~ `~"o~
NEW ISSUE
BOOK-ENTRY-0NLY
OFFICIAL STATEMENT
February 4, 2005
Rating: Moody's: "A3"
(See "RATINGS" herein.)
In the opinion of Bond Counsel, interest on the Certificates will be excludable from gross income for federal income tax purposes
under statutes, regulations, published rulings and court decisions existing on the date thereof, subject to the matters described
under "TAX MATTERS" herein, including the alternative minimum tax on corporations.
THE CERTIFICATES WILL BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS"
FOR FINANCIAL INSTITUTIONS
$2,000,000
KERR COUNTY, TEXAS
CERTIFICATES OF OBLIGATION, SERIES 2005
Dated: January 15, 2005 Due: February 15, as shown on the following page
Kerr County, Texas (the "County" or "Issuer") is issuing $2,OOQ000 Certificates of Obligation, Series 2005 (the "Certificates")
pursuant to the laws of the State of Texas, including Chapter 271, Texas Local Government Code, as amended, and two orders
(collectively, the "Certificate Order" or the "Order") adopted by the Commissioners Court of the County.
The Certificates constitute direct obligations of the County, payable from the levy and collection of a direct and continuing ad
valorem tax, within the limits prescribed by law, on all taxable property located within the County. (See "THE CERTIFICATES -
Security for Payment" herein.)
Interest on the Certificates will accrue from the dated date as shown above and will be payable February 15 and August 15 of each
year, commencing February 15, 2006, and will be calculated on the basis of a 360-day year of twelve 30-day months. The
definitive Certificates will be issued as fully registered obligations in book-entry form only and when issued will be registered in
the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York. DTC will act as
securities depository (the "Securities Depository"). Book-entry interests in the Certificates will be made available for purchase in
the principal amount of $5,000 or any integral multiple thereof. Purchasers of the Certificates ("Beneficial Owners") will not
receive physical delivery of certificates representing their interest in the Certificates purchased. So long as DTC or its nominee is
the registered owner of the Certificates, the principal of and interest on the Certificates will be payable by Wachovia Bank,
National Association, Houston, Texas as the initial Paying AgentlRegistrar, to the Securities Depository, which will in turn remit
such principal and interest to its Participants, which will in turn remit such principal and interest to the Beneficial Owners of the
Certificates (see "BOOK-ENTRY-ONLY SYSTEM" herein).
Proceeds from the sale of the Certificates will be used to acquire from the Hill Country Juvenile Detention Facility Corporation the
existing juvenile detention facility located in the County (the "Juvenile Facility"} and to pay the costs of issuance thereof. (See
"THE CERTIFICATES -Use of Certificate Proceeds" herein.)
SEE FOLLOWING PAGE FOR STATED MATURITIES,
PRINCIPAL AMOUNTS, INTEREST RATES, AND YIELDS.
The Certificates are not subject to redemption prior to maturity.
The Certificates are offered for delivery when, as and if issued and received by the Underwriter and subject to the approving opinion of the
Attorney General of Texas and the opinion of McCall, Parkhurst & Horton L.L.P, Bond Counsel, San Antonio, Texas (see APPENDIX D, "Form
of Bond Counsel's Opinion'). Certain legal matters will be passed upon jor the Underwriter by Locke Lidell & Sapp LLP, Dallas, Texas, as
legal counsel to the Underwriter. It is expected that the Certificates wit! be available.for delivery through the Depository Trust Company, New
York, New York, on February 14, 2005.
SOUTHWEST SECURITIES
STATED MATURITY SCHEDULE
$2,000,000
KERR COUNTY, TEXAS
CERTIFICATES OF OBLIGATION,
SERIES 2005
Base CUSIP~'~: 492350
Maturity				
Date	Principal	Interest		
2( /15)	Amount	Rate	Yield	CUSIP's~~~
2006	$ 370,000	3.50%	2.50%	CE1
2007	425,000	3.50%	2.75%	CF8
2008	440,000	3.50%	2.90%	CG6
2009	375,000	3.50%	3.06%	CH4
2010	390,000	3.25%	3.27%	CJO
(Interest Accrues from January 15, 2005)
~~~ CUSIP numbers have been assigned to the Bonds by Standard & Poor's CUSIP Service Bureau, a division of the McGraw Hill
Companies, Inc. and are included solely for the convenience of owners of the Certificates. Neither the County, the Financial
Advisor, nor the Underwriter shall be responsible for the selection or correctness of the CUSIP numbers set forth herein.
11
KERR COUNTY, TEXAS
700 Main Street
Kerrville, Texas 781128
COMMISSIONERS COURT:
Years Term Expires
Name and Position Served (December)
Pat Tinley	2	2(>(~<
County Judge		
H.A. "Buster" Baldwin	8	2008
Commissioner, Precinct 1		
William "Bill" Williams	6	2006
Cbmmissiuner, Precinct 2		
Jonathan P. Letz	8	20114
Commissioner, Precinct 3		
David Nicholson	2	2()06
Commissioner, Precinct 4		
COUNTY OFFICIALS:
		Total
Name	Position	Years With the County
Jannett Pieper	County Clerk	22
Linda Uecker	District Clerk	37
Barbara Nemec	County Treasurer	13
Paula Rector	Tax Assessor/Collector	15
Tommy Tomlinson	County Auditor	13
CONSULTANTS AND ADVISORS:
Bond Cuunsel ...............................................................................................................................................McCall, Parkhurst & Hurtun L.L.P.
San Antonio, Texas
Certified Public Accuuntants ....................................................................................................................... Pressler, Thompson. and Company
Kerrville, Texts
Financial Advisur .......................................................................................................................................................... RBC Dain Rauscher [nc.
San Antonio, Texas
iii
USE OF INFORMATION IN OFFICIAL STATEMENT
.r
This Official Statement, which includes the cover page and the Appendices hereto, does not constihr[e an offer W sell ur the solicitation of an offer tr~
buy in any jtttisdiction tct any person to whom it is unlawfid [u make such offer, solicitation or sale.
Nu dealer, broker, salesperson or atlter person has been authorized to give infutmation ur to make any representation otltcr than those contained in
this Ot2icial Statement. and, if eiven or trade, such other inti~rma[ion or representations must not be relied upon.
The intunnatiun set forth herein has been obtained from Ute County and udter sources believed to be reliable, but such infi~rma[ion is no[ guaranteed
as to accuracy ur completeness and is not tr~ be construed as the pnnnise ur guarantee of the Financial Advisor ur the Underwriter. This Otlicial
Statement cunlaius, in part. estimates and matters of opinion which are nu[ intended as statements of fact, and nu representation is made as to the
cort>'ctness of such estimates and opinions, ur that they will be realized.
The Underwriter has provided the ti~llowing sentence fur inclusion in this Official Statement. The Underwriter has reviewed the inti~rtnation in
this OtYicial Statement in accordance with their responsibilities to investors under the Yederal securities laws as applied to the facts and
circumstances of this transaction, but the Underwriter du not guarantee the accuracy ur completeness of such inti~rmation.
The infinnatiun and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Ot~icial Statement
nor any sale made hereunder shall, under arty circumstances, create any implication that there has been nu change in the affairs of the County ar utlter
matters described.
THE CERTIFICATES ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND E,YC'HANGE COMMISSION AND
CONSEQUENTLY HA~~ NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTK)N OF THE
CERTIFICATES IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE
SECURITIES HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION
THEREOF.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY O~~R-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE
OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABO~~ THAT WHICH MIGHT PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
NEITHER THE COUNTY. THE FINANCIAL ADL'[SOR, NUR THE UNDERWRITER MAKE ANY REPRESENTATION UR WARRANTY
WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST
COMPANY UR ITS BOOK-ENTRY-ONLY SYSTEM.
The agreements of the County and others related to the Certificates are contained solely in the contracts described herein. Neither this Official
Statement nor any other statement trade in connection with the offer or sale of the Certificates is to be consorted as constihrting an agreement
with the purchasers of the Certificates. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL
APPENDICES ATTACHED HERETO, TC) OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT
DECISION.
1V
TABLE OF CON'I'EN"CS	
OJ~ciul Stutenrenl:	Puge
Description of the Certificates	r
Stated Maturity Schedules	u
County Officials	ut
Use of [nti~rmation in this OtTicial Statement	(v
Table of Contents	~
'
Selected Data from the Otlicial Statement	_
~ t
hrtttxiuction	l
The Certificates	l
Sources of Uses of Certificates	
Registration, Transfer and Exchange	
Bcwk-Entry-Only System	'~
Non Appropriation of Lease Revenue Bonds	S
Investmeu[s	6
Litigation	8
Ad Valorem Tax Prcx;edures	S
Tax Matters	I 1
Continuing Disclosure of Infomratiun	l'
Registration and Qtu~lification of Certificates tier Sale	l4
Legal 6rvestments and Eligibility to Secure Public Frutds in Texas	l4
Legal Opinicros and No-Litigation Certificates	l'~
Ratings	- 5
Underwriting	l S
Financial Advisor	15
Use of information in Official Statement	l S
Financial [nfarnration of the County	Appendix A
General Infomration Regarding the County	Appendix B
The Corurty's Annttal Financial Repcxt for Fiscal Year Ended 9/,0/03	Appendix C
Fom~ of Bond Counsel's Opinion	Appendix D
The Cotter Pine tlds pine acrd the 4ppenclices uttuc•hed Irereto ore purl of the O~clat Stutenreru.	
v
SELECTED DATA FROM THE OFFICIAL STATEMENT
The selected duty is subject in all respects to the more complete infimnution and definitions contuined or incorporated ix this (~Jicial Stutement. The
vJferru•~ of-tire Certificates Io potential im~estors is mode only by means of this eraire OfJiciul Stutement. 1Vo person is utrtJ~orized to detach this page
from this [)fJicial Stutenrent ur 10 otherwise use /t witkoul dre c~rtire Official Statement.
The County	Kerr County, Texas (tire "County" or "Issuer") is a cenhal Texas county with art economy based on agriculture.
	tourism and rnanutacturing. The County had a 2000 population of 43,653, an increase of 20?4°% since 199(1. The
	County is governed by an elected Commissioners' Court, consisting of ti~ur C'uunty C'ummissioners and a County
	Judge, all of whom are elected officials.
Tire Certificates	The Certificates shall mahtre serially on Febntary 15 in each of the years 2006 tltrough 2010, and interest therc~~n
	is payable on February l5 and August 15 in each year, commencing February 15, 2006.
Authority fur Issuance	The Certificates are being issued by the County pursuant tct the laws of the State of Texas, including Chapter 271,
	Texas La;al Cnwerntnent Code, as amended, and two orders (collectively, the "Certificate Chder" or the "Order")
	adopted by the Commissioners Court.
Security fur the Certificates	The Certificates constitute direct obligations of the County, payable from [he levy and collection of a direct and
y	continuing ad valueem tax, within the limits prescribed by law, on al] taxable property kx;ated within the
	County. (See "THE CERTIFICATES -Security fir Payment" herein.)
RedemptNm	The Certificates are not subject to optional redemption prior to maturity (see "THE CERTIFICATES -
	Redemption Provisions" herein).
Tax Exemption	[n the opinion of Bond Cotmsel, the interest on the Certificates will be excludable from gross income for federal
-	income tax pttr~x~ses tinder existing law, subject to the matters described under the caption "TA;{ MATTERS"
	herein, includins the alternative minimum tax on corporations.
Qualified Tax-Exempt	The County will designate the Certificates as "Qualified Tax-Exempt Obligations'" fir financial instinrtions (see
Obligations	"TA,Y MATTERS -Qualified Tax-Exempt Obligations for Financial Institutions").
Use of Proceeds	Pnx:eeds from the sale of the Certificates will be used to acquire from the Hill Country Juvenile Detention Facility
	Corporation the existing juvenile detention facility located in the County (the "Juvenile Facility") and Qi pay the
	costs of issuance thereof. (See "THE CERTIFICATES -Use of Certificate Pra:eeds" herein. )
Ratings	Mcxxty's Investor Service ("Mtx~dy's') has assigned a municipal bond rating of A3 on the Certificates. An
"
	herein. )
explanation of the significance of such rating may be obtained from the rating agency. (See "RATINGS
BrKrk-Entry-Only System The definitive Certificates will be initially registered and delivered only to Cede & Co., the nominee of DTC'
pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Certificates may be
acquired in amounts due at maturity of $5,000 or integral multiples tltereof. No physical delivery of the
Certificates will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the
Certiftcates will be payable by the Paying AgentJRegistrar [o Cede & Co., which will make distribution of the
amounts so paid to the participating members of DTC for subsequent payment tci Ute beneficial owners of the
Certificates (see "BOOK-ENTRY-ONLY SYSTEM"}.
Pavment Record The County has never defaulted in payment of its general obligation tax debt.
Delivery When issued, anticipated on or alwut Febmary 14, 2005.
vi
OFFICIAL STATEMENT
RELATING TO
$2,000 000
KERB COUNTY TEXAS
CERTIFICATES OF OBLIGATION, SERIES 2005
INTRODUCTION
This Otlicial Statement, which includes Appendices hereto, provides certain intomtation rzgarding the issuance of $2,000.000 Ken County, Texas
Certificates of Obligation, Series 2005. Capitalized ternts used in this Otlicial Statement have the same meanings assigned t<i stitch terms itt the Order to
be adopted on the date of sale of the Certiticates which will authorize the issuance of the Certificates, except as utherw~ise indicated herein.
There follows in this Otiicial Statement desr7iptions of the Certiticates and certain intixmatiou regarding the County and its finances. All descriptions
of daatments contained herein are only suntntaries and are gttalitied in [heir entirety by reference to each such dcx;wttenk Copies of such ducun>t:nts
may lx: obtained from the County's Financial Adviscx, RBC Rain Ratischer Inc, San AnQinio. Texas.
THE CERTIFICATES
General
The Certificates are dated January 15. 2005 and mature on Fehnrary 15 in each of the years and in ifte maturity artxtwtts set firth on the inside cover
page hereof. The Certificates shall bear interest from their date on the unpaid principal amounts, and the attxwtt of interest to be paid each payment
period shall be computed un the basis of a 360.day year of twelve 30.day months. Interest on the Certiticates will be payable un Febntary 15 and
August 15 of each year commencing February i5, 2006. Principal is payable at the designated offices of the Paying AgenURegistrar, initially,
Wachovia Bank, National Asscxiation, Houston, Texas Interest ctn the Certificates is payable [o the Holders whose names appear in the Se~r:utity
Register at the close of business on the Record Date (as defined herein) and shall be paid by the Paying AgenURegistrar by check sent United States
Math first class postage prepaid.. t<i the address of the Holder recorded in the Security Register or by such outer ntetltai, acceptable to the Paying
Agent/Regis[rar, requested by, and at the risk and expense of, the Holder.
The definitive Certiticates will be issued only in fully registered fomt in any integral multiple of $5,000 of amounts due at maarity for any one
maturity and will be initially registered and delivered only to Cede & Cu., the nominee of The Depository Tntst Company, New York, New
York ("DTC") pursuant to the Btwk-Entry-Only System described herein. No physical delivery of the Certiticates wiU be made to the
owners thereof. Principal of, premium. if any, and interest un the Certiticates will be payable by the Paying AgentlRegistrar to Cede & Co..
which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the
Certiticates. See BOOK-ENTRY-ONLY SYSYEM" herein.
Authority for Issuance
The Certificates are being issued by the County pursuant to the laws of the State of Texas, including Chapter 271, Texas Laval Government
Code, as atnended, attd two orders (collectively, the "Certiticata Order') adopted by the Commissioners Court of the County.
Security for Payment
All taxable property within the County is sttbjec;t [o a continuing direct annual ad valorem tax levied try the County strtticient to provide fix flte
payment of principal of and interest un the Certificates and all other obligations payable in whole ur in part from ad valorem taxes, which tax must be
levied within limits prescribed by law.
Redemption Provision
The Certificates are not subject [o redemption Pryor to maturity.
Use of Certificate Proceeds
Proceeds of the Certiticates will be used to purchase all real and personal property constituting the Kerr County, Texas Juvenile Detention Facility
(the "Juveniic Facility") from the Hill Country Juvenile Facility Corporation, a nonprofit public facility corporation created by the County (the
"Corporation"), and to pay costs of issuance. The Juvenile Facility was acquired by [Ire Corporation (whidt had the etFect of refinancing existing
indebtedness), and additional improvements to the Juvenile Facility were financed, with pra:eeds derived from ttte sale by the Corporation of
$5,140,000 in principal amount of Ute Hitl Cuwttry Juvenile Fae;ility Corporation Lease Revenue Bonds, Series 2002 (Kerr County, Texas Project)
(the "Lease Revenue Bonds"). The Lease Revenue Bonds were issued in December, 20(12. The purchase of the Juvenile Facility is being undertaken
by the County, in part, in exchange for a lull and wmplete written release of any claims that could be brought against the Catnty, the Corporation,
the Karr County Jttvettile Board, which operates [lie Juvenile Facility (the "Juvenile Board"}, and their otiicials and employees, past and present
{collectively the "Cbunry Participants") by holders of the Lease Revenue Binds (the "B~indholders"), which are currently outstanding in the aggregate
principal artxntnt of $4.975,000. See "Non-Appropriation of Lease Revenue &,nds" herein for additional infutntation relating to the Lease Revenue
Binds and rc~c:ent events which resulted in the Juvenile Board and the County electing not to appropriate titnds fur the payrnc;n[ of debt service un the
Lease Revenue Bonds that is scheduled t<~ come due during the current fiscal year.
Payment Record
The County has never defaulted in the payment of its general obligation tax debt.
Legality
The Certificates are utli:rrxi fi,r delivery when, as and if issued and received by the Underwriter and subject w the approving opinion of the Atuxney
General of Texas and the opinion of McCall, Parkhurst & Horton L.L.P., Band C'ounset, San Antcinio, Texas (see Appendix D - "Funn of Bond
Counsel's Opiuion"). Certain legal matters will be passed uixtn fur the Underwriter by Lrx;ke Lidell & Sapp LLP, Dallas. Texas, as legal counsel to
the Underwriter.
Defeasance
The Order provides for the defeasance of the Certificates when payment of the principal amount of the Certificates phis accrued interest on the
Certificates W their due date (whether such due date be by reason of tttaRtrity or otherwise), is provided by irrevtx;ably depositing with a paying
agent, ur other authorized escrow agent, in trust (1) tmtney sut~icient to make such payment or (2) Government Securities, certified by an
independent public acwunting firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the
availability, without reinvestment, of sufFicient money to make such payment, and all necessary and proper fees, compensation and expenses of
the paying agent ti,r the Certificates. The Urder provides that C,uvernment Securities means (1) diree;t, noncallable obligations of the United
States of America, including obligations that are unconditionally guaranteed by the United States of America, (2) noncallable obligations of an
agency or instrumentality of the Clnited States of America, including obligations that are unconditionally guaranteed or insured by the agency or
instrumentality and that are rated as to investment quality by a nationally recognized investment rating tine not less than AAA or its equivalent,
and (3) noncallable obl iga[ions of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded
and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent.
Upon such deposit as described alxive, such Certificates shall no longer be regarded to be outstanding obligations for purposes of applying any
debt limitation un indebtedness fur purposes of taxation or for any other purpose other than to be paid from the funds held in escrow.
Amendments
The County may amend the Certificate Order witlu,ut the consent of or notice to any registered owners in any manner not detrimental to the interests
of the registered uw•ners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein. In addition, the Cotmty may, with
the written consent of the holders of a majority in aggregate principal amount of the Cedificates then outstanding affected thereby, amend, add tci, or
rest: ind any of the pa,visions of such Certificate Order, except that, without the consent of the registered owners of all of the Certificates affected, no
such amendment, addition, or rescission may (1) change the date specified as the date on which the principal of, or any installment of interest on any
Certiticate is due and payable, reduce the principal aux,wtt thereof, or the rate of interest thereon, change the place ur places at ur rite coin or currency
in which any obligation or interest thereon is payable, or in any other way modify the terms of payment of t]re principal ot; ar interest on the
Certificates, (2) give any preference to any Certificate over any other Certificate, or (3) reduce [he aggregate principal amount of Certificates reyuired
fi,r consent to any amendment, addition, ur waiver.
Default and Remedies
The Certificate Order does not establish specific events of default with respect to the Certificates. Under State law there is no right to the
acceleration of maturity of the Certificates up~m the failure of the Camty w observe any wvenant under the Certificate Chder. Although a
registered owner of Certificates could presumably obtain a judgment against the Cuuuty if a default occurred in the payment of principal of or
interest on any such Certificates, such judgment could nut be satisfied by execution against any property of the County. Such registered owner's
only practical remedy, if a default a:curs, is a mandamus or mandatory injunction proceeding to compel the County to levy, assess and collect an
annual ad valorem tax sufficient to pay principal of and interest on the Certificates as it becomes due. The enforcement of any such remedy may
be ditlicult and titre consuming and a registered owner could be required W enforce such remedy on a periodic basis. The Certiticate Order does
nut provide for the appointment of a trustee to represent the interests of the holders upon any failure of the County [o perform in accordance with
the tetras of the Certiticate Order, or upon any other condihun. Furthermore, the County is eligible to seek relief from its creditors under
Chapter 9 of the U.S. Bankruptcy Corte. Although Chapter 9 provides for the recognition of a security interest represented by a specifically
pledged source of revenues, the pledge of taxes in support of a general obligation of a bankntpt entity is not specifically recognized as a security
interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankntptcy Court approval, the
prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should
the County avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy C Dort
(which could require that the action be heard in Bankruptcy Court instead of other federal or state court; and the Bankntptcy Court provides for
broad discretionary powers of a Bankntptcy Court in administering any proceeding brought before i[. The opinion of Bond Counsel will note
that all opinions relative to the enforceability of the Certiticate Order and the Certificates are qualified with respect to the customary rights of
debtors relative to their creditors.
SOURCES AND USES OF CERTIFICATE PROCEEDS
The following table shows the estirttated sources and uses of the prcx:eeds of the Certificates:
Sources:	
Principal Amount of the Certificates	$ x,000,000.00
Net Original Issue Premium	23, (54.70
Accrued Interest urt Ste Certificates	S 560 ,5
Total Sources of Funds	~ 2.1128.7[ 5.115
Uses:	
Deposit w Acquisition Fund	$ 1,900.000.00
Ousts of Issuance and Underwriter's Discotmt	123,154.70
Deposit ttt Interest and Sinking Ftmd	5,5(~p,35
Total Uses of Funds	S 2,112g.7i 5.05
REGISTRATION, TRANSFER AND EXCHANGE
Paying Agent/Registrar
The initial Paying AgenVRegistrar is Wachuvia Bank. National Association, Houston, Texas. In [he Certificate Order, the County retains the
right to replace the Paying AgenVRegistrar. The County covenants to maintain and provide a Paying AgenVRegisttar at all times until the
Certificates are duly paid and any successor Paying Agent/Regis[rar shall be a commercial bank, tnts[ company or other entity duly qualified and
legally authorized to serve as and perform the duties and services of Paying Agent/Registrar fur the Certificates. Upon any change in the Paying
AgenURegistrar fur the C'ertiticates, the County agrees to promptly cause a written notice thereof to be sent to each registered owner of the
Certificates by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying AgenUReoistrar.
