Montgomery County Texas road bonds Ser2006B

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REMARKETING MEMORANDUM DATED AUGUST 19, 2009

Upon the original date of delivery of the Bonds, Bond Counsel delivered its opinions to the effect that, assuming continuing compliance by the County after thedate of such opinions with certain covenants described herein, interest on each of the Series 2008B Bonds and the Series 2006B Bonds during their respective

Initial Rate Periods (1) will be excludable from gross income of the owners t hereof pursuant to section 103 of the Internal Revenue Code of 1986, as a mended,

to the respective dates of delivery of the Bonds, and (2) would not be included in computing the alternative minimum taxable income of individuals, or, except as described herein, corporations. The respective deliveries of the Bonds upon their remarketing are subject to the delivery by Bond Counsel of respective

opinions that conversion of each series of Bonds will not adversely affect the excludability of interest on the Bonds for federal income tax purposes and that

conversion of each series of the Bonds occurred in accordance with the terms of the respective Bond Orders. Bond Counsel has not been asked to and has not

rendered any current opinion as to the current excludability of interest on the Bonds pursuant to the Code. See “TAX MATTERS” herein.

NOT A NEW ISSUE: BOOK-ENTRY-ONLY Ratings – Series 2008B Bonds: S&P “AA”Moody’s “Aa3”

Ratings – Series 2006B Bonds: S&P (FSA) “AAA” (negative outlook); Underlying “AA”Moody’s (FSA) “Aa3” (on watch for possible downgrade); Underlying “Aa3”

MONTGOMERY COUNTY, TEXAS$34,705,000

Unlimited Tax Adjustable Rate Road Bonds

Series 2008B

$20,195,000

Unlimited Tax Adjustable Rate Road Bonds

Series 2006B (2028 maturity)

Dated: August 1, 2008 (Series 2008B Bonds) Due: March 1, as shown on inside cover pageJuly 15, 2006 (Series 2006B Bonds)Interest to Accrue from September 1, 2009

The Montgomery County, Texas, Unlimited Tax Adjustable Rate Road Bonds, Series 2008B (the “Series 2008B Bonds”), were initially issued by theCommissioners’ Court of Montgomery County, Texas (the “County”) pursuant to the terms of an order adopted by the Commissioners’ Court of theCounty in the original principal amount of $34,705,000. The Montgomery County, Texas, Unlimited Tax Adjustable Rate Road Bonds, Series2006B (the “Series 2006B Bonds”), were initially issued by the Commissioners’ Court of the County pursuant to the terms of an order adopted by theCommissioners’ Court of the County in the original principal amount of $63,750,000. The 2032 maturity of the Series 2008B Bonds (the “ Converted

2008B Bonds”) in the amount of $34,705,000, representing the entire aggregate principal amount of the Series 2008B Bonds outstanding, is currentlyoutstanding in a Term Rate and will be converted to a Fixed Rate or Rates and remarketed on September 1, 2009 (the “Conversion Date”). The 2028maturity of the Series 2006B Bonds (the “Converted 2006B Bonds,” and together with the Converted 2008B Bonds, the “Bonds”), in the principalamount of $20,195,000, are currently outstanding in a Term Rate and will be converted to a Fixed Rate or Rates and remarketed on the ConversionDate. On the Conversion Date, the Bonds bearing interest at the Term Rate shall be subject to mandatory tender, without right of retention by theRegistered Owners thereof. The principal amount and serial maturities of the Bonds following their conversion to a Fixed Rate are shown on theinside cover of this Remarketing Memorandum. Upon conversion to a Fixed Rate, interest on the Bonds accrues from September 1, 2009 and is

payable on March 1, 2010 a nd on eac h September 1 and March 1 thereafter until maturity or prior redemption. Upon conversion to a Fixed Rate, theBonds will be issued only in fully registered form and in denominations of $5,000 of principal amount or any integral multiple thereof.

The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company (“DTC”) pursuantto the Book-Entry-Only System described herein. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal ofand interest on the Bonds will be payable with respect to the Series 2008B Bonds, by Regions Bank, Houston, Texas, and with respect to the Series2006B Bonds, The Bank of New York Mellon Trust Company, N.A., Houston, Texas, the initial paying agent/registrars for the respective series of Bonds (collectively, the “Paying Agent/Registrar”) to Cede & Co., which will make distribution of the amounts so paid to the participating membersof DTC for subsequent payment to the beneficial owners of the Bonds. See “THE BONDS – Book-Entry-Only System” herein. Interest on the

Bonds upon conversion to a Fixed Rate or Rates is payable to the registered owners (initially Cede & Co.) appearing on the registration books of thePaying Agent/Registrar on the business day next preceding each interest payment date. See “THE BONDS – Record Date.”

The Bonds are subject to optional redemption prior to maturity, in whole or from time to time in part, as described herein. See “THE BONDS –Optional Redemption.”

The scheduled payment of principal of and interest on the Series 2006B Bonds when due is guaranteed under aninsurance policy issued concurrently with the delivery of the Series 2006B Bonds by FINANCIAL SECURITYASSURANCE INC. The Series 2008B Bonds are not insured.

See Principal Amounts, Maturities, Interest Rates, and Prices on the Inside Cover Page

The Bonds were initially issued pursuant to two separate orders authorizing issuance the Series 2008B Bonds and the Series 2006B Bonds adopted bythe Montgomery County Commissioners Court (collectively, the “Bond Orders”) and the Texas Constitution and laws of the State of Texas,including particularly Article III, Section 52 of the Texas Constitution, Chapter 1471, Texas Government Code, as amended, and an election held inthe County on September 10, 2005. The Bonds are payable from a direct annual ad valorem tax levied on all taxable property in the County, withoutlegal limit as to rate or amount. See “THE BONDS – Source of Payment of the Bonds” and “TAXING PROCEDURES AND TAX BASE

ANALYSIS – Tax Rate Limitations.” Proceeds from the sale of the Bonds were used for certain road improvements within the County and paymentof the costs of issuance of the Bonds. See “PLAN OF FINANCE – Purpose.”

The Bonds, when issued, were approved as to legality by the Attorney General of Texas and Fulbright & Jaworski L.L.P., Houston, Texas, BondCounsel (“Bond Counsel”) The conversion of the Bonds to a Fixed Rate is subject to the delivery on or before the Conversion Date of an opinion of

Bond Counsel that the conversion of the interest rate on the Bonds described herein will not have an adverse effect on the exclusion from federalincome tax of the interest on the Series 2008B Bonds or the Series 2006B Bonds and that conversion of each series of Bonds occurred in accordancewith the terms of the respective Bond Orders. See “APPENDIX C – FORM OF OPINION PROVIDED UPON REMARKETING OF THE BONDS.”Certain legal matters will be passed upon for the County by Andrews Kurth LLP, Houston, Texas, Disclosure Counsel. Certain legal matters will be

passed upon for the Underwriters by Allen Boone Humphries Robinson LLP, Houston, Texas, Counsel for the Underwriter. Conversion of the Bondsto a Fixed Rate is expected to occur on September 1, 2009.

WELLS FARGO BROKERAGE SERVICES, LLCFIRST SOUTHWEST COMPANY JEFFERIES & COMPANY, INC.



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PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES

CONVERSION TO A FIXED RATE OF:

Montgomery County, Texas

Unlimited Tax Adjustable Rate Road Bonds, Series 2008B

Maturity

(March 1)(a)

Principal

Amount

Interest

Rate

Initial

Reoffering

Yield(b)

CUSIP

Number(c)

613681

2031 $17,090,000 5.125% 4.960% H992032 17,615,000 5.250 4.980 J22

(Interest accrues from September 1, 2009)


Unlimited Tax Adjustable Rate Road Bonds, Series 2006B

Maturity

(March 1)(a)

Principal

Amount

Interest

Rate

Initial

Reoffering

Yield(b)

CUSIP

Number(c)

613681

2028 $20,195,000 4.750% 4.750% H81

(Interest accrues from September 1, 2009)

______________________________

(a) Upon conversion of the Bonds to a Fixed Rate, the County reserves the right, at its option, to redeem theBonds having stated maturities on or after March 1, 2020 in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on March 1, 2019 or any date thereafter, at the par value thereof

plus accrued interest to the date of redemption. See “THE BONDS – Optional Redemption.”

(b) Initial yield represents the initial reoffering yield for offers to the public. Such yields have beenestablished by the Underwriters for public offerings and subsequently may be changed from time to time inthe sole discretion of the Underwriters.

(c) CUSIP numbers have been assigned to the Bonds by Standard and Poor’s CUSIP Service Bureau, ADivision of the McGraw-Hill Companies, Inc., and are included solely for the convenience of theregistered owners of the Bonds. Neither the County, the Financial Advisor, nor the Underwriters areresponsible for the selection or correctness of the CUSIP numbers set forth herein.



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COUNTY OFFICIALS

Elected Officials

Commissioners Court

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

Other Elected and Appointed Officials

Name Position

J. R. Moore, Jr. Tax Assessor – Collector Martha N. Gustavsen County Treasurer Phyllis L. Martin County Auditor David Walker County AttorneyMark Turnbull County Clerk

Consultants and Advisors

Auditors ................................................................................ Hereford, Lynch, Sellars, & Kirkham, PC, CPA

Conroe, Texas

Bond Counsel.......................................................................................................Fulbright & Jaworski L.L.P.Houston, Texas

Disclosure Counsel .......................................................................................................... Andrews Kurth LLPHouston, Texas

Financial Advisor....................................................................................... RBC Capital Markets CorporationHouston, Texas



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No dealer, broker, salesman, or other person has been authorized to give any information, or to make anyrepresentation other than those contained in this Remarketing Memorandum, and, if given or made, such other information or representations must not be relied upon as having been authorized by the County. This RemarketingMemorandum is not to be used in connection with an offer to sell or the solicitation of an offer to buy in any state inwhich such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Any information or expression of opinion herein contained are subject to change without notice, andneither the delivery of this Remarketing Memorandum nor any sale made hereunder shall, under any circumstances,create an implication that there has been no change in the affairs of the County or other matters described hereinsince the date hereof.

NEITHER THE COUNTY, ITS FINANCIAL ADVISOR NOR THE UNDERWRITERS MAKE ANYREPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THISREMARKETING MEMORANDUM REGARDING THE DEPOSITORY TRUST COMPANY (“DTC”) OR ITSBOOK-ENTRY-ONLY SYSTEM.

THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGECOMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THEREGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITHAPPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE SECURITIESHAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS ARECOMMENDATION THEREOF.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECTTRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVELABOVE THAT WHICH MIGHT PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IFCOMMENCED, MAY BE DISCONTINUED AT ANY TIME.

The Underwriters have provided the following sentence for inclusion in this Remarketing Memorandum. TheUnderwriters have reviewed the information in this Remarketing Memorandum in accordance with, and as part of,its respective responsibilities to investors under the federal securities laws as applied to the facts and circumstancesof this transaction, but do not guarantee the accuracy or the completeness of such information.

Financial Security Assurance Inc. (“Financial Security”) makes no representation regarding the Series 2006B Bondsor the advisability of investing in the Series 2006B Bonds. In addition, Financial Security has not independentlyverified, makes no representation regarding, and does not accept any responsibility for the accuracy or completenessof this Remarketing Memorandum or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Financial Security supplied by Financial Security and

presented under the heading “BOND INSURANCE FOR SERIES 2006B BONDS” and “Appendix F – Form of Municipal Bond Insurance Policy.”

TABLE OF CONTENTS

Page Page

INTRODUCTION........................................................... 1SALE AND DISTRIBUTION OF THE BONDS.......... 1

Sale of the Bonds....................................................... 1Prices and Marketability............................................ 1Securities Laws.......................................................... 2Ratings....................................................................... 2

BOND INSURANCE FOR SERIES 2006B BONDS... 2

Bond Insurance Policy .............................................. 2Financial Security Assurance Inc.............................. 2BOND INSURANCE RISK FACTORS........................ 4

General....................................................................... 4Claims Paying Ability Of Municipal Bond Insurers 5

REMARKETING MEMORANDUM SUMMARY ..... 6SELECTED FINANCIAL INFORMATION ................ 8THE BONDS................................................................... 9

Purpose ...................................................................... 9General....................................................................... 9Record Date ............................................................. 11

Optional Redemption .............................................. 11Book-Entry-Only System........................................ 11Source of Payment of the Bonds............................. 13Paying Agent/Registrar and Tender Agent............. 13Transfer, Exchange and Registration...................... 13Amendments............................................................ 14Defeasance of Bonds ............................................... 14

Bondholders’ Remedies .......................................... 14Future Borrowing .................................................... 15THE AGREEMENT ..................................................... 15

Background.............................................................. 15Reimbursement by TxDOT..................................... 16Potential Availability of Funds for Repayment of

the Bonds ........................................................... 16INVESTMENT AUTHORITY AND INVESTMENT

OBJECTIVES OF THE COUNTY........................ 16Legal Investments.................................................... 16Investment Policies.................................................. 17



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DEBT SERVICE REQUIREMENTS.......................... 19COUNTY DEBT........................................................... 20

General..................................................................... 20Indebtedness ............................................................ 20Estimated Overlapping Debt Statement.................. 20Debt Ratios .............................................................. 22Other Obligations .................................................... 22

TAXING PROCEDURES AND TAX BASEANALYSIS ............................................................. 23General..................................................................... 23Property Tax Code and County-Wide Appraisal

District ............................................................... 23Property Subject to Taxation by the County........... 23Residential Homestead Exemptions ....................... 24Freeport Goods and Goods-in-Transit Exemption . 24Tax Abatement ........................................................ 24Pollution Control ..................................................... 24Valuation of Property for Taxation......................... 24County and Taxpayer Remedies ............................. 25Levy and Collection of Taxes ................................. 25County’s Rights in the Event of Tax Delinquencies26

Tax Rate Limitations............................................... 26Historical Analysis of Tax Collection..................... 27Delinquent Tax Collection Procedures................... 28Tax Rate Distribution .............................................. 28Analysis of Tax Base............................................... 28Top Ten Principal Taxpayers.................................. 29Tax Adequacy.......................................................... 29

SELECTED FINANCIAL DATA................................ 30Historical Operations of the County’s General

Fund ................................................................... 30

Special Revenue Funds ........................................... 31Debt Service Funds ................................................. 32Pension Fund ........................................................... 32

THE COUNTY ............................................................. 33Administration of the County.................................. 33Commissioners’ Court............................................. 33Consultants .............................................................. 33

TAX MATTERS........................................................... 33Tax Exemption ........................................................ 33

CONTINUING DISCLOSURE OF INFORMATION 34Annual Reports........................................................ 35Material Event Notices............................................ 36Availability of Information from NRMSIR and

SID..................................................................... 36Limitations and Amendments ................................. 36Compliance with Prior Undertakings ..................... 36

OTHER CONSIDERATIONS ..................................... 37Environmental Regulations..................................... 37Air Quality............................................................... 37

GENERAL CONSIDERATIONS................................ 37Sources and Compilation of Information................ 37

Updating of Remarketing Memorandum................ 37OTHER INFORMATION ............................................ 38

Litigation.................................................................. 38Registration and Qualification of Bonds for Sale... 38Legal Investments and Eligibility To Secure Public

Funds in Texas................................................... 38Forward-Looking Statements Disclaimer............... 38Miscellaneous.......................................................... 38Financial Advisor .................................................... 39Concluding Statement ............................................. 39

Appendix A - Economic and Demographic InformationAppendix B - Excerpts from Comprehensive Annual Financial Report of Montgomery County, Texas for the

Fiscal Year Ended September 30, 2008Appendix C - Form of Legal Opinions Provided Upon Remarketing of the BondsAppendix D - Form of Legal Opinions Provided Upon Original Issuance of the BondsAppendix E - Pass-Through Toll AgreementAppendix F - Form of Municipal Bond Insurance Policy



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INTRODUCTION

This Remarketing Memorandum, which includes the Appendices hereto, provides certain information regarding theremarketing by Montgomery County, Texas (the “County”) of certain of its $34,705,000 Unlimited Tax AdjustableRate Road Bonds, Series 2008B (the “Series 2008B Bonds”) and its $63,750,000 Unlimited Tax Adjustable RateRoad Bonds, Series 2006B (the “Series 2006B Bonds”). Specifically, the County is remarketing the entireoutstanding principal amount of the $34,705,000 Series 2008B Bonds (the “Converted 2008B Bonds”) and the 2028

maturity, in the principal amount of $20,195,000, of the Series 2006B Bonds (the “Converted 2006B Bonds,” andcollectively with the Converted 2008B Bonds, the “Bonds”). Capitalized terms used in this RemarketingMemorandum have the same meanings assigned to such terms in the respective orders authorizing the issuance of the Series 2008B Bonds (the “2008B Bond Order”) and the Series 2006B Bonds (the “2006B Bond Order,” andcollectively with the 2008B Bond Order, the “Bond Orders”) except as otherwise indicated herein. There follows inthis Remarketing Memorandum descriptions of the Bonds and certain information regarding the County and itsfinances. All descriptions of documents contained herein are only summaries and are qualified in their entirety byreference to each such document. Copies of such documents may be obtained from the County’s Financial Advisor,RBC Capital Markets Corporation, Houston, Texas.

This Remarketing Memorandum contains, in part, estimates, assumptions and matters of opinion which are notintended as statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of opinion, or as to the likelihood that they will be realized. However, the County has agreed to keep thisRemarketing Memorandum current by amendment or sticker to reflect material changes in the affairs of the County

and to the extent that information actually comes to its attention, the other matters described in this RemarketingMemorandum until delivery of the Bonds to the Underwriters and thereafter only as specified in “GENERALCONSIDERATIONS – Updating of Remarketing Memorandum” and “CONTINUING DISCLOSURE OFINFORMATION.”

SALE AND DISTRIBUTION OF THE BONDS

Sale of the Bonds

Wells Fargo Brokerage Services, LLC, First Southwest Company and Jefferies & Company, Inc. (the“Underwriters”) have agreed to purchase the Converted 2008B Bonds from the County pursuant to a FirmRemarketing Agreement with the County for a price of $35,008,996.75 (representing the par amount of theConverted 2008B Bonds, plus a premium of $567,754.75, and less an Underwriter’s discount of $263,758.00). TheUnderwriters’ obligation is to purchase all of the Converted 2008B Bonds if any of the Converted 2008B Bonds are

purchased.

The Underwriters have agreed to purchase the Converted 2006B Bonds from the County pursuant to a FirmRemarketing Agreement with the County for a price of $20,195,000 (representing the par amount of the Converted2006B Bonds). The Underwriters’ obligation is to purchase all of the Converted 2006B Bonds if any of theConverted 2006B Bonds are purchased.

In connection with the sale of the Bonds, the County has agreed to pay the Underwriters a remarketing fee of $263,758.00.

Prices and Marketability

The delivery of the Bonds is conditioned upon the receipt by the County of a certificate executed and delivered bythe Underwriters on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity have been sold to the public. For this purpose, the term “public” shall not include any

person who is a bondhouse, broker or similar person acting in the capacity of underwriter or wholesaler. The

County has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Underwritersat the yields specified on the inside cover page hereof. Information concerning reoffering yields or prices is theresponsibility of the Underwriters.

The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by theUnderwriters after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than theinitial offering prices, including sales to dealers who may sell the Bonds into investment accounts. INCONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT



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A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCHSTABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

Securities Laws

No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon the exemptions provided therein. The Bonds have not beenregistered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities laws of any other jurisdiction. The County assumesno responsibility for registration or qualification of the Bonds under the securities laws of any other jurisdiction inwhich the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind withregard to the availability of any exemption from securities registration or qualification provisions in such other

jurisdictions.

Ratings

In connection with the conversion and remarketing of the Series 2008B Bonds, the County made application toMoody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Rating Services, A Division of The McGraw-Hill Companies, Inc. (“S&P”) for long term ratings on the Series 2008B Bonds, and the ratings of “Aa3” and “AA,”respectively, have been assigned to the Series 2008B Bonds. In connection with the conversion and remarketing of the Series 2006B Bonds, the County made application to Moody’s and S&P for long term ratings on the Series

2006B Bonds, and the ratings of “Aa3” (on watch for possible downgrade) and “AAA” (negative outlook),respectively, have been assigned to the Bonds based on a municipal bond insurance policy issued simultaneouslywith the issuance of the Series 2006B Bonds.

An explanation of the significance of such ratings may be obtained from Moody’s and S&P. The ratings reflect onlythe view of Moody’s and S&P, and the County makes no representation as to the appropriateness of such ratings.There is no assurance that such ratings will continue for any period of time or that they will not be reviseddownward or withdrawn entirely if, in the judgment of Moody’s or S&P, circumstances so warrant. Any suchdownward revision or withdrawal of any of the ratings may have an adverse effect on the market price of the Bonds.

BOND INSURANCE FOR SERIES 2006B BONDS

Bond Insurance Policy

Concurrently with the issuance of the Series 2006B Bonds, Financial Security Assurance Inc. (“Financial Security”)

issued its Municipal Bond Insurance Policy for the Series 2006B Bonds (the “Policy”). The Policy guarantees thescheduled payment of principal of and interest on the Series 2006B Bonds when due as set forth in the form of thePolicy included as an exhibit to this Remarketing Memorandum. The Series 2008B Bonds are not guaranteed by thePolicy. The Policy is not covered by any insurance security or guaranty fund established under New York,California, Connecticut or Florida insurance law.

Financial Security Assurance Inc.

Financial Security is a New York domiciled financial guaranty insurance company and a wholly owned subsidiaryof Financial Security Assurance Holdings Ltd. ("Holdings"). Holdings is an indirect subsidiary of Assured GuarantyLtd. (“AGL”), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol “AGO”. AGL, through its operating subsidiaries, provides credit enhancement

products to the U.S. and global public finance, structured finance and mortgage markets. No shareholder of AGL,Holdings or Financial Security is liable for the obligations of Financial Security.

On July 1, 2009, AGL acquired the financial guaranty operations of Holdings from Dexia S.A. (“Dexia”). Inconnection with such acquisition, Holdings’ financial products operations were separated from its financial guarantyoperations and retained by Dexia. For more information regarding the acquisition by AGL of the financial guarantyoperations of Holdings, see Item 1.01 of the Current Report on Form 8-K filed by AGL with the Securities andExchange Commission (the “SEC”) on July 8, 2009.

Financial Security’s financial strength is rated “AAA” (negative outlook) by Standard & Poor’s, a division of TheMcGraw-Hill Companies, Inc. (“S&P”), “Aa3” (on review for possible downgrade) by Moody’s Investors Service,Inc. (“Moody’s”) and “AA+” (Ratings Watch Negative) by Fitch, Inc. (“Fitch”). Each rating of Financial Securityshould be evaluated independently. An explanation of the significance of the above ratings may be obtained from



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the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and suchratings are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed byFinancial Security. Financial Security does not guaranty the market price of the securities it guarantees, nor does itguaranty that the ratings on such securities will not be revised or withdrawn.

Recent Developments

Ratings

On July 1, 2009, S&P published a Research Update in which it affirmed its “AAA” counterparty credit and financialstrength ratings on Financial Security. At the same time, S&P continued its negative outlook on Financial Security.Reference is made to the Research Update, a copy of which is available at www.standardandpoors.com, for thecomplete text of S&P’s comments.

On May 20, 2009, Moody’s issued a press release stating that it had placed the “Aa3” insurance financial strengthrating of Financial Security on review for possible downgrade. Subsequently, in an announcement dated July 24,2009 entitled “Moody’s Comments on Assured’s Announcement to Guarantee and Delist FSA Debt”, Moody’sannounced that it expects to conclude its review by mid-August 2009. Reference is made to the press release andthe announcement, copies of which are available at www.moodys.com, for the complete text of Moody’s comments.

In a press release dated May 11, 2009, Fitch announced that it had downgraded the insurer financial strength rating

of Financial Security to “AA+” from “AAA” and placed such rating on Ratings Watch Negative. Reference is madeto the press release, a copy of which is available at www.fitchratings.com, for the complete text of Fitch’scomments.

There can be no assurance as to the outcome of Moody’s review, or as to the further action that Fitch or S&P maytake with respect to Financial Security.

For more information regarding Financial Security’s financial strength ratings and the risks relating thereto, seeHoldings’ Annual Report on Form 10-K for the fiscal year ended December 31, 2008, which was filed by Holdingswith the SEC on March 19, 2009, Holdings’ Quarterly Report on Form 10-Q for the quarterly period ended March31, 2009, which was filed by Holdings with the SEC on May 20, 2009, and AGL’s Quarterly Report on Form 10-Qfor the quarterly period ended June 30, 2009, which was filed by AGL with the SEC on August 10, 2009. EffectiveJuly 31, 2009, Holdings is no longer subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).

Capitalization of Financial Security

At June 30, 2009, Financial Security's consolidated policyholders' surplus and contingency reserves wereapproximately $1,964,241,223 and its total net unearned premium reserve was approximately $2,454,208,373 inaccordance with statutory accounting principles.

Incorporation of Certain Documents by Reference

Portions of the following documents filed by Holdings with the SEC that relate to Financial Security areincorporated by reference into this Remarketing Memorandum and shall be deemed to be a part hereof:

(i) Annual Report of Holdings on Form 10-K for the fiscal year ended December 31, 2008 (whichwas filed by Holdings with the SEC on March 19, 2009);

(ii) Quarterly Report of Holdings on Form 10-Q for the quarterly period ended March 31, 2009(which was filed by Holdings with the SEC on May 20, 2009);

(iii) the Current Reports on Form 8-K filed by Holdings with the SEC on May 21, 2009, June 10,2009, and July 8, 2009;

(iv) Quarterly Report of AGL on Form 10-Q for the quarterly period ended June 30, 2009 (which wasfiled by AGL with the SEC on August 10, 2009); and

(v) the Current Report on Form 8-K filed by AGL with the SEC on July 8, 2009.

All information relating to Financial Security included in, or as exhibits to, documents filed by AGL pursuant toSection 13(a), 13(c), 14 or 15(d) of the Exchange Act after the filing of the last document referred to above and



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before the termination of the offering of the Series 2006B Bonds shall be deemed incorporated by reference into thisOfficial Statement and to be a part hereof from the respective dates of filing such documents. Copies of materialsincorporated by reference are available over the internet at the SEC’s website at http://www.sec.gov, at Holdings’website at http://www.fsa.com, at AGL’s website at http://www.assuredguaranty.com, or will be provided uponrequest to Financial Security Assurance Inc.: 31 West 52nd Street, New York, New York 10019, Attention:Communications Department (telephone (212) 826-0100).

Any information regarding Financial Security included herein under the caption “BOND INSURANCE FOR SERIES 2006B BONDS – Financial Security Assurance Inc.” or included in a document incorporated by referenceherein (collectively, the “Financial Security Information”) shall be modified or superseded to the extent that anysubsequently included Financial Security Information (either directly or through incorporation by reference)modifies or supersedes such previously included Financial Security Information. Any Financial SecurityInformation so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded.

Financial Security makes no representation regarding the Series 2006B Bonds or the advisability of investing in theSeries 2006B Bonds. In addition, Financial Security has not independently verified, makes no representationregarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or anyinformation or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of theinformation regarding Financial Security supplied by Financial Security and presented under the heading “BONDINSURANCE FOR SERIES 2006B BONDS.”

BOND INSURANCE RISK FACTORS

General

In the event of default of the payment of principal or interest with respect to the Series 2006B Bonds when all or some becomes due, the Paying Agent of the Series 2006B Bonds shall have a claim under the Policy for such

payments on behalf of the owners of the Series 2006B Bonds. However, in the event of any acceleration of the duedate of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments areto be made in such amounts and at such times as such payments would have been due had there not been any suchacceleration. The Policy will not insure against redemption premium, if any. The payment of principal and interestin connection with mandatory or optional prepayment of the Series 2006B Bonds by the County which is recovered

by the issuer from the bond owner as a voidable preference under applicable bankruptcy law is covered by theinsurance policy, however, such payments will be made by Financial Security at such time and in such amounts aswould have been due absence such prepayment by the County unless Financial Security chooses to pay suchamounts at an earlier date.

Under most circumstances, default of payment of principal and interest does not obligate acceleration of theobligations of Financial Security without appropriate consent. In the event Financial Security is unable to make

payment of scheduled principal and interest as such payments become due under the Policy, the Series 2006B Bondswould be payable solely from the moneys received by the Paying Agent/Registrar pursuant to the Bond Orders. Inthe event Financial Security becomes obligated to make payments with respect to the Series 2006B Bonds, noassurance is given that such event will not adversely affect the market price of the Series 2006B Bonds or themarketability for the Series 2006B Bonds.

The long-term ratings on the Series 2006B Bonds are dependent in part on the financial strength of FinancialSecurity and its claim paying ability. Financial Security’s financial strength and claims paying ability are predicatedupon a number of factors which could change over time. No assurance is given that the long-term ratings of

Financial Security and of the ratings on the Series 2006B Bonds insured by Financial Security will not be subject todowngrade and such event could adversely affect the market price of the Series 2006B Bonds or the marketabilityfor the Series 2006B Bonds. See “SALE AND DISTRIBUTION OF THE BONDS – Ratings” herein.

The obligations of Financial Security are unsecured obligations of Financial Security and in an event of default byFinancial Security, the remedies available may be limited by applicable bankruptcy law or other similar laws relatedto insolvency. Neither the District nor the Underwriters have made independent investigation into the claims payingability of Financial Security and no assurance or representation regarding the financial strength or projectedfinancial strength of Financial Security is given. Thus, when making an investment decision, potential investorsshould carefully consider the ability of the District to pay principal and interest on the Series 2006B Bonds and the



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claims paying ability of Financial Security, particularly over the life of the investment. See “BOND INSURANCEFOR SERIES 2006B BONDS” herein for further information provided by Financial Security and the Policy, whichincludes further instructions for obtaining current financial information concerning Financial Security.

Claims Paying Ability Of Municipal Bond Insurers

Moody’s Investor Services, Standard and Poor’s, a division of McGraw-Hill Companies, Inc and Fitch Ratings (the“Rating Agencies”) have, in recent months, downgraded the claims-paying ability and financial strength of most

providers of municipal bond insurance. Additional downgrades or negative change in the rating outlook for these bond insurers is possible. In addition, recent events in the credit markets have had substantial negative effect on the bond insurance business. These developments could be viewed as having a material adverse effect on the claims paying ability of such bond insurers, including the insurer of the Series 2006B Bonds. Thus, when making aninvestment decision, potential investors should carefully consider the ability of any such bond insurer to pay

principal and interest on the Series 2006B Bonds and the claims paying ability of any such bond insurer, particularlyover the life of the investment.

[ Remainder of page intentionally left blank ]



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REMARKETING MEMORANDUM SUMMARY

The following material is a summary of certain information contained herein and is qualified in its entirety by thedetailed information and financial statements appearing elsewhere in this Remarketing Memorandum. The reader should refer particularly to sections that are indicated for more complete information.

The Issuer ......................................................Montgomery County, Texas (the “County”), a political subdivision of the State of Texas. See “THE COUNTY.”

The Bonds...................................................... Montgomery County, Texas, has previously issued its $34,705,000Unlimited Tax Adjustable Rate Road Bonds, Series 2008B (the “Series2008B Bonds”) and its $67,750,000 Unlimited Tax Adjustable RateRoad Bonds, Series 2006B (the “Series 2006B Bonds”). The 2032maturity of the Series 2008B Bonds (the “Converted 2008B Bonds”) inthe amount of $34,705,000, representing the entire aggregate principalamount of the Series 2008B Bonds outstanding, is currentlyoutstanding in a Term Rate and will be converted to a Fixed Rate or Rates and remarketed on September 1, 2009 (the “Conversion Date”).The 2028 maturity of the Series 2006B Bonds (the “Converted 2006BBonds,” and together with the Converted 2008B Bonds, the “Bonds”),in the principal amount of $20,195,000, are currently outstanding in a

Term Rate and will be converted to a Fixed Rate or Rates andremarketed on the Conversion Date. See “THE BONDS – General.”

Payment of Interest ........................................Upon conversion to a Fixed Rate, interest on the Bonds accrues fromSeptember 1, 2009 and is payable on March 1, 2010 and on eachSeptember 1 and March 1 thereafter until maturity or prior redemption.See “THE BONDS – Optional Redemption.”

Optional Redemption..................................... Upon conversion of the Bonds to a Fixed Rate, the County reserves theright, at its option, to redeem the Bonds having stated maturities on or after March 1, 2020 in whole or in part in principal amounts of $5,000or any integral multiple thereof, on March 1, 2019 or any datethereafter, at the par value thereof plus accrued interest to the date of redemption. See “THE BONDS – Optional Redemption.”

Paying Agent and Tender Agent.................... The Paying Agent/Registrar and Tender Agent for the Series 2008BBonds is Regions Bank, Houston, Texas. The Paying Agent/Registrar and Tender Agent for the Series 2008B Bonds is The Bank of NewYork Mellon Trust Company, N.A., Houston, Texas. See “THEBONDS – Paying Agent/Registrar Agreement and Tender Agent.”

Source of Payment......................................... Principal of and interest on the Bonds are payable from the proceeds of a continuing, direct annual ad valorem tax levied, without legal limit asto rate or amount, against all taxable property in the County. See “THEBONDS – Source of Payment of the Bonds” and “TAXINGPROCEDURES AND TAX BASE ANALYSIS – Tax RateLimitations.”

Authorization of the Bonds............................ The Bonds were initially issued pursuant to the Texas Constitution and

laws of the State of Texas, including particularly Article III, Section 52of the Texas Constitution, Chapters 1471, Texas Government Code, asamended, an election held in the County on September 10, 2005, anorder authorizing issuance of the Series 2008B Bonds (the “2008BBond Order”) and an order authorizing the issuance of the Series2006B Bonds (the “2006B Bond Order,” and together with the 2008BBond Order, the “Bond Orders”) adopted by the Montgomery CountyCommissioners Court. See “THE BONDS – Source of Payment of theBonds.” Conversion of the Bonds to a Fixed Rate is authorized

pursuant to the Bond Orders.



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Use of Proceeds .............................................Proceeds from the sale of the Series 2008B Bonds and the Series2006B Bonds were used for certain County road improvements and to

pay the costs of issuance of the Bonds. See “THE BONDS – Purpose.”

Tax Exemption .............................................. Upon the original dates of delivery of the Bonds, Bond Counseldelivered its opinions to the effect that, assuming continuingcompliance by the County after the date of such opinions with certain

covenants described herein, interest on each of the Series 2008B Bondsand the Series 2006B Bonds during their respective Initial Rate Periods(1) will be excludable from gross income of the owners thereof

pursuant to section 103 of the Internal Revenue Code of 1986, asamended, to the respective dates of delivery of the Bonds, and (2)would not be included in computing the alternative minimum taxableincome of individuals, or, except as described herein, corporations.The respective deliveries of the Bonds upon their remarketing aresubject to the delivery by Bond Counsel of respective opinions thatconversion of each series of Bonds will not adversely affect theexcludability of interest on the Bonds for federal income tax purposesand that conversion of each series of the Bonds occurred in accordancewith the terms of the respective Bond Orders. See “TAX MATTERS”

herein.Book-Entry-Only System .............................. The definitive Bonds will be registered and delivered only to Cede &

Co., the nominee of DTC pursuant to the Book-Entry-Only Systemdescribed herein. Upon conversion to a Fixed Rate, beneficialownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will bemade to the beneficial owners thereof. See “THE BONDS – Book-Entry-Only System.”

Payment Record.............................................The County has never defaulted on the timely payment of principal of and interest on any of its outstanding debt.

Series 2008B Bonds Ratings .........................Moody’s.......................................................................................“Aa3”S&P ..............................................................................................“AA”

Series 2006B Bonds Ratings ......................... Moody’s (FSA) ...................“Aa3” (on watch for possible downgrade)S&P (FSA)...................................................“AAA” (negative outlook)

Moody’s (Underlying) ................................................................“Aa3”S&P (Underlying).........................................................................“AA”



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SELECTED FINANCIAL INFORMATION

(Unaudited)

2009 Certified Taxable Assessed Valuation ...................................................................................................... $ 32,636,549,238(a)

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

2008 Certified Taxable Assessed Valuation ...................................................................................................... $ 30,281,923,572(a)


Direct Debt:Outstanding Direct Debt (as of July 1, 2009)..................................................................................... $ 353,395,000(b)

Plus: The 2009 Pass-Through Toll Revenue and Limited Tax Bonds............................................... 56,190,000(c)

Total Direct Debt ............................................................................................................................................... $ 409,585,000

Estimated Overlapping Debt.............................................................................................................................. $ 2,292,020,051

Total Direct and Estimated Overlapping Debt ................................................................................................... $ 2,701,605,051

Interest & Sinking Fund Balance (as of June 30, 2009)..................................................................................... $ 14,581,869

Ratio of Direct Debt to…..: 2009 Certified Taxable Assessed Valuation ($32,636,549,238)........................ 1.26%2008 Certified Taxable Assessed Valuation ($30,281,923,572)........................ 1.35%First Quarter 2009 Estimated Population (435,403) .......................................... $ 940.70

Ratio of Direct and EstimatedOverlapping Debt to……: 2009 Certified Taxable Assessed Valuation ($32,636,549,238)........................ 8.28%

2008 Certified Taxable Assessed Valuation ($30,281,923,572)........................ 8.82%First Quarter 2009 Estimated Population (435,403) .......................................... $ 6,204.84

Annual DebtService Requirements……: Average (2009-2032) ....................................................................................... $ 28,683,081

Maximum (2016) ............................................................................................. $ 32,428,154

______________________________

(a) Certified by the Appraisal District.(b) Includes the Bonds.(c) The County will deliver its Pass-Through Toll Revenue and Limited Tax Bonds, Series 2009 on August 25,

2009.



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REMARKETING MEMORANDUM

Relating to conversion to a Fixed Rate of:

$34,705,000

MONTGOMERY COUNTY, TEXAS

UNLIMITED TAX ADJUSTABLE RATE ROAD BONDS, SERIES 2008B

$20,195,000


UNLIMITED TAX ADJUSTABLE RATE ROAD BONDS, SERIES 2006B

THE BONDS

Purpose

Proceeds from the sale of the Series 2008B Bonds and the Series 2006B Bonds were used for construction of improvements to four existing highways and the construction and operation of a direct connector between twoexisting highways (collectively, the “Project”) and to pay the costs of issuance of the Bonds. The County has enteredinto a Pass-Through Toll Agreement (the “Agreement”) with The Texas Department of Transportation (the“TxDOT”) relating to the construction of the Project. A copy of the Agreement is attached hereto as Appendix E.The Agreement provides, among other things, for certain reimbursements by TxDOT to the County for theconstruction and operation of each portion of the Project if such improvements are substantially completed inaccordance with the Agreement and are open to the public. See “THE AGREEMENT.” Payments from TxDOT

to the County under the Agreement are not pledged to the payment of the Bonds. See “THE BONDS – Sourceof Payment of the Bonds.”

General

The following is a description of some of the terms and conditions of the Bonds upon conversion to a Fixed Rate,and is qualified in its entirety by reference to the form of the Bonds contained in the Bond Orders. A copy of theBond Orders may be obtained upon request to the County.

The Bonds will be registered and delivered only to The Depository Trust Company, New York, New York (“DTC”)in its nominee name of Cede & Co., pursuant to the book-entry system described herein. No physical delivery of the

Bonds will be made to the beneficial owners thereof. Initially, principal of and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., as registered owner. DTC will make distribution of amounts so paidto the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See “THEBONDS – Book-Entry-Only System.” Interest on the Bonds upon conversion to a Fixed Rate is payable to theregistered owners (initially Cede & Co.) appearing on the registration books of the Paying Agent/Registrar on the

business day next preceding each interest payment date. See “THE BONDS – Record Date.”

In the event the Book-Entry-Only-System is discontinued, the Bonds may be transferred and exchanged on the bondregister kept by the Paying Agent/Registrar upon surrender and reissuance. The Bonds are exchangeable for an equal

principal amount of Bonds of the same maturity in any authorized denomination upon surrender of the Bonds to beexchanged at the principal payment office of the Paying Agent/Registrar. No service charge will be made for anytransfer, but the County may require payment of a sum sufficient to cover any tax or governmental charge payable inconnection therewith.

Authorized Denominations. Upon conversion to a Fixed Rate, the Bonds will be issued in denominations of $5,000and integral multiples thereof.

Calculation of Interest . Interest on the Bonds will be calculated on the basis of a 360-day year of twelve 30-daymonths while the Bonds bear interest at a Fixed Rate.

Interest Payment Methods. While the Bonds bear interest at a Fixed Rate, interest will be paid by check mailed tothe owner of record or by such other method acceptable to the Paying Agent/Registrar requested by and at the risk and expense of the registered owner.

Interest Payment Dates. While the Bonds bear interest at the Fixed Rate, interest will be paid on each March 1 andSeptember 1, beginning on the first such date occurring after the Fixed Rate Conversion Date, March 1, 2010.



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Paying Agent/Registrar and Tender Agent . Regions Bank, Houston, Texas, serves as Paying Agent/Registrar andTender Agent for the Series 2008B Bonds. All notices and certificates required to be delivered to the PayingAgent/Registrar and the Tender Agent shall be delivered to Regions Bank, Houston, Texas, 1717 St. James Place,Suite 500, Houston, Texas 77056 Attn: Corporate Trust Department. In the event that the Book-Entry-Only Systemherein is discontinued and registered Series 2008B Bonds are issued, all notices and Series 2008B Bonds arerequired to be delivered to Regions Bank, Houston, Texas, 1717 St. James Place, Suite 500, Houston, Texas 77056Attn: Corporate Trust Department.

The Bank of New York Mellon Trust Company, N.A., Houston, Texas, serves as Paying Agent/Registrar andTender Agent for the Series 2006B Bonds. All notices and certificates required to be delivered to the PayingAgent/Registrar and the Tender Agent shall be delivered to The Bank of New York Mellon Trust Company, N.A.,601 Travis Street, 16th Floor, Houston, Texas 77002 Attn: Global Corporate Debt. In the event that the Book-Entry-Only System herein is discontinued and registered Series 2006B Bonds are issued, all notices and Series2006B Bonds are required to be delivered to The Bank of New York Mellon Trust Company, N.A., 601 TravisStreet, 16th Floor, Houston, Texas 77002 Attn: Global Corporate Debt.

Rate Mode Changes. Any conversion from any Adjustable Rate (including the Initial Rate) to a Fixed Rate isconditioned on delivery of an opinion of nationally recognized Bond Counsel to the effect that the conversion of each of the Series 2008B Bonds and the Series 2006B Bonds occurred in accordance with the terms of the respectiveBond Orders. Conversion of interest rate modes must take place only on an interest payment date for the interestrate mode then in effect. While in a Term Rate mode, Bonds may be converted to a different interest rate mode only

at the expiration of a Term Rate Period. The Series 2008B Bonds are currently outstanding in the Initial Rate andthe Converted 2006B Bonds are currently outstanding in a Term Rate.

Mandatory Tender . The Bond Orders provide that the County has the right to convert one or more Stated Maturitiesof the then outstanding Bonds to a Fixed Rate or Rates. In determining the Fixed Rates on the Series 2008B Bondsto be converted on the Fixed Rate Conversion Date, the Remarketing Agent shall determine the rates for suchconverted Bonds which will cause such Bonds to have a market value, net of costs of issuance and remarketing fees,equal to the principal amount of said Bonds. In determining the Fixed Rates on the Series 2006B Bonds to beconverted on the Fixed Rate Conversion Date, the Remarketing Agent shall determine the rates for such convertedBonds which will cause such Bonds to have a market value equal to the principal amount of said Bonds.

To exercise its option, the County must deliver to the Paying Agent/Registrar, the Remarketing Agent, the Tender Agent and the Bank (as defined in the Bond Orders) written notice not less than 30 calendar days prior to the InterestPayment Date on which the Fixed Rate Mode is to become effective (the “Fixed Rate Conversion Date”). Subject to

the following qualifications, the County will determine the redemption provisions and the serial or term maturitydates which shall apply to the Bonds following the Fixed Rate Conversion Date and give notice of such terms to thePaying Agent/Registrar. The maturities will be determined on the basis of providing approximately level debtservice payments on the Bonds. In addition, the County must deliver to the Paying Agent/Registrar prior to theFixed Rate Mode Conversion Date an opinion of nationally recognized Bond Counsel to the effect that theconversion to the Fixed Rate Mode is authorized under the provisions of the Bond Orders.

The Paying Agent/Registrar is required to give notice by mail to all registered owners of the conversion to a FixedRate Mode not less than 15 calendar days prior to the Fixed Rate Conversion Date. Such notice is required to(a) specify the Fixed Rate Conversion Date and the dates by which the County will determine and the PayingAgent/Registrar will notify the registered owners of the Fixed Rate and (b) state that the Bonds will be subject tomandatory tender for purchase on the Fixed Rate Conversion Date without the right of the Owners to retain their Bonds.

On or before 12:00 noon, New York City time, on the Business Day preceding the Fixed Rate Conversion Date, theRemarketing Agent will, in consultation with and subject to the approval of the County, determine the Fixed Rate or Rates and give notice thereof to the Paying Agent/Registrar. The Paying Agent/Registrar will then give notice of such Fixed Rate or Rates by first class mail to the Tender Agent and the registered owners of the Bonds.

After the Fixed Rate Conversion Date, the registered owners will have no right to tender their Bonds for

purchase.



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Record Date

The Record date for registered owners means with respect to Bonds bearing interest at a Fixed Rate, the lastBusiness Day of the month preceding an Interest Payment Date.

Optional Redemption

Upon conversion of the Bonds to a Fixed Rate, the County reserves the right, at its option, to redeem the Bonds

having stated maturities on or after March 1, 2020 in whole or in part in principal amounts of $5,000 or any integralmultiple thereof, on March 1, 2019 or any date thereafter, at the par value thereof plus accrued interest to the date of redemption.

The Paying Agent/Registrar is required to cause notice of any redemption of Bonds to be mailed to each registeredowner of Bonds to be redeemed at the respective addresses appearing in the registration books for the Bonds.

Notice of redemption is required to (i) be mailed at least 30 calendar days prior to the redemption date with respectto Bonds bearing interest at a Fixed Rate; (ii) identify the Bonds to be redeemed (specifying the numbers assigned tothe Bonds); (iii) specify the redemption date and the redemption price; and (iv) state that (a) on the redemption datethe Bonds called for redemption will be payable at the designated office of the Paying Agent/Registrar, (b) suchredemption will only occur if on the redemption date, funds are available to pay the redemption price, and (c) on andafter the redemption date interest will cease to accrue. If notice of redemption is given as described above and if due

provision for the payment of the redemption price is made, then the Bonds that are to be redeemed thereby willautomatically be deemed to have been redeemed prior to their scheduled maturities, and will not bear interest after

the redemption date, nor will they be regarded as being outstanding except for the right of the registered owner thereof to receive the redemption price from the Paying Agent/Registrar.

Book-Entry-Only System

This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any,

and interest on the Bonds are to be paid to and credited by The Depository Trust Company(“DTC”), New York,

New York, while the Bonds are registered in its nominee’s name. The information in this section concerning DTC

and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this

Remarketing Memorandum. The County and the Underwriters believe the source of such information to be reliable,

but take no responsibility for the accuracy or completeness thereof.

The County cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the

Bonds, or redemption or other notices, to DTC Participant, (2) DTC Participants or others will distribute debt

service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices,

to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner

described in this Remarketing Memorandum. The current rules applicable to DTC are on file with the Securities and

Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on

file with DTC.

DTC will act initially as securities depository for the Bonds. The Bonds will be issued as fully-registered securitiesregistered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by anauthorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds inthe aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of theFederal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code,and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of

1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues,corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s

participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among DirectParticipants of sales and other securities transactions in deposited securities, through electronic computerized book entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movementof 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 TheDepository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National SecuritiesClearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC



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is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as bothU.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“IndirectParticipants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are onfile with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.comand www.dtc.org.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive acredit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“BeneficialOwner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receivewritten confirmation from DTC of their purchase.

Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, aswell as periodic statements of their holdings, from the Direct or Indirect Participant through which the BeneficialOwner entered into the transaction.

Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct or Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificatesrepresenting their ownership interests in the Bonds, except in the event that use of the book-entry system for theBonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of

DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co., or such other DTCnominee, do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Ownersof the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds arecredited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keepingaccount of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to IndirectParticipants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed byarrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to theBond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding theBonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, BeneficialOwners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unlessauthorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails anOmnibus Proxy to the County as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’sconsenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date(identified in a listing attached to the Omnibus Proxy).

Principal, premium, if any, redemption proceeds and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct

Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the County or thePaying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC’s records.Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices,as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” andwill be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or theCounty, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of

principal, premium, if any, redemption proceeds and interest payments to Cede & Co. (or such other nominee asmay be requested by an authorized representative of DTC) is the responsibility of the County or the PayingAgent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and



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disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and IndirectParticipants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by givingreasonable notice to the County. Under such circumstances, in the event that a successor securities depository is notobtained, Bonds are required to be printed and delivered.

The County may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered in accordance with the Bond Orders. Inreading this Remarketing Memorandum it should be understood that while the Bonds are in the Book-Entry-OnlySystem, references in other sections of this Remarketing Memorandum to registered owners should be read toinclude the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must beexercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to begiven to registered owners under the Bond Orders will be given only to DTC.

Use of Certain Terms in Other Sections of this Remarketing Memorandum

In reading this Remarketing Memorandum it should be understood that while the Bonds are in the Book-Entry-OnlySystem, references in other sections of this Remarketing Memorandum to registered owners should be read toinclude the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must beexercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to begiven to registered owners under the Bond Orders will be given only to DTC.

Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteedas to accuracy or completeness by, and is not to be construed as a representation by, the County or the Underwriters.

Effect of Termination of Book-Entry-Only System

In the event that the Book-Entry-Only System is discontinued printed Bonds will be issued to the registered ownersand the Bonds will be subject to transfer, exchange and registration provisions as set forth in the Bond Orders andsummarized under “Transfer, Exchange and Registration” below.

Source of Payment of the Bonds

The Bonds are payable from the proceeds of a continuing, direct annual ad valorem tax levied, without legal limit asto rate or amount, on all taxable property in the County. The County is authorized to issue county road bonds

pursuant to the Constitution and the laws of the State of Texas, including particularly Article III, Section 52 of the

Texas Constitution and Chapter 1471, Texas Government Code, as amended, and the respective Bond Orders passed by the Commissioners’ Court of the County, authorizing the each series of the Bonds.

See “THE AGREEMENT” herein for a description of payments to be received by the County from TxDOT pursuantto the Agreement. The County may, at its discretion, use some portion of TxDOT’s payments pursuant to theAgreement to pay debt service on the Bonds. However, such funds are not pledged to and do not secure the

repayment of the Bonds and the County is under no obligation to use such funds to pay debt service on the

Bonds.

Paying Agent/Registrar and Tender Agent

Regions Bank, Houston, Texas, will serve as Paying Agent/Registrar and Tender Agent for the Series 2008B Bondsand may resign at any time and may be replaced in accordance with the 2008B Bond Order; provided, however, thatany such resignation will not take effect until a successor is appointed.

The Bank of New York Mellon Trust Company, N.A., Houston, Texas, will serve as Paying Agent/Registrar andTender Agent for the Series 2006B Bonds and may resign at any time and may be replaced in accordance with the2006B Bond Order; provided, however, that any such resignation will not take effect until a successor is appointed.

Transfer, Exchange and Registration

In the event the Book-Entry-Only System should be discontinued, printed certificates shall be delivered to theregistered owner and thereafter the Bonds may be transferred and exchanged on the registration books of the PayingAgent/Registrar only upon presentation and surrender to the Paying Agent/Registrar and such transfer or exchangeshall be without expense or service charge to the registered owner, except for any tax or other governmental chargesrequired to be paid with respect to such registration, exchange and transfer. Bonds may be assigned by the execution



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of an assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to thePaying Agent/Registrar. See “Book-Entry-Only System” herein for a description of the system to be utilizedinitially in regard to ownership and transferability of the Bonds.

Amendments

The County may, without the consent of or notice to any Bondholders, from time to time and at any time, amend theBond Orders in any manner not detrimental to the interests of the Bondholders, including the curing of anyambiguity, inconsistency, or formal defect or omission herein or the amend the definition of the term “MaximumInterest Rate” by increasing the Maximum Interest Rate for Bonds other than Bank Bonds in accordance with theterms of the Bond Orders. In addition, the County may, with the consent of Bondholders holding a majority inaggregate principal amount of the Series 2006B Bonds or Series 2008B Bonds then Outstanding, amend, add to, or rescind any of the provisions of either Bond Order; provided that, with respect to each series of Bonds, without theconsent of all Bondholders of such series of Outstanding Bonds, no such amendment, addition, or rescission shall(1) extend the time or times of payment of the principal of and interest on the such series of Bonds, reduce the

principal amount thereof, the redemption price or the rate of interest thereon, or in any other way modify the termsof payment of the principal of or interest on such series of Bonds, (2) give any preference to any Bond over anyother Bond, or (3) reduce the aggregate principal amount of such series of Bonds required to be held by Bondholdersfor consent to any such amendment, addition, or rescission.

Defeasance of Bonds

On and after the Conversion of the Bonds to a Fixed Rate, the Bond Orders provide that the County may defease the provisions thereof and discharge its obligation to the registered owners of any or all of the Bonds to pay principal,interest and redemption premium, if any, thereon in any manner permitted by law, including by depositing with thePaying Agent/Registrar, or if authorized by Texas law with any national bank having trust powers and havingcombined capital and surplus of at least $50 million or with the State Treasurer of the State of Texas either: (i) cashin an amount equal to the principal amount and redemption premium, if any, of such Bonds plus interest thereon tothe date of maturity or redemption, or (ii) pursuant to an escrow or trust agreement, cash and/or direct obligations of,or obligations the principal of and interest on which are guaranteed by, or, to the extent permitted by law, secured bythe pledge of direct obligations of, the United States of America, in principal amounts and maturities and bearinginterest at rates sufficient to provide for the timely payment of the principal amount and redemption premium, if any, of such Bonds plus interest thereon to the date of maturity or redemption; provided, however, that if any of suchBonds are to be redeemed prior to their respective dates of Stated Maturity, provision must have been made for giving notice of redemption as provided in the Bond Orders. Upon such deposit, such Bonds shall no longer be

regarded to be outstanding or unpaid. Any surplus amounts not required to accomplish such defeasance shall bereturned to the County.

Bondholders’ Remedies

The Bond Orders do not provide for the appointment of a trustee to represent the interests of the Bondholders uponany failure of the County to perform in accordance with the terms of the Bond Orders or upon any other conditionand, in the event of any such failure to perform, the registered owners would be responsible for the initiation andcost of any legal action to enforce performance of the Bond Orders. Furthermore, the Bond Orders do not establishspecific events of default with respect to the Bonds and, under State law, there is no right to the acceleration of maturity of the Bonds upon the failure of the County to observe any covenant under the Bond Orders. A registeredowner of Bonds could seek a judgment against the County if a default occurred in the payment of principal of or interest on any such Bonds; however, such judgment could not be satisfied by execution against any property of theCounty and a suit for monetary damages could be vulnerable to the defense of sovereign immunity. A registered

owner’s only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel theCounty to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Bondsas it becomes due or perform other material terms and covenants contained in the Bond Orders. In general, Texascourts have held that a writ of mandamus may be issued to require a public official to perform legally imposedministerial duties necessary for the performance of a valid contract, and Texas law provides that, following their approval by the Attorney General and issuance, the Bonds are valid and binding obligations for all purposesaccording to their terms. However, the enforcement of any such remedy may be difficult and time consuming and aregistered owner could be required to enforce such remedy on a periodic basis.



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The County is also eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code (“Chapter 9”). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledgedsource of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specificallyrecognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would

prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or Bondholdersof an entity which has sought protection under Chapter 9. Therefore, should the County avail itself of Chapter 9

protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (whichcould require that the action be heard in Bankruptcy Court instead of other federal or state court); and theBankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding

brought before it. The original opinions of Bond Counsel with respect to each series of Bonds noted that allopinions relative to the enforceability of the Bond Orders and the Bonds are qualified with respect to the customaryrights of debtors relative to their creditors, including rights afforded to creditors under the Bankruptcy Code.

Future Borrowing

The County will deliver its Pass-Through Toll Revenue and Limited Tax Bonds, Series 2009 (the “Series 2009Bonds”) in the principal amount of $56,190,000, on August 25, 2009. The Series 2009 Bonds are secured by asenior lien on the Pass-Through Toll Revenues received pursuant to the Agreement (the “Pledged Revenues”) and,to the extent that such revenues are insufficient to make debt service payments on the Series 2009 Bonds, a pledgeof an ad valorem tax, within the limits prescribed by law, upon all taxable property within the County in accordancewith Section 1479.002(b)(2), Texas Government Code, as amended. Pursuant to the order authorizing the issuance

of the Series 2009 Bonds, the County has reserved the right to issue, on a parity basis, further obligations (the“Additional Parity Obligations”) payable from the Pledged Revenues to the extent contemplated by the order authorizing the issuance of the Series 2009 Bonds. The County has also reserved the right to issue non-parityobligations payable from the Pledged Revenues. The County currently anticipates issuing Additional ParityObligations in the approximate principal amount of $38,530,000 in calendar year 2010. The County expects that theissuance of such Additional Parity Obligations in 2010 will be sufficient to fund the completion of the Projects.

The County presently has no unlimited tax bonds authorized and unissued, but may seek additional votedauthorization in an election. The amount of such a bond election, if held, is currently undetermined.

The Commissioners Court has created the Montgomery County Toll Road Authority (the “Authority”). TheAuthority was created with the intended primary function of oversight of County toll roads. In addition, theAuthority is authorized to and may issue debt in the future for the construction and maintenance of certain toll roadsin the County. Pursuant to its articles of formation and relevant State law, the Authority is able to charge toll

revenues for the payment of its bonds. In addition, the Authority would be able to use tax revenues for the paymentof Authority bonds, but only after the imposition of a tax has been approved by voters in the County. The Countyand the Authority currently have no plans to request County voters approve the imposition of such a tax. To date,the Authority has not issued any debt.

In addition to the Additional Parity Obligation to be issued in 2010, the County may issue additional certificates of obligation secured, in part, by the County’s ad valorem tax debt in the next 12 months. Depending on the rate of development within the County, changes in assessed valuation and the amounts, interest rates, maturities and time of issuance of additional bonds or certificates, increases in the County’s annual ad valorem tax rate may be required to

provide for the payment of the principal of and interest on the County’s outstanding debt, including the Bonds andany future bonds or certificates of obligation the County may issue.

THE AGREEMENT

Background

The County has entered into a Pass-Through Toll Agreement (the “Agreement”) with the Texas Department of Transportation (“TxDOT”) relating to the construction of improvements to four existing highways and theconstruction and operation of a direct connector between two existing highways (collectively, the “Project”). Acopy of the Agreement is attached hereto as Appendix E. Proceeds of the Bonds were used to finance a portion of the Project and to pay the costs of issuance of the Bonds.



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Reimbursement by TxDOT

Pursuant to Article 11 of the Agreement, TxDOT will reimburse the County for the construction and operation of each portion of the Project if such improvements are substantially completed in accordance with the Agreement andopen to the public. Reimbursement will be made in annual installments, with the first annual installment to be madewithin sixty days of the first anniversary of the date on which the first highway improvement is substantiallycomplete and open to the public.

Beginning with the first annual installment and continuing until the entire Project is substantially complete and opento the public, the Agreement provides that TxDOT will reimburse the County by paying an annual amount equal to$0.07 for each vehicle-mile traveled on the portion of the Project that was substantially complete and open to the

public at any time during the previous year. Once the entire Project is substantially complete and open to the public,TxDOT will reimburse the County by paying an annual amount equal to $0.07 for each vehicle-mile traveled on theProject during the previous year. The total amount of monies to be reimbursement by TxDOT is described in moredetail in the Agreement.

TxDOT will make annual payments directly to the County until the total amount of annual payments pursuant toArticle 11 of the Agreement equals $98 million. Payments in excess of $98 million shall be paid into an escrowaccount to be maintained in the name of and under the sole control of TxDOT as part of the state highway fund.TxDOT and the County will, by mutual written agreement, disburse funds from the escrow account for any highwayimprovement that meets the requirements outlined in the Agreement, which may include highway improvements

other than the Project.Potential Availability of Funds for Repayment of the Bonds

As described above under “– Reimbursement by TxDOT,” as the County completes portions of the Project incompliance with the terms of the Agreement, the County will be eligible to be reimbursed for its costs up to amaximum of $174,473,000. However, the County’s expectations are based on information available to the Countyon the date hereof and actual results could differ materially from the County’s current projections. See “OTHER INFORMATION – Forward Looking Statements Disclaimer.” The total amount of monies to be reimbursement byTxDOT is described in more detail in the Agreement.

The County may, at its discretion and subject to the provisions of the Ordinance authorizing the issuance of theSeries 2009 Bonds, use some portion of TxDOT’s payments pursuant to the Agreement to pay debt service on theBonds. However, such funds are not pledged to and do not secure the repayment of the Bonds and the

County is under no obligation to use such funds to pay debt service on the Bonds.

Furthermore, the County is issuing additional bonds to finance the completion of the Project. Such additional bondsare contract revenue bonds secured by a pledge of and payable from TxDOT payments described above. See “THEBONDS – Future Borrowing.”

INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE COUNTY

The County invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the Commissioners’ Court of the County. Both state law and the County’s investment policiesare subject to change from time to time.

Legal Investments

Under State law, the County is authorized to invest in (1) obligations of the United States or its agencies andinstrumentalities, including letters of credit; (2) direct obligations of the State or its agencies and instrumentalities;(3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States,

the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of,the State or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies,counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognizedinvestment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) (a) certificates of deposit and share certificates issued by a depository institution that has its main office or a branch office in the State of Texas, that are (i) guaranteed or insured by the Federal Deposit Insurance Corporationor the National Credit Union Share Insurance Fund or their respective successors, or are secured as to principal byobligations described in clauses (1) through (6) above or in any other manner and amount provided by law for County deposits, and (b) certificates of deposit or share certificates issued by a depository institution that has its



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main office or a branch office in the State of Texas that participate in the Certificate of Account Registry Service;(8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligationsdescribed in clause (1), and are placed through a primary government securities dealer or a financial institutiondoing business in the State, (9) securities lending programs if (i) the securities loaned under the program are 100%collateralized, a loan made under the program allows for termination at any time and a loan made under the programis either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firmat not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above,clauses (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are

pledged to the County, held in the County’s name and deposited at the time the investment is made with the Countyor a third party designated by the County; (iii) a loan made under the program is placed through either a primarygovernment securities dealer or a financial institution doing business in the State; and (iv) the agreement to lendsecurities has a term of one year or less, (10) certain bankers’ acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent byat least one nationally recognized credit rating agency, (11) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of creditissued by a U.S. or state bank, (12) no-load money market mutual funds registered with and regulated by theSecurities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less andinclude in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (13) no-

load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturityof less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated asto investment quality by at least one nationally recognized investment rating firm of not less than AAA or itsequivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a definedtermination date and are secured by obligations, including letters of credit, of the United States or its agencies andinstrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other thanthe prohibited obligations described in the next succeeding paragraph.

The County may invest in such obligations directly or through government investment pools that invest solely insuch obligations provided that the pools are rated no lower than AAA or AAA-m or an equivalent by at least onenationally recognized rating service. The County may also contract with an investment management firm registeredunder the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to

provide for the investment and management o f its public funds or other funds under its control for a term up to twoyears, but the County retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such acontract, the County must do so by order, ordinance, or resolution. The County is specifically prohibited frominvesting in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment representsthe principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3)collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralizedmortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in amarket index.

Investment Policies

Under Texas law, the County is required to invest its funds under written investment policies that primarilyemphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the qualityand capability of investment management; and that include a list of authorized investments for County funds, themaximum allowable stated maturity of any individual investment, the maximum dollar-weighted average maturity

allowed for pooled fund groups and methods to monitor the market price of such authorized investments. AllCounty funds must be invested consistent with a formally adopted “Investment Strategy Statement” that specificallyaddresses each fund’s investment. Each Investment Strategy Statement is required to describe its objectivesconcerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketabilityof 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, thata person of prudence, discretion, and intelligence would exercise in the management of the person’s own affairs, notfor speculation, but for investment, considering the probable safety of capital and the probable income to bederived.” At least quarterly, the investment officers of the County are required to submit an investment report



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detailing: (1) the investment position of the County, (2) the beginning market value, any additions and changes tomarket value and the ending value for each pooled fund group, (3) the book value and market value of eachseparately invested asset at the beginning and end of the reporting period, by the type of asset and fund type, (4) thematurity date of each separately invested asset having a maturity date, (5) the account or fund or pooled fund groupfor which each individual investment was acquired, and (6) the compliance of the investment portfolio as it relatedto: (a) adopted investment strategy statements and (b) the provisions of Chapter 2256, Texas Government Code, asamended. No person may invest County funds without express written authority from the Commissioners’ Court of the County.

Under State law, the County is additionally required to: (1) annually review its adopted policies and strategies, (2)require any investment officers with personal business relationships or family relationships with firms seeking to sellsecurities to the County to disclose the relationship and file a statement with the Texas Ethics Commission and theCounty, (3) require the registered principal of firms seeking to sell securities to the County to: (a) receive and reviewthe County’s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to

preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) inconjunction with its annual financial audit, perform a compliance audit of the management controls on investmentsand adherence to the County’s investment policy, (5) restrict reverse repurchase agreements to not more than 90days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverserepurchase agreement, (6) restrict the investment in non-money market mutual funds in the aggregate to no morethan 15% of the County’s monthly average fund balance, excluding bond proceeds and reserves and other funds held

for debt service, (7) require local government investment pools to conform to the new disclosure, rating, net assetvalue, yield calculation, and advisory board requirements and (8) provide specific investment training for theTreasurer, the chief financial officer (if not the Treasurer) and the investment officer.

The County has adopted an investment policy in accordance with state law. Under the current County investment policy, the following instruments are the only authorized investments for County funds: Time Deposits; Certificatesof Deposit; Money Market Investment Accounts; Negotiable Order of Withdrawal (NOW) Accounts; United StatesTreasury Bills; United States Government Securities, as defined in Section 2256.009, Texas Government Code, asamended; fully collateralized direct repurchase agreements as defined in as defined in Section 2256.011, TexasGovernment Code, as amended; Discount Government Agencies, excluding Federal Home Loan MortgageCorporation (Freddie Mac); and, any “Public Funds Pool” authorized by state law. No funds of the County will beinvested in securities such as reverse repurchase agreements and the County will not trade in options or futurescontracts.

The County’s investment balances on June 30, 2009 were as follows:

Carrying Amount Market Value

U. S. Agency Securities $25,448,519 $25,448,519State Treasurer’s Investment Pool (TEXPOOL) 11,028,254 11,028,254Lone Star Investment Pool 15,831,287 15,831,287Money Market Mutual Fund (ICT) 60,575,342 60,575,342Money Market Mutual Fund (AIM) 26,214,834 26,214,834Money Market Mutual Fund (BPIF) 11,748,784 11,748,784

Total Investments $150,847,020 $150,847,020




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DEBT SERVICE REQUIREMENTS

The following schedule sets forth the current total debt service requirements of the County plus the debt servicerequirements of the Bonds and the County’s Pass-Through Toll Revenue and Limited Tax Bonds, Series 2009.

FiscalYear

CurrentDebt

Series 2008BBonds

Series 2006BBonds(b)

Pass-Through Toll Rev.Bonds, Series 2009(c)

TotalDebt

9/30 Service(a)

Principal Interest Principal Interest Principal Interest Service2009 $18,190,721 -- $1,041,150 -- $2,783,600 -- -- 22,015,4712010 18,384,788 -- 1,800,650 -- 3,137,013 -- $2,738,978 26,061,4282011 21,347,338 -- 1,800,650 -- 3,137,013 -- 2,528,288 28,813,2882012 21,338,621 -- 1,800,650 -- 3,137,013 $2,520,000 2,477,888 31,274,1712013 21,338,290 -- 1,800,650 -- 3,137,013 3,770,000 2,370,938 32,416,8902014 21,340,013 -- 1,800,650 -- 3,137,013 3,925,000 2,216,263 32,418,9382015 21,345,423 -- 1,800,650 -- 3,137,013 4,095,000 2,047,563 32,425,6482016 21,350,254 -- 1,800,650 -- 3,137,013 4,270,000 1,870,238 32,428,1542017 21,342,521 -- 1,800,650 -- 3,137,013 4,490,000 1,651,238 32,421,4212018 21,342,318 -- 1,800,650 -- 3,137,013 4,720,000 1,420,988 32,420,9682019 21,344,671 -- 1,800,650 -- 3,137,013 4,940,000 1,204,188 32,426,5212020 21,347,486 -- 1,800,650 -- 3,137,013 5,165,000 976,263 32,426,4112021 21,345,436 -- 1,800,650 -- 3,137,013 1,180,000 817,638 28,280,7362022 21,364,184 -- 1,800,650 -- 3,137,013 1,235,000 763,438 28,300,2842023 21,358,306 -- 1,800,650 -- 3,137,013 1,285,000 712,234 28,293,2032024 21,363,231 -- 1,800,650 -- 3,137,013 1,340,000 657,256 28,298,1502025 21,339,675 -- 1,800,650 -- 3,137,013 1,400,000 598,156 28,275,4942026 21,344,428 -- 1,800,650 -- 3,137,013 1,465,000 534,569 28,281,6592027 21,343,609 -- 1,800,650 -- 3,137,013 1,535,000 467,069 28,283,3412028 762,113 -- 1,800,650 $20,195,000 2,657,381 1,605,000 395,416 27,415,5592029 765,888 -- 1,800,650 21,235,000 1,646,875 1,680,000 318,400 27,446,8132030 763,625 -- 1,800,650 22,320,000 558,000 1,765,000 234,375 27,441,6502031 -- $17,090,000 1,362,719 -- 1,855,000 143,875 20,451,5942032 -- 17,615,000 462,394 -- 1,950,000 48,750 20,076,144

Total $ 401,762,938 $ 34,705,000 $ 40,679,913 $ 63,750,000 $ 64,112,081 $56,190,000 $27,194,003 $ 688,393,935

Average Annual Requirements (2009-2032)........................................................................ $28,683,081Maximum Annual Requirement (2016)................................................................................ $32,428,154

___________________ (a) Excludes the Bonds and the 2029 and 2030 maturities of the Series 2006B Bonds.(b) Includes the 2029 and 2030 maturities of the Series 2006B Bonds in the principal amount of $43,555,000,currently outstanding in an Initial Rate until September 1, 2010. Interest on the 2029 and 2030 maturities of theSeries 2006B Bonds is shown at the Initial Rate of 5.00% until September 1, 2010, and thereafter is estimated atmarket rates as if such Series 2006B Bonds were bearing interest at a Fixed Rate.(c) The County will deliver its Pass-Through Toll Revenue and Limited Tax Bonds, Series 2009 on August 25,2009.



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COUNTY DEBT

General

The following tables and calculations relate to the Bonds and to all other debt of the County. The County andvarious other political subdivisions of government which overlap all or a portion of the County are empowered toincur debt to be paid from revenues raised or to be raised by taxation against all or a portion of the property withinthe County.

Indebtedness

2009 Certified Taxable Assessed Valuation..................................................................................... $32,636,549,238(a)


2008 Certified Taxable Assessed Valuation..................................................................................... $30,281,923,572(a)


Direct Debt:Outstanding Direct Debt (as of July 1, 2009)..................................................................... $ 353,395,000(b)

Plus: The Pass-Through Toll Revenue and Limited Tax Bonds, Series 2009................... 56,190,000(c)

Total Direct Debt.............................................................................................................................. $ 409,585,000

Interest & Sinking Fund Balance (as of June 30, 2009) ................................................................... $ 14,581,869 ______________________________ (a) Certified by the Appraisal District.(b) Includes the Bonds.(c) The County will deliver its Pass-Through Toll Revenue and Limited Tax Bonds, Series 2009 on August 25,

2009.

Estimated Overlapping Debt Statement

Other governmental entities whose boundaries overlap the County have outstanding bonds or other debt payablefrom ad valorem taxes levied against property within the County. The following statement of direct and estimated

overlapping ad valorem tax debt was developed from information contained in “Texas Municipal Reports,” published by the Municipal Advisory Council of Texas. Except for the amounts relating to the County, the Countyhas not independently verified the accuracy or completeness of such information, and no person is entitled to relyupon such information as being accurate or complete. Furthermore, certain of the entities listed below may haveissued additional debt since the dates stated in this table, and such entities may have programs requiring the issuanceof substantial amounts of additional debt, the amount of which cannot be determined. Political subdivisionsoverlapping with the boundaries of the County are authorized by Texas law to levy and collect ad valorem taxes for operation, maintenance and/or general revenue purposes in addition to taxes for payment of their debt, and some are

presently levying and collecting such taxes.

Gross Debt Overlapping

Taxing Jurisdiction July 1, 2009 Percent Amount

Cleveland ISD $42,015,884 1.19% $499,989

Clovercreek MUD 1,625,000 100.00% 1,625,000Conroe ISD 843,260,000 100.00% 843,260,000

Conroe, City of 75,770,000 100.00% 75,770,000

Corinthian Point MUD #2 1,115,000 100.00% 1,115,000

E. Montgomery Co MUD #3 5,475,000 100.00% 5,475,000

East Plantation UD 3,665,000 100.00% 3,665,000

Far Hills UD 2,645,000 100.00% 2,645,000

Grand Oaks MUD 2,015,000 100.00% 2,015,000

Houston, City of 2,887,121,125 0.37% 10,682,348



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Kings Manor MUD 16,930,000 69.81% 11,818,833

Lazy River Improvement Dist 1,025,000 100.00% 1,025,000

Lone Star College System 286,955,000 23.42% 67,204,861

Magnolia ISD 175,884,784 100.00% 175,884,784

Magnolia, City of 2,190,000 100.00% 2,190,000Montgomery Co DD # 6 1,004,990 100.00% 1,004,990

Montgomery Co DD # 10 9,775,000 100.00% 9,775,000

Montgomery Co MUD # 7 8,280,000 100.00% 8,280,000




Montgomery Co MUD # 24 290,000 100.00% 290,000





Montgomery Co MUD # 47 39,335,000 100.00% 39,335,000Montgomery Co MUD # 56 2,466,854 100.00% 2,466,854









Montgomery Co UD # 2 6,620,000 100.00% 6,620,000

Montgomery Co UD # 3 805,000 100.00% 805,000

Montgomery Co UD # 4 2,310,000 100.00% 2,310,000

Montgomery WC&ID # 1 3,495,000 100.00% 3,495,000

Montgomery ISD 144,115,958 100.00% 144,115,958

Montgomery, City of 3,920,000 100.00% 3,920,000

New Caney ISD 170,165,453 100.00% 170,165,453

New Caney MUD 19,765,000 100.00% 19,765,000

Oak Ridge N, City of 3,615,000 100.00% 3,615,000

Panorama Village, City of 2,285,000 100.00% 2,285,000

Point Aquarius MUD 11,360,000 100.00% 11,360,000

Porter MUD 12,950,000 100.00% 12,950,000

Rayford Rd MUD 29,785,000 100.00% 29,785,000

Richards ISD 140,000 31.69% 44,366

River Plantation MUD 395,000 100.00% 395,000

Roman Forest Cons MUD 1,905,000 100.00% 1,905,000

Roman Forest PUD # 4 765,000 100.00% 765,000

Shenandoah, City of 19,625,000 100.00% 19,625,000

Southern Montg Co MUD 10,750,000 100.00% 10,750,000

Splendora ISD 46,670,131 100.00% 46,670,131

Splendora, City of 2,295,000 100.00% 2,295,000

Spring Creek UD 25,065,000 100.00% 25,065,000



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Stanley Lake MUD 6,030,000 100.00% 6,030,000

Texas National MUD 985,000 100.00% 985,000

The Woodlands Metro Ctr MUD 20,190,000 100.00% 20,190,000

The Woodlands MUD # 2 1,425,000 100.00% 1,425,000

The Woodlands RUD # 1 60,095,000 100.00% 60,095,000Tomball ISD 259,630,000 9.06% 23,522,478

Tomball, City of 23,355,000 1.41% 329,306

Valley Ranch MUD #1 4,750,000 100.00% 4,750,000

Willis ISD 87,495,826 98.50% 86,183,389

Willis, City of 5,985,000 100.00% 5,985,000

Woodbranch Village, City 218,000 100.00% 218,000

Woodloch, Town of 43,715 100.00% 43,715

Total Estimated Overlapping Debt $2,292,020,051

Montgomery County Direct Debt(a) 409,585,000

Total Direct and Estimated Overlapping Debt $2,701,605,051

_______________________

(a) Includes the Bonds and the County’s Pass-Through Toll and Limited Tax Bonds, Series 2009.

Debt Ratios

Direct Debt

Direct andEstimated

OverlappingDebt

2009 Certified Taxable Assessed Valuation ($32,636,549,238) 1.26% 8.28%2008 Certified Taxable Assessed Valuation ($30,281,923,572) 1.35% 8.92%Per Capita First Quarter 2009 Estimated Population (435,403) $940.70 $6,204.84

Other Obligations

The County has entered into various lease-purchase agreements for the purchase of heavy road equipment, policevehicles, animal control vehicles, a community building, and a countywide communication system consisting of infrastructure and equipment to effectively upgrade towers and radios for all first responders in the County.

Fiscal Year Ending

GeneralFund

SpecialRevenue Funds

TotalAll Funds

2009 $24,475 $496,563 $521,0382010 2,826,389 749,485 3,575,8742011 2,770,972 651,480 3,422,4522012 1,976,476 616,657 2,593,1332013 1,866,959 530.303 2,397,2622014 1,866,959 -0- 1,866,9592015 1,771,416 -0- 1,771,4162016 1,771,416 -0- 1,771,4162017 1,771,416 -0- 1,771,4162018 1,771,416 -0- 1,771,4162019 1,771,416 -0- 1,771,416

Total $20,189,310 $3,044,488 $23,233,798

In addition, in September of 2006, the Montgomery County Jail Financing Corporation (the “Corporation”) wascreated by the County to facilitate the construction of a jail facility. The Corporation issued $44.8 million Lease



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Revenue Bonds in June of 2007. The jail facility was completed in June of 2008. The County has entered into alease-purchase agreement with the Corporation to purchase the jail facility and the County will make such lease

payments in part from anticipated revenues paid to the County under a federal inmate housing contract between theCounty and the U.S. Marshal Service. The lease payments received by the Corporation will be used to pay debtservice on the Corporation’s bonds. The lease payments will be paid over a twenty year term as set forth below:

Fiscal Year Ending

GeneralFund

2009 $1,721,7402010 3,443,4802011 3,443,4802012 3,443,4802013 3,443,4802014-2028 49,930,460

Total $65,426,120

TAXING PROCEDURES AND TAX BASE ANALYSIS

General

One of the County’s principal sources of operational revenue and its principal source of funds for debt service payments is the receipts from ad valorem taxation. See “COUNTY DEBT” and “SELECTED FINANCIALDATA.” The following is a recapitulation of (a) the Texas Property Tax Code, including methodology, limitations,remedies and procedures; (b) historical analysis of collection and trends of County tax receipts and provisions for delinquencies; (c) an analysis of the County tax base, including relative property composition, principal taxpayersand adequacy of the County tax base to service debt requirements; and, (d) taxation that may add to the Countytaxpayers’ tax costs.

Property Tax Code and County-Wide Appraisal District

The Texas Property Tax Code (the “Property Tax Code”) specifies the taxing procedures of all political subdivisionsof the State, including the County. Provisions of the Property Tax Code are complex and are not fully summarizedhere.

The Property Tax Code requires, among other matters, county-wide appraisal and equalization of taxable property

values and establishes in each county of the State an appraisal district with the responsibility for recording andappraising property for all taxing units within a county and an appraisal review board with responsibility for reviewing and equalizing the values established by the appraisal district. The Montgomery Central AppraisalDistrict (the “Appraisal District”) has the responsibility for appraising property for all taxing units withinMontgomery County, including the County. Such appraisal values are subject to review, change and approval bythe Montgomery Central Appraisal District’s Appraisal Review Board (the “Appraisal Review Board”).

Property Subject to Taxation by the County

Except for certain exemptions provided by Texas law, all real property, tangible personal property held or used for the production of income, mobile homes and certain categories of intangible personal property with a tax situs in theCounty are subject to taxation by the County. Principal categories of exempt property include, but are not limitedto: property owned by the State or its political subdivisions if the property is used for public purposes; propertyexempt from ad valorem taxation by federal law; certain household goods, family supplies, and personal effects;

certain goods, wares and merchandise in transit; farm products owned by the producer; certain real property andtangible personal property owned by a nonprofit community business organization or a charitable organization;designated historical sites; and, most individually owned automobiles. In addition, the County may, by its ownaction, or shall, if required by voters at an election, exempt residential homesteads of persons sixty-five (65) years or older and of certain disabled persons to the extent deemed advisable by the Commissioners’ Court. The County isauthorized by statute to disregard exemptions for the disabled and elderly if granting the exemption would impair the County’s obligation to pay tax supported debt incurred prior to adoption of the exemption by the County.Furthermore, the County must grant exemptions to disabled veterans or certain surviving dependents of disabledveterans, but only to the maximum extent of $12,000 of taxable valuation. Effective January 1, 2010, the County



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must grant a complete exemption for the residential homestead of disabled veterans determined to be 100% disabled by the U.S. Department of Veterans Affairs. Such disabled veterans exemptions resulted in a loss of approximately$18,625,260 of the 2008 assessed value.

Residential Homestead Exemptions

The Property Tax Code authorizes the governing body of each political subdivision in the State to exempt up totwenty percent (20%) of the market value of residential homesteads from ad valorem taxation. Where ad valoremtaxes have previously been pledged for the payment of debt, the governing body of a political subdivision maycontinue to levy and collect taxes against the exempt value of the homesteads until the debt is discharged, if thecessation of the levy would impair the obligations of the contract by which the debt was created. The adoption of ahomestead exemption may be considered each year, but must be adopted by May 1. The County, in addition to theaforementioned mandatory veterans exemption, does give a flat $35,000 reduction to the appraised market value onresidential homesteads of persons 65 years and older. Such homestead exemptions resulted in a loss of approximately $760,959,133 of the 2008 assessed value. The County does not grant any other exemptions toresidential property.

Freeport Goods and Goods-in-Transit Exemption

Article VIII, Section 1-j of the Texas Constitution provides that goods, wares, merchandise, other tangible propertyand ores, other than oil, natural gas and other petroleum products, which have been acquired or brought into theState for assembling, storing, manufacturing, processing or fabricating and shipped out of the State within 175 days

(“freeport goods”) are exempt from taxation unless action to tax was taken by the governing body of the politicalsubdivision prior to April 1, 1990. Decisions to tax may be reversed in the future while decisions to exempt freeport

property are not subject to reversal. Such freeport exemptions resulted in a loss of approximately $204,853,996 of the 2008 assessed value.

Effective January 1, 2008, a “Goods-in-Transit Exemption” may apply to certain tangible personal property that isacquired in or imported into Texas for assembling, storing, manufacturing or fabricating purposes which aredestined to be forwarded to another location in Texas not later than 175 days after acquisition or importation, solong as the location where said goods are detained is not directly or indirectly owned by the owner of the goods.The County, prior to January 1, 2008 (or in any year thereafter) may take action to allow taxation of goods-in-transitin which event the exemption would not be available. On September 10, 2007, the Commissioners Court adopted aresolution allowing the taxation of goods-in-transit and denying the Goods-in-Transit Exemption.

Tax Abatement

The County and other tax entities may enter into tax abatements by creating tax reinvestment zones to encourageeconomic development. Prior to entering into a tax abatement agreement, each entity must adopt guidelines andcriteria for establishing tax abatement, which each entity will follow in granting tax abatement to owners of

property. The tax abatement agreements may exempt from ad valorem taxation by each of the applicable taxing jurisdictions, including the County, for a period of up to ten (10) years, all or any part of any increase in the assessedvaluation of property covered by the agreement over its assessed valuation in the year in which the agreement isexecuted, on the condition that the property owner make specified improvements or repairs to the property inconformity with the terms of the tax abatement. As of September 30, 2005, each taxing jurisdiction has discretion todetermine terms for its tax abatement agreements without regard to the terms approved by other taxing jurisdictions.The County currently has entered into 26 tax abatement agreements with various companies covering a total of $557,543,715 of abated assessed value.

Pollution Control

The Property Code also provides for an exemption from ad valorem taxation for certain pollution control property.In 2008, the County lost approximately $34,134,346 of assessed value as a result of such exemption.

Valuation of Property for Taxation

Generally, property in the County must be appraised by the Appraisal District at market value as of January 1 of each year. Once an appraisal roll is prepared and finally approved by the Appraisal Review Board, it is used by theCounty in establishing its tax rolls and tax rate. Appraisals under the Property Tax Code are to be based on onehundred percent (100%) of market value, as such is defined in the Property Tax Code.



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The Property Tax Code permits land designated for agricultural use, open space or timberland to be appraised at itsvalue based on the land’s capacity to produce agricultural or timber products rather than at its fair market value. TheProperty Tax Code permits under certain circumstances that residential real property inventory held by a person inthe trade or business be valued at the price all such property would bring if sold as a unit to a purchaser who wouldcontinue the business. Landowners wishing to avail themselves of the agricultural use, open space or timberlanddesignation or residential real property inventory designation must apply for the designation and the appraiser isrequired by the Property Tax Code to act on each claimant’s right to the designation individually. A claimant maywaive the special valuation as to taxation by some political subdivisions while claiming its valuation as to another.If a claimant receives the agricultural use designation and later loses it by changing the use of the property or sellingit to an unqualified owner, the County can collect taxes based on the new use, including taxes for the previous three(3) years for agricultural use and taxes for the previous five (5) years for open space land and timberland. As of June 19, 2009, the Appraisal District lists the total loss in value due to grants of agricultural use and open-space landappraisal from the 2008 tax roll as approximately $1,070,906,616.

The Property Tax Code requires the Appraisal District to implement a plan for periodic reappraisal of property toupdate appraisal values. The plan must provide for appraisal of all real property in the Appraisal District at leastonce every three (3) years. It is not known what frequency of reappraisal will be utilized by the Appraisal District or whether reappraisals will be conducted on a zone or county-wide basis. The County does receive yearly a

preliminary estimate of values to be used in its budget process, which provides both the value of new improvementsas well as value of increase of current property. While such yearly estimates of appraised values may serve to

indicate the rate and extent of growth of taxable values within the County, they cannot be used for establishing a taxrate within the County until such time as the Appraisal District formally by certification includes such values on itsappraisal roll.

County and Taxpayer Remedies

Under certain circumstances taxpayers and taxing units (such as the County) may appeal the orders of the AppraisalReview Board by filing a petition for review in State district court. In such event, the value of the property inquestion will be determined by the court or by a jury if requested by any party. Additionally, taxing units may bringsuit against the Appraisal District to compel compliance with the Property Tax Code.

The Property Tax Code sets forth notice and hearing procedures for certain tax rate increases which could result inthe repeal of certain tax increases. The Property Tax Code also establishes a procedure for notice to propertyowners of reappraisals reflecting increased property value, appraisals which are higher than renditions, andappraisals of property not previously on an appraisal roll.

Levy and Collection of Taxes

The County is responsible for the collection of its taxes, unless it elects to transfer such functions to another governmental entity. Before the later of September 30 or the 60th day after the date the certified appraisal roll isreceived by the County, the rate of taxation is set by the Commissioners’ Court based upon the valuation of propertywithin the County as of the preceding January 1 and the amount required to be raised for debt service, maintenance

purposes and authorized contractual obligations.

The Commissioners’ Court may under certain circumstances be required to advertise and hold a public hearingwithin the County on a proposed tax rate before the Commissioners’ Court can hold a public meeting to vote on thetax rate. If the tax rate adopted exceeds by more than 8% the rate needed to pay debt service and certain contractualobligations and to produce, when applied to the property which was on the prior year’s roll, the prior year’s totaltaxes levied for purposes other than debt service and such contractual obligations (the “rollback rate”), such excess

portion of the levy may, subject to constitutional restrictions on the impairment of existing obligations, be repealedat an election within the County held upon petition of 10% of the County’s qualified voters and the tax rate adoptedfor the current year be reduced to the rollback rate.

The County is prohibited from adopting a tax rate that exceeds the lower of the rollback tax rate or the “effective taxrate” until it has held a public hearing on the proposed tax rate and has otherwise complied with the Property TaxCode. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of advalorem taxes and the calculation of the various defined tax rates.



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Taxes are due on receipt of the tax bill, and become delinquent after January 31 of the following year, or on the firstday of the calendar month next following the expiration of twenty one (21) days after mailing of the tax bills,whichever occurs later. A delinquent tax account incurs an initial penalty of six percent (6%) of the amount of thetax and accrues an additional penalty of one percent (1%) per month up to July 1, at which time the total penalty

becomes twelve percent (12%). In addition, delinquent taxes accrue interest at one percent (1%) per month. If thetax is not paid by July 1, an additional penalty of up to twenty percent (20%) may under certain circumstances beimposed by the County. The Property Tax Code also makes provision for the split payment of taxes, discounts for early payments, partial payments of taxes and the postponement of the delinquency date of taxes under certaincircumstances. The County does not permit such payments, except for those property owners who are over the ageof 65 as provided in the Property Tax Code.

County’s Rights in the Event of Tax Delinquencies

Taxes levied by the County are a personal obligation of the owner of the property. On January 1 of each year, a taxlien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed for the year onthe property. The lien exists in favor of the State and each taxing unit, including the County, having power to taxthe property. The County’s tax lien is on a parity with tax liens of such other taxing units. See “COUNTY DEBT – Estimated Overlapping Debt Statement.” A tax lien o n real property takes priority over the claim of most creditorsand other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed beforethe attachment of the tax lien, however, whether a lien of the United States is on a parity with or takes priority over atax lien of the County is determined by applicable federal law. Personal property under certain circumstances is

subject to seizure and sale for the payment of delinquent taxes, penalty, and interest.

At any time after taxes on property become delinquent, the County may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the County must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxingunits, by the effects of market conditions on the foreclosure sale price, by taxpayer redemption right (a taxpayer mayredeem property within six months for non-homestead property and within two years of foreclosure for homestead)or by bankruptcy proceedings which restrict the collection of taxpayer debts.

Tax Rate Limitations

General Operation; Limited Tax Bonds, Time Warrants and Certificates of Obligation . . . The Texas Constitution(Article VIII, Section 9) imposes a limit of $0.80 per $100 assessed valuation for all purposes of a county’s GeneralFund, Permanent Improvement Fund, Road and Bridge Fund and Jury Fund, including debt service on bonds,warrants, certificates of obligation or other debt issued against such funds. Administratively, the Attorney Generalof Texas will not approve limited tax obligations in an amount which produces debt service requirements exceedingthat which can be paid from $0.40 of the foregoing $0.80 maximum tax rate calculated at 90% collection. TheCounty’s Pass-Through Toll Revenue and Limited Tax Bonds, Series 2009 are limited tax bonds payable from thisConstitutional tax.

Road Bonds . . . Unlimited tax rate authorized for debt service by Article III, Section 52 of the Texas Constitution;however, total debt cannot exceed 25% of assessed valuation. The Bonds are unlimited tax road bonds.

Road Maintenance (Special Road and Bridge Tax) . . . Tax rate imposed by Article VIII, Section 9 of the TexasConstitution and by statute as $0.15 per $100 assessed valuation, no part of which may be used for debt service.The County currently does not levy a tax under this provision.

Farm-To-Market and Flood Control Purposes . . . Tax rate imposed by Article VIII, Section 1-a of the Texas

Constitution and by statute as $0.30 per $100 assessed valuation after the mandatory $3,000 homestead exemption,no allocation prescribed by statutes between debt service and maintenance. The County currently does not levy atax under this provision.




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Historical Analysis of Tax Collection

Source: For Tax Years 1998 through 2008, Montgomery County, Texas Comprehensive Annual Financial Report Fiscal Year Ended September 30, 2008. For Tax Year 2009, unaudited estimates provided by the County. For tax years 1997 thorough and including 1999, includes the South Montgomery County RoadDistrict No. 1, a blended component unit of the County.

TaxYear

AdjustedTaxable Assessed

Valuation

Tax RatePer $100 of

AssessedValuation

TotalTax Levy

Current TaxCollections(a)

Percentof Levy

Collected

DelinquentTax

CollectionsTotal Tax

Collections

Percent of

Total TaxCollectionsto Tax Levy

OutstandingDelinquent

Taxes

Percent of Delinquent

Taxes toTax Levy

FisYe

End9-

1998 $10,190,624,566 $0.4897 $50,889,079 $49,887,250 98.0% $1,247,664 $51,134,914 100.5% $6,175,378 12.1% 191999 11,201,772,490 0.4747 54,051,832 52,810,108 97.7 1,244,737 54,054,845 100.0 6,501,501 12.0 202000 12,536,525,138 0.4747 59,831,094 58,384,869 97.6 1,547,076 59,931,945 100.2 6,232,148 10.4 202001 14,282,028,148 0.4710 67,447,935 65,714,723 97.4 1,608,717 67,323,440 99.8 6,471,525 9.6 202002 16,289,381,371 0.4710 77,043,931 75,232,037 97.6 1,784,876 77,016,913 100.0 6,587,183 8.5 202003 17,592,455,375 0.4828 85,764,910 83,960,577 97.9 1,839,076 85,799,653 100.0 6,109,116 7.1 202004 18,968,230,832 0.4963 94,513,506 92,527,246 97.9 1,856,421 94,383,667 99.9 6,043,917 6.4 202005 20,994,710,745 0.4963 104,074,236 102,113,249 98.1 1,788,843 103,902,092 99.8 5,840,603 5.6 202006 23,371,824,109 0.4913 114,138,148 1 12,640,155 98.7 1,771,160 114,411,315 100.2 5,578,532 4.9 202007 26,780,335,911 0.4888 129,601,440 1 27,903,113 98.7 1,840,224 129,743,337 100.1 6,054,333 4.7 202008 30,291,455,468(b) 0 .4 838 1 44, 97 1,8 50 14 2,1 69,0 18 9 8. 1(c) 1,774,974 143,943,992 99.3(c) 7,921,545(c) 5.5(c) 20

____________ ______________ ____

(a) Taxes levied in any year which are collected from October 1 through June 30 are shown as current collections. Such amounts include collections of the current levy after February 1, which is the date taxes become legally delinquent.

(b) Value may differ from that shown in the County’s financial statements and elsewhere in this Remarketing Memorandum due to subsequent adjustments.

(c) Partial year collections through June 30, 2009.



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Delinquent Tax Collection Procedures

In addition to the legal procedures and penalties described under “County’s Rights in the Event of TaxDelinquencies,” the County has retained a Delinquent Tax Attorney on a contract basis to file suit to collectdelinquent taxes due the County. The fees due such attorney for acting as Delinquent Tax Attorney are payablefrom an additional penalty imposed upon the delinquent taxpayer, not to exceed 20% of the tax due.

Tax Rate Distribution

Tax Years 2008 2007 2006 2005 2004

General Fund $0.3566 $0.3630 $0.3611 $0.3896 $0.3822Special Revenue Fund 0.0495 0.0478 0.0478 0.0528 0.0528Debt Service Fund 0.0777 0.0780 0.0824 0.0566 0.0613

$0.4838 $0.4888 $0.4913 $0.4963 $0.4963

Analysis of Tax Base

- Tax Base Distribution -

2008 Tax Roll 2007 Tax Roll 2006 Tax RollType of Property Amount % Amount % Amount %

Residential $23,133,786,163 64.09% $20,002,401,228 62.46% $16,974,339,420 62.16%Acreage, Lots & Tracts 3,062,122,517 8.48% 2,897,760,042 9.05% 1,964,951,334 7.20%Farm & Ranch 431,285,935 1.19% 385,524,998 1.20% 289,669,855 1.06%Industrial & Commercial 3,696,804,690 10.24% 3,339,918,343 10.43% 3,087,128,919 11.30%Oil, Gas, Minerals 165,649,220 0.46% 135,564,900 0.42% 135,030,690 0.49%Utilities 537,889,365 1.49% 515,272,732 1.61% 473,369,926 1.73%Business Personal 2,774,904,432 7.69% 2,499,564,739 7.80% 2,259,745,590 8.27%Special Inventory 113,504,841 0.31% 155,086,099 0.48% 255,167,840 0.93%

Other Personal 126,464,243 0.35% 114,540,671 0.36% 106,437,782 0.39%Exempt Property 2,054,208,451 5.69% 1,979,670,539 6.18% 1,763,270,974 6.46%

Total Assessed Value $36,096,619,857 100.00% $32,025,304,291 100.00% $27,309,112,330 100.00%

Less Exemption 5,814,696,285 5,261,539,081 3,961,595,292Total Taxable Value(a) $30,281,923,572 $26,763,765,210 $23,347,517,038

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

subsequently adjusted.




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Top Ten Principal Taxpayers

Provided by the Montgomery Central Appraisal District. Certain of the top ten principal taxpayers may ownadditional property that is not included in the assessed value figures shown in this table as a result of the way such

property is accounted for on the Appraisal District tax rolls.2008 2007 2006

Taxpayer Type of Property Tax Roll Tax Roll Tax Roll

Wal-Mart Real Estate Trust/Sam’s Club Retail $198,577,178 $189,878,210 $162,253,877

Gulf States Utilities Company Electric Utility 181,314,335 176,514,177 156,313,994

The Woodlands Land Development L.P. Land Development 126,191,731 121,923,947 74,704,986

Columbia Conroe Regional MedicalCenter/Kingwood Medical Plaza Medical 120,493,084 122,408,109 129,463,950Consolidated Communications of Texas Co. Communications/Utility 77,999,490 84,646,310 77,863,640

Huntsman Petrochemical Corp. Industrial 63,440,790 67,397,526 61,142,144

The Woodlands Mall Associates Retail 62,029,770 62,156,387 61,042,740

Devon Energy Operating Company Oil/Gas Exploration 58,871,620 58,638,020 63,607,700

Southwestern Bell Telephone Co. Telephone Utility 54,430,440 57,132,520 50,705,039

Inland American Lodging Woodlands L.P. Hotel/Conference Center 52,097,680 (a) (a)

McKesson Corporation Manufacturing (a) 51,017,953 50,989,578

Total $995,446,118 $991,713,159 $888,087,648

Percentage of Respective Certified Assessed Valuation 3.29% 3.70% 3.80%

______________________________ (a) Not a top ten principal taxpayer in such tax year according to the Montgomery Central Appraisal District.

Tax Adequacy

Average Annual Debt Service Requirements (2009-2032) ................................................... $28,683,081$0.0926 Tax Rate on the 2009 Certified Taxable Assessed Valuation @95% collection produces.............................................................................................. $28,710,372

$0.0998 Tax Rate on the 2008 Certified Taxable Assessed Valuation @95% collection produces.............................................................................................. $28,710,292

Maximum Annual Debt Service Requirement (2016)........................................................... $32,428,154$0.1046 Tax Rate on the 2009 Certified Taxable Assessed Valuation @95% collection produces.............................................................................................. $32,430,939$0.1128 Tax Rate on the 2008 Certified Taxable Assessed Valuation @95% collection produces.............................................................................................. $32,450,109




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SELECTED FINANCIAL DATA

Historical Operations of the County’s General Fund

The following is a condensed statement of revenues and expenditures of the County’s General Fund for the past fivefiscal years. The inclusion of the following table is not intended to imply that any revenues of the County, other than receipts from ad valorem taxes provided in the Bond Ordres, are pledged to pay principal and interest on theBonds.

2008 2007 2006 2005 2004

REVENUES:

Taxes 98,955,742$ $86,721,116 $83,559,237 $74,921,693 $66,469,117

Licenses and Permits 1,375,221 1,363,580 1,381,107 1,261,058 1,204,171

Fees 13,376,504 14,529,676 13,595,913 10,954,243 10,089,462

Intergovernmental 5,533,821 4,052,777 6,132,239 4,943,706 2,080,502

Charges for Services 449,802 282,712 215,307 223,454 177,528

Interest 2,149,826 2,293,789 1,577,838 842,272 346,544

Contract Reimbursements 10,968,433 10,237,033 8,975,993 7,898,265 7,483,946

Inmate Housing 3,566,886 1,607,241 1,356,977 50,430 118,818

Fines and Forfeitures 125,152 100,719 144,680 208,906 110,109

Miscellaneous 1,390,327 1,420,777 1,335,673 1,441,802 1,007,959

Total Revenues 137,891,714 122,609,420 118,274,964 102,745,829 89,088,156

EXPENDITURES:

Current:

General Administration 12,905,900 12,178,369 12,140,648 11,853,571 9,483,349

Judicial 12,020,750 10,958,487 10,554,612 9,329,190 8,580,548

Legal Services 1,985,918 1,864,419 1,802,081 1,550,243 1,442,898

Elections 1,606,046 1,373,213 3,144,556 650,970 730,253

Financial Administration 5,251,827 4,966,523 4,751,654 4,359,609 3,737,425

Public Facilities 25,448,843 22,477,341 20,439,889 15,795,553 6,376,545

Public Safety 61,944,932 43,108,422 39,835,125 37,682,264 40,101,489

Health and Welfare 6,369,418 4,755,954 4,972,143 4,468,792 3,881,998

Conservation 481,849 449,468 449,853 400,034 365,571

Miscellaneous 1,070,696 2,846,822 3,009,024 4,519,314 7,234,220

Total Expenditures 129,086,179 104,979,018 101,099,585 90,609,540 81,934,296

Excess/(Deficiency) Revenues Over Expenditures 8,805,535 17,630,402 17,175,379 12,136,289 7,153,860OTHER FINANCING

SOURCES (USES)

Transfers In 1,032,407 7,653,868 2,488,663 2,394,165 3,976,481

Transfers Out (17,281,134) (21,94 0,546) (12,739,072) (10,761,411) (9,482 ,449)

Capital Lease Financing 16,515,427 567,596 108,758 1,264,452 -

Total Other Financing

Sources (Uses) 266,700 (13,719,082) (10,141,651) (7,102,794) (5,505,968)

9,072,235 3,911,320 7,033,728 5,033,495 1,647,892

Fund Balance, October 1 20,763,060 16,851,740 9,818,012 4,784,517 3,136,625

Change in Accounting Principle (3,987,663) - - - -

Fund Balance, September 30 $ 25,847,632 $ 20,763,060 $ 16,851,740 $ 9,818,012 $ 4,784,517

Fiscal Year Ended September 30,

Net Changes in Fund Balance

_______________________________ Source: The County’s audited financial statements.



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Special Revenue Funds

The Special Revenue Funds are the funding source for annual road and bridge construction and maintenance. TheCounty is divided into four precincts, each of which is provided with a separate, annual Road and Bridge FundBudget. Each precinct Road and Bridge Budget is administered by the County Commissioner elected from that

precinct, subject to approval of the Commissioners’ Court. The primary sources of revenues for the SpecialRevenue Funds include ad valorem taxes and auto registration licenses and grants. The table below summarizes therevenues and expenditures of the Special Revenue Funds for the past five fiscal years, including the Road andBridge Fund, as reported in the County’s Annual Financial Reports. The Special Revenue Funds are not available to

pay debt service on the Bonds.

2008 2007 2006 2005 2004

REVENUES:

Taxes $13,013,191 $11,471,034 $11,279,476 $10,272,809 $9,495,794

Licenses and Permits 6,438,708 6,539,568 6,324,084 5,829,066 6,187,767

Fees 1,326,060 389,963 369,937 291,010 265,805

Intergovernmental 19,643,062 12,229,811 6,526,440 4,809,944 5,700,275

Charges for Services 1,478,107 1,400,351 1,263,797 985,150 981,489

Interest 242,843 159,366 158,654 83,706 38,091

Contract Reimbursements 169,827 148,852 129,703 127,838 103,139

Fines and Forfeitures 1,901,412 1,832,655 1,865,356 2,129,271 2,311,145

Miscellaneous 2,187,468 664,126 635,722 772,139 548,841

Total Revenues 46,400,678 34,835,726 28,553,169 25,300,933 25,632,346

EXPENDITURES:

Current Operating

General Administration 626,519 115,045 108,590 102,903 173,568

Judicial 6,483,955 6,221,345 6,067,142 5,204,608 5,555,158

Legal Services 411,911 363,820 311,692 270,554 269,427

Public Safety 2,539,767 2,076,202 3,932,060 2,308,455 2,195,397

Health and Welfare 11,482,218 4,127,271 2,024,746 2,510,329 2,544,020

Culture and Recreation 7,314,312 7,812,017 6,948,700 6,102,610 4,473,911

Conservation 321,959 296,299 196,349 307,650 390,282

Public Transportation 18,991,837 17,161,732 17,390,668 16,857,418 18,210,470

48,172,478 38,173,731 36,979,947 33,664,527 33,812,233

Revenues Over (Under) -

Expenditures (1,771,800) (3,338,005) (8,426,778) (8,363,594) (8,179,887)OTHER FINANCING

SOURCES (USES)

Transfers In 16,969,998 21,890,020 12,738,216 11,217,213 10,476,632

(2,758,501) (21,543,946) (1,080,836) (2,381,676) (3,554,081)

83,594 3,386,301 153,771 - 581,915


Sources 14,295,091 3,732,375 11,811,151 8,835,537 7,504,466

Excess (Deficiency) of Revenues

12,523,291 394,370 3,384,373 471,943 (675,421)

Fund Balance, October 1 6,158,762 5,764,392 2,380,019 1,908,076 2,583,497

Change in Accounting Principle 3,987,663 - - -

Fund Balance, September 30 $22,669,716 $6,158,762 $5,764,392 $2,380,019 $1,908,076

& Other Sources Over

Expenditures & Other Uses


Transfers Out

Capital Lease Financing

__________________________

Source: The County’s audited financial statements.



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Debt Service Funds

The Debt Service Funds are the funding source for annual payments of principal and interest on the County’soutstanding debt. The primary source of revenue for the Debt Service Funds is ad valorem taxes. The table belowsummarizes the revenues and expenditures of the Debt Service Funds, as reported in the year-end financialstatements for the past five years.

2008 2007 2006 2005 2004

REVENUES:

Taxes $20,683,280 $19,111,318 $11,895,634 $11,687,384 $12,034,785

Interest 96,163 44,437 159,996 318,995 62,985

Total Revenue 20,779,443 $19,155,755 $12,055,630 $12,006,379 $12,097,770

EXPENDITURES:

Debt Service:

Principal Retirement 4,598,741 5,305,000 3,830,069 3,034,930 3,237,591

Interest and Fiscal Charges 16,021,976 13,989,627 8,285,966 8,087,980 8,831,163

Issuance Costs 214,338 593,627 - 618,647 -

Total Expenditures 20,835,055 19,888,254 12,116,035 11,741,557 12,068,754

Revenues Over (Under)

Expenditures (55,612) (732,499) (60,405) 264,822 29,016

OTHER FINANCING

SOURCES (USES)

Transfers In 1,939,219 510,395 164,474 - 86,064

Issuance of Refunding Bonds 9,855,000 41,495,000 - 45,850,000 -

Premium on Debt Issuance 400,427 940,880 - 3,772,220 1,318

Payment to Refunded Bond

Escrow Agent (10,211,444) (41,706,307) - (49,904,606) -

Discount on Debt Issuance - (120,633) - - -


Sources (Uses) 1,983,202 1,119,335 164,474 (282,386) 87,382

Excess (Deficiency) Revenues

& Other Sources Over

Expenditures & Other Uses 1,927,590 386,836 104,069 (17,564) 116,398

Fund Balances, October 1 2,633,600 2,246,764 2,142,695 2,160,259 2,043,861

Fund Balances, September 30 $4,561,190 $2,633,600 $2,246,764 $2,142,695 $2,160,259


________________________

Source: The County’s audited financial statements.

Pension Fund

The County provides pension, disability and death benefits for all of its full-time and part time regular employeesthrough a non traditional, joint contributory, defined benefit plan in the statewide Texas County and DistrictRetirement System (TCDRS).

Under the State law governing TCDRS, the contribution rate of the County is adopted annually based on anactuarially determined rate. The contribution rates for the County were 9.94% for the final three months of calendar 2007, and 9.65% for the first nine months of calendar year 2008. For the accounting year ended September 30,2008, both the pension cost of the TCDRS plan and the County’s actual contributions to the plan were $7,582,703.The deposit rate payable by employee members was 6.0% for the calendar year 2008. For more information refer to

Note 13 of Appendix B – Excerpts from Montgomery County’s Audited Financial Statements for the Fiscal Year ended September 30, 2008.



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THE COUNTY

Administration of the County

The officials having responsibility for the administration of the County are the County Judge and the four CountyCommissioners who comprise the Commissioners’ Court. Among its duties as the governing body of the County,Commissioners’ Court approves the County’s budget, determines the County’s tax rates, approves contracts, callselections, and determines when to issue bonds or other obligations. Each Commissioner represents one of the four

precincts into which the County is divided and is elected by the voters of such precinct for a four-year term.

The County Judge is the presiding officer of the Commissioners’ Court and is elected for a four-year term by thevoters of the County. Judge Alan B. Sadler has served as County Judge since 1990.

Other officials having responsibility for the financial administration of the County are the County Tax Assessor-Collector, County Treasurer and County Auditor.

The County Tax Assessor/Collector, J. R. Moore, Jr., was appointed County Tax Assessor/Collector in April 1987,and elected to such post in 1988, 1992, 1996, 2000, 2004 and again in 2008 to serve a four-year term. Mr. Mooreattended North Texas State University and the University of Houston, majoring in Political Science/Government.Mr. Moore received his state certification as a Professional Tax-Assessor Collector in 1991.

The County Treasurer, Martha N. Gustavsen, was elected County Treasurer in 2007 to serve a four-year term. Ms.Gustavsen has served as County Treasurer since 1987. She attended Alvin Junior College, majoring in Accounting.

The County Auditor, Phyllis L. Martin, was appointed County Auditor on January 1, 2007, after serving as anassistant county auditor since 2003. She has subsequently been reappointed to an additional two-year term. Ms.Martin earned a B.B.A. in Accounting and a Master’s in Accountancy from the University of Houston.

Commissioners’ Court

Commissioner PositionYears

ServedTerms ExpireDecember 31

Alan B. Sadler Mike Meador Craig DoyalErnest E. ChanceEd Rinehart

County JudgeCommissioner - Precinct 1Commissioner - Precinct 2Commissioner - Precinct 3Commissioner - Precinct 4

19156

229

20102012201020122010

Consultants

Bond Counsel ........................................................................................... Fulbright & Jaworski L.L.P.Houston, Texas

Financial Advisor ............................................................................RBC Capital Markets CorporationHouston, Texas

Auditors (Certified Public Accountants) ............................. Hereford, Lynch, Sellars, & Kirkham, PCConroe, Texas

Disclosure Counsel................................................................................................Andrews Kurth LLPHouston, Texas

TAX MATTERS

Tax Exemption

The initial delivery of each of the Series 2008B Bonds and the Series 2006B Bonds was subject to the opinion of Bond Counsel to the effect that interest on the Bonds for federal income tax purposes (1) is excludable from grossincome, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date of such opinion (the“Code”), pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions, and(2) is not be included in computing the alternative minimum taxable income of the owners thereof who areindividuals or, except as hereinafter described, corporations. A copy of the original opinions of Bond Counsel arereproduced as APPENDIX D. The statute, regulations, rulings, and court decisions on which such opinions are

based is subject to change. Delivery of the Bonds is subject to the receipt of the opinion of Bond Counsel to the



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effect that the remarketing of the Bonds pursuant to the respective Bond Orders does not in and of itself adverselyaffect the exclusion from gross income for federal income tax purposes of interest on any Bond under existing law.

The opinions noted that interest on all tax-exempt obligations, including the Bonds, owned by a corporation will beincluded in such corporation’s adjusted current earnings, for purposes of calculating the alternative minimumtaxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate investmenttrust, real estate mortgage investment conduit, or a financial asset securitization investment trust (FASIT). A

corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed bySection 55 of the Code will be computed.

In rendering the foregoing opinions, Bond Counsel relied upon representations and certifications of the Countymade in certificates dated the date of delivery of each series of Bonds pertaining to the use, expenditure, andinvestment of the proceeds of each series of Bonds and will assume continuing compliance by the County with the

provisions of the respective Bonds Order subsequent to the issuance of each series of Bonds. The Bond Orderscontain covenants by the County with respect to, among other matters, the use of the proceeds of each series of Bonds and the facilities financed therewith by persons other than state or local governmental units, the manner inwhich the proceeds of each series of Bonds are to be invested, and the reporting of certain information to the UnitedStates Treasury. Failure to comply with any of these covenants, or if the foregoing representations should bedetermined to be inaccurate or incomplete, interest on either or both series of Bonds may be includable in the grossincome of the owners thereof, regardless of the date on which the event causing such taxability occurs.

The respective deliveries of the Bonds upon their remarketing are subject to the delivery by Bond Counsel of respective opinions that conversion of each series of Bonds will not adversely affect the excludability of interest onthe Bonds for federal income tax purposes and that conversion of each series of the Bonds occurred in accordancewith the terms of the respective Bond Orders. Bond Counsel has not been asked to undertake and is not undertakingany review or investigation of and has not been asked to express and does not express any opinion concerning thecontinuing treatment of the interest on the bonds as excludable from gross income for federal income tax purposes.

Bond Counsel’s opinions are not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of theCounty described above. No ruling has been sought from the Internal Revenue Service (the “Service”) with respectto the matters addressed in the opinions of Bond Counsel, and Bond Counsel’s opinions are not binding on theService. The Service has an ongoing program of auditing the tax-exempt status of the interest on tax-exemptobligations. If an audit of either or both series of Bonds is commenced, under current procedures the Service islikely to treat the County as the “taxpayer,” and the Owners would have no right to participate in the audit process.

In responding to or defending an audit of the tax-exempt status of the interest on either or both series of Bonds, theCounty may have different or conflicting interests from the Owners. Public awareness of any future audit of theBonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of itsultimate outcome.

Except as described above, Bond Counsel expresses no other opinion with respect to any other federal, state or localtax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownershipof tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others,financial institutions, life insurance companies, property and casualty insurance companies, certain foreigncorporations doing business in the United States, S corporations with subchapter C earnings and profits, individualrecipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned incometax credit, owners of an interest in a FASIT and taxpayers who may be deemed to have incurred or continuedindebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt

obligations. Prospective purchasers should consult their own tax advisors as to the applicability of theseconsequences to their particular circumstances.

CONTINUING DISCLOSURE OF INFORMATION

In each of the Bond Orders, the County made the following agreements for the benefit of the holders and beneficialowners of the Bonds. The County is required to observe the agreement with respect to each series of Bonds for solong as it remains obligated to advance funds to pay such series of Bonds. Under each agreement, the County will

be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. Subject to the information described under “ – Annual



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Reports” below, this information will be available to securities brokers and others who subscribe to receive theinformation from the vendors.

In order to provide certain continuing disclosure with respect to the Bonds in accordance with Rule 15c2-12 of theUnited States Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as thesame may be amended from time to time (“Rule 15c2-12”), the County has entered into a Disclosure DisseminationAgent Agreement (“Disclosure Dissemination Agreement”) for the benefit of the Holders of the Bonds with Digital

Assurance Certification, L.L.C. (“DAC”), under which the County has designated DAC as Disclosure DisseminationAgent.

The Disclosure Dissemination Agent has only the duties specifically set forth in the Disclosure DisseminationAgreement. The Disclosure Dissemination Agent’s obligation to deliver the information at the times and with thecontents described in the Disclosure Dissemination Agreement is limited to the extent the County has provided suchinformation to the Disclosure Dissemination Agent as required by this Disclosure Dissemination Agreement. TheDisclosure Dissemination Agent has no duty with respect to the content of any disclosures or notice made pursuantto the terms of the Disclosure Dissemination Agreement. The Disclosure Dissemination Agent has no duty or obligation to review or verify any information in the Annual Report, Audited Financial Statements, notice of NoticeEvent or Voluntary Report, or any other information, disclosures or notices provided to it by the County and shallnot be deemed to be acting in any fiduciary capacity for the County, the Holders of the Bonds or any other party.The Disclosure Dissemination Agent has no responsibility for the County’s failure to report to the DisclosureDissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination

Agent shall have no duty to determine or liability for failing to determine whether the County has complied with theDisclosure Dissemination Agreement. The Disclosure Dissemination Agent may conclusively rely uponcertifications of the County at all times.

Annual Reports

The County will annually provide certain updated financial information and operating data to all NRMSIRs and anySID as defined below. The information to be updated includes all quantitative financial information and operatingdata with respect to the County as follows: (i) annual audited financial statements of the County set forth inAPPENDIX B of this Remarketing Memorandum and (ii) information of the general type included in thisRemarketing Memorandum under the headings “INVESTMENT AUTHORITY AND INVESTMENTOBJECTIVES OF THE COUNTY,” “DEBT SERVICE REQUIREMENTS,” “COUNTY DEBT” (except“Estimated Overlapping Debt Statement”), “TAXING PROCEDURES AND TAX BASE ANALYSIS” and“SELECTED FINANCIAL DATA.” The County will update and provide this information within six months after

the end of each fiscal year. The County will provide the updated information to each nationally recognizedmunicipal securities information repository (“NRMSIR”) and to the Texas Municipal Advisory Council, the stateinformation depository (“SID”) designated by the State of Texas and approved by the staff of the SEC.

Notwithstanding anything else described under the heading “CONTINUING DISCLOSURE OF INFORMATION”to the contrary, the SEC has designated the Municipal Securities Rulemaking Board (“MSRB”) as the sole NRMSIR with respect to the disclosure obligations of the County described under such heading. The County will provideeach notice described under this heading to the MSRB in an electronic format as prescribed by the MSRB.Information provided to the MSRB as described herein will be available free of charge from the MSRB via theElectronic Municipal Market Access (“EMMA”) system at www.emma.msrb.org.

The County may provide updated information in full text or may incorporate by reference certain other publiclyavailable documents, as permitted by SEC Rule 15c2-12 (the “Rule”). The updated information will include auditedfinancial statements, if the County commissions an audit and it is completed by the required time. If auditedfinancial statements are not available by the required time, the County will provide unaudited financial statements

by the required time, and will provide audited financial statements when and if the audit report becomes available.Any such financial statements will be prepared in accordance with the accounting principles described in AppendixB or such other accounting principles as the County may be required to employ from time to time pursuant to statelaw or regulation.

The County’s current fiscal year end is September 30. Accordingly, it must provide updated information byMarch 31, 2009 and March 31 of each year thereafter, unless the County changes its fiscal year. If the Countychanges its fiscal year, it will notify each NRMSIR and any SID of the change.



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Material Event Notices

The County will also provide timely notices of certain events to certain information vendors. The County will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3)unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on creditenhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to

perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rightsof the holder of the Bonds; (8) bond calls; (9) defeasances; (10) release, substitution or sale of property securingrepayment of the Bonds; and (11) rating changes. In addition, the County will provide timely notice of any failure

by the County to provide information, data or financial statements in accordance with its agreement described aboveunder “- Annual Reports.” The County will provide each notice described in this paragraph to any SID and to theMSRB.

Availability of Information from NRMSIR and SID

The County has agreed to provide the foregoing information only to the NRMSIR and the SID. The informationwill be available to holders of Bonds only if the holders comply with the procedures and pay the charges established

by such information vendors or obtain the information through securities brokers who have done so.

With respect to the County’s obligation to file with a SID, the County will provide information to the MunicipalAdvisory Council of Texas. The address of the Municipal Advisory Council of Texas is 600 West 8th Street, P.O.

Box 2177, Austin, Texas 78768-2177, and its telephone number is (512) 476-6947. The County may utilizeDisclosureUSA for the filing of information relating to the Bonds.

Limitations and Amendments

The County has agreed to update information and to provide notices of material events only as described above.The County has not agreed to provide other information that may be relevant or material to a complete presentationof its financial results of operations, condition or prospects or agreed to update any information that is provided,except as described above. The County makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The County disclaims anycontractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosureagreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the County to comply with its agreement.

The continuing disclosure agreement may be amended by the County from time to time to adapt to changedcircumstances that arise from a change in legal requirements, a change in law or a change in the identity, nature,status or type of operations of the County, but only if (1) the provisions, as so amended, would have permitted anunderwriter to purchase or sell Bonds in the primary offering of the Bonds in compliance with the Rule, taking intoaccount any amendments or interpretations of the Rule since such offering as well as such changed circumstancesand (2) either (a) the holders of a majority in aggregate principal amount (or any greater amount required by anyother provision of the Bond Order that authorizes such an amendment) of the outstanding Bonds consent to suchamendment or (b) a person that is unaffiliated with the County (such as nationally recognized bond counsel)determines that such amendment will not materially impair the interest of the holders and beneficial owners of theBonds. The County may also amend or repeal the provisions of its continuing disclosure agreement if the SECamends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such

provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not preventan underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds. If the Countyamends its agreement, it must include with the next financial information and operating data provided in accordance

with its agreement described above under “Annual Reports” an explanation, in narrative form, of the reasons for theamendment and of the impact of any change in the type of information and operating data provided.

Compliance with Prior Undertakings

The County has complied in all material respects with its previous continuing disclosure agreements made inaccordance with the Rule, except that the County filed its report due March 31, 2002 on May 9, 2002, filed a noticeof material event (upgrade in rating which occurred in December 2000) on May 9, 2002 and filed a notice of material event (refunding of certain obligations which occurred on July 20, 2005) on June 16, 2006. The County hasimplemented procedures to insure timely filing of future reports.



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OTHER CONSIDERATIONS

Environmental Regulations

The County is subject to the environmental regulations of the State and the United States. These regulations aresubject to change, and the County may be required to expend substantial funds to meet the requirements of suchregulatory authorities.

Air Quality

Air quality control measures required by the United States Environmental Protection Agency (the “EPA”) and theTexas Commission on Environmental Quality (“TCEQ”) may impact new industrial, commercial and residentialdevelopment in Houston and adjacent areas. Under the Clean Air Act (“CAA”) Amendments of 1990, the eight-county Houston-Galveston area (“HGB area”) – Harris, Galveston, Brazoria, Chambers, Fort Bend, Waller,Montgomery and Liberty counties – was designated by the EPA as a moderate ozone nonattainment area. Such areasare required to demonstrate progress in reducing ozone concentrations each year until the EPA “eight hour” ozonestandards are met. Compliance with EPA’s 8-hour standard for ozone must be achieved by June 15, 2010 for areasdesignated as “moderate.” However, on June 15, 2007, the Governor requested the EPA to reclassify the HGB areasince attainment by 2010 was impracticable. If this request is granted, the HGB area will be designated a severenonattainment area with a new attainment date of June 15, 2019.

To provide for reductions in ozone concentrations, the EPA and the TCEQ have imposed increasingly stringent

limits on sources of air emissions and require any new source of significant air emissions to provide for a netreduction of air emissions. If the HGB area fails to demonstrate progress in reducing ozone concentrations or fails tomeet EPA’s standards, EPA may impose a moratorium on the awarding of federal highway construction grants andother federal grants for certain public works construction projects, as well as severe emissions offset requirementson new major sources of air emissions for which construction has not already commenced.

In order to comply with the EPA’s standards for the HGB area, the TCEQ has established a state implementation plan (“SIP”) setting emission control requirements, some of which regulate the inspection and use of automobiles.These types of measures could impact how people travel, what distances people are willing to travel, where peoplechoose to live and work, and what jobs are available in the HGB area. In response to the “8 hour” non-attainmentdesignations, the TCEQ adopted a SIP revision plan on May 23, 2007 that sought to implement additional controlsin order to reduce NOx and VOCs. This means that additional control strategies will need to be implemented inorder to achieve attainment. It is still uncertain as to whether or when the EPA will approve the SIP revision packageand the reclassification request, and it is possible that these additional controls or rejection of the SIP could have a

negative impact on the HGB area’s economic growth and development.

GENERAL CONSIDERATIONS

Sources and Compilation of Information

The information contained in this Remarketing Memorandum has been obtained primarily from the County andfrom other sources believed to be reliable. No representation is made as to the accuracy or completeness of theinformation derived from sources other than the County. The summaries of the statutes, orders, policies, and other related documents are included herein subject to all of the provisions of such documents. These summaries do not

purport to be complete statements of such provisions and reference is made to such documents for further information.

Updating of Remarketing Memorandum

The County will keep the Remarketing Memorandum current by amendment or sticker to reflect material changes inthe affairs of the County and, to the extent that information comes to its attention, to the other matters described inthe Remarketing Memorandum, until the delivery of the Bonds to the Underwriters. All changes in the affairs of theCounty and other matters described in the Remarketing Memorandum subsequent to the delivery of the Bonds to theUnderwriters and all information with respect to the resale of the Bonds shall be the responsibility of theUnderwriters except as described herein under “CONTINUING DISCLOSURE OF INFORMATION.”

This Remarketing Memorandum was duly authorized and approved by the Commissioners’ Court of MontgomeryCounty, as of the date specified on the first page hereof.



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OTHER INFORMATION

Litigation

According to the County, there are currently a number of lawsuits pending against the County, but none of suchactions are expected to result in recovery against the County for an amount outside the applicable insurance policylimits and County-held reserves. The County believes that none of the currently outstanding lawsuits, if decidedadversely to the County, would have a material adverse effect on the financial condition of the County.

Registration and Qualification of Bonds for Sale

The remarketing and sale of the Bonds has not been registered under the Federal Securities Act of 1933, asamended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds have not beenqualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have theBonds been qualified under the securities acts of any jurisdiction. The County assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned,

pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of anyexemption from securities registration provisions.

Legal Investments and Eligibility To Secure Public Funds in Texas

Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the

Bonds are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal andauthorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalitiesor other political subdivisions or public agencies of the State of Texas. With respect to investment in the Bonds bymunicipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds InvestmentAct, Chapter 2256, Texas Government Code, requires that the Bonds be assigned a rating of “A” or its equivalent asto investment quality by a national rating agency. See “SALE AND DISTRIBUTION OF THE BONDS – Ratings”herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with a capital of onemillion dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits of any publicfunds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the County has been made of the laws in other states to determine whether theBonds are legal investments for various institutions in those states.

Forward-Looking Statements DisclaimerThe statements contained in this Remarketing Memorandum and in any other information provided by the Countythat are not purely historical are forward-looking statements, including statements regarding the County’sexpectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance onforward-looking statements. All forward-looking statements included in this Remarketing Memorandum are basedon information available to the County on the date hereof, and the County assumes no obligation to update any suchforward-looking statements. The County’s actual results could differ materially from those discussed in suchforward-looking statements. The forward-looking statements included herein are necessarily based on variousassumptions and estimates and are inherently subject to various risks and uncertainties, including risks anduncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditionsand actions taken or omitted to be taken by third parties, including customers, suppliers, business partners andcompetitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the

foregoing involve judgments with respect to, among other things, future economic, competitive, and marketconditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the County. Any of such assumptions could be inaccurate and, therefore, there can

be no assurance that the forward-looking statements included in this Remarketing Memorandum will prove to beaccurate.

Miscellaneous

The financial data and other information contained herein have been obtained from the County’s records, auditedfinancial statements and other sources which are believed to be reliable. There is no guarantee that any of theassumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and



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orders contained in this Remarketing Memorandum are made subject to all of the provisions of such statutes,documents and orders. These summaries do not purport to be complete statements of such provisions and referenceis made to such documents for further information. Reference is made to original documents in all respects. TheBond Orders authorizing the issuance of the Bonds has also approved the form and content of this RemarketingMemorandum and any addenda, supplement or amendment thereto and authorized its further use in the reoffering of the Bonds by the Underwriters.

Financial Advisor

RBC Capital Markets Corporation is employed as Financial Advisor to the County in connection with theremarketing of the Bonds. The Financial Advisor’s fee for services rendered with respect to the remarketing of theBonds is contingent upon the delivery of the Bonds. The Financial Advisor is not obligated to undertake, and hasnot undertaken to make, an independent verification of to assume responsibility for the accuracy, completeness, or fairness of the information in this Remarketing Memorandum.

Concluding Statement

To the extent that any statements made in this Remarketing Memorandum involve matters of opinion or estimates,whether or not expressly stated to be such, they are made as such and not as representations of fact or certainty andno representation is made that any of these statements have been or will be realized. Information in thisRemarketing Memorandum has been derived by the County from official and other sources and is believed by theCounty to be accurate and reliable. Information other than that obtained from official records of the County has not

been independently confirmed or verified by the County and its accuracy is not guaranteed.

Neither this Remarketing Memorandum nor any statement that may have been made orally or in writing is

to be construed as or as part of a contract with the purchasers or subsequent owners of the Bonds.

County JudgeMontgomery County, Texas

ATTEST:

County Clerk Montgomery County, Texas



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APPENDIX A

ECONOMIC AND DEMOGRAPHIC INFORMATION

The following information has been derived from various sources, including Texas Municipal Reports, the SouthMontgomery County Woodlands Economic Development Partnership, U.S. Census data, Greater Conroe EconomicDevelopment Council, Conroe Chamber of Commerce, and City and County officials. While such sources are

believed to be reliable, no representation is made as to the accuracy thereof.

- General -

Montgomery County, Texas (the “County”), a component of the Houston Metropolitan Area, has an economy basedon mineral production (oil, gas, sand, and gravel), agriculture (horses, ratite bird, cattle, hay, swine, greenhousenurseries, and also blueberries and peaches), and lumbering (timber products). The County was created andorganized in 1837 and consists of approximately 1,044 square miles of rolling, densely forested land. Manyresidents of the County work in the City of Houston.

According to the U.S. Census Bureau, the County had a population in 1970 of 49,479, in 1980 of 127,722, in 1990of 182,201, and in 2000 of 293,768, representing an increase of 61.2% from 1990 to 2000.

Cities within the County are Chateau Woods, Conroe, Cut ‘n Shoot, Magnolia, Montgomery, New Caney, Oak Ridge North, Panorama Village, Patton Village, Pinehurst, Porter, Porter Heights, Roman Forest, Shenandoah,Splendora, Stagecoach, Willis, Woodbranch Village, Woodloch and the planned residential and business community

called The Woodlands.

School districts within the County are Conroe ISD, Magnolia ISD, Montgomery ISD, New Caney ISD, SplendoraISD and Willis ISD. The largest school district is Conroe ISD, comprising approximately 333 square miles, locatedin south central Montgomery County adjacent to the northern boundary of Harris County, and includes suchcommunities as the City of Conroe, The Woodlands, Timber Lakes, Cut and Shoot, Woodloch, Chateau Woods, andOak Ridge North. Conroe ISD operates five high schools (Grades 9-12), two 9th grade school, six junior highschools (Grades 7-8), eleven intermediate schools (Grades 5-6) and twenty-nine elementary schools (Grades K-4),and has a 2008-2009 school year enrollment of approximately 47,996 students. A satellite campus of North HarrisMontgomery County College (the “College”) is located in Montgomery County.

The County owns and operates the Lone Star Executive Airport which is a full-service facility located four milesfrom Conroe. Houston’s Intercontinental Airport, located nearby in Harris County, offers international travel for

passengers and cargo.

The following is a list of some of the firms in Montgomery County with a total number of employees in excess of 500. Such industry and employment data was provided by the South Montgomery County Woodlands EconomicDevelopment Partnership, the Greater Conroe Economic Development Council and the Conroe Chamber of Commerce.

EMPLOYERS OF 500-599

Name Name

Bearden Wallpapering Peet Junior High SchoolChevron Phillips Chemical Co. Memorial Hermann, The Woodlands HospitalHughes & Christenson Wal-Mart Supercenter Inkjet Wiesner Buick GMC PontiacLexicon Genetics, inc. Woodlands Resort and Conference Center Maersk Sealand

EMPLOYERS OF 1,000+

Name Name

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



A-2

HOU:2950034.2

CITY OF CONROE

The City of Conroe (the “City”), the county seat of Montgomery County, is located in southeast Texas and isapproximately 35 miles north of Houston. Conroe is serviced by Interstate 45, Texas 75 (north-south), Texas 105(east-west) and Loop 336 which encircles Greater Conroe. The City is the principal center of commerce inMontgomery County. The City’s population has increased from 27,610 in 1990 to 36,811 in 2000 representing a33% growth rate.

In 1973, Lake Conroe was completed, forming a 21,000 acre reservoir which is owned by the San Jacinto River Authority and the City of Houston. The recreational and development opportunities afforded by the lake have hadeconomic impact on the Conroe and Montgomery County economies.

THE WOODLANDS

The Woodlands is a community being developed approximately 27-32 miles north of downtown Houston. Locatedwithin a 28,000-acre tract of densely forested land, the community is generally situated adjacent to and west of Interstate Highway 45, south of FM 1488, and north of Spring Creek, the boundary line between Montgomery andHarris Counties. Additional acreage, known as The Woodlands Trade Center (“Trade Center”), is adjacent to andeast of Interstate Highway 45 between Texas State Highway 242 and FM 1488.

The Woodlands is located in a market sector of the greater Houston metropolitan area containing approximately 150residential developments. Residential developments located in the market sector offer a variety of housing ranging

in price generally from $70,000 to in excess of $2 million. The majority of these subdivisions offer somerecreational facilities (e.g., swimming pools and clubhouses) and a few provide golf and tennis facilities. In somecases, schools are located within the subdivisions.

Formal opening of The Woodlands occurred in October, 1974. Substantial development, as more fully describedherein, has occurred in the Village of Grogan's Mill, the Village of Panther Creek, the Village of Cochran'sCrossing, the Village of Indian Springs, the Village of Alden Bridge, Carlton Woods, the Village of Sterling Ridge,and College Park, which are eight of the nine residential villages planned for The Woodlands; parts of the TownCenter, Research Forest, College Park; and the Trade Center. The ninth residential village, Creekside Park, isundergoing its initial phase of development with lots available in Carlton Woods Creekside Park. These areascurrently have a population of approximately 88,460 people, and 1,551 employers provide employment for approximately 43,200 people.

ECONOMIC AND GROWTH INDICATORS

U.S. Census of Population (a)Montgomery County City of Conroe, TX

Number % Change Number % Change

1930 14,588 -15.84 2,457 +32.241940 23,055 +58.04 4,624 +88.201950 24,504 +6.28 7,298 +57.831960 26,839 +9.53 9,192 +25.951970 49,479 +84.35 11,969 +30.211980 127,722 +158.04 20,447 +70.831990 182,201 +42.65 27,610 +35.032000 293,768 +61.23 36,811 +33.32

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



A-3

HOU:2950034.2

Summary of Montgomery County Building Permit Activity

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

1993 212 $80,822 2,136 $229,973

1994 219 81,625 2,551 228,9301995 179 61,863 2,645 255,8581996 248 67,209 3,967 389,5731997 273 85,628 3,745 411,8561998 491 159,956 4,902 580,4831999 376 66,170 3,925 440,9382000 395 920,414 3,209 483,7542001 373 194,996 3,419 501,6352002 495 207,333 4,252 610,7972003 437 508,691 5,132 774,9832004 507 242,667 6,062 906,0832005 291 242,817 5,274 845,3542006 300 212,823 6,292 1,064,136

2007 353 279,659 4,951 923,0002008 512 522,554 3,738 736,966

______________________________ Source: Montgomery County Engineer’s Office.




COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED

SEPTEMBER 30, 2008

Prepared by

THE MONTGOMERY COUNTY AUDITOR'S OFFICE

Phyllis L. Martin

County Auditor




Comprehensive Annual Financial Report

Table of Contents

Year Ended September 30, 2008

PAGE

INTRODUCTORY SECTION

County Auditor’s Letter of Transmittal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

GFOA Certificate of Achievement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Organization Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Directory of Elected and Appointed Officials . . . . . . . . . . . . . . . . . . . . . . . 7

FINANCIAL SECTION

Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Management’s Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Basic Financial Statements: EXHIBIT

Government-wide Financial Statements:

Statement of Net Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 28

Statement of Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II 29

Fund Financial Statements:

Balance Sheet – Governmental Funds . . . . . . . . . . . . . . . . . . . . . . III 30

Reconciliation of the Balance Sheet of the Governmental

Funds to the Statement of Net Assets.. . . . . . . . . . . . . . . . . . . . 33

Statement of Revenues, Expenditures, and Changes in

Fund Balances – Governmental Funds. . . . . . . . . . . . . . . . . . IV 34

Reconciliation of the Statement of Revenues, Expenditures,

and Changes in Fund Balances of the Governmental

Funds to the Statement of Activities . . . . . . . . . . . . . . . . . . . . 37

Statement of Revenues, Expenditures, and Changes in

Fund Balances – Budget (GAAP Basis) and Actual –

Major Governmental Funds . . . . . . . . . . . . . . . . . . . . . . . . . . V 38

Statement of Assets and Liabilities – Fiduciary Funds. . . . . . . . . VI 41

Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Additional Supplementary Information: SCHEDULE

Schedule of Revenues and Other Financing Sources – Budget

(GAAP Basis) and Actual – General Fund . . . . . . . . . . . . . . . . . . A-1 68

Schedule of Expenditures and Other Financing Uses – Budget

(GAAP Basis) and Actual – General Fund . . . . . . . . . . . . . . . . . . A-2 70

Combining and Individual Fund Statements and Schedules:

Combining Balance Sheet – Nonmajor Governmental Funds . . . . . . B-1 82

Combining Statement of Revenues, Expenditures, and Changes

in Fund Balances – Nonmajor Governmental Funds. . . . . . . . . . B-2 83

Combining Balance Sheet – Nonmajor Special Revenue Funds. . . . C-1 86

Combining Statement of Revenues, Expenditures, and Changes

in Fund Balances – Nonmajor Special Revenue Funds . . . . . . . . C-2 90

i





Table of Contents


SCHEDULE PAGE

Schedule of Revenues, Expenditures, and Changes in Fund

Balance – Budget (GAAP Basis) and Actual – Attorney

Administration Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-3 94


Balance – Budget (GAAP Basis) and Actual –

Forfeitures Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-4 95


Balance – Budget (GAAP Basis) and Actual – Civic

Center Complex Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-5 96


Balance – Budget (GAAP Basis) and Actual – FEMA

Disaster Grants Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-6 97


Balance – Budget (GAAP Basis) and Actual – Jury Fund. . . . . . . C-7 98


Balance – Budget (GAAP Basis) and Actual – Sheriff

Commissary Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-8 99


Balance – Budget (GAAP Basis) and Actual – