to several criminal justice and airport rants that were awarded and received during fiscal 2002. Interest earnings on investments continued to decline by 42% in response to the overall drop in the markets. Contract reimbursements and inmate housing revenues each increased by 19% due, in part, to the actions taken by Commissioners’ Court to provide services to surrounding areas. ‘The following schedule presents a summary of General Fund, Special Revenue Funds, and Debt Service Funds expenditures for the fiscal year ended September 30, 2002, and the percentage of increases and decreases in relation to prior year amounts. Increase Increase Percent (Decrease) Decrease) Eunetion Amount ___ of Total From2001__From 2001 General Administration S$ 12,629.952 10.90% $4,662,209 58.51% Judicial 10,294,847 8.89 1,215,947 13.39% Legal 1,452,800 1.25 (15405) (1.059% Elections ‘588836 0.51 138,635 30.79% Financial Administration 3,464,350 9 313,322 9.94% Public Facilities 5,418,380 4.68, 363,200 718% Public Safety 37,018,409 31.96 3,779,735 137% Health and Welfare 6312253 5.45 67341) 0.647% Culture and Recreation 428179 3.70 28,457 067% Conservation 609,646 0.53 230,395 60.75% Public Transportation 19,224,885 16.60 2,871,040 17.56% Miscellaneous 627,786 5.53 2,490,738 63.26% Debt Service 8.114)673 __701 1,568)394 23.96% Total Expenditures _S115,838.576 100.0% $.16.973.326 17.17% General administration costs increased by 58% due to a one-time acquisition expenditure for a 4 % story parking garage (S4.177million) to serve the needs of County employees in dowatown Conroe. The cost was funded by the proceeds of a lease-purchase agreement.Judicial costs increased by 13% due to the combined effects of complying with the Fair Defense Act and the start-up costs for County Court at Law No 4. The 30% increase in elections costs was associated with the regular general elections held during the year. Both public safety and public transportation continued to increase, 11% and 17%, respectively, as Commissioners’ Court responded to the needs of the increasing number of county citizens. Conservation costs increased by 60% because a recycling station was opened in precinct three. And the miscellaneous expenditures increased by 63% due to one-time costs for several building projects that were completed with current funds. Total fund balances in the three groups of operating funds decreased by Si.2million in the aggregate, The General Fund balance of $1.45million increased by $355,000 from the prior year. ‘The Special Revenue Funds balance of $4.74million decreased by $303,000. The Debt Service Funds balances (reserved for debt) of S1.S8million decreased by $1.27million, ‘The overall fund balance level of $7.7million is sufficient to fund approximately one month of operations Although this is less than desired, management is committed to maintaining a secure base from which to provide service to the citizens of Montgomery County. The Commissioners’ Court has formulated a plan for 2 consistent, incremental rebuilding of the County’s fimd balances. Included in the budget adopted in ‘August 2002, for the fiscal year 2003, is an appropriation to replenish the operating fund balances by S2million, A similar appropriation will be included in future budgets. Debt Administration - At September 30, 2002, Montgomery County had outstanding bonded debt in the amount of $107.5million (inclusive of the accreted portion of various capital appreciation bonds). ‘Commissioners’ Court continues to keep maturity dates confined to no more than 20 years. The County bas ‘maintained its “Aaa” and “AAA” ratings from Moody's Investors Service, Inc. and Standard and Poor's Corporation, respectively, by purchasing additional insurance on cach outstanding bond issue. Currently, net bonded debt per capita is $336.70 in the County, an increase of $56.02 over the year 2001. In June 2002, the County issued the first $25million in general obligation bonds for road improvements that are part of a $60million plan that will span a five to seven year period. At the same time, $4.Imillion in outstanding debt was advance refunded in order to take advantage of lower interest rates. ‘The County anticipates issuing the second series of road bonds along with certificates of obligation to complete improvements to parks and a county building in April 2003. Even though the total debt obligation has increased substantially, the County is still comfortably within its legal debt margin. Cash Management - 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 Attomey 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. Demand deposits are covered by pledged collateral maintained in j safekeeping accounts at the Federal Reserve Bank of Dallas and Compass Bank, Special attention is paid to timing maturities to be consistent with construction projects. Risk Management - The County retains various levels of risk, and accounts for the associated expenditures in the General Fund. General liability risk is completely self-funded, and an annual appropriation is included in the budget for contingency. Property and casualty insurance is purchased for all real and personal property holdings, with deductible amounts being appropriated annually. Claims against insured holdings have not exceeded the insurance coverage in the last three years. The County participates in the Texas ‘Association of Counties Workers’ Compensation Pool to cover job-related risk. In January 1989, the county established a partially self-funded trust plan to provide health and life benefits to employees and their dependents. In 2002, contributions to the plan were adequate to pay $7.4million in claims.OTHER INFORMATION Independent Audit - The County engages a firm of certified public accountants annually to perform an audit of the general-purpose financial statements. Accordingly, the report issued thereon by the firm of Hereford, Lynch, Sellars & Kirkham, P.C., Certified Public Accountants, is included in the financial section of this report ‘Awards - The Government Finance Officers Association of the United States and Canada (GFOA) awarded 2 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, 2001. This was the fourteenth consecutive year that the County has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a govemment must publish an casily 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. Acknowledgments - The preparation of this report on a timely basis could not have been accomplished ‘without the efficient and dedicated services of all County departments, 1 want to express my appreciation to the staff of the Office of County Auditor for their continued commitment to a standard of excellence. 1 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, LINDA R. BREAZEALE Montgomery County Auditor IsCertificate of Achievement for Excellence in Financial Reporting Presented to Montgomery County, Texas For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2001 ‘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 ‘stems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting tee few ble President ea Executive DirectorFINANCIAL SECTIONHLS&K Hereford, Lynch, Sellars & Kirkham CCerified Public Accountanis. * A Professional Corporation 10 Loop 336 W., 4th Floor Laven omg hentia Conroe (936) 156-8127 P.O. Box 3548 ‘rn Coop Pi: Sonon Fax (036) Be-8132 Conroe, Texas 7305 sich Bena Pm Houston Metro 936-4411338 INDEPENDENT AUDITOR'S REPORT Honorable County Judge and Commissioners’ Court Montgomery County, Texas ‘We have audited the accompanying general-purpose financial statements of Montgomery County, Texas as of and for the year then ended September 30, 2002, as listed in the table of contents. ‘These general-purpose financial statements are the responsibility of Montgomery County, Texas’s management. Our responsibility js to express an opinion on these general-purpose financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit fo obtain reasonable assurance about whether the general-purpose financial statements are free of ‘material misstatement. An audit includes examining, on @ test basis, evidence supporting the amounts and disclosures in the general-purpose 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 opinion, In our opinion, the general-purpose financial statements referred to above present fairly, in all material respects, the financial position of Montgomery County, Texas as of September 30, 2002, and the results of its operations 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 intemal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in ‘conjunction with this report in considering the results of our audit, ‘The combining and individual fund and account group financial statements, schedules, and statistical data listed in the table of contents are presented for purposes of additional analysis and are not a required part of the general-purpose financial statements of Montgomery County, Texas. Such information, except for the portion marked "unaudited," on which we do not express an opinion, has been subjected to the auditing ‘procedures applied in the audit of the general-purpose financial siatements and, in our opinion, is fairly stated, in all material respects, in relation to the general-purpose financial statements taken a5 a whole. Fereford, Lynch, Sellars & Kollam, D.C. HEREFORD, LYNCH, SELLARS & KIRKHAM, P.C. Certified Public Accountants Conroe, Texas January 21, 2003COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS SEPTEMBER 30, 2002 EXHIBIT 1 Page | of 2 Governmental Fund Types Special Debt Capital General Revenue Service Projects ASSETS AND OTHER DEBITS ASSETS: Cash S 863,204 $ 923,674 $ 106,109 $1,742,440 Investments, at Fair Value 6,995,397 3,894,211 1,380,437 24,013,652 Restricted Cash 89,694 1,965,166 - - Receivables: Taxes (net) 4,676,589 994,859 670,647 - ‘Accounts 876,486 86,388 - 1,644 Accrued Interest 2,586 14,035 16,322 75,057 Due From Other Funds 2,643,742 997,271 59,909 717,454 Due From Other Governments 1,112,488 701,232 - 66,474 Inventory, at Cost - 59,883 - - Prepaid Items - 293,686 - : Fixed Assets: 5 - - : OTHER DEBITS: Amount Available in Debt Service Funds - - - - Amount to be Provided for Retirement of Long-Term Debt : : : : TOTAL ASSETS $ 17,260,186 _$ 9,930,405 _$ 2,233,424 _S_26,616,721 See accompanying notes tothe financial statements, “Fiduciary Totals Fund Type Account Groups (Memorandum Only) General General Fixed Long-Term September 30, September 30, Agence: Assets Debt 2002 2001 S$ 7,627,428 8 : 8 : $ 11,262,855 $13,809,001 1,105,618 - 37,389,315 21,035,334 - - 2,054,860 1,243,801 - - 6,342,095 6,107,505 21,841 - 986,359 430,423, 7 : 108,000 32,843 15,484 : : 4,433,860 9,126,318 - - - 1,880,194 2,533,660, : : : 59,883 49,274 7 - 293,686 10,468 - 139,409.71 139,409,704 122,347,605 : : 1,580,961 1,580,961 2,860,746 : : 120,322,424 120,322,424 89,843,461 $8,770,371 _$_139,409,704 _$_ 121,903,385 $ 326,124,196 _$ 269,439,439 18COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS ‘SEPTEMBER 30, 2002 EXHIBIT 1 Page 2 of 2 Governmental Fund Types Special General Revenue, LIABILITIES, EQUITY. AND OTHER CREDITS LIABILITIES: Accounts Payable S$ 6,178,154 $1,847,414 Retainage Payable 67,806 158,243 Due to Other Funds 1,492,051 1,821,204 Due to Other Governments 3,005,475 10,608 Deferred Revenue 5,063,898 1,348,741 Compensated Absences Payable - - Capital Leases Payable a : General Obligation Bonds 7 : Arbitrage Rebate Payable : Certificates of Obligation Payable TOTAL LIABILITIES EQUITY AND OTHER CREDITS: Investment in General Fixed Assets: ci 7 Fund Balances: Reserved for Prepaid Items - 293,686 Reserved for Capital Projects 7 : Reserved for Inventory - 39,883 Reserved for Debt Service - Unreserved 1,452,802 43904 TOTAL EQUITY AND OTHER CREDITS 1,452,802 4,744,195 ‘TOTAL LIABILITIES, EQUITY, AND OTHER CREDITS $17,260,186 _$_ 9,930,405 ‘See accompanying notes to the financial statements, 16 Debt Service $1,597 537 630,329 1,580,961 1,580,961 $ 2,233,424 Capital Projects $ 2,327,914 786,533 112,058 23,390,216 23,390,216 $ 26,616,721Fiduciary Totals Fund Type Account Groups (Memorandum Only) General General Fixed Long-Term September 30, September 30, Agency Assets Debt 2002 2001 $ 3,366,422 S$ - 8 : $ 13,721,501 $ 9,962,186 : - - 