1 2 3 4 5 6 7 8 KERR COUNTY COMMISSIONERS COURT 9 Special Session 10 Thursday, February 3, 2005 11 11:00 a.m. 12 Commissioners' Courtroom 13 Kerr County Courthouse 14 Kerrville, Texas 15 16 17 18 19 20 21 22 23 PRESENT: PAT TINLEY, Kerr County Judge H. A. "BUSTER" BALDWIN, Commissioner Pct. 1 24 WILLIAM "BILL" WILLIAMS, Commissioner Pct. 2 JONATHAN LETZ, Commissioner Pct. 3 25 DAVE NICHOLSON, Commissioner Pct. 4 2 1 I N D E X February 3, 2005 2 PAGE 3 1.1 Order authorizing the Issuance, Sale and Delivery of "Kerr County, Texas Certificates of Obligation, 4 Series 2005", providing for the future authorization of the levy of an annual ad valorem tax to secure 5 the payment thereof; approving and authorizing the execution of all instruments and procedures related 6 thereto including a Paying Agent/Registrar Agreement and a Purchase Agreement; Approving the form of an 7 Official Statement; and providing for an immediate effective date -- 8 1.2 Consider and discuss authorizing County Judge to 9 execute any and all necessary documents on behalf of Kerr County to complete the purchase of the 10 Juvenile Detention Facility and issuance and sale of Certificates of Obligation, delivery of funds 11 to existing bondholders, and obtaining any necessary or required releases from bondholders, Trustee(s) 12 and/or others -- 13 --- Recessed until February 4, 2005, at 3 p.m. 29 14 15 16 17 18 19 20 21 22 23 24 25 3 1 On Thursday, February 3, 2005, at 11:00 a.m., a special 2 meeting of the Kerr County Commissioners Court was held in the 3 Commissioners' Courtroom, Kerr County Courthouse, Kerrville, 4 Texas, and the following proceedings were had in open court: 5 P R O C E E D I N G S 6 JUDGE TINLEY: Let me call to order the 7 special Commissioners Court meeting scheduled for this time 8 and date, Thursday, February the 3rd, 2005, at 11 a.m., and 9 properly posted for such time and date. The meeting was 10 scheduled in anticipation that the Consent and Release 11 Agreement, draft of which was approved by the Court last 12 week, would be fully executed by all the other parties and 13 we'd have confirmation of that in-hand by Tuesday, that -- 14 last Tuesday, that we could have gone into the marketplace 15 yesterday to get the certificates subscribed and priced, 16 and -- and that we could meet today and take the final 17 action. I am -- I am sad to report that we are still 18 waiting on the confirmation of all of the signatories. As 19 of this morning, it was reported to me that verbally it had 20 been confirmed that we had all but one, and that it was in 21 process. My response to our bond counsel and the financial 22 people that are assisting us in this transaction is that 23 I -- I wanted confirmation that -- that we can see, at least 24 by facsimile, that all of those signatures have, in fact, 25 been obtained before our financial people go into the 2-3-05 4 1 marketplace to get the issue priced and subscribed, and 2 they're working on that now. 3 That being the case, obviously, we haven't 4 been in the marketplace, so we're not in a position to move 5 forward with the agenda items that we have here today for 6 the issuance for the Certificates of Obligation. My 7 proposal would be, because of the time frame they tell me 8 they're going to have this ready, would be that we recess 9 this meeting until 11 o'clock tomorrow morning, and 10 hopefully we can finalize it all then. That's the best I 11 can do for you, gentlemen. We just -- we don't have it 12 in-hand so that we can -- the financial people could not 13 move forward without those in-hand. 14 COMMISSIONER WILLIAMS: I think all 11 have 15 to be in place before we do. 16 JUDGE TINLEY: Mm-hmm. 17 COMMISSIONER LETZ: Judge, could we recess to 18 an earlier or later time? 19 COMMISSIONER BALDWIN: You just don't like 20 11:00? 21 COMMISSIONER LETZ: Just don't like 11:00. 22 COMMISSIONER WILLIAMS: I'm available anytime 23 during the day. Let's see what the Commissioner needs. 24 COMMISSIONER NICHOLSON: I'm tied up between 25 1:30 and about 2:30 or 3:00. 2-3-05 5 1 COMMISSIONER LETZ: I mean, is there a 2 question that they may not be ready until sometime tomorrow 3 morning? 4 JUDGE TINLEY: That's possible. They're 5 hopeful they can go into the marketplace this afternoon if 6 they get everything in-hand later on this morning, and we 7 get confirmation that we have all of the signatures that -- 8 that we -- that we've got to have; that they can go into the 9 marketplace this afternoon, and that way it could be 10 finalized in the morning. However, it's possible that it 11 may be on into this afternoon before we can confirm that, 12 and they're not able to go into the marketplace until in the 13 morning, which would put us in the afternoon. 14 COMMISSIONER WILLIAMS: The afternoon, then. 15 Is afternoon better for you? 16 COMMISSIONER LETZ: What time will you be 17 free? 2:00? 2:30? 18 COMMISSIONER NICHOLSON: I'll be through by 19 about 2:30. 20 JUDGE TINLEY: Talking about 3 o'clock? 21 COMMISSIONER LETZ: 3 o'clock. 22 COMMISSIONER WILLIAMS: 3:00 works. 23 JUDGE TINLEY: Okay. 24 COMMISSIONER NICHOLSON: I've got a question, 25 maybe more than one. Maybe it takes the County Attorney to 2-3-05 6 1 answer it, and maybe that could be done between now and 2 tomorrow. And the question is, what are the consequences of 3 not approving the Texas Certificates of Obligation? We'd be 4 out of the -- I assume one of the consequences is we'd shut 5 down the Juvenile Detention Facility, or the owners of it 6 would, and we'd be out of this business. The question is, 7 are there any other consequences to the County about not 8 following through on this deal? And the reason I'm 9 wondering that is because -- well, the background is, you'll 10 recall that when we had the opportunity to take over the 11 $5 million debt, I didn't want to do that, and I don't think 12 any of us did. When we made the $1.75 million offer, I 13 voted against that. When we made the $1.9 million deal, I 14 voted against that. And all those were because I didn't 15 think it was in the best interests of the taxpayers; that I 16 thought that it would be -- that operation of it would be a 17 continuing burden on the taxpayers. 18 Subsequent to that, the situation appears to 19 have deteriorated to me. Subsequent to that, based on 20 research done by two of our commissioners, some of the 21 assumptions that we made in trying to make up our mind 22 whether or not we wanted to own that appear to be -- be 23 incorrect; that the situation -- the financial situation was 24 even worse than we thought it was. So, that's the reason 25 I'm wanting to know what would happen -- what's the 2-3-05 7 1 consequences to the County if we don't follow through and 2 don't make this deal? 3 COMMISSIONER WILLIAMS: Well, the financial 4 situation -- your comment about the financial situation 5 being even worse than we thought, you mean up until 6 September? Or from this point forward? 7 COMMISSIONER NICHOLSON: Well, I -- I thought 8 that -- again, looking at the problems that that facility 9 has encountered, it's essentially gone belly-up twice 10 because it couldn't meet its financial obligations, and I 11 thought one of the reasons that it went -- went south this 12 time was because the State changed the payments it made for 13 housing children. And it now appears that that did not have 14 an impact on the revenues of the facility; that at no time 15 did we charge -- did the facility charge as much as the 16 State allowed. So, if -- if our assumptions about what went 17 wrong are incorrect, then how can we expect to make changes 18 in the way it's managed in the future? To -- to prevent it 19 from -- 20 COMMISSIONER WILLIAMS: Commissioner, I'd 21 submit to you that a lot of the answers to the questions, 22 yours and any other -- any that the rest of us have, will be 23 revealed in an audit, and I'm going to pursue that audit. 24 COMMISSIONER NICHOLSON: I'd like -- you gave 25 me a document that had 19 questions on that thing. I'd like 2-3-05 8 1 to have the answers to those, but I'm not going to have them 2 by tomorrow. 3 COMMISSIONER WILLIAMS: No, we won't have 4 them by tomorrow, but that's going to tell us some of the 5 ills, and I suggest it's going to tell us some of the 6 management problems that they failed to address properly, 7 which should give us the ability to have a roadmap and go 8 forward. That's the way I see it, personally. 9 COMMISSIONER LETZ: Let me add something to 10 that also, and I -- and this is just a little bit more of a 11 historical perspective. Both times that it's gone belly-up, 12 management was a big key component of the issue. The first 13 time it was, and it appears, the more we've looked into the 14 -- some of the things this time, you know, there's some 15 things this last time as well on the management side. And 16 what I'm referring to -- well, the first time, I really 17 don't know what happened, but I know it was mismanaged by 18 the guy from Florida; I can't remember the guy's name any 19 more, thank goodness. But, anyway, there was a lot of 20 management problems that time. This time, the facility was 21 in the black from the first time the County took it over up 22 until 2001 or so. 23 COMMISSIONER WILLIAMS: Through 2002. 24 COMMISSIONER LETZ: Yeah, but -- well, it 25 started going -- it started -- it was -- you know, started 2-3-05 9 1 -- anyway, whenever. It ran in the black for quite a period 2 of time, you know, eight years or so. Then some things 3 happened and it started going the other direction. You 4 know, I think the audit will answer a lot of that. And I 5 think it was a -- some decisions that were made in the 6 management, and some licenses, and kids that were attracted. 7 I mean, there's lots of things, and I don't think I 8 understand exactly, but it appears to me that the facility 9 could come very close to break even, slight loss. And, in 10 my opinion, the loss, if there is one, in the future will be 11 less, or certainly no more than we're going to have to add 12 in additional expenditures. 13 COMMISSIONER NICHOLSON: That -- 14 COMMISSIONER LETZ: And that's -- 15 COMMISSIONER NICHOLSON: That's my hope. 16 COMMISSIONER LETZ: And that's my hope too. 17 COMMISSIONER NICHOLSON: If we can come out 18 that good, that's good enough. 19 COMMISSIONER LETZ: That's good. And that's, 20 you know, where I have been the entire process. I mean, 21 the -- I think the second time there were some problems, my 22 perspective is that at first I thought it was the State's 23 fault. Now I think maybe it was more an internal management 24 problem, from what Commissioner Baldwin and Williams found 25 out. But I still think that if you look at the numbers 2-3-05 10 1 going forward, it does come very close to breaking even. 2 And, like I say, I think it'll be -- the differential is no 3 more, hopefully; I think it will be less than not having a 4 facility in Kerr County for Kerr County youth, just in the 5 preadjudicated side. And if we can keep it for 6 post-adjudication as well -- 7 COMMISSIONER WILLIAMS: I -- 8 COMMISSIONER BALDWIN: Well, I -- 9 COMMISSIONER WILLIAMS: Sorry, go ahead. 10 COMMISSIONER BALDWIN: -- have some comments 11 to make that are parallel to Number 4's comments. And I 12 don't know if you all have noticed or not, but I voted no 13 against this thing from day one, and will continue to do so. 14 And I want to let you know how I arrived at that no vote. I 15 used -- one of the things I did is I used a tool that I'm 16 sure that we all have used. I sat down with a piece of 17 paper and I wrote a column of positives and a column of 18 negatives, and the negatives outweighed the positives 19 probably six-to-one. And I just couldn't -- just -- it just 20 doesn't work for me. Now, at the top of that list, I feel 21 like that the public needs an explanation from somebody of 22 what truly happened with their money. What has caused the 23 County's credit to go bad? What has caused us -- since 24 September, we have put in probably in excess of $200,000 to 25 prop the thing up. You know, what has caused that? And I 2-3-05 11 1 think -- I think the public -- the taxpayers that are paying 2 for this thing deserve an explanation. 3 And all we've heard so far is the State 4 changed their funding. Well, a couple of weeks ago I went 5 to Austin, and -- and Commissioner Williams was with me, and 6 we sat down with the -- one of the directors of the agency 7 and their lawyer and some other guy, and they explained to 8 us in detail that the State did not change the funding. The 9 funding had -- didn't -- didn't affect what happened to the 10 juvenile facility in any way. We also heard that Advocacy, 11 Inc. was a part of the downfall of the facility. I've been 12 around that group for a number of years. Back when I worked 13 for the House of Representatives, they -- they were real big 14 in the state, and they functioned mostly with state 15 hospitals, was their -- was their gig. They were in and out 16 of state hospitals all the time. And just recently, in the 17 last couple of years, they have started getting into 18 juvenile detention facilities and adult facilities and those 19 kinds of things. 20 Now, one of the -- one of the problems with 21 all of that is that, as they told Bill and I in Austin, that 22 Advocacy, Inc. approached Harris County, just like they did 23 us, and what Harris County said to them is, "The door is 24 open. Please come in and do what you need to do." They 25 came in and were gone within 48 hours. Did their report -- 2-3-05 12 1 found some things wrong, did the report, out the door, and 2 haven't seen them since. They were there 48 hours. They've 3 been here for, I think, maybe years now, plural. See, and 4 I -- I don't -- we don't like those agencies; I understand 5 that clearly. However, they have come -- they came into our 6 juvenile facility and they found some things wrong. I think 7 maybe some kind of abuse was a part of that as well. Well, 8 I'm -- I'm grateful for that. I'm glad that they came in 9 and found those problems. It's caused us to fix some 10 things. I don't see that as a bad thing. I see that as a 11 good thing. 12 Now -- and I understand they're still here, 13 because we had -- we had first told them, "No, you cannot 14 come into our facility; we don't want you in here," and 15 fought them. Well, I think it's a normal attitude if 16 somebody tells you, "No, you can't come in and take a peek 17 at anything," then they're really going to knock the door 18 down to get in. So, I think that we fought against them and 19 fought against them, and even hired attorneys to fight 20 against them, and -- and probably in our next set of bills, 21 there will be another bill for attorney fees in excess of 22 $6,000 from the firm out of Austin that was a part of that, 23 fighting against Advocacy, Inc., trying to keep them out of 24 our facility. Well, that -- that kind of stuff just doesn't 25 make sense to me. I think that we're purchasing a facility 2-3-05 13 1 that is falling down. We were all out there recently at the 2 grand opening just recently, and -- and the way I understand 3 it, the pumps won't even pump the sewer out of the place. I 4 mean, we're buying a facility that appears to me it's 5 falling down around our ears. 6 Another area that we haven't resolved is this 7 salary issue. That is a huge issue to me. We have our -- 8 the director at the juvenile facility has a salary of 9 $65,000 a year. Our Sheriff makes $58,000 a year. That's 10 around 7,000 bucks difference. Well, once we get this thing 11 done, you can rest assured that the Sheriff's going to be in 12 here wanting not -- not equal pay, but more pay. He runs a 13 large facility. The juvenile facility is a small facility. 14 Those kind of things, in my mind, need to be done, fixed, 15 and out of the way before we actually make a purchase, not 16 after we make a purchase. We're talking about spending 17 $2 million here. As soon as this thing is done and gone, 18 the Sheriff will be in here wanting $2 million to add 48 19 beds to his facility. 20 Now, I've been here long enough where I've 21 seen both of those issues come and go, and I can tell you 22 right now that the -- the public demands that we get bad 23 people off the streets and lock them up, protect their 24 property and their lives. So, when this jail issue hits, we 25 have never seen the public get riled up like they do over a 2-3-05 14 1 jail issue. It gets -- it can get really ugly. And on top 2 of that, funding -- county funding -- not just us, but every 3 county across the state, funding is -- money's getting 4 tight. We have the over-65 freeze. There's a new bill 5 floating around Austin right now of putting caps on -- on 6 the appraisals, and just all kinds of little things 7 happening that is going to make -- we're not going to be -- 8 we're not going to have the money that we've had in previous 9 years to throw around like that. So, I just think that we 10 need to be a little bit more careful. 11 Now, mother always said, "Don't present a 12 problem without a solution." And she's also the same mother 13 that said, "You can't be all here if you're not all there." 14 But I -- I have a solution. I think that we should 15 reconsider purchasing the juvenile facility, and get with 16 the Sheriff and see what his needs are. He's talking about 17 $2 million for a 48-bed expansion, and I think that, on that 18 same property that we already own where the jail sits, 19 there's plenty of room for a small preadjudicated juvenile 20 detention facility. And Commissioner Letz is correct, the 21 thing did operate in the -- in the black at one time, and 22 that's when it was a small preadjudicated facility. It 23 broke even, and at times actually made a little money. So, 24 if we could expand the jail at one time and build a small 25 preadjudicated facility out there on that same property, and 2-3-05 15 1 do the bonds to where the people actually vote and approve 2 or disapprove, I think that that is the best route to go for 3 the taxpayers of Kerr County. I think that that whole bond 4 issue would be somewhere around $3 million, as opposed to -- 5 we're fixing to spend four. And we know what we have. We 6 have a facility that can operate in the black, and we own 7 it. We know what we've built, and we'll know that we have a 8 building that's going to stand up and we can pump sewer out 9 of the -- out of the facility, et cetera and so forth. 10 That's all I have to say. 11 COMMISSIONER LETZ: You said a lot. 12 COMMISSIONER BALDWIN: It was a lot, wasn't 13 it? 14 COMMISSIONER LETZ: And I don't disagree with 15 a lot of what Commissioner Baldwin says. I think the 16 difference comes into, you know, how you proceed. I mean, I 17 think we, as a county, have been very fortunate for a number 18 of years to have a -- a facility that did break even or run 19 in the black, and we got used to having a detention facility 20 making money. That's not the norm in the state, and we 21 shouldn't really expect it. I think that's -- that's a key 22 component. We spend -- just look at our budget, how much we 23 spend at the Kerr County jail each year. And, you know, 24 that we should expect a juvenile facility to run in the 25 black when we let that -- that -- have a jail that runs in 2-3-05 16 1 the -- huge, huge sums in the red, you know, that's not 2 reality. So, I think that, you know, it's somewhat 3 unreasonable to expect it to run in the black. That's why I 4 always say, you know, let's cut the losses as much as we 5 can. If it runs in the red, it runs in the red. There's 6 expenses of having a facility or not having a facility in 7 the county. I think it's clearly a preference from everyone 8 I've talked to to have a facility in the county. 9 I think Commissioner Baldwin has some good 10 ideas. I would question whether we could add onto the jail 11 and build a juvenile facility out there for $3 million. I 12 haven't looked at the numbers; maybe he has. But the 13 problem that I see right now that -- if we don't proceed 14 with where we're going, one, you know, we've run out of 15 time. We've been working on this for going on six months 16 now, and we have to make a decision. And I have to make a 17 decision, as each member of the Court does, and I think it's 18 best to proceed with the sale. I can almost -- and if we 19 don't, I can also say there's another down side to that that 20 no one has mentioned, which I suspect we will have 21 litigation, without question, from a number of parties if we 22 cancel this thing at this time, including all bondholders, 23 trustee -- and the trustee. And, you know, that litigation 24 has to be considered. 25 And I think it could easily -- you know, who 2-3-05 17 1 knows how much that could run up into? Not that I'm going 2 to make a decision based on threatened litigation. We get 3 sued frequently and are always in lawsuits, it seems. But I 4 -- I still think it's the best way to proceed. I think that 5 the -- you know, there is -- the whole state funding or not 6 funding or funding cuts issue, in my mind, is almost a 7 positive. We can fix management issues locally. We can't 8 fix funding issues out of Austin locally. So, I think that 9 there is even a -- in my mind, a greater potential of it 10 coming close to breaking even and, you know, being able to 11 narrow the problems into more of the management side, from 12 what I can tell. But, anyway -- 13 COMMISSIONER NICHOLSON: Mr. Emerson, could I 14 just -- before you got in here, we decided -- I think we 15 decided we were going to recess until 3 o'clock tomorrow for 16 some procedural reasons. And I raised a question about if, 17 tomorrow, we did not approve the certificates of obligation, 18 what would be the consequences to the County, aside from the 19 facility being shut down? Twenty-four hours is not much 20 time, but if you could think about that between now and 21 then -- 22 MR. EMERSON: Are you talking about from a 23 legal perspective? Or -- 24 COMMISSIONER NICHOLSON: Yes. I don't know 25 what I'm talking about, but that's -- I know enough to ask 2-3-05 18 1 the County Attorney. And then it was just -- the audit 2 thing just keeps being at loose ends. One of the -- a 3 definition of insanity is doing the same thing twice and 4 expecting a different outcome, and it looks like we've done 5 the same thing twice already out there. And we need to -- 6 to know what the situation is so we can cure that in the 7 future, so we won't make the same mistakes we made in the 8 past. And I don't have a good feeling that we're going to 9 get an audit that produces answers to the questions that 10 we've raised. Who am I looking for to give me answers to 11 those questions? Is it Tommy? 12 COMMISSIONER WILLIAMS: Well, first of all, 13 let me see if I can address that question, and then I want 14 to jump in on what Commissioner Letz said. First of all, 15 I've said it before and I'll continue to say it; an 16 independent audit of the years 2002, -3, and -4 is 17 necessary. It's necessary for a lot of reasons. It is 18 necessary primarily to answer the point that Commissioner 19 Baldwin made. I think the public deserves to know exactly 20 what took place in that facility and how $800,000-plus in 21 revenue, reserves, and cash flow have dissipated to the 22 point that the Commissioners Court had this bomb put on it 23 in September. And the only way those answers are going to 24 be forthcoming is to pose questions that -- those that have 25 already been posed and others that may come from that, and 2-3-05 19 1 have an independent auditor take a look at that. 2 There will be an agenda item, I promise you, 3 on Monday, the 14th, to ask the Court to authorize the 4 independent auditor who is in the building now doing his 5 county-wide audit to examine in-depth those questions and 6 other questions for the years 2002 -3, and -4. Okay. From 7 that, we're going to get some -- we're going to get some 8 answers, and hopefully the public will get some of the 9 answers that Commissioners Baldwin and all of us believe the 10 public deserves to have. Also, it should provide for us 11 somewhat of a roadmap, and should provide for us some 12 answers to questions which seem to be out there ethereally 13 about what may have happened and what may not have happened. 14 I'll give you another example, following up 15 on the point that Commissioner Baldwin made in terms of 16 funding. There are a lot of things that happened that 17 reduce funding. Not only the allegation that the State 18 changed funding levels, but what happened to the grants that 19 came up. I know from an e-mail I got yesterday that $75,000 20 worth of grants that flow through the Governor's office 21 through AACOG to here were discontinued. Some of them were 22 eligible to have reestablished. Some of them may have 23 already been reestablished, but the fact of the matter is, 24 we lost $75,000 worth of cash flow in grants. Why? I don't 25 know the answer. You and I need to know the answer. The 2-3-05 20 1 public needs to know the answer. That's a management thing. 2 I think there are a lot of things that are going to fall on 3 management in this facility, and it behooves us to make 4 certain that that happens. So, we'll have an opportunity to 5 determine whether you want to do an audit on Monday, 'cause 6 I promise you, it will be on the agenda. 7 Secondly, I think Commissioner Letz' points 8 are valid. I don't know if the train has left the station, 9 but there are a lot of reasons to suggest that we don't have 10 the alternative -- a major alternative other than to proceed 11 the way we're going to proceed. I think we have -- while we 12 took sight of or are cognizant of the expenses involved in 13 taking care of our kids elsewhere, those are ongoing 14 expenses. They are an obligation of Kerr County, just like 15 it's an obligation of Kerr County to take lawless people off 16 the streets and put them in our jail. I'm not certain that 17 building a preadjudicated facility on -- on the jail grounds 18 is the answer. We have a preadjudicated and a 19 postadjudicated facility, and we have both kinds of 20 juveniles who we must take care of. Pre, I think when they 21 come off the street and the Judge has to get to see them, 22 and whatever that sentence is that keeps them off the street 23 till they rehabilitate their lives sufficiently to be 24 released, that's our obligation. I'd like us to fulfill 25 that obligation here, not somewhere else. And I believe we 2-3-05 21 1 have the opportunity now, through our current management, to 2 check the issues of the past, to develop the programs that 3 get us very close to black, if not black, and -- and to move 4 forward in taking care of our own youth. 5 Building problems, we'll address those 6 building problems. The one that we inherited from Recor, it 7 was built on the cheap. Everybody knows that. They did it 8 to get in the business real quick for profit motivation. 9 Okay, so that's the building we got. The building that we 10 built, we thought we'd built it better, but maybe we did, 11 maybe we didn't. But the County Attorney's going to 12 resolve, along with our management, the issues regarding 13 that building. So, we have a facility. I think the last 14 thing I need to say in support of what Commissioner Letz 15 said was, while we -- the threat of litigation is not a 16 reason to do or not to do something, I think we should not 17 overlook the possibility that if the bondholders don't get 18 some satisfaction from this thing, the way we had pledged to 19 do and negotiated and negotiated, honest-to-goodness 20 fashion, we'll be seeing them back in the courtroom again 21 another day, and so will the County Attorney. So, as far as 22 I'm concerned, I think we're on a path that brings us to a 23 solution that, over the longer haul -- not the immediate 24 haul, but the longer haul -- will be beneficial, and this 25 Court and subsequent Courts can look back and say, yeah, 2-3-05 22 1 that was a good decision. Troublesome, problematic, 2 emotional, but over the long haul, good. And that's where I 3 am. 4 COMMISSIONER LETZ: See you at 3 o'clock? 5 COMMISSIONER BALDWIN: Yeah. 6 JUDGE TINLEY: Well, at this stage, 7 gentlemen, the Court has approved the Consent and Release 8 Agreement subject to the confirmation that's been signed by 9 the other parties, and that's where I stand, and that's 10 where we are. And -- 11 MS. KAHANT: Could I speak to the Court? Is 12 that out of -- out of bounds? 13 JUDGE TINLEY: On this issue? 14 MS. KAHANT: Yes. 15 JUDGE TINLEY: Yes, ma'am. Come forward, 16 please, and identify yourself. 17 MS. KAHANT: My name is Carolyn Kahant. 18 COMMISSIONER WILLIAMS: Carolyn what? 19 MS. KAHANT: Carolyn Kahant. Does this work? 20 COMMISSIONER LETZ: Yes, it's on. 21 MS. KAHANT: I've been attending some of 22 these meetings and trying to follow this issue, and one 23 thing I did want to mention today is that I find it 24 difficult to understand how this audit was proposed over a 25 month ago, or maybe longer, and we are going ahead with the 2-3-05 23 1 purchase and with -- which is going to involve raising some 2 taxes, and yet the audit still hasn't taken place. And it 3 was -- I understand February 14th, we're going to begin the 4 audit? Is that correct? 5 COMMISSIONER WILLIAMS: Authorize it. 6 MS. KAHANT: Authorize the audit. Well, it 7 seems like the audit and -- and some other investigation 8 should have taken place and needed to take place before the 9 purchase is done, not after. So, that's a point I wanted to 10 make. I don't think the taxpayers are understanding 11 everything that's going on with this. Maybe it's their own 12 fault, but I just think this -- and what I hear today is 13 that, "Well, we've gone this far; we can't go back now." 14 And I'm really pleased to hear two Commissioners bring up 15 the possibility, or the -- to say let's question what we're 16 doing before we go all the way over the cliff here. So I 17 understand the difficulty with -- the pledge has been made 18 to the bondholders, et cetera. But I'm very concerned, and 19 -- and I know that -- I'm with the group that has sent a 20 request to the Court, and signed by about eight or -- eight 21 of us or so, asking for this particular audit and two other 22 things to be done, and yet we didn't -- we don't hear 23 anything about that. And it just seems to me, and I think I 24 represent a lot of other people's -- citizens' feelings, 25 that this has been -- this is being done perhaps for reasons 2-3-05 24 1 other than what we know or what are stated, and that it's 2 being pushed through, and there is a lot of questions that 3 are not answered. And you're going to say, "Well, we're 4 going to answer these questions," but the questions are 5 going to be answered after the fact. So, thank you for 6 listening to that. 7 JUDGE TINLEY: Thank you, ma'am. 8 COMMISSIONER LETZ: Judge, I want to make a 9 brief comment to -- is it Kahan? 10 MS. KAHANT: Kahant, with a T. 11 COMMISSIONER LETZ: Kahant. The comment she 12 made. That I think the audit issue is not something that, 13 you know, happened just a month ago. We've -- since this 14 first came up, I think this entire Court has been looking at 15 what -- what happened, and which is basically part of the 16 audit. And about a month ago or so, probably about the same 17 time that we received the letter from some citizens, and it 18 became apparent that the -- to some of the members of the 19 Court, anyway, that an audit was needed to look at the 20 facility internally. And we got to that after months and 21 months of looking at it -- I mean, ourselves looking at it. 22 So I think, you know, we've progressed in a -- you know, in 23 a reasonable fashion and a timely fashion as to figure out 24 what happened. And I think the audit is -- is key for a 25 couple of reasons. One, so everyone -- taxpayers, us, 2-3-05 25 1 everyone -- knows what happened this time. And the other 2 part of it is, as Commissioner Nicholson said, so we don't 3 do it again. 4 Both proposals on the table, at least the one 5 that Commissioner Baldwin brought up and the one that we're 6 going forward with right now, have a juvenile facility in 7 Kerr County, which means, obviously, we have to manage it. 8 And so I think it is imperative that this audit be done so 9 we learn from mistakes, if mistakes were made. That's just 10 -- you know, so I think that it's -- you know, we are 11 progressing. It would -- as we could. It would be nice if 12 we could tell the bondholders at the start, you know, of 13 everything, "Let's put it on hold for six weeks," but I 14 don't think we have that luxury. And that's, you know -- 15 COMMISSIONER BALDWIN: Let me say a couple 16 things. I -- six weeks, definitely not. What are we, 12 17 days before another note payment is due? Isn't that 18 February 15th? But when we first started talking about the 19 audit, I went to the auditors and, just as a friendly 20 question, asked them, you know, what would a -- what would a 21 full-blown audit cost if we hired somebody out of San 22 Antonio and they came out and did a full-blown audit? And 23 he said about $30,000, probably. That's a lot of money. 24 So, Commissioner Williams comes up with the bright idea of 25 possibly asking our outside auditors that are inside right 2-3-05 26 1 now, to confuse everything even more, if they would -- if 2 they would expand their audit thinking some to take a little 3 bit broader look at it. And my memory says -- and I think, 4 if you look back through the minutes, you will see the 5 verbiage in there that says that the County Auditor is going 6 to approach them and see if they will do that, and what will 7 they charge us for it and how far will they go with it, et 8 cetera, et cetera. There's the hangup. 9 COMMISSIONER WILLIAMS: That's correct. 10 COMMISSIONER BALDWIN: What happened with 11 that? 12 COMMISSIONER WILLIAMS: Well, I'm not sure 13 where the County Auditor is in terms of responding to us, 14 but I can assure you there probably will be an answer on 15 Monday, 'cause the issue's going to be back out for 16 authorization for -- to expand the scope of the independent 17 auditor to include the years '02, '03, '04, and an in-depth 18 audit. You know, somewhere, somehow, somebody's bopped 19 around a number of $7,000, $8,000 over and above what we 20 normally paid for the independent auditor to do that. That 21 may or may not be the case, but we use that as a -- as a 22 base and see where the County Auditor comes in on Monday, 23 because he will have learned, I'm sure, before the day is 24 out it's going to be back on the agenda. 25 Anyhow, one other thing I want to respond to 2-3-05 27 1 this lady. If there is -- if there is the information -- or 2 there is the assumption floating around out there that our 3 acquisition and issuance of $2 million of certificates of 4 obligation is going to increase the tax rate, that's 5 erroneous. It will not increase the tax rate. And the 6 reason for that is that the first coupon due on the new 7 issue will come due at such a time so as that current 8 debt -- a segment of our current debt will be released after 9 this year, and that debt is for the renovation of the 10 courthouse and the annex. Those were certificates of 11 obligation. They will be paid in full in the '05 budget, 12 and so the first coupon coming due on this new issue of 13 certificates of obligation for this particular thing will 14 come due at such a time so as to be amortized out of tax -- 15 tax rate that's currently in place. So, there will not be 16 any additional tax rate to cover this debt. 17 MS. KAHANT: Well, why has it been reported 18 in the paper that -- in connection with this, that there 19 will be an increase in the ad valorem tax? 20 JUDGE TINLEY: You'll have to talk to the 21 people that write the newspaper; we can't answer that. 22 COMMISSIONER LETZ: I can -- but I can -- oh, 23 well, I want to make sure that you understand part of it, 24 though. And I -- I won't say I disagree with Commissioner 25 Williams. I think there's more to the story. What we're 2-3-05 28 1 saying is true; there will not be a tax increase of the tax 2 rate. It also means that we will not be able to reduce 3 taxes by that amount, by that -- 4 COMMISSIONER WILLIAMS: That's true. 5 COMMISSIONER LETZ: -- the differential tax. 6 We're replacing one tax with another tax, basically, so the 7 tax rate will stay the same in the future under the current 8 plan. However, it will dedicate a -- a portion of our total 9 tax rate to this facility, and that money will not be 10 available to go back to the taxpayers as lowering the tax 11 rate or for other county functions. So, yes, it's not going 12 to increase the tax rate, but -- 13 MS. KAHANT: It's going to take taxes. 14 COMMISSIONER LETZ: But there is -- but the 15 tax is going to be dedicated. It means that it will not be 16 available for other courses, and there will be an ad valorem 17 tax for this 1.9 million, so it'll be built into our current 18 tax rate. 19 COMMISSIONER WILLIAMS: Let me -- one more of 20 those caveats. If the Sheriff -- if the Sheriff were to 21 come in and say, you know, "Guys, we need to do thus-and-so, 22 and here's the time frame," and some estimated -- 23 COMMISSIONER BALDWIN: "When" the Sheriff. 24 COMMISSIONER WILLIAMS: Yeah, you're right. 25 COMMISSIONER BALDWIN: When. 2-3-05 29 1 COMMISSIONER WILLIAMS: Not if. When. There 2 very well may be sufficient in what's being released from 3 the debt that will be paid this year even to cover that. 4 So, we'll see. 5 JUDGE TINLEY: Okay. Anything further before 6 I recess until 3 o'clock tomorrow afternoon? Hearing 7 nothing, we will stand in recess until 3 p.m. on February 8 the 4th. That's a Friday, tomorrow. 9 (Commissioners Court recessed at 11:40 a.m.) 10 - - - - - - - - - - 11 12 STATE OF TEXAS | 13 COUNTY OF KERR | 14 The above and foregoing is a true and complete 15 transcription of my stenotype notes taken in my capacity as 16 County Clerk of the Commissioners Court of Kerr County, 17 Texas, at the time and place heretofore set forth. 18 DATED at Kerrville, Texas, this 4th day of February, 19 2005. 20 21 22 JANNETT PIEPER, Kerr County Clerk 23 BY: _________________________________ Kathy Banik, Deputy County Clerk 24 Certified Shorthand Reporter 25 2-3-05