The principal of and premium, if any, un the Certificates shall be payable at the stated matttrities thereof, or upon their prior redemption, only
upon presentation and surrender of the Certificates to the Paying AgenVRegistrar. Interest un the Certificates shall be paid to the Holders w•huse
name appears in the registration Fxwks of the Paying AgenURcgistrar at the close of business on the "Record Date" (defined below) and shall be
paid by the Paying A,enURegistrar (i) by check sent United States Mail, first class postage prepaid, to the address of [he Holder recorded in its
registration books ur (ii) by such other method, acceptable to the Paying AgenVRegistrar, requested by, and at the risk and expense of, the
Holder. If the date fir the payment of the principal of ur interest on [he Certificates, shall be a Saturday, Sunday, a legal holiday, or a day un
which banking instittttiuns in the city where the designated office of the Paying AgenVRegistrar for the payment of the Certificates is Icx:ated arc
authorized by (aw or executive order to close, then the date fur such payrttent shad be the next succeeding day which is not such a Saturday,
Sunday, legal holiday, or day un which banking instihttions are authorized to close; and payment on sudt date shall have the same force and
effect as if made on the original date payment was due. Su lung as Cede & Cu. is the registered owner of the Certificates, payments of primipal
of and interest un the Certificates will be made as described in "BOOK-ENTRY-ONLY SYSTEM" herein.
Future Registration, Transfer and Exchange
In the event the Book-Entry-Only System is discontinued, printed certificates will be delivered to the registered owners and thereafter the
Certificates ntay be transferred, registered and assigned on the registratiou lxwks only upon presentatiuu and surrender of the printed Certificates
ttt the Paying AgendRegistrar, and such registration and transfer shall be without expense or service charge to the registered owner, except tier
any tax or other governmental charges required to be paid with respect to such registration and transfer. An Certificate may be assigned by the
execution of an assignment form on such Certificate or by such other instrument of transfer and assignment acceptable to the Paying
AgenVRegistrar. Anew Certificate or Certificates will be delivered by the Paying AgenVRegistrar in lieu of the Certificate being transferred or
exchanged at the designated wrpurate office of the Paying AgenURegistrar, or sent by United States registered mail tct the new registered owner
at the registered owner's request, risk and expense. To [he extent possible, new Certificates issued in an exchange or transfer of Certificates will
be delivered to the registered owner ur assignee of rite Owner in nut more titan three (3) business days after the receipt of the Certificates to be
canceled in the exchange ur transfer and the written instrument of transfer or request fur exchange duly executed by the registered owner ur his
duly authorized agent, in form satisfactory to the Paying AgenVRegistrar. New Certificates registered and delivered in an exchange or transfer
shall be in authorized denominations and fur a like aggregate principal amount and stated maturity as the Certificate ur Certificates surrendered
for exchange ur transfer.
Record Date For Interest Payment
Tire record date ("Record Date"} for the interest payable on any interest payment date means the clusc uY business on the last business day of the
month next preceding such interest payment date, as specified in the Certificate Order. In the event of a non-payment of interest un a scheduled
payment date, and fur 30 days thereafter, a new record date for such interest payment (a "Special Record Date"} will be established by the
Paying AgenVRegistrar, if and when funds tier the payment of such interest have been received from the County. Notice of the Special Record
Date and of the scheduled payment date of the past due interest (the "Special Payment Date" which shall be l5 days after the Special Record
Da[el shall be sent at least five business days prior to [he Special Record Date by CJnited States mail, first class, postage prepaid, to the address
of each registered owner of an Certificate appearing un the books of the Paying AgeudRc:gistrar at the close of business un the last business day
next preceding the date of mailing of such notice.
Limitation On Transfer Of Certificates
Neither the County nor the Paying AgenURegistrar shall be required tci issue or transfer to an assignee of a registered owroer any Certificate called
fur redemption, in whole ur in part, within 45 days of the date fixed tier the redemption of such Certificate: provided. however. such limitation un
transferability shall not be applicable to an exchange by [he registered owner of the unredeemed balance of a Certificate called for redemption in
part.
Replacement Certificates
If any Certificate is mutilated, destroyed, stolen ur lost, a new Certificate in the same principal amount and stated maturity as the Certificate su
mutilated, destroyed, stolen or lost will be iss-tted. [n the case of a mutilated Certificate, such new C'ertiticate will be delivered only upon surrender
and cancellation of such mutilated Certificate. [n the case of any Certificate issued in lieu of and substitution for a C'ertitieate which has been
destroyed, st<ilen or lost, such new Certificate will be delivered only (a) upon tiling with the County and the Paying AgenURegistrar a certificate to
the effect that such Certificate has been destroyed, stolen ur lost and pttwf of the ownership thereof, and (b) up~m titntistting the County and the
Paying AgenURegistrar with indemnity satisfacWry to them. The person requesting the authentication and delivery of a new Certificate must pay
such expenses as the Paying Agent/Regiskar may incur in comtection therewith.
BOOK-ENTRY-ONLY SYSTEM
Tltis section describes how ownership of the Certificates is to be transferred and how the principal uf, premium, if any, and interest on the
Certificates are to be paid to and credited by DTC while the Certificates are registered in its nominee name. The inY'urntation in this section
wncerning DTC and the Buok-Entry-(Mly System has been provided by DTC for use in disclosure documents such as this Ot~icial Statement.
The County and the Underwriter believe the source of such information to be reliable, but take nu responsibility fir the accuracy ur
completeness thereof.
The County cannot and does not give any assurance that (I) DTC will distribute payments of deb[ service un the Certificates, or redemption or
other notices, to DTC Participants, (?) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as~the
registered owner of the Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so un a timely basis, or (3)
DTC will serve and ac[ in the manner described in this Official Statement. The current rules applicable to DTC are un file with lire Securities
and Exchange Commission, and rite current prcx:edttres of DTC W be followed in dealing with DTC Participants are on file with DTC.
The Depository Trust Company ("DTC"), New Yurk, New York, will act as securities depository for the Certificates. The Certificates will be
issued as titlly-registered securities in the name of Cede & Cu. (OTC's partnership nominee) or such other name as may be requested by an
authorized representative of OTC. One fully-registered security certificate will be issued for each maturity of the Certificates in the aggregate
principal amount of such maturity, and will be deposited with the OTC'.
DTC, the world's largest depository, is alimited-purpose trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the
New York Unitbrm Commercial Cude, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt
issues, and money market instruments from over 85 countries that OTC's participants ("Direct Participants') deposit with DTC DTC also
facilitates the post-trade settlement anwng Direct Participants of sales and other securities transactions in deposited securities, through electrcinic
computerized bcxik-entry transfers and pledges between Direct Participants' accounts. This eliminates the need fur physical movement of
securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC").
DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation. Cnivernment
Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and
EMCC, also subsidiaries off DTCC), as well as by the New Yurk Stark Exchange, Inc., the American Stark Exchange LLC, and the National
Association of Securities Dealers. Inc. Access to the DTC system is also available to others such as twth U.S. and nun-U.S. securities brokers
and dealers, banks, trust companies, and clearing corporations that clear thratgh or maintain a custodial relationship with a Direct Participant.
either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable its
Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.d tcc.a>m.
Purchases of Certificates under the DTC system must be made by ur through Direct Participants, which will receive a credit for the Certificates
on OTC's records. The ownership interest of each achtal purchaser of each Certificate ("Beneficial Owner") is in turn to be recorded uu the
Direct and Indirect Participants' records. Beneficial Owners will nut receive written confirmation from DTC of their purchase. Beneficial
Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their
holdings, froth the Direea ur Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interest
in the Certificates are to be accomplished by entries made un the books of Direct and Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership interests in the Certificates, except in [he event that use of the bcwk-
entry-only system fur the Certificates is discontinued.
To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of OTC's partnership
naninee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC
and their registration in the name of Cede & Cu. ur such other DTC nominee do not effect any change in beneficial ownership. D'fC has no
knowledge of the actual Beneficial Owners of [he Certificates; DTC's records reflect only the identity of the Direct Participants to whose
accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain
responsible fix keeping account of their holdings on behalf of their customers.
Conveyance of notices and other atmmunications by DTC t<i Direct Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. Beneficial Owners of Certificates ntay wish to take certain steps to augment the
transmission W them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed
amendments to the Certificate dcx;untents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee huldin, the
Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. [n [he alternative. Beneficial Owners may wish to
provide their names and addresses to the Paying AgenURegistrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. if less than all of the Certificates within an issue are being redeemed. DTC's practice is to determine
by lot the anx~unt of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates unless authorized by a Direct
Participant in accordance with DTC's prcx:edure. Under its usual pra;edures, DTC mails an Omnibus Proxy to the County as sewn as possible
after the record date. The Omnibus Proxy assigns Cede & Ca.'s consenting or voting rights to those Direct Participants to whose accounts the
Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Certificates will be made to Cede & Cu., or such other nominee as may be requested by an authorized
representative of DTC. DTC's practice is W credit Direct Participants' accounts uixm DTC's receipt of funds and corresponding detail
information from the County or Paying AgendRegistrar, un the payment date in accordance with their respective holdings shown un DTC's
records. Payments by Participants to Beneficial Owners will be governed by standing instructions and cusa~mary practices, as is the case with
securities held fix the accounts of customers in bearer form ur registered in "street name," and will be the epslwnsibility of such Participant and
nut of DTC, the Paying AgenURegistrar ur the County, subject to any statutory or regulatory requirements as may be in et~ect from time to time.
Payment of principal and interest to Cede & Co. (ur such other nominee as may be requested by an authorized representative of DTC) is the
resptmsibility of the County or Paying AgentJRegistrar, disbursement of such payments to Direct Participants shall be the responsibility of DTC,
and disburseuxnts of such payments W the Beneficial Owners shall be the responsibility of Dittct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the Certificates at any time by giving reasonable notice to the
County or Paying AgendRegistrar. Under such cinums[ances, in the event that a successor depository is not obtained, Certificates are required to
be printed and delivered.
The County may decide to discontinue use of the system of lxwk-entry transfers through DTC (ur a successor securities depository). ht that
event, Certificates will be punted and delivered.
[nfi~rmation in this section concerning DTC and DTC's borik-catty-only system has been obtained from sctunes that the County believes to be
reliable, but the County takes no responsibility for the accuracy [hereof.
NON-APPROPRIATION OF LEASE REVENUE BONDS
As stated above under "THE CERTIFICATES -Use of Certificate Prtx;eeds," the purchase of the Juvenile Facility with prcxeeds of the
Certificates is being undertaken by the County, in part, in exchange fix a full and complete written release of any claims that could be brought
against the County Participants by holders of the Lease Revenue Bonds.
The Corporation, as the issuer of the Lease Revenue Bonds and the "Lessor" of the Juvenile Facility, leased the Juvenile Facility t<~ the County
as [he "Lessee" pursuant tti a Lease Agreement between the Corporation and the County (the "Lease"). The County simultaneously entered into
an Operating Agreement with the Juvenile Board pursuant to which [he Juvenile Board operated the Juvenile Facility and assumed must
obligations of the County under the Lease, including the obligation to make "Lease Payments" under the Lease to pay principal and interest un
the Lease Revenue Bonds. Pursuant to the Lease and the Operating Agreement, the obligation of the County and the Juvenile Board,
respectively, to make Lease Payments was subject to annual appropriation by the governing body of each entity, respectively.
Due primarily to fundamental changes in juvenile sentencing patterns of numerous Texas counties that historically sent juveniles to the Juvenile
Facility, together with increased competition for juvenile residents by operators of other juvenile facilities throughout the State of Texas. [he
occupancy levels for the Juvenile Facility dropped significantly during fiscal year 2003-2004. Additionally, in an etTixt to balance the state
budget for the 2004 - ?005 fiscal biennium, [he Texas Legislahire in 2003 mandated numerous state agencies, including the Texas Juvenile
Probation Commission ("TJPC"), to significantly reduce expenditures. As a result of such mandate, TJPC reduced state finding fix juvenile
detention reimbursement for several classes of juvenile detainees from $106.00 per day to as low as $85.00 pear day. The combined et7ect of
fewer juveniles being sent to the Facility coupled with the lower reimbursement payments coming from TJPC tier certain classes of juvenile
detainees resulted in a reduction in the receipt of gross revenues at the Juvenile Facility. Furthermore, newly mandated staffing requirements
imposed by the State resulted in significantly higher expenses to the Juvenile Facility.
The Juvenile Board projected that revenues of the Juvenile Facility for the 2004-2005 fiscal year (beginning on October 1, 2004) would be
insufficient to meet the Juvenile Facility's estimated monthly operating expenses or the average annual debt service requirements un the Lease
Revenue Bonds of approximately $41 L463 per year, nor did the Juvenile Board expect income levels to increase siguiflcantly in the near luntre
to be able to fully satisfy all operating and debt service requirements. Conseyuetttly, on September 7, 2004, the Juvenile Board adopted its 2004-
2005 fiscal year budget which did nut include budgeting or appropriating any funds to pay debt service on the Lease Revenue Bonds. As a result
of such action, the Juvenile Board, in accordance with the provisions of the Operating Agreement, delivered a written Notice of
Nunapprupriation to the County.
Upon receipt of such Notice of Nonapproptiation tcom the Juvenile Board, the County, as the Lessee of the Juvenile Facility, was required under
the Lease to either (i) appropriate in its 2004-2005 tise:al year budget (beginning October 1, 2004) sufficient funds to pay Lease Payttx:nts fur the
2004-2005 fiscal year and deliver a Notice of Appropriation to the Trustee for the Lease Revenue Bonds by September 30, 2004, or (ii) provide
the C'otporation and the Trustee with written notice of action by [he Commissioners Court of the County which would constitute a failure to
appropriate timds in the County's ?004-2005 fiscal year budget in an amount sufficient to pay Lease Payments for the ?004-2005 fiscal year.
On September 27, 2004, the Commissioners Court of the Camty adopted a budget for its 2004- 2005 tise:al year which did nut include any funds
to pay debt service on [he Lease Revenue Bonds. Such action constituted an "Event of Nonappropriation" under the Lease and triggered certain
remedies available under the Lease and other related financing da;uments. As a result of such Event of Nonappropriatiun, un September 28.
2004, Standard & Ptxx's Ratings Services lowered its rating un the Lease Revenue Bonds from "A-" to "CC" and its rating on the County's
outstanding general obligation indebtedness from "A" W "BBB-". As required by the Lease, the Lessee notified the Trustee (The Bank of New
York Trust Company, N.A.) in writing on September 28, 2004, of such Event of Nonappropria[ion and [hat the Lessee would transfer control of
[he Juvenile Facility to the Lessor ur the Trustee as of 12:00 A.M. un (k;tober 1, 2004, as required by the Lease. At the request of the Trustee, in
order to prevent the automatic termination of the Lease on September 30, 2004, and to allow the existing parties to continue to operate the
Juvenile Facility after such date fix a brief period, the Lessor and the Lessee entered into a letter agreement with the Trustee on September ±0,
2004, which had the effect of continuing the Lease until November 1, 2004. The purpose of such agreement was to permit an additional period
of time fur the Trustee to develop a course of action in consultation with the Bondholders, the Lessor, the Lessee and the Juvenile Board. The
County is obligated under such agreement to assume payment of all operating shortfalls of the Juvenile Facility, but neither the Lessee nor [he
Juvenile Board is obligated thereunder to make Lease Payments that would accrue during such extension period. Such letter agreement has been
amended twice for the purpose of permitting the County to unilaterally extend the terntinatiun date of the Lease upon giving written notice W the
Trustee. The current terntinatiun date of the Lease is February 28, 2005.
Following numerous discussions and negotiations with representatives of the Bondholders, un December 8, 2004, the Commissioners Court of
the County approved an order in which the County offered to take action to prcxeed with the issuance of certificates of obligation for the purpose
of providing $1,900,000 t<i purchase the Juvenile Facility from the Corporation and provide such amount to the Bondholders, subject to certain
conditions including the execution by all Bondholders of a full and complete written release of all claims of pe~tential claims the Bondholders
may allege to have against [he County Participants. Such offer was accepted in principle by the representatives of [he Bondholders. The release
of all claims or potential claims will be evidenced by a "Consent and Release Agreement" (the "Release") which was approved by the County,
the Corporation, the Juvenile Board and the Bondholders un or about January 27, 2005. The delivery of the Certificates is contingent ulxm all
Bondholders executing the Release.
The County believes that, pursuant to the Lease Revenue Bund tinancino da;uments, including the Lease and the Operating Agreement, neither
it nor the Juvenile Board is legally ur morally obligated to appropriate Funds to pay Lease Payments un the Lease Revenue Bonds. Furthermore.
the Release further provides that it is being entered into as a compromise of doubtful and disputed claims, that nothing in [he Release is
considered as an admission of liability by any party, and that nothing in the Release may be interpreted as an admission of liability.
Nevertheless, the County believes that it is in the best interest of the County tci acquire the Juvenile Facility from the Corporation for $1,900,000
and provide such amount to the Bondholders, for doing so will terminate any possible litigation that might otherwise be brought against any
County Participant by the Bondholders and will also permit the Juvenile Facility to contimte tci operate and provide a valuable service to the
citizens of the County and the State of Texas.
INVESTMENTS
The County invests its funds in inveshmettts au[hcxized by Texas law in accordance with investment policies approved by the Commissioners Court
of the County. Both State law and the County's investment policies ate subjer;t to change.
Legal Investments
Under Texas law, the County is authorized to invest in (1) obligations of the United States ur its agencies and instrumentalities, (2) direct obligations
of the State of Texas ur its agencies and instrumentalities, (3) collateralized mortgage obligations directly issued by a federal agency or
instrumentality of the United States, the underlying security for which is guaranteed by an agency or instnrntentality of the United States, (4) other
obligations, the principal and interest of which are unconditionally guaranteed ur insured by, ur backed by the full faith and credit uf, the State of
Texas or the United States or their respective agencies and instnrmentalities, (5) obligations of states, agencies, wmuies, cities, and other political
subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm nut less than A ur its equivalent, (6) bonds
issued, assumed, ur guaranteed by the State of Israel, (7) certificates of deposit issued by a state or national bank, savings bank, ur a state ur federal
credit ration, which is domiciled in the State of Texas, that are guaranteed or insured by the Federal Deposit Insurance Cutpuration, guaranteed or
insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, ur are secured as to principal by obligations
described in the clauses (I) through (6) or in any other manner and amomtt provided by law for County deposits, (8} fully collateralized repurchase
agreements that have a defined termination date. are fully secured by obligations described in clause (1), requires the securities being purchased by
[Ire County to be pledged to the Cutmty, held in the County's name, and deposited at the time the investment is made with the County ur with a third
party selected and approved by the Comity, and are placed [through a primary guvemment securities dealer or a tittancial instittuion doing business in
the State of Texas, (9) bankers' acceptances with the remaining temt of 270 days ur less, which will be liquidated in full at maturity, is eligible fix
collateral for iwrrowing fmm a Federal Reserve Bank, if the short-ternr obligations of [he accepting bank ur its parent are rated at least "A- I" or "P- I"
ur the eyuivalent by at least one nationally recognized credit rating agency. (l0) commercial paper with a stated maturity of 270 days or less and is
rated at least "A-1" or "P-l" or [he eyuivalent by either (a} two nationally r+ec:ognized e~redit rating agencies or (b} one nationally rea:ugnized credit
rating agency if the paper is fully secured by an irrevtx'able letter of credit issued b}' a U.S. or state bank. (I 1) no-load money market mutual funds
registered with and regulated by the Securities and Exchange Commission that have a dollar weiglrted average pexttolio maturity of 90 days ur less
and include in their investment objectives [he maintenance of a stable net asset value of $1 fur each share, and provide the County with a prospectus
and other intirrntation rtyuired by the Securities and Exchange Act of 19;4 or the Investment Ac[ of 1940, (12) no-load mutual funds registered with
the Securities and Exchange Commission that have an average weighted maturity of less than two years; invests exclusively in obligations dese-ribed
in the preceding clauses: are continuously rated as to investment quality by at least one nationally recognized investment rating Linn of no[ less than
"AAA" or its equivalent: and contbrms to the euquirements for eligible investment pawls, (U} public funds investment palls that have an advisory
lward which includes participants in the pcwl and are continuously rated as to investment ytrality by at least one nationally recognized investment
rating firm of not less than "AAA" or "AAA-m" or its equivalent or nu lower than inveshnent grade with a weighted average maturity no greater than
90 days, and (l4) guaranteed investment conhacts secured by obligations of the United States of America ur its agencies and instrumentalities, other
than prohibited obligations dese:ribed in the next succeeding paragraph, with a defined termination date, and pledged to the County and deposited with
the County or a third party selected and approved by the County.
The County may invest in such obliga[irms diree;tly or through government investnent pcwls that invest solely in such obligations provided that ttte
pewls are rated no lower [Iran "AAA" ur "AAA-ni' or an eyuivalent by at least one nationally recognizcxi rating service. The County may also
contract with an investment management Finn registered under the Inveshrxn[ Advisors Act of 1940 (l5 U.S.C. Section 806-1 et seq.) or with the
State Securities Board tci provide for the investment and management of its public funds or other funds under its control for a term up 0.i two years,
but the County retains ultimate responsibility as fiduciary of its assets. In order tai renew or extend such a contract, the County must do so by order.
ordinance, or resolutK~n. The Crwnty is specifically prohibited from investing in: (1) obligations whose payment represents the coulxm payments un
the txrtstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2> obligations whose payment
represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest: (:) collateralized rm~rtgage
obligations that have a stated final maturity of greater Uten l0 years; and (4) collateralized mortgage obligations the interest rate of which is
determined by an index that adjusts opposite tti the changes in a market index.
Investment Policies
Under Texas law, the County is required to invest its funds under written investment policies that primarily emphasize safety of principal and
liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a
list of authorized investments tin County funds, maximum allowable stated maturity of any individual investment and the maximum average
dollar-weighted maturity allowed fix pcwled fund groups. All County hinds must be invested consistent with a formally adopted "Inveshnent
Strategy Statement" that specifically addresses each fund's inveshnent. Each Invesment Strategy Statement will describe its objectives
concerning: (1) suitability of investment type, (2) preservation and safety of principal, (i) liquidity, (4) marketability of each investment, (5)
diversification of the portfolio, and (6) yield.
Under Texas law, County investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence.
dist:retion, and intelligence would exercise in the management of the person's own affairs, not fix speculation, but for investment, considering
[he probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the County shall submit an
investment report detailing: (1) the investment position of the County, (2) that all investment otcicers jointly prepared and signed the report, (; )
the beginning market value, any additions and changes to market value and the ending value of each p~x~led fund group. (4) the bcx~k value and
market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested
asset, (6) the account or fund or pewled fund group fix which each individual investment was acquired, and (7) the compliance of the inveshnent
portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest County hinds without express
written authority (coin the Commissioners Court.
Additional Provisions
Under Texas law the County is additionally required to: (1) annually review its adopted policies and strategies, (2) adopt an order or resolution
stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or
investment strategy in [he said order ur resolution, (3) require any investment otdicets with personal business relationships ur relatives with firms
seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the Commissioners
Court; (4) require the qualified representative of firms offering to engage in an investment transaction with the County to: (a) receive and review
the County's investment policy, (b) acknowledge [hat reasonable controls and proeedures have been implemented to preclude investment
transactions conducted between the County and the business organization [hat are not authorized by the County's investment policy (except to
the extent that this authorization is dependent on an analysis of the makeup of the County's entire portfolio or requires an interpretation of
subjective investment standards), and (c) deliver a written statement in a form acceptable to the County and the business organization attesting to
these requirements; (5) perform an annual audit of the management controls on inveshnenls and adherence to the County's investmeut policy; (6}
provide specific investment training for the Treasurer, Chief Financial OtTicer. or otl-er investment otdicers; (7) restrict reverse repurchase;
agreements to not more than 90 days and restrict the investment of reverse repurchase agreement timds to no greater than the term of the reverse
repurchase agreement; (8} restrict the investment in mutual funds in the aggregate to no more than 80% of the County's monthly average timd
balance, excluding lwnd proceeds and reserves and other funds held for debt service and further restrict the investment in non-money market
mutual tends of any portion of bond ptviceeds, reserves and funds held for debt service and to no more than 15% of the entity's trwnthly average
Fund balance, excluding bond prcx:eeds and reserves and other funds held for debt service; (9) require la;al government inveshen[ pcwls to
wnfirm to the new disclosure, rating, net asset value, yield calculation, and advisory lxiard requirements, and (l0) at least annually review.
revise, and adopt a list of qualified brokers that are authorized to engage in investnent transactions with the County.
Current Investments
See Appendix A, "Table l3 -Current Investments."
LITIGATION
In the opinion of certain officials of the County, except as otherwise disclosed herein under "NON-APPROPRIATION OF LEASE RE~~NUE
BONDS," the County is nut a party to any litigation ur other pnx;eeding pending or to their knowledge, threatened, in any court, agency ur other
administrative bt><iy (either state ur federal) which, if decided adversely to the County, would have a material adverse effect an the financial
condition of the C'ottnty.
AD VALOREM TAX PROCEDURES
Ad Valorem Tar LQN: The appraisal of property within the Cuttnty is the responsibility of [he Kerr County Appraisal District (the "Appraisal
District"). Exchuiing agricultural and open-space land, which may be [axed un [he basis of productive capacity, [he Appraisal District is required
under ttme Pniperty Tax C'ude tci appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from
applying any assessment ratios- The value placed upon property within the Appraisal District is sltbject [o review by an Appraisal Review Board,
consisting of three members appointed by the Board of Directors of tlme Appraisal District Ttte Appraisal District is required to review [he value of
property within the Appraisal Distrct at least every three years. The County may require annual review at its own expense, and is entitled W
challenge the determination of appraised value of property within the County by petition tiled with the Appraisal Review Board.
Property Tax Code and County-Wide Appraisal Districts
Pursuant to a comprehensive Property Tax Cude enacted by the Texas Legislature (the "Tax Cude"), there has been established fur each county
in the State of Texas a single appraisal district with responsibility fir recording and appraising property fur all taxing units within the county and
a single appraisal review lward with responsibility for reviewing and equalizing the values established by the appraisal district. The appraisal of
property within the County is the responsibility. of the Karr County Appraisal District The Appraisal District is governed by a board of five
directors appointed by the votes of the governing bodies of the various governmental units within Kerr County, with votes w•eiohted by relative
tax levy. The Tax Code requires the Appraisal District, by May 15 of each year or as soon thereafter as practicable, to prepare appraisal records
listing all property that is taxable in the Appraisal District and stating the appraised value of each panel ur item of taxable property. Property is
to be appraised as of January 1 of each year, and the Tax Code generally requires appraisals at 100°•0 of market value. In determining market
value of property, ditTerent methods of appraisal may be used, including the cos[ method of appraisal, the income method of appraisal and
market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is [o be used. State law further
limits the appraised value of a residence honmestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property or
(2} the sutra of (a) 10% of the appraised value of the property for the last year in which the property was appraised fimr taxation times the number
of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised
plus (c) the nmarket value of all new improvements to the property. Land used for agriculture, timber production or open space may qualify for
vahta[ion on productive capacity rather than market value, thereby resulting in a lower taxable value. Appraisals are subject w review by the
appraisal review lward. Under certain circumstances taxpayers and taxing units (such as the County) may appeal an order of the appraisal review
lxiard by filing a petition for review in state district court. In such event, the value of the property in question will be determined by the court, ur
by a jury if requested by any party. Absent any such appeal, the appraisal roll as prepared by the Appraisal District and approved by [he
appraisal review board must be used by each taxing jurisdiction in establishing its tax rolls and tax rate.
Although the County has the authority to establish tax rates and to levy and collect its taxes each year, [he County cannot establish standards fir
appraisal or determine the frequency of revaluation ur reappraisal. The Tax Code requires each appraisal disMct to implement a plan for periodic
reappraisal of property to update appraised values. The plan must provide for reappraisal of all real property in the appraisal district at least once
every three years.
Property Subject to Taxation
Except fur certain exemptions provided by state law, all real and tangible personal property in the County is subject to taxation by the County.
However, nu etTurt is made by the County to collect taxes on personal property other than on personal property rendet•ed for taxation, business
inventories and the property of privately owned utilities. Principal categories of exempt property include: property owned by the State of Texas
ur its political subdivisions if the property is used for public purposes; property exempt from ad valorem taxation by federal law; certain
households goods, family supplies and personal effects; farm products and implements owned by the producer; certain property owned by
charitable organizations, youth development asscxiatiuns, religious organizations and qualified st:htwls; designated historic sites; solar and wind
powered energy devices; and most individually-owned automobiles. The Tax Code also exempts all tangible personal property nut producing
income, other than manufactured homes, from ad valorem taxes; however, the taxing unit may choose [o override this exemption. The County
has chosen to override this exemption but dues nut tax non-business vehicles. Article VIII, Section 1-j of the Texas Constitution authorizes a
property tax exemption for goods, wares, merchandise and other tangible personal property, and ores (other than oil, natural gas and other
petroleum products), acquired in or imported into the State of Texas for assembling, storing, manufacturing, pra;essing or fabricating purposes,
provided such property is transported outside of the State within I75 days of the date it was so acquired ur imported ("Article VI[[, Section l-j
Property"). Notwithstanding such exemption, the County may tax Article VIII, Section 1-j Property provided utTicial action to tax was taken
prior W April 1, 1990. The County elected not w exempt Article VIII, Section i-j Property from taxation. [n addition, owners of agricultural,
timber and open space land may, under certain circumstances, request valuation of such land un the basis of productive capacity rather than
market value. The Cuunty may agree to participate in a tax increment futancing zone, under which [he tax values on property in the zone are
"frozen" at [he value of the property at the tinre of creation of the zone. The County also may enter into tax abatement agreements to encourage
economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The Cuunty in turn
agrees not W levy a tax un all or part of the increased value attributable to the improvements until the expiration of [he agreement. The abatement
agreement could last for a period of up to 10 years. The County currently dues nut provide any tax abatements and dues nut participate in a tax
increment reinvestment zone.
Up to 20 ;% of the value of [he residence homestead of a person (with a minimum exemption of $5,000) may be exempt from taxation at the
option of the governing body of the taxing entity. Additionally, not less than $3,000 of the market vahte of the residence homestead of a person
65 years of age or older and certain disabled persons may be exempt from taxation, if such exemption is allowed by the governing body of the
taxing entity or imposed by referendum election. Property owned by disabled veterans ur by the surviving spouse and surviving minor children
of disabled veterans is exempted from taxation in amounts ransing from $5,000 to $12.000 depending un the disability rating of the veteran.
Fur property to be exempt ttom taxation, a claim for exemption must be tiled, except with respect to property owned by the Slate of Texas ur its
political subdivisions, property exempt by federal law, household g~wds and personal eYl~ects, family supplies, farm products, implements of
farming and ranching and automobiles.
Tax Rate Limitations and Notice and Hearing Procedutrs
Lirniled Tar Funded Uebt Puyable Front Proceeds o/~$0.~40 Carstrtrrtional Tor Rute: The Texas Constitution (Article VIII, Section 91 imposes a
tax rata limit of $0.80 per $ l00 assessed valtratiun of all taxable property within the Cuunty (the "$0.80 Tax Limitation') for general fund.
permanent improvement fund, road and bridge fund and jury fund purposes, including debt service of twnds or other debt obligations issued
against such funds. By administrative policy, the Attorney General of Texas will permit allcx:ation of 50.40 of [he constitutional $0.80 tax rate
calculated at 90°% collection for the payment of the debt service requirements on the County's limited tax general obligation indebtedness. The
General Fund, Pemtanent Improvement Fund, Road and Bridge Fund, and Jury Fund receive operating funds from the $0.80 constitutional tax
rate.
The Certificates are limited tax obligations payable from the $0.80 constihttional tax rate
Roam and Bride Muintenauce: As imposed by statute (Chapter 356, Texas Transportation Code), $0. l5 per $100 assessed valuation, nu part of
which may be used fur debt service.
Furnt-to-Markel mtdior Flnnd Cntarnl: As imposed by stahtte (Chapter 256, Texas Transportation Codel, $0.30 per $100 assessed valuation
after exemption of homesteads up to $3,000; nu alkx;ation prescribed by statute between debt service and maintenance. All or par[ may be u sed
fur either purpose.
Unli»trted Tar Botrds: Article III, Section 52 of the Texas Constihrtion authorizes the levy of a tax unlimited as to rate or amount for the
payment of debt issued tier various stated purposes; however, total unlimited tax debt cannot exceed 25:•b of the assessed valuation of real
property.
Onliorrul Sales Tax: The "fax Code provides certain cities and counties the option of assessing a maximum one-half percent (iz°.%) sates tax on
retail sales of taxable items for the purpose of reducing its ad valorem taxes, if approved by a majority of the voters in a la;al option election. If
[he additional tax is approved and levied, the ad valorem property tax lery must be reduced by the amount of the estimated sales tax revenues to
be generated in the current year. The County dues lery a sales tax.
The Tax Code establishes a procedure fir notice to property owners of reappraisals reflecting increased property value, appraisals which are
higher than renditions and appraisals of property not previously on an appraisal roll. Article VIII, Section 2l of the Texas Constitution provides
that, subject to any exception prescribed by general law, the total amount of property taxes imposed by a political subdivision in any year may
not exceed the total amount of property taxes imposed in the preceding year (the "effective tax rate"} unless a notice of intent to consider an
increase in taxes is given and a public hearing on the proposed increase is held before the total taxes are increased. Section 26.05 Property Tax
Code provides the governing body of a taxing unit other than a school district may not adopt a tax rate that exceeds the lower of the rollback tax
rate or 103 per cent of the effective tax rate until a public heating is held on the proposed tax rate following a notice of such public hearing
(including the requirement that notice be posted on the taxing unit's website if the taxing unit owns, operates or controls an interne[ website and
public notice be given by television if the taxing unit ltas free assess to a television channel) and the governing body has otherwise complied with
[he legal requirements for the adoption of such tax rate. The "rollback tax rate" means the rate that will produce last year's maintenance and
operation tax levy from this year's values multiplied by 1.08 plus a rate that will produce this year's debt service Isom this year's values divided
by the anticipated collection rate. If the adopted tax rate exceeds the rollback tax rate, the qualified voters of the County, by petition, may require
that an election be held to determine whether ur not to reduce the tax rate adopted for the current year to the rollback tax rate.
fiery of Taxes
'fl-e Property Tax Code provides that the governing body of a taxing unit is required [o adopt the annual tax rate for the unit before the later of
September 30 ur the 60th day after the date the certified appraisal roll is received by the taxing unit, and a failure to adopt a tax rate by such
required date will result in the tax rate for the taxing unit for the tax year to be the lower of the efTective tax rate calculated for that tax year or
the tax rate adopted by the [axing unit for the preceding tax year. Taxes are due (7ctober I and become delinquent if not paid by January 3l of
the ti~lluwing year. The C'uunty dues no[ permit split payments of taxes. Discounts for early payment of taxes are allowed: 3°% if paid in
October, 2% in November and 1% in December.
Collctition of Dellnyuent Taxes
Charges for penalty and interest un Ute unpaid balane:e of delinquent taxes are made as follows:
Month	Penalty	Interest	Total
February	6%	l%	74%
March	7	~	q
April	R	3	I 1
May	9	q	13
June	]0	$	15
July	t ~~ t ~	6	3R'`~
"t In addition W the penalty and interest collected, the taxing unit may contae~ with an attexttay for tJte collection of dalinquenl taxis aril the amewnt of conQensation as
set forth in srx:h uxttraat rmy provrda for a tee up to 20° o of the amewnt of delinquent lax, penalty, and interest collected
''~ Interest e:onturttes to accrue after July 1 at a rata of ] "i° per month until paid.
Issuer's Rights in the Event of Taz Delinyuencies
Taxes levied by the Issuer are a perse~nal obligation of the owner of.the property as of January 1 of the year fix which the tax is imposed. On January
1 of eae:h year, a tax lien attae:hes to property to sexure the payment of all state and kx:al taxes, penalties, and interest uhimately imposed fix Ute year
on the property. The lien exists in favor of the State of Texas and each kx;al taxing unit. including the Issuer, having power tv tax the property. The
Issuer's tax lien u on a parity with tax liens of such other axiug units. A tax lien on real property takes priority over the claim of most credit~irs and
other holders of liens on the property encumbered by the tax lien, whether or nut the debt ur lien existed before Ute attachment of [he tax lien;
however, whether a lien of Ute United States is on a parity with or takes priority over a tax lien of the Isa-trer is detenniuext by applicable federal law.
Persuttal property, tinder certain circumstances, is subject to seizure and sale for the paymcmt of delinquent taxes, penalty, and interest.
A[ any time after taxes un property become delinquent, the County may file suit to foreclose the lien securing payment of the tax, to enforce personal
liability for the tax, or IxiUt. [n tiling a suit w foreclose a tax lien on real property, the County must join other taxntg units Utat have claims fix
delinquent taxes against all or part of tfie same property. Collection of delinquent taxes may be adversely attee;ted by Ute artx~unt of taxes owed to
other taxing units, by the effects of market conditions on Ute ti~reclosttre sale price, by taxpayer redemption rights (a taxpayer may redeem property
wiUtin two (2) years after Ute purchaser's deed issued at the ti~redosure sale is tiled in the County records) ur by bankruptcy prcx:eedings which
restrict the collection of taxpayer debts. Federal bankruptcy law provides that an automatic stay of actions by eTeditors and other entities, including
govemmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing
on ptoperTy and prevents liens for post-petition taxes lirom attaching to property and obtaining secured creditor status unless, in either case, an order
lifting the stay is obtained tiom the bankruptcy wort. In many cases, post-petition taxes are paid as an administrative expense of the estate in
bankruptcy or by order of the bankruptcy court.
Proposition 13 -Amendment to the Tezas Constitution
Proposition I3, approved by Texas voters on September l3, 200., amended the Texas Constitution to allow the governing bodies of counties, cities.
[owns, and junior college districts W firreze Ute anx~unt of property taxes that could be imposed un residence Iwmesteads owned by the elderly ur
disabled. Property taxes could not increase as lung as the residences are maintained as hanesteads by Ure owners who are disabled or have reached
the age of sixty-five { 65) ur Uteir spouses who are disabled ur are at least sixty-five (65 j years of age.
Alternatively, upon receipt of a petition signed by at least five penent (5%) of the political slrbdivision's registered voters, a lut;al governing lxxiy
would have w call an election to detemtine by majority vote whether to freeze taxes fur elderly and disabled homeowners.
The amendment allows the transfer of Ute property tax freeze upon the death of a disabled ur 65 years of age or older homeowner to a stuviving
spouse who was 55 years of age or older when the owner died, as bng as the spouse claimed the property as a residence homestead. A taxing entity
could increase taxes on such homesteads only to Ute extent that homeowners made improvements, other than governmentally required repairs or
improvements Urat increase the property's appraised value.
The County adopted the property tax freeze provisions of Proposition l3 on March 22, 2004. The County will realize the impact on tax revenues
beginning in t3se;al year 2005 assuming appraised values and/or [ax rates do not increase.
County Applicatroie of Tier Codes The County grants an exemption to Ute market value of the residence homestead of persons 65 years of age ur
older of $3,000: the disabled are also granted an exemption of $3,000.
Ad valorem taxes are levied by the County against the value of residence homesteads for payment of the debt.
The; Cormty does rtut tax nonbusiness personal property; and County Tax Assessor-Colletaor wllects taxes for the County.
The Cotrrtty does not permit split payrnen[s, and discounts are allowed.
10
The County does tax freeport property
The County does collect the additional one-half cent sales [ax fix reduction of ad valorem taxes
At any time after taxes un property becoate delinquent, the Ccxtnty may file suit to foreclose [he lien securing payment of the tax, to enfun:e personal
liability for the tax, or both. In tiling a suit [ci foreclose a tax lien un real property, the County must join other taxing units tJtat have claims fix
delinquent taxes against all or paR of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to
other taxing units, by the effects of market conditions on the ti~redosure sale price, by taxpayer redemption rights (a taxpayer may redeem property
within two (2) years after the purchaser's deed issued at the foreclosure sale is tiled in the County records) or by bankruptcy prcx:eedings which
restrict the collection of taxpayer debts. Federal bankmptcy law provides that an automatic stay of actions by c~rediturs and other entities, including
govemmental «nits, goes inw effect with [he tiling of any petition in bankntptcy. The automatic stay prevents governmental units from foreclosing
on properly and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status «nless, in either case, an order
lifting the stay is obtained from the bankntptcy court [n many cases. post-petition taxes are paid as an administrative expense of the estate in
bankntptcy ur by order of the bankntptcy court.
TAX MATTERS
Opinion
On the date of initial delivery of the Certificates, McCall, Parkhurst & Horton L.L.P., San Antonio, Texas, Bond Counsel, will render its opinion
that, in accordance with statutes, regulations, published ntlings and court decisions existing on the date therc~ttf ("Existing Law"), (l) iu[erest un
the Certificates fur federal income tax purposes will be excludable from the "gross income" of the holders thereof and (2) the Certificates will not
be treated as "specified private activity bonds" the interest on which would be included as an alternative minimum tax preference item under
section 57(a)(5) of [he Internal Revenue Code of 19R6 (the "Code"}. Except as stated alxive, Bond Counsel will express no opinion as to any
other federal, state or Icx;al tax consequences of the purchase, ownership or disposition of the Certificates. See APPEND[~C D - Fonn of Bund
C'ounsel's Opinion.
In rendering its opinion, Bond Counsel will rely upon (a) certain information and representations of the County, including information and
representations contained in the County's federal tax certificate, and (b) covenants of the County contained in the Certificate d~x;uments relating
W certain matters, including arbitrage and the use of the proceeds of the Certificates and the property financed or refinanced therewith. Although
it is expected that the Certificates will qualify as tax-exempt obligations for federal income tax purposes as of the date of issuance, the tax-
exempt states of the Certificates could be atTected by fuhtre events. However, funrre events beyond the control of [he County, as well as the
failure W observe the afi~rementioned representations or covenants, could cause the interest on the Certificates to become taxable retroactively to
the date of issuance.
The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied subsequent to the issuance of the
Certificates in order for interest on the Certificates to be, and to remain, excudable from gross income for federal income tax purposes. Failure
to comply with such requirements may cause interest on the Certificates to be included in gross income retroactively to the date of issuance of
the Certificates. The opinion of Bond Counsel is conditioned on compliance by the County with such requirements, and Bond Counsel has not
been retained to monitor compliance with these requirements subsequent W the issuance of the Certificates.
Bund Counsel's opinion represents its legal judgment based upon its review of Existing Law and the reliance on the aforementioned intbmtation.
representations and covenants. Bund Counsel's opinion is not a guarantee of a result The Existing Law is subject to change by the Congress and
~i s-ubsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that such
Existing Law or the interpretation thereof will out be changed in a manner which would adversely affect the tax treatment of the purchase.
ownership ur disposition of the Certificates.
A ruling was not sought from the Internal Revenue Service by the Issuer with respect to [he Certificates or the project financed with the
Certificate pra:eeds. Nu assurances can be given as to whether the Internal Revenue Service will commence an audit of the Certificates, or as to
whether [he Internal Revenue Service would agree with the opinion of Bond Counsel If an Internal Revenue Service audit is commenced. under
current pra;edures the Internal Revenue Service is likely to treat the Issuer as the taxpayer and the Certificateholders may have uo right to
participate in such prcx:edure. No additional interest will be paid upon any determination of taxability.
Federal Income Tax Accounting Treatment of Original Issue Discount
The initial public offering price to be paid for one ur more maturities of the Certificates ([he "Original Issue Discount Certificates") may be less
than [he principal amamt thereof ur one or more periods fur the payment of interest un the Certificates may not be equal to the accrual period ur
be in excess of one yeas [n such event, the difference between (i) the "stated redemption price at maturity" of each Original Issue Discount
Certificate, and (ii) the initial offering price to the public of such Original Issue Discount Certificate would constitute original issue discount.
The "stated redemption price at maturity" means the sum of all payments to be made un the Certificates less the amount of all periodic interest
payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial
or final period) and which are made during accrual periods which do not exceed one year. Under existing law, such initial owner is entitled to
exclude from gross income (as defined in Section 61 of the Cude) an amount of income with respect to such Original Issue Discount Certificate
equal to that portion of the amount of such original issue discount allcx;able to the period that such Original Issue Discount Certificate continues
[<i be owned by such owner. Fur a discussion of certain collateral federal tax consequences, see discussion set forth below.
11
In the event of the redemption, sale ur other taxable disposition of such Original Issue Discount Certificate prior to stated maturity, however, the
amount realized by such owner in excess of the basis of such Original Issue Discount Certificate in the hands uC such owner (adjusted upward by
the pcxtion of the original issue discount alhx;able to the period fur which such Original Issue Dise;uunt Certificate was held by such initial
owner) is includable in gross income.
Under existing law, the original issue discount on each Original Issue Discount Certificate is accrued daily to the stated maturity thereof (in
amounts calculated as described below fur each six-month period ending on the date before the semiannual anniversary dates of the date of the
Certificates and ratably within each such six-month period) and the accrued amount is added Qi an initial owner's basis fur such Original Issue
Discount Certificate for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale ur other
disposition [hereof: The amount [o be added to basis for each accrual pericxi is equal to (a) the sum of the issue price and the auwun[ of original
issue discount accrued in prior periods tnttltiplied by the yield to stated maritrity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the acental period) less (h) the attxxtn[s payable as current interest during such accrual
period on such Certificate.
T}te federal incunte tax consequences of the purchase, ownership, redemption, sale ur other disposition of Original Issue Discount Certificates
which are not purchased in the initial otTering at [he initial uttering price may be de[emtined according to Hiles which differ from those described
above. All owners of Original Issue Discount C'er[iticates should consult their own tax advisors with respect to the detemtination fix federal,
state and luc:al incuwe tax purposes of interest accnted upon redemption, sale ur other disposition of such Original Issue Discount Certifcates
and with respect to the federal state, local and torcign tax consequences of the purchase, ownership, redemption. sale ur other disposition of
such Original Issue Discount C'ertiticates.
Collateral Federal Income Tax Consequences.
The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or
disposition of the Certificates. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which an
subject to change or modification, retroactively.
The fi~llowing discussion is applicable to investors, other than those who are subject W special provisions of the Curie, such as financial
institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security'or Railroad Retirement
benefits, individuals allowed earned income credit, owners of an interest in a FASIT, certain S corporations with Sutx;hapter C earnings and
profits and taxpayers who may be deemed to have incurred ur continued indebtedness to purchase tax-exempt obligations.
INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN
TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT ['ROM THE PURCHASE.
OWNERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE
CERTIFICATES.
Interest on the Certificates will be includable as an adjustment for "adjusted current earnings" to calculate [he alternative minimum tax imposed
on corporations by section 55 of the Code. Section 55 of the Code imposes a tax equal to 20 percent fir corporations, or 26 percent fur non
corporate taxpayers {28 percent Yix taxable excess exceeding $175,000), of the taxpayer's "alternative minimum taxable income," if the amount
of such alternative minimum tax is greater than the taxpayer's regular income tax for the taxable year.
Interest on the Certificates may be subject to the "branch profits tax" imposed by section 884 of the Code un the etTectivelyconnected earnings
and profits of a foreign corporation doing business in the United Stales.
Under section 6012 of the C~x1e, holders of tax-exempt obligations, such as the Certificates, may be required to disclose interest received or
accrued during each taxable year on their returns of federal income taxation.
Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of atax-exempt obligation. such as
the Certificates, if such obligation was acquired at a "market discount" and if the fixed maturity of such obligation is equal to or exceeds. one
year from the date of issue. Such treatment applies to "market discount bonds" to the extent such gain dues not exceed the accrued market
discount of such txinds, although for this purpose, a de minimis amount of market discount is ignored. A "market discount txind" is one which is
acquired by the holder at a purchase price which is less than the stated redemption price or, in the case of a lwnd issued a[ an original issue
discount, the "revised issue price" (i.e., the issue price plus accnted original issue discount). The "accrued market discount" is the amount which
bears the same ratio to the market discount as the number of days during which the lwlder holds the obligation bears to the number of days
between the acquisition date and the final maturity date.
State, Local and Foreign Taxes
Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Certificates
under applicable state or la;al laws. Foreign investors should also consult dteir own tax advisors regarding the tax wnsegttences unique to
investors who are not United States persons.
Qualified Tax-Ezeropt Obligations for Financial Institutions
Section 265(a) of the Curie provides, in pertinent part, that interest paid ur incurred by a taxpayer, including a "financial institution," un
indebtedness incurred ur continued to purchase ur carry tax-exempt obligations is not deductible in determining the taxpayer's taxable income.
12
Section 265(6) of the Curie provides an exception to the disallowance of such deduction fix any interest expense paid ur incurred un
indebtedness of a taxpayer that is a "financial institution" allocable to tax-exempt obligations, other than "private activity lx~nds," that are
designated by a "qualified small issuer" as "qualified tax-exempt obligations." A "gttalitied small issuer" is any governmental issuer (together
with any "un-behalf ot" and "sulwrdinate" issuers) who issues no more than $10,000,000 of tax-exempt obligations during the calendar year.
Section 265(6)(5) of the Curie defines the term "tinancial instihttion" as any "bank" described in Section 585(x)(2) of the Curie, or any person
accepting deposits from the public in the ordinary course of such person's trade or business that is subject to federal or state supervision as a
tinancial institution. Notwithstanding [he exception to the disallowance of [he deduction of interest un indebtedness related to "qualified tax-
exempt obligations" provided by Section 265(6) of the C~xfe, Section 29l of the Curie provides that the allowable deduction to a "bank," as
defined in Section 585(x)(2) of [he Curie, fur interest on indebtedness incurred ur continued to purchase "qualified tax-exempt obligations" shall
be reduced by twenty-percent (20%) as a "tinancial institution preference item."
The County has designated the Certificates as "qualified tax-exempt obligations" within the meaning of setaion 265(b- of the Code. [n
furtherance of that desiguatiun, the County uivenants w take such action that will assure, or to refrain from such action that will adversely affect,
the treatment of the Certificates as "qualified tax-exempt obligations." Potential purchasers should be aware that if the issue price to the
public exceeds $lO,INN),INNI, there is a reas,rnable basis to conclude that the payment of a de mfnfmfs amount of premium in excess of
S10,INNl,(NNt is disregarded; however, the Internal Revenue Service could take a contrary view. I! the Internal Revenue Service takes the
position that the amount of such premium is not disregarded, then such obligations might fail to satisfy the $111,iNN1,INN1 limitation and
the Certificates would nut be "qualified tax-exempt obligations."
CONTINUING DISCLOSURE OF INFORMATION
The utT'ering of the Certificates qualifies for the Rule 15c2-12(d)(2) exemption from Rule 15c2-12(6}(5) regarding the County's cuntinuino
disclosure obligations because the County has nut issued more than $10,000,000 in aggregate amount of outstanding debt and no person is
cunnntitted by contract ur other arrangement with respect to pa}m~ent of the Certificates. Pursuant to the exemption, the County in the Order has
made the ti~lluwing agreement fur the benefit of the holders and beneficial owners of the Certificates. The County is required to observe the
agreement for so lung as it remains obligated to advance funds to pay the Certificates. Under the agreement, the County will be obligated to
provide certain updated tinancial infottnation and operating data upon written request. The C'uunty will also provide timely notice of specified
material events to certain infomation vendors. This information will be available to securities brokers and others who subscribe to receive the
information from the vendors.
Inlormation Reyuests
The County will provide certain financial information and operating data which is customarily prepared by the County and is publicly available
to any person upon request made W the County in writing; provided that the County reserves the right at any time to commence making filings of
such information with the Texas State Int~~rmation Depository (the "SID") in lieu of providing such inforn~a[ion to persons upon reyuest. The
infurntation to be updated includes all quantitative tinancial information and operating data with respect to the County of the general type
included in this Official Statement under Tables nttmbeted 1 through 7 and 9 through 12 and in Appendix C. The County will update and
provide this infi~rntation within six nx~nths after the end of each fiscal year ending in or alter 2005. The County may provide updated
information in full text or utay incorporate by reference certain other publicly available dtx;uments, as permitted by SEC Rule I5c2-12. The
updated infumtatiun will include audited financial statements, if the County commissions an audit and it is completed by the required time. If
audited tinancial statements are not available by the required time, the County will provide unaudited tinancial information and operating data
which is customarily prepared by the County by [he reyuired time and audited tinancial statements when and if such audited tinancial statements
become available. Any such tinancial statements will be prepared in accordance with the accounting principles described in Appendix C ur such
other accounting principles as the County may be required to employ from time to time pursuant to state law ur regulation. The Cowtty's current
fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the County changes its
fiscal year. If the County changes its fiscal year, it will notify each nationally recognized municipal securities information repository
("NRMSIR") and the SID of the change.
The Municipal Advisory Cuuncii of Texas has been designated by the State of Texas and approved by the SEC staff as a yualitied SID. The
address of the Municipal Advisory Council is 600 West 8th Street, P. O. Bux 2177, Austin, Texas 78768- 2177, and its telephone number is
512/476-6947.
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 Certificates, if such event is material to a decision to punhase or sell Certificates: (1) principal and interest
payment delinyueucies; (2) non-payment related defaults; (3) unscheduled draws un debt service reserves reflecting tinancial difficulties: (4)
unscheduled draws un credit enhancements reflecting tinancial difficulties; (5) substitution of credit ur liquidity providers, ur their failure to
perfunn; (6) adverse tax opinions or events affecting the tax-exempt status of the Certificates; (7) muditicatious to rights of holders of the
Certificates; (8) Certificate calls; (9- defeasances; (lU) release, substitution, or sale of property securing repayment of the Certificates: and (1 I )
rating changes. ht addition, the County will provide timely notice of any failure by the County to provide intixmation, data, ur tinancial
statements in accordance with its agreement described above under "hitbrmatiat Requests." The Cutmty will provide each notice described in
Nris paragraph to the SID and to either each NRMSIR ur the Municipal Securities Rulemaking Board ("MSRB").
13
Availability of Infirrmatiun from NRMSIRS and SID
The County has agreed to provide the material event notices only [o NRMSIRS and the SID. "flte infi~rmation will be available to holders of
Certificates only if the holders comply with the pax:edures and pay the charges established by such information vendors or obtain the
information through securities brokers who du So. Information agreed to lx; provided by the County on request may be obtained by contacting
the County at 700 Main Street, Kemille, Texas, (830} 792-2235.
Amendments
The County may amend its continuing disclosure agreement from time to time to adapt to changed cin:umstances that arise from a change in
legal requirements, a change in law, ur a change in the identity, nature, status, ur type of operations of the County, if (i) the agreement, as
amended, would have permitted an underwriter to purchase ur sell Certificates in the offering described herein in compliance with the Rule,
taking into acwunt any amendments ur interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and
(ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Certificates consent to the amendment or (b- any pers~m
unaffiliated with the Cututty (such as nationally recognized twnd counsel) determines that the amendment will not materially impair the interests
of the holders and beneficial owners of the Certificates. The County may also amend or repeal the provisions of this continuing disclosure
agreement if the SEC amends ur repeals the applicable provisions of the SEC Rule 15c2-12 of a court of final jurisdiction enters judgment that
such provisions of the SEC Rule 15c2-12 are invalid. but only if and to the extent that tha provisions of this sentence would not prevent an
underwriter ti'om lawfully purchasing or selling Certificates in the primary offering of the Certificates. If the Cutmty so amends the agreement.
it has agreed tti include with the next financial information and operating data provided in accordance with its agreement described atxive under
"Annual Reports" au explanation, in narrative form, of the reasons For the amendment and of the impact of any change in the type of financial
information and operating data su provided.
Compliance with Prior Undertakings
The County has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule.
REGISTRATION AND QUALIFICATION OF CERTIFICATES FOR SALE
The sale of the Certificates has not been registered under the Federal Securities Act of 19,3, as amended, in reliance upon the exemption provided
thereunder by Section 3(a)(2); and the Certificates have not been qualified under the Securities Act of Texas in reliance upon various exemptions
contained therein; nor have the Certificates been qualified under the securities acts of any jurisdiction. The County asstones nu responsibility fir
gttalitication of the Certificates under the securities laws of aoy jurisdiction in which the Certificates may be sold, assigned, pledged, hvputhecated or
otherwise transferred. This disclaimer of responsibility fur qualification fix sale or other disposition of the Certificates Shall not be construed as an
interpretation of any kind with regard to the availability of any exemption from securities registration provisions.
LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS
Secticm 120L041 of the Public Security Procedures Act (Chapter 1201, Texas Cnivemment Code) provides that the Certificates are negotiable
instnttnents governed by Chapter 8, Texas Business and Cumenerce Code, and are legal and authorized investment, for insurance companies,
fiduciaries, and tnrstees, and for the sinking funds of municipalities or ~><her political subdivisions or public agencies of the Stale of Texas. With
respect tci investment in the Certificates by municipalities or other political subdivisions or public agencies of [he State of Texas, the Public Funds
Investment Act, Chapter 2256, Texas Guvemtnent Code, requires that the Certificates be assigned a rating of "A" or its equivalent as to investment
quality by a national rating agetx:y. (See "RATINGS" herein.) In addition. various provisions of the Texas Finance Code provide that, subjeea to a
prudent investor standard, the Certificates are legal investments tiN' state banks, savings banks, tntst companies with at capital of one million dollars
or more, and savings and loan ass«:iations. The Certificates are eligible to secure deposits of any public funds of the State, its agencies, and its
political subdivisions, and are legal security For those deposits tti the extent of their market value. No review by the Cotutty has been made of the laws
in other states to determine whether the Certificates are legal investments fur variot-s institutions in those states.
LEGAL OPINIONS AND NO-LITIGATION CERTIFICATE
The County will furnish a complete transcript of prtx:eedings had incident to the authorization and issuance of the Certificates, including the
unqualified approving legal opinion of the Auorney General of Texas approving the Initial Certificates and to the effect drat the Certificates are valid
and legally binding obligations of the County, and based upon examination of such tranxript of pra:eedings, the approving legal opinion of Bond
Counsel, to like effect and to the effect that the interest un the Certificates will be excludable from gross income rift federal income tax proposes
under Section I03(a) of the Cude, subject [o the matters described under "TA,K MATTERS" herein, including the alternative minimum tax un
corporations.
The customary closing papers, including a certificate to ttre effect that nu litigation of any nature ltas been tiles or is then pending to restrain the
issuance and delivery of the Certificates, ur which would affect the provision made for their payment or security, or in any manner questioning the
validity of Said Certificates will also be furnished. Bond Counsel was not requested to participate, and did not take part, in the preparation of the
Official Statement, and such firm has not assumed any responsibility with respect dreretu or undertaken independently to verify any of the
inforrtatiun contained therein, except that, in its capacity as Bond Counsel. Such firm has reviewad the inforrnatiun carder the captions "THE
CERTIFICATES". "REGISTRATION TRANSFER ANll EYCHANGE", "AD VALOREM TAY PRtX'EI)URES", "TAB MATTERS".
14
"CONTINUING DISCLOSURE OF INFORMATION", "REGISTRATION AND QUALIFICATION OF CERTIFICATES FOR SALE", and
"LEGAL INv~STMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TE,`{AS" in this Otlicial Statement, and such time is of the
opinion that the information relating tci the Certificates wntained wider such captions accurately and fairly reflexes the provisions thereof and is
cotmct as to matters of law. The legal fee ~r be paid E3~ind Counsel fur services rendered in connection wilt the issuance of the Certificates rs
contingent on the sale and delivery of the Certificates. The legal upiniun of Bund Counsel will accompany [he Certificates deposited with DTC or
will be printed un the Certificates in the event of the discontinuance of the I3~wk-Entry-(fitly System. Certain legal matters will be passed upon ti,r
the Underwriter by its legal counsel, Locke Lidell & Sapp LLP, Dallas, Texas.
The legal opinions [a be delivered concurrently with the delivery of the Certificates express the pmfessiunal judgment of the attorneys rendering
the opiuiuns as to the legal issues explicitly addressed therein. [n renderiug a legal upiniun, the attorney does no[ become an insurer ur guarantor
of that expression of professional judgment, of the transaction opined upon, or of the tirture pertonnance of the parties to the transaction. Nor
does [he rendering of au upiniun guarantee the outcome of any legal dispute that may arise uu[ of the transaction.
RATINGS
Mtx,dy's Ltves[cirs Service ("Maxty's'") has assigned a municipal lxind rating of A3 tli the Certificates.. An expla»ation of the significance of such
ratings may be obtained fmm Mrxxiy's. The ratings reflect only the view of the rating agency, and the County makes no representation as to the
appropriateness of such ratings. The ratings are not a recommendation to buy, sell or hold the Certificates, and such ratings may be subject tri revision
or withdrawal a[ any time by the rating agencies. Any downward n;vision or withdrawal of the ratings may have an adverse eYFec[ un [he market
price of the Certificates
UNDERWRITING
The Underwriter agrees. subject to certain conditions, to purchase the Certificates from the County at an undetw•riting discount of $26,000.00. The
Underwriter will be obligated [<i purchase all of the Certificates, if any Certificates are purchased. The Certificates to be offered tli the public may be
ofTared and sold to certain dealers (including the Underwriter and other dealers delx~siting Certificates into investment trusts) at prices lower than [he
public offering prices of such Certificates, and such public prices may be changed, from time t<i time, by the Underwriter.
FINANCIAL ADVISOR
RBC Dain Rauscher Inc. is employed as [he Financial Advisor t<i the County in connection with the issuance of the Certificates. ht [his capacity, the
Financial Advisor has compiled certain data relating to the Certificates and has assisted in drafting [his Official Statement. The Financial Advisor has
not independently verified any of the data contained herein ur wnducted a detailed investigation of the affairs of the County to detemtine the
accuracy ur completeness of this Official Statement Because of its limited participation, the Financial Advisor assumes no resjxmsibility for [he
accuracy ur completeness of any of the infi,rnia[iun contained herein. The fees fur Financial Advis<,r are contingent upon the issuance, sale and
delivery of the County.
USE OF INFORMATION IN OFFICIAL STATEMENT
The financial data and other infi~rntation contained herein have been obtained from the County's records, audited financial statements and other
scnrrces which are believed t<i be reliable. There is nu guarantee that any of the assumptions or estimates contained herein will be realized. All of the
summaries of the statutes, documents and oniers contained in this Official Statement are made subject to all of the provisions of such statutes,
documents and orders. These srunmaries do no[ purport tci be complete statements of such provisions and reference is made to such dcx;uments fir
further intomtation. Reference is made to original documents in all respects.
The Order will also approve the fume and content of this Utticial Statement, and auy addenda, supplement ur amendment thereto issued un behalf of
the County, and authorize its further use in the reoffering of the Certificates by the Underwriters. This OtTicial Statement has been approved by the
Commissioners Court of the County for distribution in accordance with the provisions of the Securities and Exchange Commission's Rule 15c2-12.
/s/Put Trnlev
County Judge
Kerr County, Texas
ATTEST:
/s/.7ururett Pieper
Carroty Clerk
Ken County, Texas
l5
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APPENDIX A
FINANCIAL INFORMATION
REGARDING THE COUNTY
This page intentionally left blank
FINANCIAL INFORMATION REGARDING
ICERR COUNTY, TEXAS
Table 1-Valuations, Exemptions and Tax Supported Debt
2004/05 Market Valuation Established by Kerr
County Appraisal County (excluding totally exempt property)
Less Exemptions/Reductions at 100% Market Value
10% Lost to Cap Adjustment
Disabled Veterans
Productivity Loss
Pollution Control/Otber
Pollution Control
Total
2004/05 Net Taxable Assessed Valuation
County Funded Debt Payable from Ad Valorem Taxes (as of January 1 ~, 2000:
Outstanding General Obligation Debt
The Certificates "
Total Indebtedness Payable from Ad Valorem Tales
Ratio County Funded Debt/2004 Net Taxable Assessed Valuation
County Interest and Sinking Fund Balance as of September 30, 2004 `"
200 Estimated Population
Per Capita Taxable Assessed Valuation
Per Capita Debt Payable from Ad Valorem Taxes
`t' Unaudited.
Table 2 -Other Obligations
The County has no unfunded debt as of January 15, 2005.
46,40
$ 5,139.96
$ 99.14
$ 3,360,790913
$ 7,290,412
9,474,101
782,204,263
467,078
104.040
$ 799,39,894
$ 2,.i61.2~ 1,019
$ 4,605,000
2.000.000
$ 6,60,000
0.26%
$ 209,927
A-1
Table 3 -Taxable Assessed Valuation by Category(~~
Cateeorv
Real, Residential, Single Family
Real Residential, Multi-Family
Real, Vacant LotslTracts
Real, Acreage (Land Only)
Real, Farm and Ranch Improvements
Real, Commercial and Industrial
Real. Minerals and Oil
Real, Tangible Personal, Utilities
Tangible Personal, Commercial Xi Industrial
Mobile I-Tomes
Tangible Personal, Other
Residential Inventory
Special Inventory
Total Appraised Value Before Exemptions
Less: Total Exemptions/ Reductions
Net Taxable Assessed Value
CateQOrv
Real, Residential, Sngle Family
Real Residential, Multi-Family
Real, Vacant LotslTracts
Real, Acme (Land Only)
Real, Farm and Ranch Improvements
Real, Commercial and Industrial
Real, Minerals and Oil
Real, Tangible Personal, Utilities
Tangible Personal, Commercial & Industrial
Mobile EIomes
Tangible Personal, Other
Residential Inventory
Special Inventory
Total Appraised Value Before Exemptions
Less: Total Exemptions/ Reductions
Net Taxable Assessed Value
Taxable Appraised Value for Fiscal Year Ended September 30,
2005 2004 2003
Value
$ 1,378,813,250
61,856,191
82,476,601
897,960,023
373,383,693
287,883,2 ( 8
68,630,60
l 37,440,344
~ 1,778,276
968,876
! 1,104,877
8,494,983
$ 3,360,790,913
799,539,894
$ 2,761,271,019
%of		%af
Total	Value	Total
41.03%	$ 1,279,829,876	40.37%
1.84%	60.225.964	L90%
2.47%	74,-174,418	2.3~%
26.72%	853,344,083	26.92%
l 1.1 l%	349,622,351	I L03%
8.57%	294,105,526	9.28%
0.00%	100	D.(IU%
2.(kt%	62,399,744	L97%
4.09%	127.046,772	4.01%
L74% 49,942,937
0.03% 473,408
0.33% 10,323,348
0.27% 8.417,721
100.00% $ 3,(70,206,248
746.673,008
$ 2,423,773,240
1.78%
U.O1% 381,237 0.01%
0.33% 6,801,626 0.23°/a
0.27% 8,731,889 0.29%
100.00% $2,970,079,627 100.0(1%
706,428,679
$ 2,263,630,948
	of
Value	Total
$ 1,224,68-1,468	41.23%
49,6»,799	L67%
67,703,579	2.28%
8(k1,643,637	27.09%
3 i 3,741,468	10.36%
272,072,644	9.16%
100	0.00%
62,038,295	2.09%
114,209,941	3.85%
47,394,946	1.73%
Taxable Appraised Value for Year Ended September 30,
2002		2001	
	°1° of		% of
Value	Total	Value	Total
$ 1,149,478,949	41.06%	$ 1,077,613,644	40.29%
57,682,489	2.06%	43,(N)4,664	1.64%
63,315,993	2.26%	74,973,870	2.10%
784,(k17,624	28.00%	777,934,676	28.93%
280,335,333	10.(11%	248,273,717	9.48%
232,754,630	$.31%	231,912,876	8.85%
8,300	0.00%	8,300	0.00%
70,199,276	1.79%	51,576,513	1.97%
120,325,337	4.30%	119,778,316	4.77%
43,967,178	1.57%	40,777,619	L77%
35, l $6	0.00%	-	0.00%
7,994,797	0.29%	7,717,814	0.29%
9,777,636	0.34%	8,722,663	0.33%
$ 2,799,678,704	100.00%	$ 2,619,854,4 t 2	100.00%
684,749,750		668,010,278	
$2,114,928,954		$ 1,951,844,134	
' ~' Obtained from property tat reports provided by the Kerr County Appraisal District and
the State of Tetas Comptroller of Public Accounts.
A-2
Table 4 -Valuation and Tax Supported Debt History
Fiscal	Net		
Year	Taxable	Bonded	Ratio of Debt
Ended	Assessed	Debt	to Assessed
09/30	Valuation	History	Valuation
2000	$ 1,854.480,694	$ l L97U,000	0.6~%
2001	1,951,844,134	7,18,000	0.37%
2002	~,1 14,928,94	6,360,000	0.30%
2003	2,263,630,948	~,~00,000	0.24%
2004	2,423,.i~3,240	4,601,000	0.19%
2005	2,~61,2~1,O19	~,66~,000	0.22%
Includes the Certificates
Table ~ -Tax Rate, Levy and Collection History
			Interest	FM and				
Tax	Tax	General	and Siril:ing	Lateral	Tax	% Co	llections	Fiscal Year
Year	Rate	Fund	Fund	Roads	Lew	Current	Total	Ended
1999	$0.3513	$ 0.2615	$ 0.026	$ 0.0372	$6,102,606	93.70%	101.70%	9/30/2000
2000	0.3513	0.2772	0.0527	0.0214	6,439,133	96.90%	100.30%	9/30/2001
2001	0.3721	0.2950	0.0537	0.0234	7,604,669	97.00%	99.03%	9/30/2002
2002	0.3721	02986	0.0501	0.0234	8,019,035	97.50%	100.13%	9/30/20(13
2003	0.3721	0.2937	0.0475	0.0309	8,294,863	98.06%	100.82%	9/30/2004
2004	0.3721	0.3003	0.0409	0.0309	9,495,860	In Process	of Collection	9/30/2005
Source: County Financial Records and Kerr County Appraisal District
Table 6 -County Sales Tax History
Fiscal		% of	Equivalent
Year		Ad	Ad
Ending	Total	Valorem	Valorem
9/30	Collected	Tax Le~ti•	Tax Rate
1999	$ 1,694,24]	29.30%	$ 0.14000
2000	1,891,533	29.09%	0.14000
2001	1,879,498	29.19%	0.14000
2002	1,997,705	26.27%	0.14000
2003	2.112.617	26.35%	0.14150
2004	2,234,434	26.94%	O.I3670
Source: Texas Comptroller of Public Accounts and Kerr County Appraisal District
A-3
Table 7 -Ten Largest Taxpayers
		2004/05 Taxable	Percent
Name of Taxnaycr	Nature of Pro~ertv	Assessed Valuation	of Total
Kerrville Comnumications Corp.	Telephone Utility	$ 29,428,477	1.1 ~%
Wal-Mart Stores	Retail Superstore	14,017,262	U.55%
Moonev Aircraft Corp.	Aircraft Manufacturer	11,321,3»	0.44%
Ameripark Kerrville Corp.	Real Estate	1 1,161,481	0.-14%
James Averv Crattsmen, Inc.	Jewelry Manufacturer	10,047,622	0.39%
Hill Country Telephone Co-op	Telephone Utility	9,905222	0.39%
LCRA Transmission Services Corp.	Electric Utility	7,341241	0.29%
Home Depot USA, Inc.	Retail Superstore	7,160,469	0.28%
Lowe's Home Centers	Retail Superstore	6,818,527	0.27%
Kerrville Bus Company	Bus Line	4,-172.443	0.17%
		$ 111,674,099	4.36%
Sources: Kerr County Appraisal District
Table 8 -Estimated Overlapping Debt Statement
			Percentage		Amount
_
Taxing Bodv	Amotmt	As of	Overlanins		Overlapnra
CenterPouttISD $	1,91(1,000	1/15/2005	100.(x)%	$	1,910,000
Comfort ISD	1Q104,529	1/15/2005	20.23%		2,04-1,146
Harper ISD	-	1/15/2005	13.84%		-
Huni ISD	-	1/15/2005	100.00%		-
Ingram ISD	4,71 x,000	1/15/2005	100.00%		4,715,000
Kerrville ISD	37,150,000	l/!5/2005	100.00%		37,150,000
Kerrville_ City of	520,000	1115!2005	100.00%		520,000
Lake Ingram Estates Road Distric(	221,000	1/16/2005	100.00%		221,(x)0
Medina ISD	-	1/17/2005	6.07%		-
Upper Guadalupe RA	-	I/15/2005	100.1)0%		-
Total Overlapping Debt				4	6,560,146.31
Kerr County (including the Certificates) $	6,60~,O11(1	1/t5/Z005	lOfi.00%	$	6,6AS,l)ll(1
Total Direct and Overlapping Debt				$	53,165,146
					
Ratio Overlapping Debt to Tax	able Assessed	Valuation			2.08%
Ratio Overlapping Debt to Total Assessed Valuation			l .58%
Per Capita Overlapping Debt				$	1,144.57
Note: Expenditures of the various taxing bodies also containing the teritory of the County are paid out of ad valorem
taties levied by these taxing bodies on properties within the County. These political taxing bodies are independent of
the County and may incur borrowings to finance their expendihues. The statement of direct and estimated overlapping
ad valorem tax debt was developed from information contained in "Texas Municipal Reports" published by the
Municipal Advisory Council of Texas. Except for the amotmts relating to the County, the County has not
independently verified the accuracy or completeness of such information, and no person should rely upon such
infornation as being accurate or complete. Furthermore, certain of the entities Wray have issued additional debt since
the date stated in the table, and such entities may have programs requiring the issuance of substantial amounts of
additional debt, the amount of which cannot be determined. The table reflects the estimated share of overlapping net
debt of the various taxing bodies.
A-4
Table 9 - Proformr Outstanding Limited Tax Ceneral Obligation Debt Service Requirements
Fiscal					Total
Year	Outstanding				Outstanding
Ended	Debt	Certificates of Obligation, Series 2005 ~	Debt
09/30	Service	Principal	Interest	Total	Service
2006 $	1.130,408				$ 1.130.-108
2006	682.313	$ 370.000	$ 102.816	`~ ~ $ -472.81 ~ ~ ~ ~	L l», (~7
2007	687,367	426.000	x8,638	473.638	1.160.994
2008	691521	440.000	33,600	473.600	1,166.021
2009	529.066	375.000	19.238	394.238	923.294
2010	634.1RR	390.000	6.338	396,338	930526
2011	638.266	-	-	-	638.256
2012	541.263	-	-	-	641.263
TOTAL $	5,33;,390	$ 2.000.000	$ 210.627	$ 2.210.627	$ 6.414.610
~~~Includes accrued interest of $6.660.36.			
Authorized but Unissued General Obligation Bonds: The County has no authorized but unissued bonds.
Table 10 -Tax Adequrcy for Limited Tas Bonds
County's Interest and Sinking Fund Balance as of September 30. 2004
2005 Taxable Assessed Valuation
Estimated Maximum Debt Service tar the Fiscal Year Ending December 3 1.2008.
Indicated Interest and Sittkin~ Fund Tax Rate
Indicated Interest and Sinking Fund Tax Levv_
Estimated 96° o Tax Collections
~~~Unaudited.
$ 209,927 ~i)
$ 2,661.261.0 l9
1.166.021
0.0475
$ 1.216,694
$ (,167.930
A-~
Table l l -General Fund Revenues and Expenditures
Revenues•
Ad Valorem Taxes
Other Taxes, Licenses and Permits
Automobile Registration
[ntergovemmental
Fines and Forfeitures
Fee o[ Office
Interest
Miscellaneous
Total Revenues
Expenditures•
Current:
General Government
Administration of Justice
Health and Welfare Services
Tax Administration
Debt Service
Principal
Interest and Fees
Capital Outlay
Total Expenditures
Excessi(Deticiency) of Revenues
Over Expendit«res
Other Financing Sources
Other Financing (Uses)
Beginning Fund Balance
Prior Year Adjustment
Ending Fund Balance -September 30 ~~~
Fiscal Years Ended September 30,
2003 2002 2001 2000 1999
$ 5.880558 $ 5,398.320 $ -1.619.903 $ 3,797520 $ 3.649.059
2,121.099 2.037.223 1,883.-171 1.936.141 1.716,291
498,049 513.889 630,742 49b.960 294,752
257.045 259.101 308.121 25R.150 258.878
1.549.157 1,-454,579 1.282.647 1,193.833 1,137,776
70,177 98.104 235,397 274.912 171,346
S 13.291 415.378 =108.536 326.186 689.496
S 10,892,376 S 10,176,594 $ '),369,117 $ 8,283,702 $ 7,917,598
$ 1.816.404 $ 1.755.507 $ 1,555.464 $ 1.442.324 $ 1,36 L843
6,977.762 6.369.590 5,975,917 5,166.216 4,223,611
801,057 793.655 725.755 695.174 622,548
471,713 455.9x7 409.517 390,898 352.067
162.484 1(5.671 14,282 53.090 -
4.374 36,256 - 554 -
213,054 235.462 361,614 334.701 240,112
$ 10,11b,878 $ 9,762,088 $ 9,072,549 $ 8,082,957 $ 6,800,181
$ 445.498 $ 414,506 $ 296,568 $ 200,745 $ 1,117.117
495535 44.960 6.135 125.184 79,658
(698) (227.499) (1,066) (19550) (83,844)
3.649.563 3,-417.596 3.115.659 2.809.280 1.636.099
- - - - 60.000
$ 1,289,898 $ 3,649,563 $ 3,117,596 $ 3,115,659 $ 2,809,280
~~~ The County estimates the Ending Fund Balance for the Fiscal Year Ended September 30. 2004 will be approximately $4,495,-495.
Source: County's Audited Financial Statements for the Fiscal Years Ended September 3U, 1999 -September 30. 2003.
Table 12 -Current Investments (as of December 31, 2004)
Investment Description
Monev Market Funds
U.S. Treasury Notes
Agency Securities
Certificates of Deposit
Total
Totallnvested	Percent
$ 52,799	1.46°'0
1.600,303	44.11 °'o
1,50L565	41.39°°
-173.20	13.04° °
$ 3.627,917	100.00°0
A-6
APPENDix B
KERB couNTV, TExas
ECONOMIC AND DEMOGRAPHIC INFORMATION
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KERB COUNTY, TEXAS
ECONOMIC AND DEMOGRAPHIC INFORMATION
Overview
Kerr Counn~ is a central Texas county with an economy based on agriculture, tourism, and manufacturing. The Texas Almanac
designates cattle, sheep and goats as the principal source of agricultural income.
F,~~onomy
Kerr County's economy is based un a combination oFinanufacturing, agri-business and tourism. There are l0 manufacturing plants in Kerr
Counri• employing over 20 employers each and producing products ranging from aircraft, boats, jewelry, parts and high tech plastics to pre-
fabricated buildings and building components. Much of the resources Yiom agribusiness involve cattle, sheep, goats, cedar posts, hay, oats,
mild, wheat, and pecans. There are three major hospitals located in Kerrville, employing approximately 1,750 people. These hospitals
include Kemille State Hospital, the Veterans Administration Hospital and Sid Peterson Memorial Hospital.
The City's location along the Guadalupe River in the heart of the beautiful Texas Hill Country, together with many vacation resorts and
numerous summer camps for youung people, make Kerrville a haven tier tourists and cumentions us well as a popular retirement area.
Within the Cit<~ are 19 hotels with approximately 1200 rooms, including the rooms at the famous Inn of Hills River Resort and Y.O. Hilton.
The Hill Country Arts Foundation was founded in 1958 to provide are classes and summer theatre for professionals and amateurs, plus a
special children's program. These three major aspects of the economy are supported by a strong retail, wholesale and service trade.
Population Trend 2000.2004
200-1 2003 2002 2001 2000
Kerr County 45,800 45,600 45,000 44,200 44,100
State of Texas 22,405,900 22,087,400 21,607,900 21,14 L500 20,206,500
Source: Sales rnrcl:tlarketirrg:tlanagen:errt Sirrvev ofBuving Power, 2000-2004.
Percentage ofPopulation br Ape Group	
Aye	Kerr County State of Texas
0-17	22.5	27.8%
18-24	7.5	10.5
25-34	8.8	14.7
35-49	18.7	22.2
50 -Over	42.5	24.8
Source: Sales curd .1larketing <llatragenrerrt Srrrvev oJ'Brryirrg Power, 2004.
Kerr County Top Ten Employers (May 2U0-t):
Emalover
Kerrville Independent Schcwl District
Sid Peterson Memorial Hospital
South Texas Veterans Healthcare System (Kerrville Division)
Kerrville State Hospital
James Avery Craftsmen
Wal Mart Inc, Store # 508
Kerr County
City of Kerrville
HEB Foods Grocery Store
Ingram Independent School District
Employees
748
630
585
539
4l3
350
305
299
275
27U
B-1
Economic GraK~h Histo
Total Retail Sales ($U00)
Total Ettective Buying Income ($OOOs) (EBI) `A'
Per Capita Retail Sales`B'
Per Capita EBI `B~
Median Household EBI
2004	2003	2002	2001	2000
$ 642,259	$ 616,402	$ 592,196	$ 600,638	$ 604.152
808,98	783,878	780,62	721,020	707,430
14,023	13,18	13,160	13,89	13,700
17,6~~	17,190	17,346	16,3 l3	16.041
32,084	31,994	31,323	28,389	27.343
'~' EB[ is defined as personal income less tax and non-tax payments.
`B~ Based on a population estimates given in previous table.
Source: Sales :Llarketing rnui_~llrnzagement, Sizrvev of Bzrying Power 2000-2p0-1. Numbers are estimated each year as of January
	KERB COUNTY LABOR FORCE STATISTICS	
	Labor Force History		
	2004~`r~ 2003	21102	2001
Labor Force	18,906 19,039	17,90	17,741
Percent Increasel(Decrease)	(0.70%) 6.3%	0.9%	0.5%
Employed	18,436 18,419	17,3 l 2	17,277
Percent Increase\(Decrease)	0.10% 6.4%	0.0%	0.0%
Unemployed	470 620	X93	464
Percent Increase\(Decrease)	(24.2%) 4.6%	27.8%	29.3%
Percent of Lalwr Force Unemployed	2.5% 3.3%	3.3%	2.6%
rn~ As of October 2004.			
Source: Lalwr Market Intomrnation Department, Texas Workforce Commission.		
	Comparative Unemnlovment Rates		
	200-1ta~ 2003 2002	2001	2000
Ketr County	2.~% 3.3% 3.3%	2.6%	2.0%
State of Texas	5.3 6.8 6.3	4.9	4.2
United States of America	5.1 5.7 5.7	4.7	4.0
`A' As of October 2004.
Source: Labor Market Information Department, Texas Workforce Commission.
2000
17,64
0.7%
17,286
0.8%
3~9
14.3%1
2.0%
B-2
APPENDIX C
AUDITED FINANCIAL STATEMENT
FOR THE YEAR ENDED SEPTEMBER 30, 2003
This page intentionally le8 blank
KERR COUNTY, TEXAS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FISCAL YEAR ENdED SEPTEMBER 30, 2Q03
This page intentionally lel3 blank
KERR COUNTY, TEXAS
FABLE OF CONTENTS
P GE
INTRODUCTORY SECTION
Letter of Transmittal
List of Principe! Officials
FINANCIAL SECTION
Independent Auditors' Report	2-3
Management's Discussion and Analysis (unaudited)	5-11
Basic Financial Statements:'	
Government-wide Financial Statements:	
Statement of Net Assets	15
Statement of Activities	16-17
Fund Financial Statements:	
Governmental Funds:	
Balance Sheet	1 g
Reconciliation of the Governmental Funds Balance Sheet to	
Statement of Net Assets	1 g
Statement of Revenues, Expenditures, and Changes in Fund Balances	20-21
Reconciliation of the Statement of Revenues, Expenditures, and Changes in	
Fund Balances of Governmental Funds to the Statement of Net Activities	22
Proprietary Fund:	
Statement of Net Assets	23
Statement of Revenues, Expenses and Changes in Fund Net Assets	24
Statement of Cash Flows	25
Fiduciary Funds:	
Statement of Fiduciary Net Assets	26
Notes to Basic Financial Statements	27-45
Required Supplementary Information:	
Statement of Revenues, Expenditures, and Changes in Fund Balance -Budget	
to Actual -General Fund	48
Statement of Revenues, Expenditures, and Changes in Fund Balance -Budget	
to Actual -Road and Bridge	4g
Combining and Individual Fund Statements - Nonmajor Governmental Funds:	
Combining Balance Sheet	52-56
Combining Statement of Revenues, Expenditures and Changes in Fund Balances	58-62
KERR COUNTY, TEXAS
TABi.E OF CONTENTS
PAGE
FEDERA! AWARDS SECTION
Independent Auditors' Report on Compliance and lniemal Control
Over Financial Reporting Based on an Audit of
Financial Statements Pertormed in Accordance
With Govemmenf Aud~fing Standards 64
Independent Auditors' Report on Compliance with Requirements
Applicable to Each hAajor Program and Internal Control Over
Compliance in Accordance with OMB Circular A-133 65
Schedule of Findings and Questioned Costs 67
Schedule of Expenditures of Federal Awards 68
Notes to Schedule of Expenditures of Federal Awards 69
~~

Tommy Tomlinson
KERR COUNTY AUDITOR
March 24, 2004
Honorable County Judge
)•-Ionorabk County Commissioners
Kerr County
Kerrville, Texas 78028
Gentlemen:
Conforming to statutory requirements of tbe duties of tbe County Auditor, submitted herewith is
the annual financial report for Kerr County, Texas as of September 30, 2003, and for the fiscal
year then ended. Responsibility for both the accuracy of the presented date and disclosures rest
with the County_ We believe that the data, as presented, is accurate in all material aspects; that it
is preserved in a manner designed to fairly set forth the financial position and results of operations
of the County as measured by the financial activity of its various funds, and that all disclosures
necessary to enable the reader to gain the maximum understanding of the County's financial affairs
have been included.
This report has been prepared following the guidelines recornn-ended by the Governmeirtal
Accounting Standards Board. In accordance with these guidelines, the accompanying report
consists of two parts:
1. Introductory Section
2_ Financial Section, including financial statements and supplemental data of the County
accompanied by our independent auditors' opinion.
3. Federal Awards Section
We appreciate the continued cooperation of those county officials and employees whose
contributions were essential for the timely completion of this annual financial report.
Respectfully submitted,
Tommy Tomlinson
Kerr County Auditor
'00 MAI1V, ROOM 103 (830) 792-2235 KERRVILLE, TEXAS 78028-5327
KERR COUNTY, TEXAS
COMPREHENSNE ANNUAL FINANCIAL REPORT
FISCAL YEAR ENDED SEPTEMBER 30, 2003
PRINCIPAL OF)=1CIALS
COUNTY JUDGE	Pat Tinley
COMMISSIONER, PRECINCT 1	H.A.'Buster" Baldwin
COMMISSIONER, PRECINCT 2	William'13i11" Williams
COMMISSIONER, PRECINCT 3	Jonathon Letz
COMMISSIONER, PRECINCT 4	Dave Nicholson
COUNTY ATTORNEY	David Motley
COUNTY AUDITOR	Tommy Tomlinson
COUNTY CLERK	Jannett Pieper
COUNTY TREASURER	Barbara Nemec
DISTRICT ATTORNEY - 216th	E. Bruce Curry
DISTRICT ATTORNEY - 198th	Ron Sutton
DISTRICT CLERK	Linda Uecker
SHERIFF	William F. "Rusty" Hierholzer
TAX ASSESSOR-COLLECTOR	Paula Rector
JUSTICE OF THE PEACE, PRECINCT 1	Vance Elliott
JUSTICE OF THE PFr0.GE, PRECINCT 2	Dawn Wright
JUSTICE OF THE PEACE, PRECINCT 3	Kari O'Dell
JUSTICE OF THE PEACE, PRECINCT 4	W. E. 'Bill' Ragsdale
OFFICIAL ISSUING REFORT
Tommy Tomlinson
County Auditor
FINANCIAL SECTION
T'bis page intentionally left blank
YYHliam F. Thompson, C.PA
East F{. OruedeR, Jr., C.PA
Jerry N. Oliver, C.P.A.
Douylm li. Sandberg, C.PA
Timothy R Porter, C.PA
PRE.gSLER, THOMPSON AND COMPANY
a ~oFesstotu,~coRaoctATtarl
CERTIFIED PUBLIC ACCOUNTANTS
ONE 9CHREINER CENTER
819 WATER STREET, SUITE 820
KERRViLLE, TEXAS 78028
INDEPENDENT AUDiT~RS' REPORT
The Honorable County Judge and
i111embers of the Commissioners Court
Kerr County, Texas
P.Q. Box 290590
Telephone (830r 257-7241
Fax (83018964041
Ecnait: info@pccocpa.c~m
We have audited the accompanying fnancial statements of the governmental activities, the business-type
activities, each major fund, and the aggregate remaining fund information of Kerr County, Texas as of and
for the year ended September 30, 2403, which collectively comprise the County's basic financial statements
as listed in the table of contents. These financial statements are the responsibility of Kerr County
management. Our responsibility is to express an opinion an these 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 Govemment Auditing Standards,
issued by the Comptroller General of the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the fnancial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial staiements referred to above present fairly, in all material respects, the
respective financial position of the governmental activities, the business-type activities, each major fund, and
the aggregate remaining fund information of Kerr County as of September 30, 2003, and the respective
changes in financial position and cash Bows, where applicable, thereof for the year then ended in conformity
with accounting principles generally accepted in the United States of,4merica.
AS described in Nate 1, the County has implemented a new financial reporting model, as required by the
provisions of GASB Statement No. 3~, Basic Financial Statements - ar-af Management's Discussion and
Analysis -for State and Loca! Governments, as of September 30, 2003.
The Management's Discussion and Analysis and budgetary comparison information on pages 6 through 11
and 48 and 49, are not a required part of the basic financial statements but are supplementary information
required by accounting principles generaily accepted in the United States of America. We have applied
certain limited procedures, which consisted principally of inquiries of management regarding the methods of
measurement and presentation of the supplementary information. However, we did not audit the information
and express no opinion on it.
!n accordance with Govemment Auditing Standards, we have also issued our report dated March 15, 2004,
on our consideration of Kerr County's internal 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.
2
Our audit was performed for the purpose of forming opinions on the finanaal statements that collectively
comprise the Kerr County, Texas basic finanaal statements. The introductory section and combining and
individual nonmajor fund finanaal statements are presented far purposes of additional analysis and are not a
required part of the basic financial statements. The accompanying Schedule of Expend>tures of Federal
Awards is presented for purposes of additional analysis as required by U.S. Office of Management and
Budget Circular A-133, Audits of States, Loca! Governments, and Non-Profit OrgaRr'zations, and is not a
required part of the financial statements of Kerr County, Texas. The combining and nonmajor fund financial
statements and the Schedule of Federal Awards have been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole. The introductory section has not been subjected
to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express
no opinion on them.
PRESSLEit, THOMPSON AND COMPANY
A PROFESSIONAL CORPORATION
March 15, 2004
3

MANAGEIUIENT'S DISCUSSION AND ANALYSIS (UNAUpITED)
1f~RR coIINTY
MANAGEMENT'S DI<SCIISSION AND ANALYSIS
Within this section of the Kcrr County (County) annual financial report, the Kea County Commissioner's Coact
provides a narrative discussion acid analysis of the firancial activities of the County for the fiscal year ending
September 30, 2003. The 6nanciai perforniamce is discussed within the context of accompanying financial
statements and disclosures, which begin on page i 5.
Iynancial Highlights (thousands)
• The County's net assets as indicated in the governmeut-wide financial statements are $12,898.
'f'atal net assets are comprised of the following:
1. Capital assets, net of related debt, of $3,171 include property and equipment, net of accumulated
depreciation.
2. Net assets of $4,577 are restricted by debt coveaants and or grantee laws or regulations-
3. Unrestricted net assets of $5,150 are available to meet obligations of creditors and citizens.
• The County completed a 5927 project of instaIling acounty--wide communication system for law
enforcement
• Total governmental long teem debt of the County decreased by $917. See Note 3 for detail
• Revenues exceeded expenditures for governmental activities 51,012.
• The unreserved fund balance in the gea-eral fund as shown in the fund f nancial statements on page 18 is
$5,$72 or 35"Jo of general fund expenditures. This amount is within the guidelines recommended by the
Cornrnissioner's Court and the State Comptroller's Office.
• Lomg term debt for business-type activities in the amount of $5,10 was issued to retire an existing debt of
51,947 and conshvct an addition to the Kerr County 3uvenile Detentiam Facility at the cost of $3,193.
Using This Annaal Report
This aimnal report consists of a series of financial statemems. The Statement of Net Assets and the Statement of
Activities (pages 15 through 17) provide informatioan about the activities of the County as a whole and present a
longer-term view of the County's finances. Fund financial statements start on page 18. For governmental
activities, these statements tell how these services were financed in the short term as well au what remains for
future spending- Fund fnuancial statements also compare actual revenue collection and expenditures to budget
Notes W the finandal statement are included to provide additional Sr-ancial information
Government-wide Financial Statements
Government-wide statements naclude all assets and liabilities using the accrnal basis of accounting, which is
similar to the accounting methods used by most private~sector companies. Accrual of the cturent yeaz's revenues
and exp®ses are taken into account regardless of when cash is received or paid. The statements are divided into
two activities, govetximental activities which include basic functions of county government acid business-type
activities which are totally supported by fees c~argod to customers.
The govexnment wide financial statements include two statements. One is the Statement of Net ,4ssets, tfris
statement presents all of the assets and liabilities of the County as a whole, with the difference reported as net
assets. It answers the question as to whether the financial condition of the County is better or worse as result of
the year's activities. Over time, increases or decreases in the Count's net assets erne one indicator of whether its
financial health is improving or deteriorating. To assess the overall financial condition of the County, one must
also consider non-financial conditions such as property tax base and condition of assets.
The other gweinment-wide fioaucial statement is the Statement of Activities. This statemment reports how each
activity is funded by showing grants and program reveunes related to each activity and how much reliance is
placed an general revenues. The statement relates to the Statement of Net Assets in that it shows how caisent
operations have changed net assets.
Fund Financial Statements
Funds are established to accoum for money designated for specific purposes by the Cam*~i~.~aner's Court or
grantees such as the State of Texas. The fund finanaal statements differ from the government-wide statements m
that they focus on significant funds rather the County as a whole. Major funds are presented separately. The fund
financial statements far major fiords begin on page 18. Fund data for non-major funds is included in a combining
statement on page 52. The basic fm-ds are classified by type; each type used by the County is described in the
following paragraphs.
Governmental funds -Most of the Coutty's basic services are reported in governmental funds, which focus on
how money flows into and out of those funds and the balances left at year-end that are available for spending.
These fiords are reported using the modified accrual basis of accounting that measures cash and all other
finanaal assets that tort readily be converted to rash. The governmental fund statements provide a detailed shart-
term view of the County's general government operations and the basic services it provides. Governmental fund
information shows the amount of financial resources available in the next future to finance County programs.
In addition to the major govemmeut funds Balaace Sheet and Statement of Revenues, Expenditures and Changes
it- Fund Balances bndgrxary comparison statements aze included far the g®eral fond and major special revenue
fund. These schednies compare actual revenue and e<cpend'itures with adopted and amended budgets.
Proprietary funds -When the County charges customers for the full cost of the services if provides to County
units or to outside third parties, the services are reported in proprietary funds. Proprietary funds are reported in
the same way that all activities are reported in the Statement of Net Assets and the Staternerlt of Activities. The
County has only one proprietary fund (business activity} which accounts for the financial activities of the Kerr
County Juvenile Detention Facility. A majority of the revenue for this service comes from counties outside of the
County
Notes to the furancial statements -The notes are presented immediately following the basic financial statements
to provide additional information to facilitate the understanding of the govemrent-wide and fund financial
statements. The notes explain accounting policies and disclose additional information concerttittg fixed assets,
long-terse liabiliUies, and the County's retirement plan.
The County as a Whole
Our analysis of the County as a whole focuses on net assets (Table 1) cad changes in net assets (Table 2}. Under
Governmental Acceunting Standard Board (GASB} regulations, 2003 is the first fiscal year in which full accrual
county--wide statements are required. The Statement of Activities reports atmual expenditures by major function
along with the charges for services and grant proceeds available W support each function. This presentation
shows the cost of services that must be offset by geateral revenue such as property and sales taxes.
The Surrunary of Net Assets (Table 1} list assets in the order of liquidity beginning with cash and ending in fixed
assets. Receivables include unpaid property saxes and unpaid court cost and fines assessed by the courts. Each
receivable is reported net of a reserve far uncolledabie accounts. Historical collection data far property taxes
shows an average annual collection rate of 98 percent Total land and improvements are $10,465; this amount is
net of accumulated depreciation of $3,154 (23% of cost). Other assets (equipment) reported at $885 is nil of
accumulated depreciation of $5,635; these assets are 87°!o depreciated. We have to conclude that many assets
exist with limited useful life that must be replaced in the near future. Liabilities are reported by cuaent (payable
in one year) and long-team classifications. Information concerning Long-term debt is detailed on page 40 in the
notes to the financial statements. Net assets at year-card are $12,898; a total of $4,577 is restricted for specific
purposes as required by state Iaw or by County policy. The $5,150 in unrestricted nil assets are available for
funding general operations.
Table 1	
Summary of Net Assets (thousands)	
	Governmental
	Activities
	2003
Cash	6,443
Receivables	1,739
Capital Assets	i 1,315
Total Assets	19,497
Accounts Payable	421
Other Liabilities and Deferred Revenue	1,767
Long-term Debt	5,047
Total Liabilities	?,235
Net Assets:	
ltivested in capital assets, net of debt	5,289
Restricted	2,550
Unrestricted	4,423
Total Net Assds	I
Table 2
C7-anges in Flet Assets (thousands)
Revenues:
Program Revenues
Charges For Services
Operating Grants & Contnbutians
Capital Grants & Contributions
General Revenues °
Propcrty Taxes
Other Taxes
Grants & Contnbutions
lnvest<nent Earnings
Other General Revenues
Total Revenues:
E,cpenditares:
Genneral Government
Adiuiiiistratiam of Jastice
Public Safety
Corrections
Health & Human Services
Community & 1'sconomic
Development
Infrastructure & Environmental
Services
Interest on Long term Debt
Total Expenditures:
Change in Net Assets
Beginning Net Assets
Net Assets
Govcrnmenaa!
Activities
2003
2,609
977
l9
9,009
2,124
95
1,701
16,534
z,567
2,903
3,063
1,871
929
$20
3,034
334
15,522
1,012
11,249
12,262
8
Business-Tppe
Activities
2003
2,530
290
3,022
5,842
27
19?
4,9$2
5,206
(2,118)
2,027
727
636
Business-Type
Activities
2003
1,513
296
'4
32
1,841
1,722
308
2,030
(189}
825
636
Total
Primary Govt.
2003
8,973
2,029
14,337
25,339
448
1, 964
10,029
12j441
3,171
4,5?7
5,150
12,898
Total
Primary Govt,
2003
4,122
1,273
19
9,009
2,124
127
12701
18,375
2,567
2,903
3,063
3,593
929
820
3,034
642
17,552
823
12,074
12,898
e..~
The Changes in Net Assets (Table 2) itemizes the basic sources of revenue and expenditures as to the services
provided. Total reveanc far governmental activities was $16,534, or approximately 7S% from general revenues.
Total governmental expendilures were $15,522 resultuig in a net inaease in net assets of $1,012. Moore detail
about the ina'ease is discussed in die Futancial.4nalysis of the County Funds.
Business-type activities generated $175 m operatingnet income; however this amount was offset by 5364 in cost
related to oonstrnction activities as detailed tai the Financial ,Analysis of the County Funds,
Revenues and expenditures for governmental activities are compared in Table 3 showing the relation between
the cost of services and the revenue generated from users of the service. This table also shows how mucdi general
revenue (property and sales taxes) anal grants are needed to provide each service. For the past several years the
County has maintained a constant property tax rate relying on the steady growth of the Comity for additional
revenues. This growth has also helped to maintain sales tax revenue. As all other entities in this country, the
Crnmty has experienced a significant decline in investment revenues. The service requiring the Least general
revenue is that of the courts said clerk offices of the courts. The Caanty has a collection department that focuses
on the collection of fixes and fees assessed by the courts.
Table 3
Governmental Activities (thousands)
General Governmeait
Administration of justice
Public Safety
Corrections
Health & Human Services
Community & Economic Development
lizfrastructure & Environmental Services
• ~ •' Total Charges for Services
jnvestment Earnings
Grants
General. Revenues
Total
Capital Assets and Debt Administration
				Funded lay
Revenue	% of	Expenditures	% of	General Revenue
2003	Total	2003	Total	Amount %
677		2,567	17%	1,890 74%
1,448		2,903	19%	1,455 50%
i 15		3,063	20%	2,948 96%
271		1,871	12%	1,600 86°10
94		929	6%	835 90%
4		820	S%	816 100%
0		3,034	20%	3,034 100%
2,609	16%	15,187		12,578
95	1%			
496	6%			
12,834	78%			
16,534				
Capital Assets: total capital assets increased $1,772 due mostly 1:o the p~diase of a communication spsteui for
the Sheuf~s office for $978 reported in governmental activities, and the $990 constriction cost of the addition to
the Ketr County Iuvenile Detention Facility, the business-type activity. See Table 4 below.
Table 4
Capital Assets at Year-end
(thousands)
Land
Buildings
Equipment
Construction iii Progress
Capital Leases
Total
Governmental	Business-Type	Total	
Activities	Activities	Primary Govt.
2003 2002	2003 2002	2003	2002
390 390	107 107	49?	497
13,228 13,228	2,214 2,214	15,442	15,442
5,477 4,444	204 191	5,681	4,635
0 3l0	1,115 125	1,115	435
_ 1,008 963	0 0	1.008	963
9
Outstanding Debt
Table 5 below reports the outstanding balances of each debt for 2002 and 2003 for governmental and business-
typeactivities. The County has furanced large capital improvement projects with bonds ce note obligations. The
capital lease obligations were to acgrrire heavy equipment for Road and Bridge operations and to maintain a
quality fleet of vehicles for the Shcri~ s Department In 2002-03 the County retired debt related to governmental
activities by $967. Far business-type activities, a new obligation of $5,140 was incu~ed for capital
improvements of $3,193 and to retire an e7osting mortgage of $1,947. Detailed information oonceming long-term
debt is available in the notes on pages 40 through 42.
Table 5
Outstanding Debt at Year-end
(thousands}
1998 Tax Anticipation Note
Original Amount ($2,650) Matures 2005
1994 General Obligation Bonds
Original Amount {$5,900) Matures 2012
2001 Public Finance General Oblzg. Bonds
Original Amount ($990) Matures 2008
2002 Lease Revenue Bonds
Original Amount ($5,140) Matures 2023
Capital Lease Obligations
Frankenmuth Mutual Ins. Mortgage
Total
Governmental Business-Type Total
Activities Activities Activities
2003 2002 2003 2002 2003 2002
840 1,235 840 1,235
3,930 4,265 3,930 4,265
730 860 730 860
5,140 0 5,140
526 633 526 633
0 1,947 4 1,947
6,026 6,993 5,140 .1,947 11,166 8,944
financial Analysis of the County l'r~inds (thousands)
Governmental Funds
The governmental funds statements presented on pages 18 through 26 include the general fund, road and bridge
fund, and all other governmental funds combined. These statements focal a~n shoat term transactions and the
impact they have on financial resources for futt>re financial requirements. The total of fund balances at year-ard
for all governmental fiords are 56,083, a decrease of $461 from thepriar year.
The general fend is the prianary day today operating fund than finances services such as the conr~s and law
enforcement. Approximately SO % of the revenue to rapport these services is generated by ad vadcstra taxes.
General fund operations resulted in an increase in fiord balance of $640; 75% of that inQease came from ad
valorem taxes. The increase in tax revenue was a result of higher appraised taxable values and an increase in new
properties, The coding fund balance of $4,290 is 41.8°/a of iotal expendittaes; this percentage satisfies the 25%
recommendation by the State Comptroller and the County's policy is to have a minimum operating reserve of
25°/a
The road and bridge fund is reported as a single major governmental fund because it repareserrts a material
percentage of tfae total revenue acrd expenditures of all governmental fiends. The result of operation was a
decrease in fund balance of $82; this lowered the fund balance below the desired level. The County started the
process to address this problem in the 2003-04 budget.
All other governmental fiords are oambined to form the non-major govemmerrtal fund category, the funds
i¢mcluded in this combination are itemized in tb.e combining statements on pages 52 through b2 of the report
Combined fund balances decreased by 51,019 to $1,278 art 32.8% of total expeaditnres. In 2001-02 the County
received proceeds from the sale of contractual obligation bonds in the amount of $990 for the purfiase and
10
installation of a commtttticaUlon system for the Ketr County Sheriff's llepartment; $61S was expensed itx 20(12-
03. The County used $231 of the accumtilaied fund balance of the Schreiner Road fiords for the constnedion of a
road Expenditures exceeded revenues in the indigent health rare fund by $132; experiditnres increased 562 from
the prig year and payments from the State of Texas were down by $27. The indigent health care program is an
unfunded mandate by the State.
Pt~oprietary Funds
As stated previously, the County's proprietary funds statemerriiss reports the activities of the Kerr County Juvenile
Detention Facility. The facility provides short-term detention services and long-term rehabilitation services for
juvenile offenders. The services are provided on a contractual basis with Kerr County and other wunties within
the state.
Because of the increase in demand for services, the Kerr County Juvenile Board approved an addition to the
facility to increase capacity to 75 beds. Fund'mg for this project was obtained from the sale of $5,140 Lease
Revenue Bands. The amount was enough to complete the addition and pay off' an existing mortgage on the
existing facility of $1,947. The addition will be completed in March of 2004. Net assets decreased $189 resulting
from the fact that merest payments on the new debt were paid before revenues could be generated by the
addition.
Budgetary Highlights
Budgetary statements of revenues and expenditures for' the general fund and road and bridge fund are on pages
48 and 49. The statements regent the original and final budget with actual amounts for ead~ category. The
variance is the dtffereatce between actual and the final budget. The original budget was adopted by the County's
Commissioners Court poor to the beginning of the fiscal year anal amendments to the budget are approved by the
court during the year. During the current year the original general fiord revenue budget was increased by $52 in
grants and refimds that were not anticipated Son the original budget; the expatiditme budget was increased by a
corresponding amount. The expenditure budget was also increased by an additional $42; a majority of that
increase was for additional fiuiding requirements for criminal justice.
The original general fiord budget planned for expenditures to exceed revenue by $402, indicating that fund
balances of that amount would be used to fiord general fiord operations. Since actual revenues exceeded the final
budget by $637 and achal expenditures were $3031ess than final budget, fu~ud balances were not ased.
'The original and final road and bridge budget anticipated revenues to exceed expenditures by $126. Actual
revenues exceeded budget by $252; actual expenditures exceeded budget by $207. The net of the variances for
revenues and expenditures was 544. The County experienced a major flood in 2001 qusing damage to
infrastrucha'e. In 2001-02 the County received federal grants 1A make repairs; those funds were expended in
2002-03. Those expenditures were not inchided in the final budget but were reported in the achial atnotmts, thus
causing the $207 negative variance for road and bridge maintenance.
Budget for 2003-004
For the 2003-04 fiscal year the County adopted a property tax rate of .3721 per hundred dollars of taxable value,
no change from 2002-03. The combined property tax rate for general and non-major funds was reduced by
.0075. The road and bridge fiord property tax rate was ina~eased by .0075 in an effort io build the working capital
balance. Taxable property valves increased approximately 1.5% a signifigm decline from the 5°/. to 7% growth.
m recer-t years. With no material growth in anticipated revenues, the County funded the 2003-04 general and
non_major budget with $913 of fund balances, The remaining fund balances are budgeted to remain within the
levels as established by County policy.
A total budget far capital expenditures is 5268, a significat-t reduction from $1,084 in 2002-03. This budget
includes three new vehicles for Constables and replacement vehicles and equipment for the Sheriff's Depattmem
and Road & Bridge. long-term debt retirement is budgeted to be $895.
11
This page is intentionally left blank
BASIC FINANCIAL STATEMENTS
33
This page intentionally left blank
14
KERR COUNTY, TE?iAS
C3OVERNMENT-WIDE STATEMENT OF NET ASSETS
SEPTEMBER 30, 2003
ASSETS
Current Assets:
Cash and Cash investments
Receivables (Net of Allowance for Doubtful Accounts)
Ad Valorem Taxes Receivable
Accounts Receivable
Court Fines and Fees
Due From Insurance Company
Due From Other Governments
Prepaid Items
Total Current Assets
	Business-	
Govemmental	type	
Activities	Activities	Total
$ 6,443,061	$ 2,118,972	$ 8,562,033
376, 933		376, 933
	290,152	290,152
654,654		654,654
230,964		230,964
415, 554		415, 554
60,843		_ 60,843
8,182,009	2,409,124	10,591,133
Noncurrent Assets:
Cash and Cash Investments
Capital Assets:
Land
Buildings and Improvements
Furniture and Equipment
Construction in Progress
Accumulated Depreciation
Total. Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities:
Accounts Payable
Accrued Interest Payable
Accrued Expenses
Accrued Compensated Absences
Deferred Tax Revenue
Current Portion of Lang Term Debt
Total Current Liabilities
Noncurrent Liabilities:
Accrued Compensated Absences
Long Term Debt
Total Noncurrent Liabilities
Total Liabilities
NET A55ETS
Invested in Capital Assets, Net of Related Debt
Restricted for:
Debt Service
Capital Projects
Other Purposes
Unrestricted
Total Net Assets
411,542 411,542
390,457	107,000	497,457
13,227,992	2,213,671	15,441,663
6,485,129	204,318	6,689,447
-	1,114,862	1,114,862
788,622)	(61$ 166)	(9,406,787)
11,314,956	3,433,228	14,748,184
19,496,965	5,842,352	25,339,317
421,101	27, 087	448,188
38,647	19,433	58,080
270,156		270,156
131, 364	12,802	144,166
298,088		298,088
1, 028,712	165, 000	1,193,712
2,188,068	224,322	2,412,390
		
49, 942	6, 893	56, 835
4,997,182	4,975,000	9,972,182
5,047,124	4,981,893	10,029,017
7,235,192	5,206,215	12,441,407
		
5,289,062	{2,118,314)	3,170,748
209,927	411,542	621,469
	1,615,774	1,615,774
2, 339, B59		2,339,859
4,422,925	727,135	5,150,060
$ 12,261,773	$ 636,137	$ 12,897,910
See accompanying notes to the basic financial statements.
15
KERR COUNTY, TEXAS
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED SEPTEMBER 30, 2003
Functions/Programs
Governmental Activities:
Administration of Justice
Public Safety
Corrections
Health and Human Services
Community and Economic Development
Infrastructure and Environmental
Interest on Long Term Debt
Administration
Total Govemmental Activities
Business-type Activities:
Operating Expenses
Administration
Revenue Bond issuance Cost
Interest on Long Term Debt
Total Business-type Activities
Total
Expenses
$ 2,902,896
3,063,431
1,871,342
929,398
819,979
3,034,189
334,480
2,566,727
15,522,442
1,508,188
125,902
87,275
308,307
2,029,670
$ 17,552,112
See accompanying notes to the basic financial statements.
16
Program Revenues
Operating Capital
Charges Grants and Grants and
for Services Contributions Contributions
$ 1,447,569
115,207
271,280
94,467
4, 000
$ 69,616 $
193,726
58,565
655,292
19,028
676,768
2,609, 291 977,199 19, 028
Net (Expense)Revenue
and Changes in Net Assets
Governmental Business-type -
Activities Activities Total
$ (1,385,711) $	- $ (1,385,711}
(2,754,498)	(2,754,498)
(1,600, 062)	(1,600,062)
(776,366)	(776,366)
(796,951)	{796,951}
(2,378,897)	(2,378,897)
(334,480)	(334,480)
(1,889,959)	(1,889,959)
(11,916,924)	- (11,916,924)
1,808,872 300,686 300,686
(125,902) (125,902)
(87,275) (87,275)
(308,307) (308,307}
1,808,872 - - - (220,798) (220,798)
$ 4,418,163 $ 977,199 $ 19,028 (11,916,924) (220,798) (12,137,722)
General Revenues:
Property Takes Levied
Sates and Other Taxes
imrestment Earnings
Other Income
Taal General Revenue
Change in Net Assets
Net Assets at Beginning of Year
Net Assets at End of Year
9, 008, 966		9, 008, 966
2,124, 099		2,124, 099
95,431	32,082	127,513
1,700, 909		1, 700,909
12,929,405	32,082	12,961,487
1,012,481	(188,716)	823,765
11,249,292	824,853	12,074,145
$ 12,261,773 $ 636,137 $ 12,897,910
17
KERR COUNTY, TEXAS
BALANCE SHEET
GOVERNMENTAL FUNDS
SEPTEMBER 30, 2003
ASSETS
Cash
Receivables
Delinquent Taxes Receivable, Net of
Allowance for Doubtful Accounts
Due from Insurance Company
Due from StatelOther
Tota! Assefs
LIABILITIES
Accounts Payable/Due to Other Offices
Accrued Compensated Absences
and Liabilities
Deferred Tax Revenue
Total Liabilities
FUND BALANCES
Fund Balances
Reserved for Dent Service
Unreserved, reported in:
General Fund
Capital Projects Fund
Special Revenue Funds
Total Fund Balances
Total Liabilities and Fund Balances
	Road and	Nonmajor	Tota!
General	Bridge	Govemmental	Govemmental
Fund	Fund	Funds	Funds
$ 4,562,986	$ 617,099	$ 1,262,976	$ 6,443,061
248,918	33,360	94,655	376,933
230,964			230,964
356,895	3,876	54,783	495,554
$ 5,399,763	$ 654,335	$ 1,412,414	$ 7,466,592
$ 255,013	$ 98,413	$ 67,675	$ 421,101
384,780	15,853	887	401,520
470,072	25,824	65,400	561,296
1,109, 865	140, 090	133,962	1,383, 917
209,927 209,927
4,289,898 4,289,898
37,638 37,639
514,245 1,030,886 1, 545,131
4,289,898 514,245 1,278,452 6,082,595
$ 5,399,763 $ 654,335 $ 1,412,414 $ 7,466,512
See accompanying notes to the basic financial statements.
18
KERB COUNTY, TEXAS
RECONCILtATlON OF THE GOVERNMENTAL FUND BALANCE SHEET'
TO THE STATEMENT OF NET ASSETS
SEPTEMBER 30, 2003
Total Fund Balances -Govemmental Fund $ 6,082,585
Amounts reported for govemmental activities in the statement of net assets
are different because:
Capital assets used in govemmental activities are not financial resources and
therefore are not reported in govemmental funds. Af the end of the year, the
cost of these assets was $20,103,578 and the accumulated depreciation was
$8,788,622. {n addition, long-term liabilities, including bands payable, are not
due and payabie in the current period and therefore are not reported as liabilities
in the funds. The long-term debt was $6,025,885. The net effect of including
the balances for capital assets (net of depreciation) and long-#erm debt in the
govemmental activities is to increase net assets. 5,239,120
Various other reclassifications and accruals are necessary to convert from the
modified accrual basis of accounting to accrual basis of accounting. These
include recognizing deferred revenue as revenue $263,208, retarding court fines
and fees assessed $654,654, accruing interest on long-term debt ($38,647), and
and reclassifying expenses as prepaid $60,843. The net effect of these items
is to increase net assets. 940,058
Net Assets of Govemmental Activities
See accompanying notes to the basic financial statements.
19
$12,261,773
KERR COUNTY, TEXAS
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES 1N FUND BALANCES
GOVERNMENTAL FUNDS
FOR THE YEAR ENDED SEPTEMBER 30, 2003
	General
	Fund
REVENUES	
Ad Valorem Taxes (Including Interest and Penalties)	$ 5,880,558
Other Taxes, Licenses, and Permits	2,124,099
Automobile Registration	
Intergavemmental	498,049
Fines and Forteitures	257,045
Fees of OfFtce	1,549,157
Interest	70,177
Miscellaneous	513,291
Total Revenues	10,892,376
EXPENDITURES	
Current:	
_
General Government	1,816,404
Roads/Bridges Maintenance	
Road District/Park Construction	
Administration of Justice	6,977,762
Health and Welfare Services	801,057
Tax Administration	471,743
Libraries and Education	
Debt Service:	
Principal	162,484
Interest and Fees	4,374
Capital Outlay	213,054
Total Expenditures	10,446,878
Excess (Deficiency) of Revenues Over Expenditures	445,498
OTHER FINANCING SOURCES (USES)
Capital Lease Financing 188,179
Operating Transfers In 7,356
Operating Transfers (Out} {698)
Total Other Financing Sources (Uses) 194,837
Excess (Deficiency) of Revenues and Other Sources Over
Expenditures and Other Uses 640,335
Fund Balances at Beginning of Year 3,649,563
Fund Balances at End of Year $ 4,289,898
See accompanying notes to the basic financial statements.
20
Road and Nonmajor
Bridge Governmental
Fund Funds
$ 543,180
925,351
32,022
679,699
6,361
3,104
2,189,717
$ 2,213,603
524,159
119,167
18,893
i 8,466
2, 894,288
2,071,252
1,9s$
261,878
2,062
268,619
844,805
478,408
30,153
19, 506
151,053
2,271,964
{82,247)
sso,aoo
274,339
914,270
3,906,369
(1,012,081)
698
(7,356}
(6,658)
(82,247)
596,492
$ 514,245
(1,018,739}
2,297,191
$ 1,278,452
Total
Govemmentai
Funds
$ 8,637,341
2,124, 099
925, 351
1,054,230
936,744
1,668,324
95,431
534, 861
15,976,381
1,818, 392
2,333,130
2,062
7,246,381
1,645, 862
471,743
478,408
1,052,637
2se,z19
1,278,377
16,625,211
(648,630}
188,179
8,054
(8,054)
188,179
(460,651)
6,543,246
$ 6,082,595
21
KERR COUNTY, TEXAS
RECONCILWTION OF THE STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES OF GOVERNMENTAL FUND
TO THE STATEMENT OF ACTNlTIES
FOR THE YEAR ENDED SEPTEMBER 30, 2003
Net Change in Fund Balances - Govemmentai Fund $ (460,651)
Amounts reported for govemmental activities in the statement of activities
are different because:
Current year capital outlays and long-term debt principal payments are
expenditures in the fund financial statements, but they should lie shown
as increases in capital assets and reductions in bng-term debt in the
government wide finanaal statemertts. The net effect of removing the 2003
capital outlays $806,970 and debt principal payments $1,052,637 is to
increase net assets.. 1,859,607
Depreciation is not recognized as an expense in govemmenta! funds since it
does not require the use of current financial resources. The net effect of the
current year's depreciation is to decrease net assets. (917,271)
Various other reclassifications and eliminations are necessary to convert from
the modified accrual basis of accounting to the accrual basis of accounting.