1,012,582 812,601 1,008,010 : : 4,433,860 9,126,318 4,395,939 : - 7,412,022 4,984,546 : - : 7,062,968 6,660,240 : - 3,560,971 3,560,971 3,263,460 : - 10,509,449 10,509,449 3,888,059 - - 65,821,669 65,821,669 42,686,392 - : 236,296 236,296 236,296 : : 41,775,000 41,775,000 42,630,000 8770371 121,903,385 155,546,318 124,250,098 - 139,409,704 - 139,409,704 122,347,605 : : : 293,686 10,468 - : : 23,390,216 13,836,579 - - - 59,883 49,274 - - - 1,580,961 2,860,746 : : : 5,843,428 6,084,669 : 139,409,704 - 170,577,878 145,189,341 $8,770,371 _$_139,409.704 $_ 121,903,385 $ 326,124,196 _$ 269,439,439COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUND TYPES ‘YEAR ENDED SEPTEMBER 30, 2002 REVENUES: General Taxes 3 31,699,005 Licenses and Permits 1,008,293 Fees 8,424,846 Intergovernmenta 3,142,936 Charges for Services 43,641 Interest 526,280 Contract Reimbursements 7 351,963 Inmate Housing 148,159 Fines and Forfeitures 268,176 Miscellaneous 1,186,967 ‘TOTAL REVENUES 7a: 100.284 ‘EXPENDITURES: Current: General Administration 12,483,544 Judicial 7,193,141 Legal Services 1/256,805 Elections 588,836 Financial Administration 3,466,350 Public Facilities 5,418,380 Public Safety 36,576,664 Health and Welfare 3,090,614 Culture and Recreation - Conservation 496,430 Public Transportation - Miscellaneous 6,427,786 Capital Projects . Debt Service Principal Retirement : Interest and Fiscal Charges : Issuance Costs = ‘TOTAL EXPENDITURES TEI96 S50 Excess (Deficiency) Revenves Over Expenditures 2,896,266) OTHER FINANCING SOURCESIUSES): Operating Transfers In 4,358,590 Operating Transiers Out 089,597) Copital Lease Financing 5,983,007 Proceeds of Refunding Bonds - Payment to Refunded Bond Esrow Agent Proceetis of General Obligation Bonds Proceetis of Certificates of Obligation ‘TOTAL OTHER FINANCING SOURCESUSES) Excess (Deficiency) Revenues/Other Sources Over Expenditures/Other Uses Fund Balances at Beginning of Year Residual Equity Transfer Prior Period Adjustment c ‘See accompanying notes to the financial statements. ee 355,734 1,097,068 EXHIBIT2 Special Revenue, 10,933,105 5,839,958 236,880 2,983,643 1,035,153 96,254 1,302,083 539,882 25 902,916 146,408 3,101,706 195,995 441,745 3,221,639 4,281,759 113,216 19,224,885 aT (7.164.837) 9,832,372 (4,358,590) 2,287,507 rere (303,148) 5,047 343 3 aeeas i ee(Memorandum Only) Debt Capital ‘September 30, ‘September 30, Service Projects 2002 2001 ¥ 6537,150 = 369,105,276 361, 798e : - 6,848.2: 6,134,638 - - 8,661,726 7,866,591 7 2,366,857 8,493,436 6,031,959 : 5 1,078,794 948,496 180,697 398,476 41,201,707 2,135,375 7 : 7,381,963 6,160,532 : - 448,159 375313, 7 - 1,570,219 1,636,656 - 137,235 1,864,084, 2.404.469 GT eaT 902,568 706,683.615 95,485,463, - : 12,629,952 17,967,743, - 10,294,847 9,078,900 7 1,452,800, 1,468,205 - 7 588,836 450,201 : - 3,464,350 3,151,028 7 - 5,418,380 5,055,180 : 7 37,018,409 33,238,674 : : 6,312,253 6,985,594 7 4,281,759 4,253,302 7 is 609,645 379,251 i Fl 19,224,885, 16,353,845 F 6,427,786 3,937,048 15,460,863 15,460,863 10,129,605 3,685,806 - 3,685,806 3,355,000, 4,375,931 : 4,375,931 3,191,279 52.936 385,500, 498.436 276,020 ERICKGE 13,846.363 731,684,939 109,270,875, (1,396,826) (12,943,795) (25,001,324) (03,784,412) : 7 13,891,059. 11,534,566 : (2,482,872) (03,891,059) (11,554,566) : - 8,230,514 2,397,596 3,800,000 - 3,800,000 : (8,702,752) - (6,702,752) - - 25,000,000 25,000,000 15,000,000 : - 2,500,000 TIS BaSTT aS 19,397,596, (4,299,578) 9,573,430 8,326,438, 6,113,184 2,860,746 13,836,579 22,841,736 18,483,201, 19,793 (19,793) : : x TESOL BIOS STEBUDGET (GAAP BASIS) AND ACTUAL GENERAL, SPECIAL REVENUE AND DEBT SERVICE FUND TYPES. ‘YEAR ENDED SEPTEMBER 30,2002 General Fund, REVENUES: Budget Actual Taxes 351,313,713 Licenses and Permits 1,028,592 1,008,293, Fees 7,840,415 8,424,846 Intergovernmental 4,899,569 3,142,936 Charges for Services 37,377 43,641 Interest 859,134 526,280 Contract Reimbursements 7,147,400 7,381,963, Inmate Housing "456,000 448,159 Fines and Forfeitures 80,000 268,176 Miscellaneous 1,079,821, 1,186,967 ‘TOTAL REVENUES 74,762,021 "74,100,284 EXPENDITURES: Current: General Administration 14,023,396 12,483,544 Judicial 7,409,814 7,193,141 Legal Services 1,207,097 1,256,805 Elections ‘565,319 588,836 Financial Administration 3,643,223 3,464,350 Public Facilities 5,573,687 5,418,380 Public Safety 38,730,302 36,576,664 Health and Welfare 3,109,678 3,090,614 Culture and Recreation | - Conservation 304,690 496,430 Public Transportation fi 5 Miscellaneous 4,583,360 6,427,786 Debt Service: Principal Retirement . - Interest and Fiscal Charges 5 | Issuance Costs = < ‘TOTAL EXPENDITURES 79,350,566, 76996.550 Excess (Deficiency) Revenues Over Expenditures (4,588,545 (2,896,266) OTHER FINANCING SOURCES/(USES): Operating Transfers In 4,813,567 4,358,590 Operating Transfers Out (7,810,700) 7,049,597) Capital Lease Financing 5,943,007 5,943,007 Proceeds of Refunding Bonds - - Payment ‘o Refunded Bond Escrow Agent - : Proceeds of Certificates of Obligation 1,100,000 - ‘TOTAL OTHER FINANCING SOURCES/(USES) 4,045,874 525,000 Excess (Deficiency) Revenues/Other Sources Over Expenditures/Other Uses (542,671) 355,734 Fund Balances at Beginning of Year 1,097,068, 1,097,068, se TST Le ‘See accompanying notes to the financial statements 20 EXHIBITS Page | of 2 ‘Variance Favorable infavorable) S$ 385310 (20,299) 584431 (1,756,633) (13,736) (332,854), 204,563, 1,839,852 216,673, (49,708) (23,517) 178,873 155,307 2,153,638 19,064 8,260 (1,844,426) 2354016 279 (454977) 761,103 1,100,000) (793,878) 898,405, SeeSpecial Revenue Funds Debt Service Fund (Budgeted Fund Only) Variance Varance Favorable Favorable Budget Actual (Unfavorable Budget Actual (Cnfavorsble) Foss “Fos TOT SF OTss «|S SAMOS |S S228 «SS 82,.320 5,765,325 5,839,958 74,633 . - 7 270279 236,880 3,399) : : 7 6242,342 2,983,643 6,258,699) : 7 ‘940.915 1,035,153 94238 : 7 7 33,680 96,254 (237,426) 138,440 179,524 41,084 1,540,539 1,302,043 (238,496) - : : 440737 539,882 99.145 - = - 26393.167 22362.916, BHI ESTES C7394 TAO 40,712 146,408 (6,696) - 7 3,415,233 3,101,706 313,527 : I : 270,424 195,995 ma29 : : : 1,593,336 441,745 1,151,591 : 7 7 6,589,912 3,221,639 33368273, : 7 7 4,487,776 4,281,759 206,017 : : 7 122,245 113,216 9,029 : : 7 21,137,160 19,224,885 1912275 : : : : : : 3,541,080 3,685,806 (144,766) : : : 479,988 4.375.931 104,087 : - - - 52.936 (52,936) TOIT BOTTI TTS, SUS, BUa673 C685) (11363,631) (2.764.837) 3,599,104 (442.038) (1.412279) 29,759 10,185,548 9,832,372 (653,176) : 723) (4,817.29) (43358590) 458,700 fs : 2,287,507 2,287,507 : : z : 7 7 : 7 3,800,000 3,800,000 : - (G,702,752) 2,702,752) TESST Faas ae ares Ta 5S (6,707,866) (303,148) 3,404,718 (1.438315) 315.031) 123,284 5.047.343, 5.087.343, : 2,791,753 2,791,753 zl Tos SOS Swe SI Te EeEXHIBITS Memorandum Totals Page2 of 2 (Budgeted Funds Only) Variance Favorable ‘REVENUES: Budget Actual (Unfavorzbe Taxes TSI «SISSIES 537 BED Licenses and Permits 6,793,917 6,848,251 54,334 Fees 8,110,694 8,661,726 $51,032 Intergoveramental M1419! 6,126,579 (5,015,332) ‘Charges for Services 998,292 1,078,794 80,502 Interest 1,331,254 802,058 (529,196) Contract Reimbursements 7147.40 7,351,963, 204,563 Inmate Housing 456,000 “448,159 7841) Fines and Forfeitures 1,620,539 1,570,219 (60,320) Miscellaneous 206,291 ‘TOTAL REVENUES 7,968,584) EXPENDITURES: Carrent: General Administration 14,164,108 12,629,952 1,534,156 Judicial 10,825,047 10,294,847 530,200 Legal Services 177,521 1,452,800 24.721 Elections 565,319 588,836 3517) Financial Administration 3,683,223 3,464,350 178,873, Public Facilities, 5,573,687 5,418,380 155,307 Public Safery 40,323,638 37,018,409 3,305,229 Health and Welfare 9,699,590 6,312,253, 3,387,337 Calture and Recreation 4,487,776 4,281,759 206,017 Conservation 626,935 609,645 17,289 Public Transportation 21,137,160 19,224,885, 1912275 44,583,360 6,427,786 (1,844,426), Debs Service: Principal Retirement 3,541,040 3,685,806, (044,766) Interest end Fiscal Charges 4,479,988 4,375,931 104,087 Issuance Costs ~ 52.936 (52,936) ‘TOTAL EXPENDITURES 125,138,392 115,838,576 289,816 Excess (Deficiency) Revenues Over Expenditures 47,394,214) (12,072,982) 5,321,252 OTHER FINANCING SOURCES(USES): Operating Transfers In 15,002,838 13,890,962 (1,111,876) Operating Transfers Out (42,627,990) (11,408,187) 1219,803 Capital Lease Financing 8,230,514 8,230,514 - Proceeds of Refunding Bonds é 3,800,000 3,800,000 Payment to Refunded Bond Escrow Agent - (@,702,752) @,702,752) Proceeds of Certificates of Obligation 1,100,000 5 1,100,000) ‘TOTAL OTHER FINANCING SOURCES/USES) Th 705362 10810537 ____(@94.825) Excess (Deficiency) Revenues/Other Sources Over Expenditures/Other Uses (5,588,852) (1,262,445) 4426407 Fund Belances at Beginning of Year 8.936.164 8,936,164 - EUND BALANCES AT END OF YEAR 7 SBT eT : See accompanying notes to the financial statements.NOTE 1- Mo! Y COUNTY, T NOTES NCIAL STATEMENTS ‘SEPTEMBER 30. 2002 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 government units. The Governmental ‘Accounting Standards Board (GASB) is the accepted standard-setting body for estzblishing ‘governmental accounting and financial reporting principles. The following is a summary of the more significant policies. A) REPORTING ENTITY: Montgomery County, Texas (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, cuiture 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, itis also financially accountable for legally separate organizations if its officials appoint a voting majority of an organization's governing body and either, its 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 govemed organizations, and the financial disclosure is treated accordingly. Blended Component Units: The following entities are included in the financial statements as blended component units based upon their significant financial and operational relationships to the County: ‘South Montgomery County, Texas Road District No.] (Road District): ‘The Road District was formed in 1982 by order of Commissioners’ Court to enable the residents thereof to provide for construction of roads in the area. The Road District is empowered to levy property taxes, and is governed by the Commissioners’ Court of Montgomery County. The County is also required to authorize any issuance of debt and to adopt the annual appropriations budget. The Road District's complete financial statements are included in the County's financial statements in the Capital Projects Funds and Debt Service Funds. BMONTGOMERY COUNTY, TEXAS NO’ NCIAL STATE) S ‘SEPTEMBER 30, 2002 County Officials: Pursuant to state law, various officials elected to manage specific government functions (i.., treasurer, county and district clerks, tax collector, sheriff, constables, and justices of the peace) are responsible solely to the electorate. They are legally independent of the entity of Montgomery County in the manner and method by which they carry out their responsibilities. Nevertheless, the reporting entity includes all transactions of these elected officials since they comprise what is commonly considered one unit of government. Discretely Presented Component Units- One entity met the criteria for inclusion in the financial statements of the County as a discrete component unit; however, it had no financial activity in 2002 that required the issuance of separate audited financial statements. This disclosure is limited to the following description of the entity. Mont Industrial Devetor ation: ‘An industrial development corporation is created by an act of the State legislature for the specific purpose of promoting and developing commercial, industrial and ‘manufacturing enterprise and encouraging employment. Commissioners’ Court of the County appoints the corporation’s board of directors. Although the ‘Commissioners may remove members of the board of directors at will, their other Tights are confined to those that would be classified as ministerial (or compliant). The law authorizes the corporation to issue industrial development bonds after approval by Commissioners’ Court; however the bonds do not constitute indebtedness of the County. The bonds are secured solely by revenues received from the commercial organizations on whose behalf the bonds are issued. ‘Additional information regarding this corporation may be obtained from the entity’s registered agent: David W. Crews, Attorney at Law, 1915 N Frazier, Ste 103, Conroe, TX. Related Organizations: Where the Commissioners’ Court is responsible for appointing a majority ‘of the members of a board of another organization, but the County’s accountability does not extend beyond making such eppointments, disclosure is made in the form of the relation between the County and such organization. mntgomery Cor 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 fom 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 Chepter 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 oyMONTGOMERY COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS ‘SEPTEMBER 30. 2002 Housing and Urban Development, Commissioners’ Court appoints a five-member board for the corporation, but may not remove # 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 1022 McCall Street, Conroe, Texas, 77301. B) FUND ACCOUNTING: The accounts of the County are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. ‘The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures. Government resources arc allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds and account groups are grouped, in the financial statements in this report, into generic fund types and broad fund categories as follows: Governmental Funds General Fund - The General Fund is the general operating fund of the County. It is used to account forall financial resources except those required to be accounted for in another fund. Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than major capital projects). Debt Service Funds - Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs Capital Projects Funds - Capital Projects Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities, Fiduciary Funds ‘Agency Funds - Agency Funds are used to account for assets held by the County as an agent for private organizations and for other governments. They are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Account Groups ‘Account groups are used to establish accounting control and accountability for the County's ‘general fixed assets and general long-term obligations. The County maintains the following: General Fixed Assets Account Group - This group is established to account for all fixed assets of the County, (excluding public domain fixed assets). General Long-Term Debt Account Group - This group is established to account for all long-term liabilities of the County. C) MEASUREMENT FOCUS AND BAS! “COUNTING: Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements. The accounting and financial reporting ‘reatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using current financial resources measurement focus. With this measurement focus, only current assets and current liabilities are generally included on the balance sheet Operating statements of these funds present increases (j.., revenues and other financing sources) and decreases (ic., expenditures and other financing uses) in net current assets. 25D) E) F) NTGOMERY COUNT 'S. TO FINANC! ‘TS ‘SEPTEMBER 30, 2002 All Governmental Funds and Agency Funds are accounted for using the modified acerual basis of accounting. Revenues are recognized when they become measurable and available as net current assets. Fees for services and court fines are considered “measurable” when in the hands of intermediary collecting governments and are recognized as revenue at that time. Property taxes are considered available when collected, and thus delinquent taxes paid 60 days subsequent to year-end are accrued and recognized as revenue at year-end. Franchise taxes, licenses, and interest are also considered susceptible to accrual at year-end, Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred. An exception to this general rule is that principal and interest on general long-term debt is recognized when due. The County reports deferred revenue on its combined balance sheet. Deferred revenues arise when potential revenue does not meet both the “measurable” and “available” criteria for recognition in the current period. Deferred revenues also arise when the County receives resources before it has a legal claim to them. In subsequent periods, when both revenue recognition criteria are met, or when the County has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. CASH AND INVESTMENTS: Cash and cash equivalents include amounts in demand deposits as well as bank certificates 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 in ajobligations of the United States and its agencies or instrumentalities, b)obligations of the State of Texas, obligations of states, agencies, political subdivisions, and municipalities having a rating of not Jess than A, and d)fully collateralized direct repurchase agreements. ‘The County reports its investments as required by Statement 31 of the Governmental Accounting Standards Board, “Accounting and Financial Reporting for Certain Investments and for External Investment Pools”. Investments with a mamurity of less than a year at acquisition are reported at amortized cost. Investments in open-end mutual finds are reported at fair value, as determined by the funds’ current share prices. This value also approximates cost. And, the County's investments in the state’s public funds investment pool are reported at fair value based on tbe value per share of the pool's underlying portfolio. Historically, the value per share in this public fand investment pool has approximated cost; therefore, the County's investments in this pool are reported at amortized cost. INTERFUND TRANSACTIONS. During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered. These receivables and payables are classified as “due from other funds” and “due to other funds” on the balance sheet. All other interfund transfers are reported as operating transfers. INVENTORY: 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, Reported inventories are equally offset by a fund balance reservation, which 6@) #) D MONTGOMERY COUNTY, TEXAS NOTES. [NANCIAL STATEMENTS. SEPTEMBER 30. 2002 indicates that they do not constitute “available spendable resources” even though they are a component of current assets. FIXED ASSETS: General fixed assets are not capitalized in the funds used to acquire or construct them. Instead, capital acquisition and construction are reflected as expenditures in governmental funds, and the related asseis are reported in the General Fixed Assets Account Group. All purchased fixed assets are valued at cost where historical records are available, and at an estimated historical cost where no records exist. Donated fixed assets are valued at their estimated fair market value on the date received. ‘The costs of normal maintenance and repairs that do not add to the value of assets or materially extend asset lives are not capitalized. Interest incurred on general fixed assets is not capitalized. ‘Assets in the General Fixed Assets Account Group are not depreciated. Public domain (“infrastructure”) general fixed assets consisting of roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, and lighting units are not capitalized, as these assets are immovable and of value only to the government. CONDUIT DEBT OBLIGATIONS: Montgomery County Industrial Development Corporation and Harris County Health Facilities Development Corporation have 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 limited obligations of the issuing entities payable solely from the proceeds of the underiying 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. Mont Count ial Development Corporation: The corporation issues industrial revenue bonds that promote and encourage employment and public welfare. As of September 30, 2002, 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 various underlying financing agreements between the corporation and the entities for whose benefit the bonds were issued, jarris County Health ies Development sion- 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, 2002, there were fifteen series of bonds outstanding with an aggregate principal payable of $3.3billion. 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. COMPENSATED ABSENCES: Employees are paid by prescribed formula for absence due to vacation or illness. Vacation pay accrues past the anniversary date of the employee, Each full time regular employee eas ten days excused leave per year, and from ten to twenty-five days of vacation time may be eared 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 excused leave accrued at September 30, 1987, may nMONTGOMERY COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS P R 2 be paid only upon retirement. A maximum of twenty-five days of vacation may be accrued, and is paid upon retirement, resignation, or discharge. In governmental funds, only the amounts that would normally be liquidated with expendable available resources are accrued as current year expenditures. The County uses the last-in, first out method of recognizing the use of compensated absences. Thus, unless it is anticipated that compensated absences will be used in excess of 2 normal year's accumulation, no additional expense is accrued. However, the accumulated liability is included in the General Long-Term Debt Account Group. At September 30, 2002, the liability for County employees’ unpaid vacation and excused leave was approximately $3,560,971 based upon the salary and wage rates in effect at that date. ‘These amounts do not exceed @ normal year’s accumulation. J) ENCUMBRANCES: Encumbrances are recorded during the year upon execution of purchase orders, contracts, or other appropriate documents in order to reserve that portion of the applicable appropriation. Encumbrances open at year-end lapse, and are subject to reappropriation in the budget of the subsequent year. Encurnbrances outstanding at September 30, 2002 were: General Fund $1,418,099 Special Revenue Funds: Jury Fund 2,863 Road and Bridge Fund 15,152 Memorial Library Fund 59,563 Law Library Fund 2,822 irport Maintenance Fund 863 Capital Project Funds: Cert Obligation 2001 230,357 Cert Obligation 974-98 259,803 Jail Improvements 1,460,701 Road Bonds 2002 2,182,361 Total Encumbrances ~$: 84 K) COMPARATIVE DATA: Comparative total data for the prior year have been presented in the accompanying financial statements where feasible in order to provide an understanding of changes in the County's financial position and operations. However, comparative (i.e., presentation of prior year totals by fund type) data have not been presented by fund types since their inclusion would make those statements unduly complex and difficult to read. L) MEMORANDUM ONLY-TOTAL COLUMNS: Total columns on the Combined Statements are captioned “Memorandum Only” to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operations, or cash flows in conformity with generally accepted accounting principles. Such data are not comparable to a consolidation, and interfund eliminations have not been made. 28NOTE 2- MONTGOMERY COUNTY. TEXAS NOTES TO FINANCIAL STA’ TS ‘SEPTEMBER 30, 2002 IDGETS AND BUD! Y 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 seven 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 junction 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. Various amendments to the budget were approved during the fiscal year; however, none had a material impact on the budget as originally adopted. All appropriations lapse at fiscal year end, For fiscal year 2002, formal budgets were adopted for the General Fund, fifteen Special Revenue Funds, and one of the two Debt Service Funds. 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. Two debt service funds are reported in the County's financial statements. One, titled Debt Service Fund, is established to retire all direct long-term debt of the County. It is a budgeted fund. The other debt service fund, South Montgomery County Road District No. 1, accounts for retirement of all debt of that entity, a component unit of the County. It js not budgeted since effective budgetary control is alternately achieved through general obligation bond indenture provisions. A schedule of actual results for both funds is presented. Debt Serviee ‘So Mtg Co Total Fund Road Dist No1 Debt Service Budgeted) ‘(Unbudgeted) Funds Revenues 3 6,702,394 3 15,453, 6717847 Other Sources 3,800,000 - 3,800,000 Expenditures (8,114,673) - (8,114,673) Other Uses (3,202,752) : (3,702,752) Beginning Fund Balance 2,791,753 68,993 2,860,746 Residual Equity Transfer : 19.793 19,793 Ending Fund Balance 3147672: S 104.239) 1,580,961MONTGOMERY COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS ‘SEPTEMBER 30, 2002 NOTE 3- DEPOSITS AND INVESTMENTS: ‘Deposits: Of the $13,317,715 in cash reflected on the Combined Balance Sheet at year end, $21,577 represented cash on hand in various locations. The remaining $13,296,138 represented the carrying amount of the County's deposits. The total bank balance (collected funds) at the balance sheet date ‘was $14,579,705. At September 30, 2002, the County's deposits were collateralized by securities pledged by the depository and held by third party agents of the County in the County’s name. Investments: There are three levels of risk associated with the investment of public funds. The categories of such risk are defined as follows: Category 1- Investments are insured or registered, or securities are held by the County's agent in the County’s name. Category 2- Investments are uninsured or unregistered, and securities are held by the counter party's trust department, or agent in the County’s name, Category 3- Investments are uninsured and unregistered, with securities held by the counter party, or by its trust department or agent, but not in the County's name, In accordance with the County's investment policy, a third party institution is required to hold the securities underlying the County's investments in a safekeeping account in the County's name Following is « schedule of the County's investments at September 30, 2002: Carrying Fair Category Amount Value U.S. Government Securities 1 $19,908,317 “$19,908,317 Investments not subject to categorization: ‘State's Investment Pool (TEXPOOL) 1,170,478 1,170,478 Money Market Mutual Fund (ICT) 9,233,597 9,233,597 Money Market Mutual Fund (BPIF) 5,174,823 5,174,823 Money Market Mutual Fund (AIM) 1,902,100 1,902,100 Total Investments $37,389,315 $37,389,315, ‘The County's investments in the three money market mutual funds and the state sponsored local government pool are not subject to risk categorization; however, management offers the following additional disclosure. ‘The County invested idle funds in a) the Government Portfolio of Investors’ Cash Trust, b) the Trust for Federal Securities (T-Fund) with BlackRock Provident Institutional Funds, and c) the Short-Term Investments Trust (STIT) Government and Agency Portfolio with AIM Funds. These three mutual funds share several characteristics that can affect 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 instrumentelities, and repurchase agreements collateralized by same, ‘© Anaverage weighted maturity that is less than 90 days, and * A portfolio valuation of net assets that is maintained at $1 per share. Additionally, funds were invested in the Texas Local Government Investment Pool (TexPoo!). ‘This external investment pool was created in conformity with certain acts in the Government Code of the 30NOTE 4- NOTE 5- Mot RY COU! NOTES ANCIA! NTS ‘SEPTEMBER 30, 2007 Texas Civil Statutes. The operations of the pool are managed by a third-party investment service and oversight is provided by the Comptroller of Public Accounts of the Stato of Texas along with « statewide advisory board. Although TexPool is not SEC-registered, it adheres to the same standards fas money market mutual funds for limitations on its investments, the length of its average weighted maturity, and the valuation ofits net assets. PROPERTY TAX: The County Tax Assessor-Collector bills and collects property taxes, Revenues are recognized 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 up t0 $0.80 per $100 of assessed valuation for general governmental services and the payment of long-term debt. ‘The combined current tax rate for the year end was $0.4710 per $100, which means that the County has a tax margin of $0.329 per $100, and could raise up to $46,987,872 additional taxes from the present assessed valuation of S14,282,028,149 before the limit is reached. ‘The South Montgomery County Road District No. 1 is permitted by the State Constitution (Article IM, Section 52) to levy an unlimited amount of taxes for the payment of principal and interest on long-term debt, but has no authority to levy a maintenance tax. ‘The thirty years’ property taxes receivable at September 30, 2002, as reported by the Tax Assessor- Collector are presented 2s follows: Taxes Less: Allowance Net Taxes Receivable for Uncollectibles Receivable General Fund $4,772,030 3 95,441 $4,676,589 Road & Bridge Fund 1,015,162 20,303 994,859 Debt Service Fund 621,659 12,433 609,226 ‘So Montgomery Co Road Dist No 1 62,674 1,253 61.421 Total Receivable __ $6,471,525, $129,430 $6,342,095 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, 2002, the following amounts were due to the County: Federal St Local Total General Fund ‘$370,056 $376,393 $366,039 $1,112,488 Special Revenue Funds 355,636 337,710 7,886 701,232 Capital Project Funds 58,979 7,495 - 66.474 Total Due from Governments ___$784,671 $721,598 "$373,925 $1,880,194MONTGOMERY COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS ‘SEPTEMBER 30, 2002 NOTE6- INTERFUND RECEIVABLES AND PAYABLES: Interfund receivable and payable balances at September 30, 2002, were: Receivables _Payables General Fund 643,742” $1,492,051 Special Revenue Funds Attomey Administration 4,888 6,223 Forfeitures 1,237 - Civic Center Complex 301,085 - Animal Shelter 8,386 : Jury 131,517 3.253 Road and Bridge 154,042 1,585,973 Sheriff Commissary - 12,038 Memorial Library 92,065 - Law Library 13,958 - Alternate Dispute Resolution 161 : Child Welfare - 11,246 Airport Maintenance 210,286 124,048 ‘Community Development Block Grant 79,141 41,804 Historical Commission 50S - Juvenile Probation - 36,619 Debt Service Fund 59,909 - Road District No. i Debt Service Fund - 537 Capital Projects Funds: Library Construction 115911 - Airport Improvements 228,539 - Administration Building 17351 - Right of Way 355,653 - Certificates of Obligation 97-98 - 112,058 Agency Funds: County Officials 11,836 1,008,010 Special School 3,648 = Total — $4,433,860 $4,433,860 NOTE 7- FIXED ASSETS: A summary of changes in general fixed assets for the year ended September 30, 2002 is included in the following table. Balance Balance Oct1, 2001 _Additions__Deletions _Sept 30, 2002 Land § 4375906 ~$ 364,309 “$2,632 $4,737,583 Buildings 72,567,786 10,909,939 668,331 82,809,394 Improvements 3,615,208 863,609 736,604 4,242,213 Equipment 32,997,017 5,994,968 2,943,219 36,048,766 Construction in Progress 8,791,688 __ 9,589,154 __ 6,809,094 11,571,748 Total ~$122,347,605 “$27,721,979 _$10,659,880 _$139,409,704 2d 01 OUNT! NOTES TO FINANCIAL ST: ‘SEPTEMBER 30, 2002 Ss ENTS 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, 2002: Project Status Commitment _Paid to Date Tail Expansion Under construction $8,738,514 $7,624,818 Parking Lot Under construction 20,000 13,228 Courts Building Bidding construction 2,447,500 1,131,324 Multi-use Building (Pet 4) Under construction 695,000 686,404 Park (Pet 2) Design phase 184,000 3,060 Ballfield Complex Under construction 2426215 2,102,914 Total $14,511,229 1 S11,5T1,748 NOTE 8- LONG-TERM DEBT: General long-term debt consists ‘Changes in Long-Term Debt- The foll ‘year ended September 30, 2002, capital appreciation bonds in the of general obiigation 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 are secured solely by ad valorem property taxes levied on all taxable property within the County. Payments are recorded in the Debt Service Fund. lowing schedule illustrates the changes fn long-term debt for the ‘Additions to general obligation bonds include an annual accretion of amount of $63,276. Balance Balance Debt Type Get 1, 2001 ‘Additions _Retirements___ Sept 30,2002 ‘General Obligation Bonds $42,686,392 $28,863,276 $5,727,999 S 65,821,669 Certificates of Obligation 42,630,000 : 855,000 41,775,000 Capital Lease Obiigations 3,888,059 8,230,514 1,609,124 10,500,449 ‘Compensation Payable 3,263,460 297,511 : 3,560,971 Arbitrage Rebate Payable 236,296 - - 736,296 Total Long-Term Debt __$92,704,207. _ $37,391.30) $ei9z 13 $171,903.85 Bonded Debt: A summary of the long-term bonded debt, at September 30, 2002 is presented: GENERAL OBLIGATION BONDS: Library & Refunding, Series 1992 Refunding Bonds, Series 1997 Permanent Improvement, Series 2000 Road Bonds, Series 2002A Refunding Bonds, Series 20028 Total Principal ‘Accretion of Cap Appreciation Bonds: Library & Refunding, Series 1992 Refunding, Series 1997 Total Accretion Interest. Issue Maturity Bonds Rate(%) Date _Date Outstanding 600-725 19922011 $4,340,923 5105.60 19972017 9,510,607, 4:50-5.25 2000 2020 14,700,000 400-450 2002-2022 25,000,000 300-450 20022011 [3,800,000 57,351,530, 660-680 19922006 4,122,098, 510-560 19972017 3,748,041 8,470,139 TOTAL GENERAL OBLIGATION BONDS PAYABLE Ti5.921,665"MONTGOMERY COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS ‘SEPTEMBER 30, 2002 Bonded Debt, continued: Interest Issue Maturity Bonds Rate(2%) Date ___Date Outstanding CERTIFICATES OF OBLIGATION: Series 1996 430575 1996-2011 $4,175,000 Series 1997 500-630 19972016 31425,000 Series 19974 410-600 19972015 13,775,000 Series 1998 460550 19982018 18,100,000 Series 2001 4.65 20012011 2'300,000. TOTAL CERTIFICATES OF OBLIGATION 41,775,000. TOTAL BONDED DEBT $107 596,669 sual Debt Service Requireme aturity-The following table lists the amounts required to amortize bonded debt (with interest of $60,910,641), by debt type. General Certificates ‘Year Ending Obligation of September 30, Bonds Obligation 2003 $ 5,933,359 $ 2,956,075 2004 5,884,172 2,944,345, 2005 5,900,172 2,930,828 2006 5,076,272 3,765,258 2007 4,217,760 4,625,017 2008 4,228,185 4,616,675 2009 4,225,122 4,621,265 2010 4,200,385 4,648,315 2011 4,204,466 4,649,284 2012 5,235,422 3,666,409 2013 5,223,685 3,681,000 2014 5,219,107 3,692,125 2015 5,197,092 3,719,875 2016 5,187,765 3,733,750, 2017 5,302,250 3,621,875 2018 5,389,250 3,541,375 2019 8,168,750 : 2020 7,786,250 7 2021 5,386,250 - 2022 $,128,125 = 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 2002; however, the estimated liability at year-end was $236,296. 34MONT COUNTY. TEXAS NOTES TO FINANCL MENTS: ‘SEPTEMBER 30, 2002 ‘Advance Refunding-On June 1, 2002, the County issued $3,800,000 Current Interest Bonds, Series 20028 with interest rates ranging from 3.Qpercent to 4.Spercent to advance refund $4,190,000 in outstanding Series 1992 bonds with a average interest rate of 6.65percent. The net proceeds of $3,704,413(after underwriter’s discount and payment of issuance costs) were added to $621,000 in debt service funds to purchase U.S. government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the 1992 bonds. Asa result, the 1992 bonds are considered to be defeased and the liability for those bonds has, been removed from the General Long Term Debt Group. ‘The County advance refunded the 1992 Series to reduce its total debt service payments over the next eighteen years by $416,704 and to obtain an economic gain (the difference between the present value of the debt service payments on the old and new debt) of $243,589. Prior Year Defeasance of Debt: In a prior year, the County defeased a second portion of the 1992 Series bonds by creating a separate irrevocable trust fund. New debt was issued and the proceeds ‘were used to purchase US. government securities that were placed in the trust fund. The investments ‘and fixed earnings from the investments are sufficient to fully service the defeased debt until it is called or matures. For financial reporting purposes, the debt has been considered defeased and therefore removed from the County’s General Long-Term Debt Account Group. As of September 30, 2002, defeased but outstanding debt from prior a year refunding transaction consisted of the following issue: General Obligation Bonds, Library and Refunding Series 1992 _$ 3,128,627 NOTE 9- DEFERRED REVENUES: Deferred revenues consisted of both the anticipated collectible portion of property taxes receivables and uneamed fees collected by various officials. At September 30, 2002, deferred revenues were: Property Unearned Total Taxes Fees Deferred Revenues General Fund S4557,513 $506,385 $5,063,898 Jury Fund - 3,475 3,475 Road & Bridge Fund 989,080 34,253 1,043,333, Juvenile Probation Fund : 11,933, 11,933 Airport Maintenance Fund - 290,000 290,000 Debt Service Funds 650,329 - 650,329 Total $6,196,922. $866,046 $7,062,968 NOTE 10- CAPITAL LEASES: The County has entered into capital lease agreements for the lease/purchase of certain heavy road equipment, computer hardware/software, vehicles, three buildings and a parking garage. These assets are included as equipment and buildings in the General Fixed Assets Account Group. The lease agreements are classified as capital leases because title passes to the County at the end of the lease ‘erm, and are included as leases payable in the General Long-Term Debt Account Group.MONTGOMERY COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30. 2002, ‘The present value of fiture minimum capital lease payments at September 30, 2002 and the funds from which they will be paid are as follows: Year General Special Revenue Debt Service Ending Fund Funds Fund 2003 $289,342 $ 399,791 $1,022,556 2004 289,342 585,589 938,666 2005 - 571,562 792,356 2006 - 571,562 T1763 2007 - 343,012 717,163 2008-2022 = 330,193 10,295,183 Total Minimum Lease Payments 378,684 2,801,709) 14,483,087 Less: amount representing interest 38.443, 402,853 6,912,735 Present value-furure minimum lease payments 32,398,856, $7,570,352 NOTE 11- OPERATING LEASES: The County is @ party to several lease agreements, Significant terms are discussed below: ‘Automated Flight Service Station- The County leases the Automated Flight Service Station to the Federal Aviation Administration on an annually renewable lease that does not extend beyond September 30, 2004. The annual rent of $102,500 is recorded in the General Fund. The Flight Service Station is recorded in the General Fixed Assets Account Group at a cost of $802,455. Office Space- The County leases office and ground space under various agreements, one of which contain terms in excess of one year. This lease is for 2,300 square feet of office space to house the ‘Community Development Department. The lease term for this lease is August 1, 2000 through July 31, 2005, and the annual payment is $39,100, Minimum Future Rental Payments- Following is a schedule of payments due on office space leases through the stated ending dates of the agreements: Year Ending September 30, 2003 $ 39,100 2004 39,100 2005 32,583, Total Future Payments $110,783 NOTE 12- EX! F EXPENDITURES OVER APPROPRIATIONS IN INDIVIDU, JNDS: Expenditures exceeded appropriations in four funds during fiscal year 2002. Expenditures in the ‘Atiomey Administration, Forfeitures, and Airport Maintenance Special Revenue Funds, as well as the Debt Service Fund exceeded appropriations by $5,696, $11,360, $5,250, and $93,645, respectively. ‘These excesses were absorbed by unanticipated revenues, and had no impact on fund balances. NOTE 13- RISK MANAGEMENT: Employee Health Benefits- Effective January, 1989, the County established a partially self-funded trust plan which offers medical, dental, vision, life, and disability insurance coverage to employees 36MONTGOMERY COUNTY, TEXAS, NOTES TO FINANCIAL STA’ NTS ‘SEPTEMBER 30, 2002 and their dependents. The County maintains excess loss insurance, which limits annual claims paid from the plan to 2 maximum of $100,000 for any individual claim. 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, 2002, were $562,868. Claims incurred but not reported (IBNR) at September 30, 2002, are estimated to be $666,174. 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 three previous fiscal years follow: 2002 2001 2000 Unpaid claims, beginning of year $1,108,486 $1,179,404 $1,454,022 Incurred claims (including IBNR) 7,595,764 5,803,995 4,678,094 Claim payments (7,475,208) (5,874,913) (4.952.712 Unpaid claims, end of year $ 1,239,042 S 1108486 $1,179,404 During the year ended September 30, 2002, the plan received contributions in the amounts of $7,774,987 and $945,281 from the employer and employees, respectively. In addition to the claim payments made, the plan also expended $289,799 in administrative costs and $972,252 for reinsurance and insurance premiums. Workers’ Compensation: The County participates in a risk pool for workers’ compensation benefits ‘under an imterlocal agreement with the Texas Association of Counties (TAC). The TAC pool is a non-profit, tax-exempt program, established in 1974, to offer workers’ compensation coverage 10 Texas Counties and county-related entities. The pool uses the Texas Department of Insurance rates, per job classification code as a benchmark in setting member contribution rates. Participation in the pool provides the County with workers’ compensation coverage at the limits provided by state law, and employer's liability coverage at $1,000,000 per occurrence, The poo! maintains sufficient assets to cover foreseeable liabilities; therefore, the County’s risk is considered to be transferred. Premiums paid into the pool are based on salary leveis of all current employees, and are recorded as current expenditures in the General and Special Revenue Funds. For fiscal year 2002, the County paid $829,967 into the pool Property and Casualty: The County purchased insurance coverage for certain plant, property, and equipment for the fiscal year. Deductibles are maintained at $1,000 for each occurrence. The County paid $374,144 in premiums in fiseal 2002, and recorded the expenditure in the General Fund. Settled claims have not exceeded commercial coverage in any of the past three fiscal years. General Liability: The County chooses to self-insure for general liability. There are no stop-loss policies purchased for this risk. Note 17 describes the County's obligation under liability claims. 37MONTGOMERY COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 NOTE 14- EMPLOYEE RETIREMENT PLAN: 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 Board of Trustees of TCDRS is responsible for the administration of the statewide agent multiple-employer public employee retirement system consisting of 517 nontraditional defined benefit pension plans. TCDRS in the aggregate issues a comprehensive annual financial report (CAFR) on a calendar year basis. The CAFR is available upon ‘written request from the TCDRS Board of Trustees at P. O. Box 2034, Austin, Texas, 78768-2034. ‘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 swith 8 or more years of service, with 30 years regardless of age, ot when the sum of their age and years of service equals 75 or more. Members are vested after 8 years of service, but must leave their accumulated contributions in the plan to receive any employer-financed benefit. Members who withdraw their personal contributions in a lump sum are net 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 conswaints 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. 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 TTCDRS Act, the contribution rate of the employer is actuarially determined annually, The County contributed using the actuarially determined rate of 8.73% for the months of the accounting year in 2001, and 8.78% for the months of the accounting year in 2002, ‘The deposit rate payable by the employee members for calendar year 2002 was 6.0% as adopted by the Commissioners’ Court. The employee deposit rate and the employer contribution rate may be changed by the Commissioners’ Court within the options available in the TCDRS Act. Annual Pension Cost- For Montgomery County’s accounting year ended September 30, 2002, the annual pension cost for the TCDRS plan for its employees was $4,143,323, and the actual contributions were $4,143,323. ‘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 27 parameters based on the actuarial valuations as of December 31, 1999, and December 31, 2000, the basis for determining the contributions rates for calendar years 2001 and 2002, The December 31, 2001 actuarial valuation is the most recent valuation, 38MONTGOMERY COUNTY. TEXAS NOTES TO FINANCIAL STATEMENTS ‘SEPTEMBER 30. 2002 Actuarial Valuation Information Actuarial valuation date 1281/1999, 1231/2000 1731/2001, Actuarial cost method Eniry age Enury age Entry age Amortization method Level percentage Level percentage —CLevel percentage ‘of payroll, open. of payroll, open of payroll, open Amortization period 20 20 20 Asset vaiuation method Long-term Long-term Long-term appreciation with appreciation with appreciation with adjustment adjustment adjustment ‘Actuarial assumptions: Investment return (1) 8.00% 8.00% 8.00% Projected salary increases (1) 5.90% 5.90% 5.50% Inflation 4.00% 4.00% 3.50% Cost-of-living adjustments 0.00% 0.00% 0.00% (includes inflation at the stated rate. Trend Information Accounting ear Annual Pension Cost Percentage of Net Pension Ended(1) APC) APC Contributed Obligation 9/30/98 $2,601,210 10.00% $0.00 9730/99 3,160,165 100.00 0.00 9130/00 3,459,568 100.00 0.00 9/30/01 3,789,349) 100.00 9.00 9/30/02 4,143,323 100.00 0.00 (J)Data not available for years prior to 1998, Schedule of Funding Pi for the Retirement Pian for Emplovees of Mor (Dollar amounts in thousands) Count Actuarial Actuarial ~—- Actuarial «== Unfunded = Funded = Annual UAALasa Valuation Value of Accrued AAL Ratio Covered Percentage of Date Assets Liability (UAAL) Payroll Covered (aab) wo Payroll @) fe) (b-a) (aio) ©) (eave) T3185 “$66,807 $78,158 Sasi” 85.48% 336,508 31.09% 12/31/00 74,461 86,580 11447 86.00% 39,539 30.65% 1231/01 82,349, 96,217 13868 85.59% $43,351 31.99% () The annual covered payroll is based on the employee contributions received by TCDRS for the year ‘ended with the valuation date. NOTE 15- OTHER POST-EMPLOYMENT BENEFITS: 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 attain 20 continuous years of employment with the County and be eligible for a retirement annuity from the Texas County and District Retirement System, »NOTE 16- NOTE 17- NOTE 18- ‘TGOMERY Ct NOTES TO FINANCIAL STATEMENTS ‘SEPTEMBER 30, 2002 ‘The coverage will be the same as that for @ full time regular employee, as further disclosed in Note 13, Management expects to fund this benefit on a “pay-as-you-go” basis, as actuarial estimates are not available, For the year ended September 30, 2002, twenty-two employees retired from service with the County. Sixteen of those retirees met the qualifications stated above, bringing the total retirees covered by this benefit to thirty-one. The cost recorded by the County is included in Note 13. DEFE) PENS, Ni Montgomery County offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all County employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to ‘employees until termination of employment, retirement, death or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those ‘amounts, and all income attributable to those amounts, property, or rights aze assets of the plan, and are required to be held in trust for the exclusive benefit of the participants and their beneficiaries. A fiduciary relationship does not exist between the County and the plan; therefore, in accordance with GASB Statement 32 “Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans”, the plan is not reported within the County's financial statements CONTINGENT LIABILITIES: General Lisbility- Management has chosen to retain the risk for losses usually covered by general liability insurance (for damages to persons and property). Funds are appropriated annually in the General Fund for these losses in a “contingency” budget. Expenditures are recorded as current transactions in the year paid. During fiscal year 2002, the County paid $520,384 to five claimants for these losses. 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. In April 2002, the County received $2.4million from the U.S. Department of Justice under its State Criminal Alien Assistance Program (SCAAP). Consistent with the provisions of Section 111.0106 of the Local Government Code (Texas Annotated Civil Statutes), the County recognized and appropriated $1.9million of the grant funds for the acquisition of software and computer hardware for law enforcement vehicles, Subsequently, the County discovered an error in the data that the Department of Justice had used to calculate the County’s SCAAP payment, A liability in the amount of $2.2million has been recorded in the General Fund for the overpayment and the County has been assured that no penalty or interest will accrue to the liability. Litigation: The County is a defendant in a number of lawsuits with claims for damages in excess of $5,000,000. These 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. During fiscal year 2002, the County paid $561,893 for legal counsel to defend these claims, The 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. REPORT CLASSIFICATION: Certain previously reported amounts have been reclassified to conform to 2002 report classification. None of the reclassifications is considered to have a material effect on the report presentation.NOTE 19- NOTE 20- MONTGOMERY COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 ‘SUBSEQUENT EVENTS: Workers" Compensation Self-insured Plan-On January 1, 2003, the County entered into an agreement ‘with a third party administrator to implement and administer a worker's compensation program. The County made an advance payment of $100,838 for the annual administration costs and the re- insurance of a portion of the risk, The County’s Risk Manager will coordinate the program. Road Bonds: On November 6, 2001, voters approved the issuance of $60million permanent improvement bonds for the construction, maintenance, and operation of roads in the County. ‘Twenty-five million dollars in these bonds were issued in fiseal 2002, and the County will issue another $25million in April 2003. Library Bonds-In November 2002, voters approved the issuance of $10million general obligation bonds to improve conditions in three branch facilities. The County anticipates issuing these bonds in ‘April 2003 and beginning work on the three facilities before the end of the summer. Certificates of Obligation-in December 2001, Commissioners’ Court approved phase two of a bballfield relocation project that will require the issuance of $1.3million in debt. Previously, $1.3milifon of general obligation bonds (Series 1998), and current appropriations have been allocated to phase one of this project. The County will issue this additional debt in April 2003, Included in the April issue will be $3.Imillion in funds to complete the construction of @ four-story office building in downtown Conroe. These funds will be added to $2.Smillion certificates that were issued in 2001 to start this project. In order to take advantage of lower interest rates, the County anticipates issuing $6.1million in certificates of obligation in April 2003 and using the proceeds to pay the outstanding balance on two lease-purchase agreements. The agreements were executed in fiscal 2002 for the construction of an animal shelter building and a parking garage. The County anticipates saving $3.3million in interest ‘over the life of the original obligations. NEW REPORTING STANDARD: In June 1999, the Governmental Accounting Standards Board (GASB) issued Statement 34 “Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments” ‘This Statement establishes new financial reporting requirements for state and local goversments throughout the United States. When implemented, it will require new information, and will restructure much of the information that governments have presented in the past. Comparability with reports issued in all prior years will be affected. The County is required to implement this standard for the fiscal year ending September 30, 2003. The County has not yet determined the full impact that adoption of GASB Statement 34 will have on the financial statements. 41COMBINING, INDIVIDUAL FUND, AND ACCOUNT GROUP FINANCIAL STATEMENTS AND SCHEDULES 8GENERAL FUND To account for all financial resources traditionally associated with governments, which are not required to be accounted for in another fund. “4Ad September 30.2002 September 30. 2001 ASSETS: Cast 8 863,204 $1,412,903 Investments, at Fair Value 6,995,397 4,884,011 Restricted Cash 89,694 1,146,642 Receivables: Taxes (net) 4,676,589 4,386,390 Accounts 876,486 343,746 Accrued Interest 2,586 20,189 Due From Other Funds 2,643,742 3,564,517 Due From Other Governments 1,112,488 1,113,803 TOTAL ASSETS $17,260,186 _$___ 16,872,201 LIABILITIES AND FUND BALANCE: Liabilities: ‘Accounts Payable S 6178154 $4,950,621 Retainage Payable 67,806 5,027 Due to Other Funds 1,492,051 5,215,970 Due to Other Governments 3,005,475 1,037,820 Deferred Revenue 5,063,898 4,565,695 ‘Total Liabilities 15,807,384 15,775,133 Fund Balance: Unreserved 1,452,802 1,097,068 TOTAL LIABILITIES AND FUND BALANCE $17,260,186 $16,872,201 4REVENUES: Taxes Licenses and Permits Fees Intergovernmental ‘Charges for Service Interest Contract Reimbursements Inmate Housing Fines and Forfeitures Miscelleneous TOTAL REVENUES EXPENDITURES: General Administration Judicial Legal Blections Financial Administration Public Safety Health and Welfare Conservation Miscellaneous ‘TOTAL EXPENDITURES Excess Revenues Over Expenditures ‘Operating Transfers In Operating Transfers Out Capital Lease Financing Proceeds of Certificates of Obligation ‘TOTAL OTHER FINANCING USES Excess Revenues/Other Sources (Over Expendivures/Other Uses Fund Balance at Bepianing of Year Prior Period Adjustment UND BALANCE AT END OF YEAR September 30,2002 Variance Favorsble Budget Actual (Unfavorable) S 51313,713 $51,699,023 $385,310 1,028,592 1,008,293 (20,299) 7.840.415 8,424,846 584,431 4,899,569 3,142,936 (4,756,633) 37377 43.641 (3,736) 859,134 526,280 332,884) 7,147,800 17351,963 208,563 456,000 448,159 (7,840) 80,000 268,176 188,176 1,079,821 1,186,967 107,146 74,762,021 74,100,284 (661.757 14,023,396 12,483,544 1,539,852 7,409,814 7,193,141 216,673 1,207,097, 1,256,805 49,708) 565,319 588,836 @3s17) 3.643.223 3,464,350 178873 373,687 5,418,380 155,307 38,730,302 36,576,658 2,153,638 109,678 3,090,614 19,064 504,690 496,430, 8,260 4,583,360 6.427.786 (1.844.426) 79,350,566, 76, 996.550, 2,354,016 (4,588,545 (296,265) 1,692,279, 4,813,567 4,358,590 «4s4.97) (1,810,700) 761,103 5,963,007 : 1,100,000, : «1,100,000) as a7 3.353,000 (733.874) (522,671) 355,734 898,405 1,097,068, 1,097,068, : S__$54397 S$ __ 1.452.802 _$_ 898.405 a At September 30, 2001 Actual S 45,085,824 $36,716 7,564,483 976,658 6,160,532 305313 35,772 1.236.497 64,955,970 7,836,648 6,248,769, 1,298,004 450.201, 3,151,028 5,055,180 32,832.981 2,980, 330,751 3,937,088, 4.116.173 839,797 3.164957 6,889,609) 33,203 ERSTE 851,652) 5,703,369 754,649) S__ 1,097,068,TASES: ‘Ad Valorem Current ‘Ad Valorem Delinguert Penalty and Interest Mixed Beverage Bingo Tax ‘Miscellaneous Taxes Total Taxes LICENSES AND PERMITS: Beer Licenses ‘Trial Fees Hazardous Waste Management Health Permits Pati Permits ‘Animal Control Fees Food Service Permits ‘Alarm Permits Stenographer Fees ‘Total Licenses and Permits EEES: County Judge County Sherif County Attorney County Clerk Tax Asesior-Collecior District Clee Justice ofthe Peace Constable Votes Registration (Criminal Justice Fees Tol Fees INTERGOVERNMENTAL: Federal Grants Department of Agriculmire Dept HealthyHuman Services Department of Justice Federal Emergency Mgt Agency Total Federal Grants September 30, 2002, Budget 5 48,740,400 1,103,802 535,547 442,000 “7,000 119,964 BRIERE 028.592 6,000 211,702 90,000 2,456,756 649,383 701,664 2,531,300, $54,863 6,000 62.77 7.840.415 631,592 246,000 2418480 25,000 21,072 ‘Actual S 48,959,565, 1,162,734 899,873, 481.903, 74874 120,074 37,699,023, 66,638 4708 432,627 53,912 S155 271,325 96,660 83.248 7,008,293, 6,961 244,989 76,922 2,910,392 587,332 $24,346 631,593 410,800 969,304 24,926 2,036,711 48 “Variance Favorable (Unfavorable) S 219,165 38,932 64,326 39,903 2,874 119. 385,310 3,538 1228 027373) (6,088) 085 16,325 12,660 16.355 20,299), 961 33.287 (13,078) 453,636 @1.150) (40,861) 308,881 (62,469) 668 (45.445) 588,31 1 164,800 (4,449,086) 76) Sooner 284361 43 Page 1 of2 September 30, 2001 ‘Actual S 42379345 LLB IS5 898,381 421,593 360087 58,209 3816 2262 397425 35.881 14,999 192,740 553300 76.084 BETI6 6.469 2543041 34770 2,478,102 708,111 603,937 2.454835 528,296 3,775 434.147 7564883 $86,183 390,825 590,897 121,689, 688.565Ag vage2 02 September 30,2002 ‘Variance September 30, Frvonbe 2001 INTERGOVERNMENTAL(cont'd) Budget Actual {Unfevorable) Actual Sine Grants a — nfo auto Then Prevertin Aubry ovso12 48161 uss 405993 Department of Heath 91901 9101 20,563 Dept of HousingComm Aftirs : st 1st L197 Office of attorney Gene 30000 28857 east 26101 Offie of Governor - Chiming Juve Dien 13.840 eas 978 Toa Sate Gans 753208 Teste) 60 otter: Prosecutor Selry Supplenent 138,103 183,708 $5605 nan Iergovernmentl Conracts 10929 rae 355 19.685 Voter Registration 51679 156,863 rosi8e ng20 Dept of Heath - Child Fatay Lier 167 : be Mig Co Improvement Distt ‘ : : 10350 “oa Other sa ia Bars “otal Inergovemmeni Gass aiaase ase) aera (CHARGES FOR SERVICE san sos 33) 6704 ANLEREST 4 omasy 96, (CONTRACT REIMBURSEMENTS 204,563 6,160,532. INMATE HOUSING 456.00 559 css ssi [INES AND FOREFITURES 200 265.116 188,76 ss ‘MISCELLANEOUS: ewe of Faiity 114000 116380 2380 116.460 Commissions 657.100 e012 eso) 605,707 otter 308.721 48515 raps 313.350 “ot Miseellancous Tomar 1186967 07146. 1336497 TOTAL REVENUES 74,762,021 74,100,284 (661.737) 64,955,970 OTHER FINANCING SOURCES: Operating Treaster In asn3ser 4358590 asso 3.168957 Copia Lease Financing Soon 5,983,007 F 33205 Procerds of Cries of Obipion 1,100,000 - 1.10000 i TOTAL OTHER FINANCING SOURCE Tass TOSS asssaomy, 5980 ‘TOTAL REVENUES AND OTHER ‘EINANCING SOURCES Seis S_O216 714) |S _68.154.130Ad Page 1 of 10 September 30, 2002 Variance ‘September 30, Favorabie 2001 GENERAL ADMINISTRATION: __ Budget Actual (Unfavorable) Acual County Sudge! Salaries S182 § smd - 8 18313 Employee Benefits B27 43,426 1 39,780 ‘Supplies 8,628 7.424 1,204 4078 Contact Services 2797 24223 3374 17,866 apical Outlay 10210 3.944 6266, 4343 ‘Total County Judge 285,288 71s De 11.085) 249,180 Human Resources: Selaries 207,116 207.116 : Employee Benefits 54359 54,359 : Supplies 34,208 32,506 1,698 Contact Services 34,285 383,627, 28 Total Human Resources 679.938 677,608 2326 387.828 Risk Management: Salaries 19,194 19,193 1 7 Employee Benefits 5.337 5537 - Supplies 13,087 11970 2017 Contract Servises 46,158 42.286 3872 - Capital Outlay 5,738 5.583 135 : Total Rsk Management 89,714 33,6659 6045 County Clerk: Salacies 1,188,608 1,188,608 5 1,097,740 Employee Benefits 387,282 357,252 - 304.279 Supplies 79,017 11370 1487 60.349 Contract Services 366,509 282,033 $4476 54855 Capital Outlay 103344 95.746 12598 44.124 Total County Clerk 099.730 7.995.200 104.521 2,091,347, Collections: Salaries 27,074 257,074 ; 236985 Employee Benefits 71,637 71,637 - 55,488 Supplies 19457 18,762 695 23318 Contract Services 15,120 13,993 427 10,683 Capital Outlay 50, - 3219 Total Collections 368.916 1822 329.665, Veterans’ Service Salaries 74338 74339 : 69,630 Employee Benefits 20,549 20548 1 Supplies 13m 1458 ns Contract Services 3320 2611 709 Capital Outlay : - ‘Total Veterans’ Service 98,956 BS 50Ad Page 2 of 10, ‘September 30, 2002 ‘Variance September 30, Favorable 2001 Budget Actual (Unfavorable Acoual GENERAL ADMINISTRATION (cont'd) ‘CommuniationsInformation: Salaries m126 : 665,549 Employee Benefits 189,521 - 146,126 ‘Supplies 10,571 $3,609 Lo9.ai6 Contract Services 870085 218339 706,328 Capital Outlay 953.555, 129:580 ‘Total Comms/information 7,225,503, 1,756:999 Purchasing Agent: Salavies 361,593 361,593 : 313.857 Employee Benefis 99,882 99,882 : 15,697 Supplies 10,330 9,029 1,301 8.096 Contract Seviees 208,062 127,501 80,561 113.326 Capital Outay 250 226 4 309 ‘Total Purchasing Agent 80,117 398231 BH, 886 314883, County. Wide: Employee Benefits 584,360 679,701 4459 3s7219 Supplies 1483 411,807 19,636 347,645 Contract Services 1,369,883, 1,288,259 81,586 1,510,960 Capital Outlay 417.304 4177324 - 6,662,970 657,091 105,87. Bais aoe 14,023,396 12,483,544 1539.852, 7,836,648 County Court Nol Salaries 177,428 9,081 Employee Benefits 46,362 1 Supplies 8,254 103 Contract Services 6,660 72 Capital Outlay - Total County Court Nol 10977 (County Court No? Salaries 194,170 185,088 9,082 182,163 Employee Benefits 47.9 49 I 42.955 Supplies 14914 12,520 1494 4,676 Contract Services 5,498 3,562 1936 2,660 Capital Outlay 1.230 1225 5 835 ‘Total County Court No2 262.63 250,114 12318 233,289)ALDICLAL (cont'd) County Court No’: Salaries Empioyee Benefits Supplies Contract Services Capital Outlay Total County Court NoS County Court Nod Salaries ‘Employee Benefits Supplies Contract Services Capital Outlay Total County Court Nos District Attomey: Salaries Employee Benefits Supplies ‘Contract Services Capital Outlay ‘Total District Atorney District Clerk: Salaries Empiayee Benefits Supplies Contrace Services Capital Outlay ‘Total District Clerk Justice of Peace Pet | Salaries ‘Employee Benefits Supplies ‘Contrace Services Capital Outlay Toul Justice of Peace Pet | Justice of Peace Pet 2 Salaries Employee Benefits Supplies Coniract Services Capital Outlay Total Justice of Peace Pet 2 September 30, 2002, ‘Variance Fevorable Uso) 41.61 9,685 11262 3632 21310 93,650, 503,790 623,119 88,982 95,115 34.958 3345, 936 4,002,325 314,861 68,488 47545 106,658 7,539,877 199,889 55,280 8010 23,302 7575 254,156, 165,689 45,616 5,083 9.484 1,700 257.632 234.808 Actual 178,319 45.445 5472 11,906 4.031 25.173, 41,761 9,68 8,297 3,084 21,310 90,097 2,503,674 23,119 81274 76.220 34.957 73325 244 1,002,325 314,861 40,139 26,783 199,889 35,380 7371 19214 1518 289,429, 165,689 45,676 5.084 7,200 1,199 9,083, 2.126 1,202 139 72,550 2,965 588 3553 us 1678 18,895 20,690 28,349 20,762 85,868 134.979 639 4,088 am 2 2284 S01 2.824 AS Page 3 of 10 September 30, 2001 Actual 160,185 39,878 3.659 $347 2,036,469 468,827 58.467 62,027 35,385 2.661.175 923,843, 257,101 38,348 22,065 248,262 1489,619 163,741 43,12 4,894 18,090 4,684 2153) 184,057 40,406 5,624 481 20,071 224,639JUDICIAL (cont'd) Justice of Peace Pet 3 Salaries Employee Benefits Supplies Contract Sevices Capital Outlay ‘Total Justice of Peace Pet 3 Justice of Peace Pet 4 Salaries Employee Benefits Supplies Contact Services Capital Outiay ‘atl Justice of Peace Pot 4 Justice of Pace Pet 5 Salaries Employee Benefits Supplies Contract Services Capital Outlay ‘Total Justice of Peace Pet § ‘TOTALJUDICIAL LEGAL: County Astomey: Selares Employee Benefits Supplies CConiract Services Capital Outiy ‘TOTALLEGAL ELECTIONS: Salaries Employee Benefits Supplies ‘Contract Services Capital Ouiay TOTAL ELECTIONS Septemiber 30,2002, Budget 365427 103,514 18,391 19367 2.630 514329 248.835 7s13 6200 7.896 3.395 33.839 ina 47,02 1,325 24661 6781 267.526 7.409.814, 933,887 226307 24887 20018, 2,000 1,207,097, 329,31 65,41 54,028 96,406 20,113 365.319 1,256,805 Actual 365,427 108,514 18,274 18418 2,630 313.263 248,835 77513 1264 4642 3.229 177,197 47,702 n3s19 20,250 6.734 263.402 7193.14 979,772 226,316 28,740 19312 2,668 336,040 65,141 8414 89,853 11,988 388,836 Variance Favorable (Unfavorable 7 (45,885) 2.853) 08 (665) 3.708) 20,886) 6353 8,125 GIy At Page 4 of 10 September 30, 2001 Actual 309,049 20,666 11,798 16,554 5,685 933,752 229392 64.966 2814 44139 5.010 306,249 1,016,684 220,568 20,584 25017 10,180 1,293,008 281,383 53,638 $51 52,085 15.774 450,201,At Page 5 of 10 September 30, 2002, Variance September 30, Favorable 2001 Budget Actual (Unfavorabie) Actual County Auditor: Salaries 545,112 s4s.n12 FI 475310 Employee Benefis 149,176 149,176 F 115,853 Supplies 21,923, 19,033, 2,890 24,160 Contract Services 12980 12,489 491 15,945 Capital Outlay 5.612 oo. 10,752 Total County Auéitor 731.452 340 22,026 County Treasurer: Selares 22,170 222,169 1 208,086 Employee Benefits e1si2 61311 ! 51,564 Supplies 14,406 12372 2034 13,107 Contract Services 12988 9.155 3.833 8021 Capital Outlay 455 : 455 7 ‘Total County Treasurer S133) 305,007 6324 OTE ‘Tax Assessor-Collector: Salaries 1,603,068 1,693,068 - 1,562,900 Empioyee Benefits 508,235 508,233, 2 412612 Supplies 17,40 15,360 101,780 22 Contrast Services T0t8 51,083 27991 169,983 Capital Outlay 139512 100,177 39335 19553 Total Tex Assessor-Collector 2,596 999 2.427.891 7e9,108 2.328.270 ‘TOTALEINANCIAL ADM 3.68.25 3.464.350 178.873 3,151,028 ‘PUBLIC FACILITIES: (Custodial Services: Salaries 785,839 785,839 : 650,887 Employee Benefis 234,15 234,153 - 168,951 Supplies 141,006 140,905 101 123,403 Contract Services 34874 34417 457 28,648 Capital Outay 93.525 93,520 3 46972 Total Cusiodial Services 1.289.397 7,288,834 368 1,017,921 ‘Building Maintenance: lavies 749,788 749,788, : 397,708 Empioyee Benefits 197,082 197,082 : 148,309 ‘Supplies 486,962 484,117 2.885 263,152 Contract Services 521,036 487,307 33,729 552,895 Capital Outiay 121,792 $0,573, Total Building Maintenance 2,076,655, 36578 1,612,637PUBLIC FACILITIES (cont'd) Jail, ‘Supplies ‘Contract Services Capita! Oulay Tota ail (Civie Cemer Salaries Employee Benefits ‘Supplies (Contract Services Capital Outay Tosal Park Park Seiares Employee Benefits ‘Supplies Contract Services Copital Outlay ‘Total Park ‘TOTAL PUBLIC FACILITIES PUBLICSAFETY: Fire Marshel: Salaies Employee Benefits Supplies Contract Services Capital Outay ‘Total Fie Marshal (Crimestoppers Selares Employee Benefits Total Crimestoppers seems. 200 Budget 1,001,401 218,396 353 1.255.590, 231917 $6483, 87877 317360 146,370, 111.828 5,573,687 332,525 76.748, 10.916 5.687 a9 65,175 19.084 3.219 Actual 993.928 218,236 231,917 56483 84,019 283,695 112.247 768,361 42,364 11,106 2,456 8189 9.049 7316 5,418,380 332,526 16,748 9,170 5.394 3.037 7.075 65,175 19,083, 84.218 35 At Page 6 of 10 Variance September 30, Favorable 2001 (nfavorable) Actual 1473 sToss 160 229,056 27 32,072 7.860 7336983 : 206,832 - 45,468 3,858 49,967 33,865 323,274 34,123 457.975, 7846 083.516 7 39,124 - 9,525 5923 5,108 134 15332 25,007 35034 38,64 104,123. 158,307, 5,055,180 . 298,537 a 65,042 1746 11,92 3.093 6509 3,003 L381 7.882 382,761 51,404 | 63.883PUBLIC SAFETY (cont'd) ‘Constable Pet | Salaries Employee Benefits Supplies Contract Services Capital Outlay ‘otal Constable Pet | Constable Pet 2 Salaries Employee Benefits Supplies Contract Services Capital Outlay ‘Total Constable Pet 2 ‘Constable Pet 3 Salaries Employee Benefits Supplies Contract Services Capital Outlay ‘Total Constable Pot 3 Constable Pet 4 Salaries Employee Benefits Supplies Contact Services Capital Outlay ‘Total Constable Pet 4 Constable Pet 5 Salaries Employee Benefits Supplies Contract Services Capital Outay Total Constable Pet 5 September 30, 2002 503.748 130.226 30248, 20203, 28244 712.666. 941,467 232,079 30359 19.393 Iai 1236712 485,475 120,490 11,594 10,599 9475 5.635, 824841 205.418 19,063, 31,698 15.568 796,588 354.073 685,673 131,135 G2.174 1,094,495 56 Actual 1,004,518 254,284 49,378 2,118 23,775 503,748 130,226 23,460 15.489 12,350 941,467 232,079 27,836 18,481 11,262 483,474 120,490 11,304 7,456 9,360 824,841 205,418 ig 31,280 13,566 At Page 7 of 10 Variance September 30, Favorable 2001 (Unfavorable) ‘Actual : 866511 - 206,590 414 36,171 3928 23,070 ais 156.613, : 490514 : 107,820 6.788 32,161 ane 16,561 15.496 24,595 26.996 71.651 7 775516 : 176,033 2,53 2493 912 18,996 2.152, 6284 5.587 000,382, tL 445357 : 102,385 200 13,531 318 6.581 us 359 : 681,873, - 159,623 1,645 20,618 26,004 6.073 994,281PUBLIC SAFETY (cont'd) Shite Salaries Employee Benefits Supplies Contract Services Capital Outlay ‘Total Sheriff Juvenile Services: Salaries Employee Benefits Supplies Contract Services Capital Outiny ‘Total Juvenile Services ‘Ault Services: Salaries Employee Benefits Supplies ‘Contract Services Capital Outlay ‘Total Adult Services Emergency Management Salaries Employee Benefits Supplies ‘Contact Services Capital Outlay Total Emergeney Management Departmen of Public Safety Salaries Employee Benefits Supplies Contract Services Total Dept of Public Safety ‘TOTAL PUBLIC SABETY September 30, 2002 Budge 15614739 421,565 1,402,816 1.985.489 1,760,236 4.865 2301245 230124 anise ‘a. t8s 73 e600 ue pied 1 317350 3350477 3491997 349,995 sri o9 ‘29 ‘29 2,000 18875 igs sie 72390 nae 35819 35819 $308 308 3922 378 3684 3.62 2399 239 Ba 3.166 46,969 46969 14657 14.657 "30 ‘28 300 2a ae Gas Beoser sasra664 ‘Actual 15,293,648, 4s 819,125 1,386,606 1,480,268, Variance Favorable (Unfavorable) 321,091 131,140 583,691 598,843 280,028 7,934,793 1 16,953, 149,850 9 166,853, 2 1125 29 336 | m4 65, 90 2 153,638 AS Page 8 of 10 September 30, 2001 Actual 14,352,531 3.531255 "781,080 41,118350 1.37018 21,220.34 1,674,708 405,826 38,584 339,316 30,766 2,489,200 3,398,198 834,994 32,559 7,209 5,239 8,587 35,598 45,308 13,620 n 185, 35181 32832,981HEALTH AND WELFARE: Medical: (Contract Services Mental Health Contract Serviees Environmental Health Salaries Employee Benefits Supplies CConiract Services Capital Outlay Total Environmental Health ‘Animal Contol: Selaries Employes Benefits Supplies Contract Services Capital Oudley Total Animal Contr! Welfare: Contract Services ‘TOTAL HEALTHOVELFARE. CONSERVATION: Extension Agent: Salaries Employee Benefits Supplies Contract Services Capital Outlay Total Extension Agent Groundwater Conservation: Salaries Supplies Contract Services Total Groundwater Conservat TOTAL.CONSERVATION September 30, 2002 Budget 168973, 564,065 134,560 11,585 33,439 4617 768.265 68 103,173 30873, 23,197 857.284 3,108,678 351314 9.926 530 142.920 153.376 304,690 Astual Variance Favorable nfavorabe) 222,088 564,065, 154,560 17s 040 761.456 327,268 103,173, 30,773 23,085 F528 858,828, 3,090,614 226,154 54,618 1381 41916 149 9.926 2 153,376 496.430 13.556 410 6399 oa 142 Ba 44) 19,068, 208 3,136 4915 8260) 5260, AS Page 9 of 10 September 3, 2001 ‘Actual 37,508, 216201 460,696 115,225 9,149 i176 2,083 608,922 286,242 74,121 46,036 41,250 43,751 791,400 830,515 2,980,563 215,351 490015 87 38,120 4,200 805 18.988 18.948 330,754As Page 10 of10 September 30, 2002 ‘Variance September 30, Favorable 2001 Budger Actual (Unfavorable) Actual MISCELLANEOUS: Salaries 1671 2671 - 249.229 Benetits 12357 2,338,502 2337245) 224277 Capital Outlay 2,499,314 2309801 189,513 346,069 Contingency 2,075,118, 1771812 303.306 1217473 ‘TOTAL MISCELLANEOUS 458,30 6,627,786 (844.426) 3.937.058, ‘TOTAL EXPENDITURES 79,350,566, 76,996:550 2,354,016, 64,116,173 ‘OTHER FINANCING USES: ‘Operating Transfers ‘To Hazard Mitigation : : - 563 To Jury 2,781,074 2,560,000 221074 2274327 To Road and Bridge 44545 - 44,545 Fl ‘To Memorial Library 4,391,819 4,050,000 341819 4,000,000 To Anienal Shelter 275,184 223,000 52,184 180,000 To Historical Comamission 9350 5,000 4350 7658 To Chile Welfare 67,601 46,500 2101 61,000 ‘To Airport Maintenance 241,427 165,000 76,127 36,054 ‘To Capital Project-CO97 I 7 oD ‘TOTAL FINANCING USES 3.810.700, 7.949.597 761.103, 6,889,609, ‘TOTAL EXPENDITURES AND. EINANCING USES SST toL266 |S S0NGIA7 $311) _§__71,005.782 59APPENDIX oer FORM OF LEGAL OPINIONS esis Sees VinsonéeElkins Sno” mae WE HAVE ACTED as bond counsel for Montgomery Count connection with an issue of bonds (the "Bonds") described as follows Texas (the "County"), in MONTGOMERY COUNTY, TEXAS, LIMITED TAX LIBRARY BONDS, SERIES 2003B, dated April 1, 2003, in the total authorized amount of $10,000,000. The Bonds mature, bear interest, are subject to redemption prior to maturity, and may be transferred and exchanged as set out in the Bonds and in the order adopted by the Commissioners Court of the County authorizing their issuance (the "Order". WE HAVE ACTED as bond counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of ‘Texas, and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of certified proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the County or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the County’s Official Statement prepared for use in connection with the sale of the Bonds (the "Official Statement") has been limited as described therein, IN OUR CAPACITY as bond counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds which contains certified copies of certain proceedings of the County, customary certificates of officers, agents and representatives of the County and other public officials and other certified showings relating to the authorization and issuance of the Bonds. We have also examined executed Bond No. I-1 of this issue. AUSTIY = SEUNG + DALLAS ~ HOUSTON + LONGON + MOSCOW + NEAYORK + SINGAPORE - IABHROTON. OF.BASED ON SUCH EXAMINATION, IT IS OUR OPINION that the transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently effective and that therefore the Bonds constitute valid and legally binding obligations of the County, and that taxable property within the County is subject to the levy of ad valorem taxes, within the limits prescribed by law, to pay the Bonds and the interest thereon, ‘THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion, IT IS OUR FURTHER OPINION that: (1) Interest on the Bonds is excludable from gross income for federal income tax purposes under existing law. (2) The difference between the amount payable at maturity of each Original Issue Discount Bond (as defined in the Official Statement) and the “issue price” of such Bond (as stated in the Official Statement) is excludable from gross income for federal income tax purposes as original issue discount under existing law. (3) The Bonds are not "private activity bonds" within the meaning of the Intemal Revenue Code of 1986, as amended (the "Code"), and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Bonds will be included in the "adjusted current earnings" of a corporation (other than any S corporation, regulated investment company, REIT, REMIC or FASIT) for purposes of computing its alternative minimum tax In providing such opinions, we have relied on representations of the County, the County's financial advisor, and the Underwriters (as defined in the Order), with respect to matters solely within the knowledge of the County, the County's financial advisor, and the Underwriters, respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Order pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. If such representations are determined to be inaccurate or incomplete or the County fails to comply with the foregoing provisions of the Order, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. Purchasers of Original Issue Discount Bonds in the initial public offering are directed to the discussion entitled "Tax Accounting Treatment of Original Issue Discount Bonds" set forth in the Official Statement for purposes of determining the portion of the original issue discountdescribed in paragraph (2) above which is allocable to the period such Bonds are held by an owner. The federal income tax consequences of the purchase, ownership, and redemption, sale, or other disposition of Original Issue Discount Bonds which are not purchased in the initial public offering at the initial offering price may be determined according to rules which differ from those described above and in the Official Statement. Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership, or disposition of the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, and individuals otherwise qualifying for the eamed income credit. In addition, certain foreign corporations doing business in the United States may be subject to the "branch profits tax" on their effectively-connected earnings and profits (including tax-exempt interest such as interest on the Bonds). The opinions set forth above are based on existing law, which is subject to change, Such opinions are further based on our knowledge of facts as of the date hereof, We assume no duty to update or supplement these opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of results and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the County as the taxpayer. We observe that the County has covenanted in the Order not to take any action, or omit to take any action within its control, that if taken ox omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes,DRAFT 03/11/03 ‘VINSON & ELKINS LLP. ‘Vinson&Elkins HUET TEAS ron ao ssronmeariae mao WE HAVE ACTED as bond counsel for Montgomery County, Texas (the "County”), in connection with an issue of bonds (the "Bonds'") described as follows: MONTGOMERY COUNTY, TEXAS, UNLIMITED TAX ROAD BONDS, SERIES 2003A, dated April 1, 2003, in the total authorized amount of $24,000,000. ‘The Bonds mature, bear interest, are subject to redemption prior to maturity, and may be transferred and exchanged as set out in the Bonds and in the order adopted by the Commissioner's Court of the County authorizing their issuance (the "Order". WE HAVE ACTED as bond counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas, and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes, We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of certified proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the County or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the County's Official Statement prepared for use in connection with the sale of the Bonds (the "Official Statement") has been limited as described therein. IN OUR CAPACITY as bond counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds which contains certified copies of certain proceedings of the County, customary certificates of officers, agents and representatives of the County and other public officials and other certified showings relating to the authorization and issuance of the Bonds. We have also examined executed Bond No. I-1 of this issue. AUSTIN © HELING ~ ALIAS = HOUSTON LONRON + MORCOW . NEWYORK = SNGRPORE - WaSHNGTON 0.BASED ON SUCH EXAMINATION, IT IS OUR OPINION that the transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently effective and that therefore the Bonds constitute valid and legally binding obligations of the County, and that taxable property within the County is subject to the levy of ad valorem taxes, without legal limit as to rate of amount, to pay the Bonds and the interest thereon, THE RIGHTS OF THE OWNERS of the Bonds are subject to the anplicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPINION that: (1) Interest on the Bonds is excludable from gross income for federal income tax purposes under existing law. 2) The difference between the amount payable at maturity of each Original Issue Discount Bond (as defined in the Official Statement) and the "issue price” of such Bond (as stated in the Official Statement) is excludable from gross income for federal income tax purposes as original issue discount under existing law. (3) The Bonds are not "private activity bonds” within the meaning of the Intemal Revenue Code of 1986, as amended (the "Code", and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Bonds will be included in the "adjusted current eamings" of a corporation (other than any $ corporation, reguiated investment company, REIT, REMIC or FASIT) for purposes of computing its alternative minimum tax In providing such opinions, we have relied on representations of the County, the County's financial advisor, and the Underwriters (as defined in the Order), with respect to matters solely within the knowledge of the County, the County's financial advisor, and the Underwriters, respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Order pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. If such representations are determined fo be inaccurate or incomplete or the County fails to comply with the foregoing provisions of the Order, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. Purchasers of Original Issue Discount Bonds in the initial public offering are directed to the discussion entitled "Tax Accounting Treatment of Original Issue Discount Bonds" set forth in the Official Statement for purposes of determining the portion of the original issue discountdescribed in paragraph (2) above which is allocable to the period such Bonds are held by an owner, The federal income tax consequences of the purchase, ownership, and redemption, sale, or other disposition of Original Issue Discount Bonds which are not purchased in the initial public offering at the initial offering price may be determined according to rules which differ from those deseribed above and in the Official Statement. Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership, or disposition of the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, and individuals otherwise qualifying for the eared income credit. “In addition, certain foreign corporations doing business in the United States may be subject to the "branch profits tax" on their effectively-connected earnings and profits (including tax-exempt interest such as interest on the Bonds). The opinions set forth above are based on existing law, which is subject to change. Such opinions ate further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement these opinions to reflect any facts or circumstances that may hereafier come to our attention or to reflect any changes in any aw that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of results and are not binding on the Intemal Revenue Service (the "Service"; rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence en audit of the Bonds, If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the County as the taxpayer. We observe that the County has covenanted in the Order not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes,APPENDIX D ‘SPECIMEN OF FINANCIAL GUARANTY INSURANCE POLICY Ambac Are Arne One State Sereet Plaza, 13th Floor New Verk, New York 10004 Financial Guaranty Insurance Policy TTeiephane: (212) 668-0340 Obiger: Patey Nember: Obtigeions Premium Ambac Assrnee Corportion Ama» Wcrn sock anes cptin natn oe as ga he ts Fl ty pe oy Toe Bank of New Wr w tre, a at eee ene ei te Fa, orton fe pea td otro ne eer de (ae "Seg ch Sul tres Dac fo Eyer st a Be inp byrason of Neng te O69 Aine il mae sch payment tthe manne Trae wit ne) snes day lowing wan she Aaa Haut pena sod eee te azure ree ach ps SERIE bewe eta fee ef ry ners cm he irene Tre wl Sree Sino wach & jen Dan En at ung Upon ue or Serre Outigrtam slo coupons an Sl tly rope al Incas wee he Onlitins are sued in gine i, the rane Tre Ta nuete e the hourane ae Se tpis Onion, eee nipamare fr tay te Assn Sean conly upon ‘aim, together ‘he Holder oF such Hroiders du authored We, s to permit owmershyp of rarne of Ambac orf amines. ‘The Insurance shall disburse interest to @ to the Insurance Truste of proof thatthe claimant isthe person ent ‘Qphigtion nd delivery tthe {psurance Trustee of an tnetramens of assignment, in form satisfac surance True, duly executed by the Hllder or such Hoider’s duly authorized represent cap Neg bbe under sush Obligation to receive the interest in respect of which the insurance dish sia ye robrogated to all ofthe Holders rights co ‘ayment on registered Obligations to the extent o ‘dis ‘rade. In the event that ¢ trustee or Otigatcn which fa become any payment of principal of or interest on an by ar on behalf ofthe Obligor has been deemed & ‘the United States Bankruptey Code in acordance with 2 ina, nenappealable order of « Sth Holder willbe entitied to payment frre Armbac to the extent of sac recovery Hf suliceps ‘As used herein, migns than () the Obligor or (i) any person whose obligations constinate the sunderiing Source hp Pigtions wi, atte time of Nonpayment, i the owner ofan Obligation or of coupon reine’ "Dut for Payment”, when referring to the principal of Obligations, is wnen the ‘anda on date for the application ofa required sinking fund inalmert bas been any eaves date on which payment is cue by reason af cal for redemption (other than by application, iment), acceleration of other xvancement of matunty; and, when refering to interest on the led date for payment of interest hax been Teached. As used herein, “Nonpayment” rears the falure Gh suficient fre tothe trustee oF paying agent for paysnenc in ful ofall principal of and nearest ‘are Dua for Payment. enone: The pemtan on tis Pali feted fo ary eon, ning pear of he Otis rier to miwasioy’ “This Policy dos not insure aginst loss of any prepayment or other acceleration payment which at any time [ay become due in respect of ey Obligetion. ther than at te sole opton of Armbac, nor against any risk other than Nonpayment. In witness whereof, Ambac hus caused this Policy tobe affixed witha facsimile of ts corporate weal an to be signed by its duly suthorzed eficers i fesialle to become effective ax fe original sel and signatures and binding upon Ambac by viroue of the ‘Countesignarure of ts duly authorized representative. lib] bf ame G Gute Bas ft seat Ertecive Date Authorid Representative ‘THE BANK OF NEW YORK ackpowiedges that i hs agreed s ‘perform the duties of Insurance Trustee under this Plicy. Form No.: 28-0012 (1/01) Authored Oficer of Trsurance Trustee A