These include adjusting current year revenue to show the revenue earned from
the current year's tax levy $356,425, adjusting current year tines and fees col-
lected to show the amount assessed $202,117, to accrue additional expenses
such as interest on long-term debt and compensated absences ($88,589), and
adjust for expenses paid in advance $60,843. The net effect of the reclassifi-
cations and recognitions is to increase net assets. 530,796
Change in Net Assets of Governmental Activities $ 1.,012,481
See accompanying notes to the basic financial statements.
22
i
---~t
KERR COUNTY, TEXAS
STATEMENT OF MET ASSETS
PROPRIETARY FUND
KERR COUNTY JWENILE DETENTION FACILITY
SEPTEMBER 30, 2003
ASSETS
Current Assets:
Gash and Cash Equivalents	$ 2,118,972
Accounts Receivable	290,152
Total Current Arse#s	2,409,124
Noncurrent Assets	
Cash and Cash Equivalents -Reserve Account	411,542
Land	107,040
Construction in Progress	1,114,862
Building and Equipment	2,213,671
Furniture and Fixtures	204,318
Less Accumulated Depreciation	_ X618,165)
Total Noncurrent Assets	3,433,228
Total Assets	5,842,352
LIABILITIES
Current Liabilities:
Accounts Payable	27,087
Accrued in#erest Payable -Lease Revenue Bond	19,433
Accrued Compensated Absences	12,802
Lease Revenue Bond Payable	165,000
Total Current Liabilities	224,322
Noncurrent Liabilities:	
Accrued Compensated Absences	6,893
Lease Revenue Bond Payable	4,975,000
Total Noncurrent Liabilities	4,981,893
Total Liabilities	5,20x,215
NET ASSETS
Investment in Capital Assets, Nei of Related Debt (2,118,314)
Restricted for Project Completion 1,615,774
Restricted for Debt Service 411,542
Unrestricted 727,135
Total Net Assets $ 636,137
See accompanying notes to the basic financial statements.
23
KERR COUNTY, TEXAS
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS
PROPRIETARY FUND
KERR COUNTY JUVENILE DETENTION FACILITY
FOR THE YEAR ENDED SEPTEMBER 30, 2003
OPERATING REVENUES
Charges for Services -Detention Revenue	~ 1,513,023
Other	295, 849
Total Operating Revenues	1,808,872
OPERATING EXPENSES	
Personnel	1,220,959
Residential	131,547
Administrative	38, 898
Facility and Equipment ~	136,804
Other	18,876
Depreciation	89,004_
Tata1 Operating Expenses 1,634,088
Income from Operations 174,784
NONOPERATING REVENUES (EXPENSES)
Interest Income 32,082
Revenue Bond Issuance Costs (87,275)
Interest on Debt {308,307)
Total Nonoperating Revenues (Expenses} (363,500)
Change in Net Assets (188,716)
Net Assets at Beginning of Year 824,853
Net Assets at End of Year ~ 636,137
See accompanying notes to the basic financial statements.
24
i
4CERR COUNTY, TEXAS
STATEMENT OF CASH FLOWS
PROPRIETARY FUND
KERB COUNTY JUVENILE DETENTION FACILfTY
FOR T1iE YEAR ENDED SEPTEMBER 30, 2003
CASH FLOWS I=RON OPERATING ACTNITIES:
Detention Revenue	$ 1,460,532
Other Operating Revenue	329,472
Cash Payments for Detention	(1,529,258}
Net Cash Provided by Operating Activities	260,746
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:	
Proceeds from issuance of Capital Debt -Revenue Bonds	5,140,040
Payoff of Mortgage Debt	(1,946,518)
Interest Paid	(288,874)
Revenue Bond Issuance Costs	{87,275)
Acquisition and Construction of Capital Assets	(1,003,152)
Net Cash Provided by Capital and Related Financing Activities	1,814,181
CASH FLOWS FROM INVESTING ACTNITIES:	
Interest Income	31,826
Net Increase in Cash and Cash Equivalents	2,106,753
Cash and Cash Equivalents at Beginning of Year 423,761
Cash and Cash Equivalents at End of Year $ 2,530,514
.RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED	
(USED) BY OPERATING ACTNtTIES:	
Operating Income	$ 174 784
Adjustments to Reconcile Operating Income to Net Cash Provided	
(Used) by Operating Activities:	
Depreciation	89,004
Changes in Assets and Liabilities:	
{Increase) in Accounts Receivab{e	(18,8fi8)
(Decrease) in Accounts Payable	(3,865}
Increase in Accrued Expenses -Compensated Absences	19,695
Net Cash Provided by Operating Activities	$ 260,746
See accompanying notes to the basic financial statements.
25
KERR COUNTY, TEXAS
STATEMENT OF FIDUCIARY NET ASSETS
SEPTEMBER 30, 2003
ASSETS
Cash and Cash Equivalents
Total Assets
LIABILITIES
Due to ether Govemmentat Units
Total Liabilities
See accompanying notes to the basic financial statements.
26
$ 578,004
$ 576,004
$ 578,004
$ 578,004
i
KERR COUNTY, TEXAS
NOTES TO FINANCIAL STATEhAENTS
SEPTEMBER 30, 2003
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the County are prepared in accordance with Generally Accepted Accounting
Principles (GAAP). GAAP includes all relevant Governmental Accounrting Standards Board (GASB)
pronouncements. In the govemment-wide financial statements and the financia! statements for the
proprietary funds, 1=fnancial Accounting Standards Board (FASB) pronouncements and Accounting
Principles Board opinions issued on or before November 3p, 1989, have been applied unless those
pronouncements conflict with or contradict GASB pronouncements, in which case, GASB prevails. For the
fiscal year ended September 30, 2043, the County imp~mented the financial reporting requirements of
GASB Sta#ement No. 34. As a result, an entirely new feria ,teal presentation format has been implemented.
1.A. FINANCIAL REPORTING ENTITY
The County is an independent unit and is managed by a govecning body of elected officials. The
accompanying financial statements present the County's primary government and a component unit
over which the County exercises significant influence. Significant influence or accountability is
based primarily on operational or financial relationships with the County (as distinct from legal
relationships).
Due to restrictions of the State constitution relating to the issuance of municipal debt, the Kerr
County Juvenile Board created a Public Facility Corporation to finance the acquisition of the
Juvenile Detention Center. This was accomplished by assuming the existing mortgage on the
property. The above service provided by the Pu61ic Facilities Corporation is solely for the benefit of
Ken• County and the Kerr County Juvenile Board. The Public Facility Corporation created to provide
finanang services is blended into the County's primary government; although retaining separate
legal identity.
Component unit reported in the County's comprehensive annual financial report is shown below:
Blended Component Unit
Reported With The Srief Description of Activities and
Primary Government Relationship to the Caunfir Reported Funds
Hill Country Juvenile To provide #inancing for and on irnterprise Fund
Facility Corporation behalf of Kerr County for the
acquisition of eligible con'edional!
detention fadlities and other
public buildings and facflities.
Kerr Courrty Juvenile Board
serves as the Board of Directors.
27
KERR COUNTY, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 3Q, 2003
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1.6 BAS[5 OF PRESENTATION
Government-wide Financial S#a#ements:
The Statement of Net Assets and Statement of Activities display information about the reporting
government as a whole. They include all funds of the reporting entity except for fiduciary funds.
The statemen#s distinguish between governmental and business-type activities. Governmental
activities generally are financed through taxes, intergovernmental revenues, and other nonexchange
revenues. Business-type activities are financed in whole or in part by fees charged to external
parties for goods or services.
Fund Financial Statements:
Fund financial statements of the reporting entity are organized into funds, each of which is
considered to be separate accounting entities. Each fund is accounted for by providing a separate
set of self-balancing accounts that cons#itute its assets, liabilities, fund equity, revenues, and
expenditure/expenses. Funds are organized into three major categories: governmental,
proprtetary, and fiduciary. An emphasis is placed on major funds within the governmental and
proprietary categories. A fund is considered major if it is the primary operating fund of the County or
meets the following criteria.
a. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental
or enterprise fund are at least 1b percent of the corresponding total for all funds of that
category or type; and
b. Total assets, liabilities, revenues, or expenditurelexpenses of the individual governmental
fund or enterprise fund are at least 5 percent of the corresponding total for all governmental
and enterprise funds combined.
The funds of the finanaal reporting entity are described below:
Governmental Funds
General Fund
The General Fund is the primary operating fund of the County is always classified as a major fund.
It is the basic fund of the County and covers all activities for which a separate fund has not been
established.
Special Revenue Funds
Special Revenue Funds are used to account for the proceeds of specific revenue sources that are
legally restricted to expenditures for specified purposes.
Debt Service Funds
The Debt Service Fund accounts for the accumulation of financial resources for and the paymen# of
28
KERR COUNTY, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 1 ~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1.B BASIS OF PRESENTATION (Continued)
principal and interest on general long-term debt of the County other than debt service payments
made by enterprise funds. Ad valorem taxes are used for the payment of principal and interest on
the County's debt.
Capita! Projects Fund
The Capital Projeds Fund is used to account far proceeds of general long-term debt and other
revenues. Expenditures are restricted to the construction and acquisition of major capital faafities.
Proprietary Fund
Enferprise Fund
F_nierprise Funds are used to account for business-{ike activities provided to the general public.
These activities are financed primarily by user charges and the measurement of financial activity
focuses on net income measurement similar to the private sector. All assets and liabilities
associated with an enterprise fund's activities are included on its statement of net assets. The
reporting entity includes the Hill Country Juvenile Facility Corporation.
Fiduciary Funds (Not included in govemment~+ride statements)
Agency Funds
Agency funds account for assets held by the County in a purely custodial capacity. The reporting
entity Includes 36 agency funds. Since agency funds are custodial in nature (.e., assets equal
liabilities), they do not involve the measurement of results of operations.
Major and Nonmajor Funds
The funds are further classified as major ar nonmajor. The major funds are as follows:
Major Fund 8rie# Description
General See above for description.
Special Revenue Fund:
Road and Bridge Accounts for ail road and bridge construction and maintenance
activity.
Proprietary Fund;
Hill Country Juvenile Accounts for activities of juvenile detention facility in providing
Detention Facility long term and short term care, education, and rehabilitation.
Nonmajorfunds consist of special revenue funds and debt service funds and are detailed in the
Combining and Individual Fund Statements -- Nonmajor Funds.
29
KERB COUNTY, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1. C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING
Measurement focus is a terse used to describe "which" transactions are recorded within the various
financal statements. Basis of accounting refers to 'when' transactions are recorded regardless of
the measurement focus applied.
Measurement Focus
On the government-wide Statement of Nets Assets and the Statement of Activities, both
governmental and business-like activities are presented using the economic resources
measurement focus as defined in item b. below.
In the fund financial statements, the "current ftnanaal resources° measurement focus or the
"economic resources° measurement focus is used as appropriate:
a. AD governmental funds utilize a 'current financial resources" measurement focus. Only current
financial assets and liabilifies are generaiiy included on their balance sheets. Their operating
statements present sources and uses of available spendable financial resources during a given
period. These funds use fund balance as their measure of available spendab{e ftnancial
resources at the end of the period.
b. The proprietary fund utilizes an "economic Resources" measurement focus. The accounting
objectives of this measurement focus are the detemsination of operating income, changes in net
assets, financial position, and cash flows. Alt assets and liabilities (whether current or
noncurrent) associated with their activities are reported. Proprietary fund equity is classified as
net assets.
c. Agency funds are not involved in the measurement of results of operations; therefore,
measurement focus is not applicable to them.
Basis of Accounting
In the government wide Statement of Net Assets and Statement of Activities, both governmental
and business-like activities are presented using the accrual basis of accounting. Under the accrual
basis of accounting, revenues are recognized when earned and expenses are recorded when the
liability is incurred or economic asset used. Revenues, expense, gains, losses, assets, and
liabilities resulting from exchange and exchange-like transactions are recognized when the
exchange takes place.
]n the fund financial statement, governmental funds and agency funds are presented on the
modfed accrual basis of accounting. Under this modified accrual basis of accounting, revenues are
recognized revenues when both "measurable and available". Measurable means knowing or being
able to reasonably estimate the amount. Available means collectable within the current period or
within 80 days after year end. Also under the modified accrual basis of accounting, expenditures
(including capital outlay) are recorded when the related fund liability is incurred, except for general
obligation bond principal and interes# which are reported as expenditures in the year due.
30
KERR COUNTY, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 38, 2003
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTINGPOLlCIES (Continued)
1. G. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING (Continued)
All proprietary funds utilize the accrual basis of accounting. Under the accrual basis, revenues are
recognized when earned and expenses are recorded when the liability is incurred or economic asset
used.
1.D. ASSETS, LIABILITIES, AND EQUITY
Cash and Cash investments
For the purpose of the Statement of Net Assets, 'Cash and Cash Equivalents` indudes demand
deposit accounts, certificates of deposit, mutual funds, government investment pools, and fixed
income securities, each with an original maturity date of three months or less, if appGcabte.
Therefore, except for certificates of deposit with maturities in excess of 3 months, ail amounts are
considered available upon demand and are considered to be "cash equivalents"
Several funds may be invested In an investment account and each fund has an equity interest
therein. Interest earned on the investment of these monies is allocated based upon relative equity
at month end.
Receivables
In file government wide statements, receivables consist of alt revenues earned at year-end and not
yet received. Allowances of uncotledible accounts receivab{e are based upon historical: trends and
the periodic aging of accounts receivable. The major receivable balances for the governmental
activities relate to property taxes and court fines and fees. Business-type activities report detention
revenue as its major receivable.
In the fund financial statements, material receivables in governmental funds include revenue
accruals such as property taxes, grants, and other intergovemmentat revenues since they are
usually both measurable and available. Interest and investment earnings are recorded when earned
only if paid within 80 days since they would be considered both measurable and available.
Proprietary fund material receivables consist of ail revenues earned at year-end and not yet
received. Detention revenue from the detained juveniles' respective county represents the majority
of proprietary fund receivables. As these receivables are from other Texas counties, ail amounts
due are considered collectable and there is no allowance for doubtful accounts.
Fixed Assets
'The accounting treatment over property, plant and equipment {fixed assets) depends on whether the
assets are used In governmental fund operations or proprietary fund operations and whether they
are reported in the government-wide or fund financial statements,
Government--wide Statements
In the government-wide financial statements, fixed assets are accounted for as capital assets. All
faced assets are valued at historical cost, or estimated historical cost 'sf actual is unavailable.
3'!
KERR COUNTY, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1.D. ASSETS, LIABILITIES, ANO EQUITY (Continued)
Donated assets are recorded at their estimated fair value at the date of donation.
Pursuant #a GASB Statement Number 34, an extended period of deferral is available before the
requirement to record and depreciate infrastructure assets (e.g., roads, bridges, and similar items}
acquired before the implementation date becomes effective. Therefore, infrastructure assets
acquired prior to October 1, 2082 have not yet been capitalized.
Depreciation of all exhaustible fixed assets is recorded as an allocated expense in the Statement of
Activities, with accumulated depreciation reflected in the Statement of Net Assets. Depreciation is
provided over the assets' estimated useful lives using the straight-line method of depreciation. The
range of estimated useful lives by type of asset is as follows:
Buildings 25 - 50 years
Improvements 10 - 50 years
Machinery and Equipment 3 - 20 years
Infrastructure 25 - 50 years
Fund Financial Statr'rments
In the fund financial statements, fixed assets used in govemmental fund operations are accounted
for as capital outlay expenditures of the governmental fund upon acquisition. Fixed assets used in
the proprietary fund operations are accounted for the same as in the government-wide statements.
Restricted Assets
Restricted assets include cash and inves#ments of the proprietary fund that are legally restricted as
to their use. The restriction relates to the "Reserve Account' required by the Tn~st Agreement
between the Bank of New York Trust Company of Florida, N.A. and the Hill Country Juvenile Facility
Corporation dated November 15, 2002, securing X5,140,000 fiiN Country Juvenile Faality
Corporation Lease Revenue Bonds, Series 2002.
Long-term Debt
The accounting treatment for long-temp debt depends on whether the assets are used in
governmental fund operations or proprietary fund operations and whether they are reported in the
government-wide or fund financial statements.
All long term debt to be repaid from govemmental and business-type resources are reported as
liabilities in the govemment-wide statements- The long-term debt consists primarily of bond and
note payables and capital lease transactions.
Long-term debt for govemmental funds is not reported as liabilities in the fund financial statements.
The debt proceeds are reported as other financing sources and payment of principal and interest
reported as expenditures.
KERR COUNTY, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 1 -SUMMARY OF 51GNIFICANT ACGOUNTING POLICIES (Continued}
9.D. ASSETS, LIABILITIES, AND EQUITY (Continued}
Compensated Absences
Full time and regular part time employees who work 20 hours per week or more are granted
vacation benefits in varying amounts to specified maximums depending on tenure with the County.
Sick leave accrues to full time and regular part time employees to specified maximums.
Accumulated vacation time may be taken in pay upon termination or retirement up to a maximum of
twenty {20} days; however, Phis policy does not apply to accumulated sick leave.
The liability for these compensated absences is recorded as long-term debt in the government-wide
statements. The current portion of this debt is estimated based on historical trends. 1n the fund
finanaal statements, governmental funds report only the compensated absence liabilily payable
from expendable available resources. The proprietary fund reports the liability as it is incurred.
Equity Classifications
Government--wide Statements
Equity is dassifed as net assets and displayed in three components:
a. Invested in capital assets, net of related debt -Consists of capital assets including restricted
capital assets, net of accumulated depreciation and reduced by the outstanding balances of any
bonds, mortgages, notes, or other borrowings that are attributable to the acquisition,
construction, or improvement of those assets.
b. Restricted net assets -Consists of net assets with constraints placed on the use either by (1)
external groups such as creditors, grantors, or laws or regulations of other governments; or (2}
law through constitutional provisions or enabling legislation.
c. Unrestricted net assets -All other net assets that do not meet the definition of `restricted' or
"invested in capital assets, net of related debt"
Fund Statements
Governmental fund equity is dassified as fund balance. Fund balance is further classified as
reserved and unreserved, with unreserved further split between designated and undesignated.
Proprietary fund equity is classified the same as in the government-wide statements.
1.E. REVENUES, EXPENDCfURES, AND EXPENSES
Property Taxes
Property taxes are levied October 1 of each year. The taxes are due by January 31 following the
levy date. Penalties and interest are added for payments made after the January 39due date. The
County bills and collects its own property taxes and those of various other taxing entities.
Calledions of these taxes pending distribution are accounted for in an agency fund.
33
KERR COUNTY, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
1.E. REVENUES, EXPENDITURES, AND EXPENSES (Continued)
In the fund financial statements, property taxes are recorded as revenue in the period levied to the
extent they are collected wifhin 6t) days of year-end. Due to the Immaterial amount of additional
property taxes receivable after the 60-day period, no additional accrual is made in the government-
wide financial statements.
Operafing Revenues and Expenses
Operating revenues and expenses for proprietary funds are those that resu}t from providing services
and producing and delivering goods andlor services. It also includes all revenue and expenses not
related to capital and related financing, noncapital financing, or investing activities.
ExpenditureslFacpenses
In the government-wide finanaal statements, expenses are classified by function for both
governmental and business-type activities.
In the fund financial statements, expenditures are classed as follows:
Governmental Funds - By Character: Current (further classified by function}
Debt Service
Capital Outlay
Proprietary Fund - By Operating and Nonoperating
In the fund financial statements, govemmental funds report expenditures of financial resources.
Proprietary funds report expenses relating to the use of economic resources.
Intertund Transfers
Petrnanen_ t reallocation of resources between funds of the reporting entity are classified as interfund
transfers. For the purposes of the Statement of Activities, all intertund transfers between individual
govemmental funds have been eliminated.
NOTE 2 -STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY
ay its nature as a local government unit, the County and its component unit are subject to various federal,
state, and local laws and contractual regulations. An anatysis of the County's compliance with significant
laws and regulations and demonstration of its stewardship over County resources follows.
2.A. BUDGETARY INFORMATION
The County Judge and staff prepare the proposed budget, using revenue estimates famished by the
County Auditor and submit the data to Commissioners Coast. A public hearing is held on the budget
by Commissioners Court. Before determining the final budget, Commissioners Court may increase
34
KERB COUNTY, TEXAS
NOTES TO FINANCWI. STATEMENTS
SEPTEMBER 30, 2003
NOTE 2 -STEWARDSHIP, CONlpLIANCE, AND ACCOUNTABILITY {Continued)
2.A. BUDGETARY INFORMATION (Continued)
or decrease the amounts requested by the various departments. In the final budget, which is
usually adopted in September, expenditures for current operating funds cannot exceed the
estimated available cash balances in such funds on October 1, plus the estimate of revenues for the
ensuing year. At any time during fhe year, Commissioners Court may increase the budget for
unexpected revenues. Commissioners Court may transfer amounts among individual budget line
items within major expenditure categories during the year, but no such transfer may increase the
overall total of the budget. Formal budgetary integration is employed for the General, Special
Revenue, Dent Service, Capital Projects Funds and Proprietary Fund operations. Budgets for these
funds are prepared on a cash basis. Unused appropriations lapse at the end of each year.
2.B DEPOSITS AND INVESTMENTS t.AW5 AND REGULATIONS
The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in
the areas of investment practices, management reports and establishment of appropriate policies.
Amvng other things, it requires the County to adopt, implement, and publicize an investment policy.
That policy must address the following areas: (1) safety of principa{ and liquidity, (2) portfolio
diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6)
maximum allowable stated maturity of portfolio investments, (~ maximum average dollar-weighted
matursty allowed based on the stated maturity date for the portfolio, (8) investment staff quality and
capabilities, (9} and bid solicitation preferences for certificates of deposit. Statutes authorize the
County to invest in (i) obligations of the ll.S. Treasury, certain U.S. agencies, and the State of
Texas; (2) certificates of deposit, (3) certain municipal securities, (4) money market savings
accounts, (5) repurchase agreements, (6) bankers acceptances, {~ INutual funds, (8) Investment
pools, (9) guaranteed investment contracts, (10} and common trust funds. The Act also requites the
County to have independent auditors perfoml test procedures related to investment practices as
provided by the Act.
The funds of the County must be deposited and invested under the terms of a contract, contents of
which are set out in the Depository Contract Law. The depository bank places approved pledged
securities for safekeeping and trust wish the County's agent bank in an amount sufficient to protect
County funds on a day-to-day basis during the period of the contract. The pledge of approved
securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit
Insurance Corporation ("FDIC' insurance.
For the year ended September 30 2003, the County complied, in alt material respects, with the
requirements of the Public Funds Investment Ad and with local policies.
35
KERR COUNTY, TEXAS
NOTES TO F{NANCWL STATEMENTS
SEPTEMBER 30, 2003
NOTE 3 -DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS
3.A. CASH AND CASH INVESTMENTS
The County's policies and applicable laws regarding deposits of cash and investments are
discussed in Note 1.D. and 2. B. The County's cash and cash investments at September 30, 2003,
are detailed by fldudary account holder and type of account as follows:
Carrying Market Category
Fiduciary/Type of Deposit Value Value Risk
aiovemmerrta! AciSivit/es:
Depository Bank
Demand Deposit Accounts
Banc of America LLC
Money Market Obligations
LOGIC
Liquid Asset Portfolio
Morgan Stanley
Money Market
Corporate Fixed Income
Certificates of Deposit
Maturlttes less than 3 months
MaturRies greater than 3 months
Total Governmental Activities
Business-type Activities:
Depository Bank
Demand Deposit Accounts
Bank of New York Trust Company of Florida, N.A.
Mutual funds:
Nations Treasury Reserves-Payment and
Project Accounts
Nations Treasury Reserves-Resevee Account
Total Business-type Activr~ies
$ 679,225	N/A	1
3,056	3,057	2
1,320,748	1,321,912	
998,785	999,295	2
441,631	444,435	2
572,971	572,780	2
2.426.645
S 6.443.061	2,421,848	2
$ 503,135 N/A 1
1,615,837 1,615,837 2
411.542 411,542 2
2.530.575
The investment in LOGIC is considered a government pool investment. Government pool
investments are not categorized in accordance with GASB Statement No. 3, because they are
not evidenced by securities that exist in physical or book entry form.
36
KERB COUNTY. TEXAS
NOTES TO FINANCIAL STATEMIrNTS
SEPTEMBER 30, 2003
NOTE 3 -DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued]
3.A. CASH ANQ CASH INVESTMENTS (Continued)
The cash and cash investments head can be categorized into three categories of credit risk:
Category 1 - Deposits which are FDIC insured or collateralized with securities held
by the County or by its agent in the County's name.
Investments that are insured, registered or held by fhe County or by
its agent in the County's name.
Category 2 - ~ Deposits which are collateralized with securities held by the pledging
financial insti#ution's trust department or agent in the County's name.
Investments that are uninsured and unregistered held by the
counterparty's trust department or agent in the County's name,
Category 3 - Deposits which are not collateralized.
Uninsured and unregistered investments held by the counterparty, its
trust department, or its agent, but not in the County's name.
in addition, the following is disclosed regarding coverage of combined deposit account balances on
the date of highest deposit at the Depositary Bank, Security State Bank and Trust, Kemrlle, Texas.
The highest combined balances of cash, savings, and time deposit accounts amounted to
$8,860,462 and occur-ed during on February 6, 2003.
b.. The market value of securities pledged as of the date of the highest combined balance on
deposit was 510,289,310.
c. Total amount of FDIC coverage at the time of the highest combined balance was $200,000.
3.B. RE5TRICTED ASSETS
The amount reported as noncurrent cash and cash equivalents in the proprietary fund is restricted
for debt service. This reserve was established by the trust agreement on the issuance of the Hill
Country Juvenile Facility Corporation Lease Revenue Bonds and must remain in this reserve
account at the Rank of New York Trust Company of Florida, N.A. until the final year of payments on
this bond issue.
37
KERR COUNTY, TEXAS
NOTES TO FlNANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 3 -DETAIL NOTES ON TRANSACTION CLASSESlACCOUNTS (Continued}
3.C AD VALOREM TAXES RECEIVABLE
Ad Valorem taxes have been reported in the financial statements net of the allowance for
uncoiledible taxes. Ad Valorem taxes are prorated between maintenance, debt service, and special
revenues based on rates adopted for the year of the levy. Allowances for uncolledible within the
General, Debt Service and Special Revenue Funds are based upon historical experience in
collecting property taxes. The County is prohibited from writing off real property taxes without
specific authority from the Texas Legislature.
Ad Valorem tax payments, received throughout the year, are recognized as revenue in the year
received, except for those received within 60 days after year-end, which are recognized as revenue
as of September 30, 2043.
The following is a summary, by major and nonmajor funds, of the grass taxes, the allowance for
uncolledible taxes, and net taxes receivable.
Allowance For
General Fund
Road and Bridge
Nonmajar Funds
Special Revenue Funds
Public Library
Fire Protection
Indigent Health Care
Debt Service Funds
1998 Tax Anticipation Note
1994 [united Tax General Obligation
Bonds
2001 General Contractual Obligation
Bonds
Total Nonmajor Funds
38
Taxes	Uncaliedible	Net Taxes
Receivable	Taxes	Receivable
$ 339.481	~ 94.563	$ 248.918
46.360	13L400	33.360
23,485	6,265	17,220
13,181	3,516	9,865
27,191	7,254	19,937
25,406	6,777	18.629
30,214	8,060	22,154
9,615	2,585	7.050
129.092	34.437	94.655
~ 514.933	$ 138 000	~' _~~~Q3
iKERR COUNTY, TEXAS
iVOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 3 -DETAIL NOTES ON TRANSACTION CLASSESIACC~UNTS (Continued)
3.D. COURT FINES AND FEES RECEIVABLE
With the implementation of GASB Statement Number 34, the County has determined the amount of
court fines and fees receivable to be $4,270,744 which represents amounts owed and outstanding
for the last 10 years. Based on historical collection rates for the various courts, the County has
booked an allowance far uncollectible court fines and fees of $3,616,090, resulting in a net
receivable of $654,654.
3.E. CAPITAL ASSETS
The following is a summary of capital asset adivity for the year ended September 30, 2003:
Governmental Activities:
Land
Buildings
Equipment
Constn,dion in Progress
Totals at 1•iistorical Cost
Less Accumulated Deprecation
Buildings
Equipment
Total Accumulated Depreciation
Capital Assets, net
Business-type Activities:
Land
Building
Furniture & Fixtures
Construction in Progress
Totals a# Historical Cast
Less Accumulated Depreciation
$uflding
Furniture & Fixtures
Total Accumulated Depreciation
Capital Assets, net
Balances Balances
October 1, September 30,
2002 Ad ' 'ons De etio 2003
$ 390,457 $ $ $ 390,457
13,227,992 13,227,992
5,406,557 1,305,318 226,746 6,485,129
310.169 61fi,532 926.701
19, 335 175 1.921.850 1,153.447 20.103.578
3,688,589 340,090 4,028,679
4.353.891 577,181 171,129 4.759.943
8,042.480 917.271 171,129 8,788,622
$11 12.92.695 ~j _004 579 ~ 11.314.956
$ 107,040 $ $ $ i 07,000
2,213,671 2,213,671
190,965 13,353 204,318
125.063 989,789 1.114.862
2,636.699 1.003.152 - 3,639.851
385,524 73,789 459,313
143,637 15,215 15$.852
529,161 89,004 618.165
$ 2.107.538 ~ ~ $ 3,~?1.B86
39
KERR COUNTY, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2043
NOTE 3 -DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued}
3,F. LONG TERM DEBT
't'he reporting of long-term debt is segregated between the amounts to be repaid from governmental
activities and amounts to be repaid from business-type activities.
Govennmerrtal Activities
As of September 30, 2003, the governmental Fong-term debt consisted of the following:
Nofes and Bonds Payable:
.Limited Tax General Obligation Bonds, Series 1994
Original issue amoun# $ 5,900,000, interest rates of
4.25% to 625%, with final maturity February 15, 2012
Tax Anticipation Notes, Series 1998
Original issue amount $ 2,650,000, interest rates of
3.2096 to 4.00%, with final maturity date August 15, 2005
Public Property Finance Contractual Obligations, Series 2001
Original issue amount $ 990,000,. interest rates of
2.80% to 4.10%, with final maturity date February 15, 2008
TotaE Notes and Bonds Payable
Current Portion
Noncurrent Portion
Total Notes and Bonds Payable
Capital Lease Obligations:
Associates Commercial Corporation
Capital lease obligation far Bobcat Skid Steer Loader dated
April 16, 2001, principal and interest of $3,922.47 payable
annually, effective annual interest rate of 6.569°~, final
payment due April 1, 2005.
Caterpillar Finanaal Services:
Capita{ lease obligation for Motor Grader dated December 18, 2001.
principal and interest of $1,295.00 paid monthly, 'rnterest
rate of 4.82%, final payment December 14, 2006.
Capita{ lease obligation for Motor Grader dated ,€anuary 24, 2002,
principal and interest of $1,295.00 paid monthly, interest
rate of 4.82%, final payment February 21, 2007.
Capital lease obligation for Wheel Loader dated Apri129, 2002,
principal and interest of $ 1,126.50 paid monthly, interes#
rate of 4.40°Yo, finai payment February 25, 2flfl7.
40
$ 3,930,000
840,000
730.000
.,~ 5,500.000
$ 895,000
4.fi05~,000
5.500 QO
$ 7,135
138,791
140,654
78,054
KERR COUNTY, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Accrued Compensated Absences:
Current Portion
Noncurren# Portion
To#al Compensated Absences
isiness-type Activities
I Country Juvenile Faality Corporation Lease Revenue Bonds,
ties 2002, anginal issue amount $ 5,140,000, interest rate
3.00 to 5.5 %, with 11na1 maturity dated February 15, 2023.
Current Portion
Noncurrent Portion
Total Bonds Payable
cruel Compensated Absences:
Current Portion
Noncurrent Portion
Total Compensated Absences
41
NOTE 3 -DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued)
3.F. LONG-TERM DEBT {Continued)
Ford Motor Credit Corporation:
Capital lease obligation far 6 -2001 Crown Victoria Police Sedans,
annual principal and interest paymerris of $ 45,036.20, interest
rate of 4.255°, final maturity Oetaber 23, 2003:
Capital lease obligation for 6 2003 Crown Victoria Police Sedans,
annual principal and interest payments of $53,526.46, interest
rate of 4.65%, final maturity November 4, 2004.
Capital lease obligation for.2003 F~cpedition,
annual prindpal and interest payments of $10,722.46, interest
rate of 4.65°/a, final maturity January 15, 2005.
Total Capital Lease Obligations
Current Portion
Noncurrent Portion
Total Capital Lease obligation
43,200
100,024
20.037
S
$ 133,713
392.182
S ~8
$ 131,364
_ 49.942
~ 181.305
$ 5,140,000
$ 165,000
4.975.000
5.140.000
$ 12,802
6.893
19 695
KERR COUNTY, TEXAS
NOTES TO FINANC{AL STATEMENTS
SEPTEMBER 30, 2043
NOTE 3 - DETA!!_ NOTES ON TRANSACTION CLASSESIACCOUNTS (Continued)
3.1=. LONG-TERM DEBT {Continued}
Changes in ~.ong Term Debt
The change in long-term debt outstanding for the year ended September 30, 2003, is summarized
below:
Type of Debt
Governmental Adiivities:
Notes and Bonds Payable
Capital Lease Obligations
Accrued Compensated
Absences
Total Long-Temp Debt
Business-Type Activities:
Mortgage Note Payable
Lease Revenue Bond
Accrued Compensated
Absences
Total Long-Term Debt
Balance
~ctaber 1,
2002 ~dditlons
$ 6,360,000 $ -
632,578 184,310
49.941
,$ 6992.57$ $ 234.251
$ 1,946,519 $ -
- 5,140,000
6.893
1.946.519 ~1 .~$~
Deductions
$ 860,000
290,993
$ 1,946,519 $ -
- 5,140,000
$.893
5 'i .946,~Q $ 5.146.893
Balance
September 30,
2003
$ 5,500,000
525,895
49.941
$ 8.075.836
Annual Debt Service Requirements
The annual debt service requirements to matuttty, including pRncipal and interest, far long-term debt
as of September 30, 2003, are as follows.
Year Ending
September 30,
2004
2005
2006
2007
2aos
Thereafter
Total
Govemmerttal Activities
Principal Interest
$ 1,028,713	$ 257,943
1,034,818	208,359
566,161	160,780
831,203	126,942
595,000	96,521
1.970.000	172.763
02~
Business-Twe Activities
Princiaal Interest
$ 165,000	$ 247,960
170,000	242,722
175,000	236,679
180,000	229,798
190,000	222,279
4.260.000	2,097.640
$ 5.140.000	$~, l)-Z$
42
KERR COUNTY, TEXAS
NOTES TO FINANCfAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 4 -OTHER NOTES
4.0. RETIREMENT PLAN
Plan Description. Kerr County, Texas provides retirement, disability, and death benefits far 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
far the administration of the statewide agent multiple-employer public employee retirement system
consisting of 509 nontraditional defined benefit pension plans. TCDRS, in the aggregate, issues a
comprehensive annual finanaa! report (CAFR) on a calendar basis. The CAFR is available upon
written request from the TCDRS Board of Trustees at P. Q. Box 2034, Austin, TX 78768-2034.
The County has adopted plan provisions within the options available in the Texas State sta#utes
governing TCDRS {TCDRS Act). Members can retire at ages 60 and above with 8 or more years of
service, uvith 30 years of service regardless of age, or when the sum of their age and years of
service equal 75 or more. Members are vested after 8 years of service but must leave their
accumulated contributons in the plan to receive any employer-financed benefit. Members who
withdraw their personal deposits in a lump sum are not entitled to any amounts contributed by the
Courrty.
Benefit amounts are deterrnined 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
County within the actuarial constraints imposed by the TCDRS Act so that the resulting benefits can
be expelled 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. The County has elected the annually determined contribution rate (variable rate)
plan provisions of the TCDRS Ad. The plan is funded by monthly contributions from both employee
members and the employer based on the covered payroll of employee members. Under the
TCDRS Ad, the contribution rate of the employer is actuarially determined annually. The County
contributed using the actuarially determined rate of 7.52°~6 for the mon#hs of the accounting year in
2002, and 7.9296 for the months of the accounting year in 2003.
The deposi# rate payable by the employee members for calendar year 2002 is the rate of 7%, as
adopted by the County. For calendar year 2003, the employee contribution rate was ?°~_ The
employee deposit rate and the employer contribution rate may be changed by the governing body of
the County within the options available in the TCDRS Ad.
Annual Pension Cost. For the County's accounting year ending September 30, 2003, the annual
pension cost forthe TCDRS plan for its employees was $612,565, and the actual contributions were
$612,565.
The annual required contributions were actuarially determined as a percent of the covered payroll of
the participating employees, and were in compliance with the GASB Statement No. 27 parameters
based on the actuarial valuations as of December 31, 2000 and December 31, 2D01, the basis for
determining the contribution rates for calendar years 2001 and 2002. The December 31, 2DD2
actuarial valuation is the mast recent valuation.
43
KERR COUNTY, TEXAS
NOTES TQ FlNANCIAL STATEMENTS
SEPTEMBER 34, 2003
NOTE 4 -OTHER NOTES {Continued)
4.A. RETIREMENT PLAN (Continued)		
Actuarial Valuation Information	
Actuarial Valuation Date 12/31100	12!31/01	12/31/02
Actuarial Cost Method Entry Age	Entry Age	Entry Age
Amortization Method Level Percentage	Level Percentage	Level Percentage
of Payroll, Open	of Payroll, Open	of Payroll, Open
Amortization Period 20	20	20
Asset Valuation Method Long-Term	Long-Term	Long-Term
Appreciation	Appreciation	Appreciation
With Adjustment	With Adjustment	With Adjustment
Actuarial Assumptions:		
Investment Retum 8%	8°!°	8%
Projected Salary		
Increases 5.9°~	5.5%	5.5%
lnflatton 4.0%	3.5°!°	3.5%
Cost-of-LNing		
Adjustments 0.0%	0.0%	0.4%
Trend Information		
For the Retirement Plan for the Employees of Kerr County, 3exas
Annual Percentage		Net
Accounting Pension Cost of APC	Pension
Year E ina (APC) Coptributed	Obligation
9/30/03 $ 612,565 7.92%	$	0
9/30102 554,728 7.62%		0
9130/01 520,321 7.71 %		0
Schedule of Funding Progress for the Retirement Plan	
Forthe Employees of Kerr Co	unty, Texas	
		UAAL as a
Aduarial Actuarial Actuarial Unfunded		Annual Percentage
Valuation Value of Accrued AAL	Funded	Covered of Covered
date Assets Liability (AAL) (UAAL)	Ratio	Payroll Payroll
(al (b) (b - al (alb,	(c~ ((b-allc)
12131/00 $ 9,244,354 $1D,825,578 $1,581,224	85.39%	$ 6,242.589 25.33%
12/31!01 10,419,991 12,274,777 1,854,786	84.88°l0	6,950,910 26.68%
12131/02 11,344,919 13,455,125 2,110,206	84.32°~	7,493,226 28.16°!°
44
KERR COUNTY, TEXAS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE 4 -OTHER NOTES (Continued
4.6. RISK MANAGMENT
Workers CompensationlEmployers Liability and Unemployment Compensation Fund
The County contracts in the form of interlocat agreements with the Texas Association of Counties
(TAC) to provide the aforementioned types of insurance coverage through an intengovemmental nsk
pool. These multi-employer accounts provide for a combination of modified self-insurance and stop
loss coverage. Contributions are set annually by Texas Association of Counties. Liability by the
County Fs generally Limited to the amounts calculated by the County interlocai agreements.
Self insured Group Medical Insurance
The County has elected to provide group medical benefits io their employees on a partially setf-
funded basis. They have contracted with an outside plan supervisor to administer aU daims
payments. The County sets a specific amoun# of money aside each month and as claims are
submitted to the plan supervisor the County reimburses them when notified. Under this plan the
County is limited to $40,000 per employee per calendar year with an aggregate amount of
$1,402,246 per year. After the deductible and aggregate amount, the balance is paid by a third
party carrier.
4.C. COMMITMENTS AND CONTINGENCIES
Operating Leases
The reporting entity has entered into a number of operating leases, which contain cancellation
provisions and are subject to annual appropriations. For the year ended September 30, 2003, rent
expenditures approximated $132,979 for all types of operating leases. These expenditures were
made primarily from the General Fund.
Grant Program Involvement
In the normal course of operations, the County participates in various federal or state grant
programs. The grant programs are often subject to additional audits by agents of the granting or
funding agency, the purpose of that is to ensure compliance with the specific conditions of the grant.
Any IiabiGty for reimbursement that may arise as a result of these audits cannot be reasonably
determined at this time, although it is believed the amount, if any, would not be ma#erial.
Insurance Receivable
This receivable represents the unreimbursed amount from a health insurance claim paid by the
county on behalf of a County employee.
45
This page intentiunally left blank
APPENDIX D
FORM OF BOND COUNSEL'S LEGAL OPINION
This page intentionally left blank
Draft Date: January 27, 2005
LAW OFFICES
M`CALL, PARKHURST ~ NORTON L.L.P.
717 NORTH HARWOOD 700 N ST. MARY'S STREET 600 CONGRESS AVENUE
NINTH FLOOR 1525 ONE RIVERWALK PLACE 1250 ONE AMERICAN CENTER
DALLAS. TEXAS 75201-6587 SAN ANTONIO. TEXAS 78205-3503 AUSTIN. TEXAS 78701-3248
TELEPHONE 2147549200 TELEPHONE 210225-2800 TELEPHONE 512478-]805
FACSIMILE 214754~925U FACSIMILE 210225-2984 FACSIMILE 512472~OB71
February _, 2005
KERB COUNTY, TEXAS
CERTIFICATES OF OBLIGATION, SERIES 2005
DATED AS OF JANUARY 15, 2005
IN THE AGGREGATE PRINCIPAL AMOUNT OF 52,000,000
AS BOND COUNSEL FOR KERR COUNTY, TEXAS (the "County") in connection with
the issuance of the Certificates of Obligation described above (the "Certificates" ), we have examined
into the legality and validity of the Certificates, which bear interest from January 15, 2005, until
maturity at the rates stated in the text of the Certificates, payable on February 15, 2006, and
semiannually on each August 15 and February 15 thereafter, and maturing in serial installments on
February 15 in each of the years 2006 through 2010, inclusive, all in accordance with the terms and
conditions stated in the text of the Certificates. The Certificates are not subject to optional
redemption prior to maturity.
WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution and
laws of the State of Texas, and a transcript of certified proceedings of the County, and other
pertinent instruments authorizing and relating to the issuance of the Certificates including (i) the
order authorizing the issuance of the Certificates and the subsequent order authorizing and levying
an annual ad valorem tax to secure payment of principal of and interest on the Certificates
(collectively, the "Order"), (ii} one of the executed Certificates (Certificate No. T-1), and (iii) the
County's Federal Tax Certificate of even date herewith.
IT IS OUR OPINION that the Certificates have been authorized, issued and delivered in
accordance with law; that the Certificates constitute valid and legally binding general obligations
of the County in accordance with their terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws now or
hereafter enacted relating to creditors' rights generally; that the County has the legal authority to
issue the Certificates and to repay the Certificates; and that ad valorem taxes sufficient to provide
for the payment of the interest on and principal of the Certificates, as such interest comes due, and
as such principal matures, have been levied and ordered to be levied against all taxable property in
the County, and have been pledged for such payment, within the limits prescribed by law, all as
provided in the Order.
IT IS FURTHER OUR OPINION, except as discussed below, that the interest on the
Certificates is excludable from the gross income of the owners thereof for federal income tax
purposes under the statutes, regulations, published rulings and court decisions existing on the date
of this opinion. We are further of the opinion that the Certificates are not "specified private activity
bonds" and that, accordingly, interest on the Certificates will not be included as an individual or
corporate alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue
Code of 1986 (the "Code"}. In expressing the aforementioned opinions, we have relied on certain
representations, the accuracy of which we have not independently verified, and assume compliance
with certain covenants, regarding the use and investment of the proceeds of the Certificates and the
use of the property financed therewith. We call your attention to the fact that if such representations
are determined to be inaccurate or upon a failure by the County to comply with such covenants,
interest on the Certificates may become includable in gross income retroactively to the date of
issuance of the Certificates.
Kerr C:ounrl~, Tuxus Cer7ificutes of Obligution, Series 2005
Februurv _, 2005
Pine 2
WE CALL YOUR ATTENTION TO THE FACT that the interest ontax-exempt obligations,
such as the Certificates, is (al included in a corporation's alternative minimum taxable income for
purposes of determining the alternative minimum tax imposed on corporations by section 55 of the
Code, (b) subject to the branch profits tax imposed on foreign corporations by section 884 of the
Code, and (c) included in the passive investment income ofan S corporation and subject to the tax
imposed by section 1375 of the Code.
EXCEPTASSTATED ABOVE, we express no opinion as to any other federal, state or local
tax consequences of acquirin~~, carrying, owning or disposing of the Certificates.
OUR SOLE ENGAGEMENT in connection with the issuance of the Certificates is as Bond
Counsel for the County, and, in that capacity, we have been engaged by the County for the sole
purpose of rendering an opinion with respect to the legality and validity of the Certificates under the
Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of
the interest on the Certificates for federal income tax purposes, and for no other reason or purpose.
The foregoing opinions represent our legal judgment based upon a review of existing legal
authorities that we deem relevant to render such opinions and are not a guarantee of a result. We
have not been requested to investigate or verify, and have not independently investigated or verified,
any records. data, or other material relating to the financial condition or capabilities of the County,
or the disclosure thereof in connection with the sale of the Certificates, and have not assumed any
responsibility with respect thereto. We express no opinion and make no comment with respect to
the marketability of the Certificates, and we have relied solely on certificates executed by officials
of the County as to the current outstanding indebtedness of, and assessed valuation of taxable
property within, the County. Our role in connection with the County's Official Statement prepared
for use in connection with the sale of the Certificates has been limited as described therein.
OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such
opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to
update or supplement our opinions to reflect any facts or circumstances that may 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 a result 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 ta.x purposes. No assurance can be given whether or not the Service will
commence an audit of the Certificates. 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 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 Certificates as
includable in gross income for federal income tax purposes.
Respectfully,
..
.;
r
RBC
Dain Rauscher
Member NYSEISIPC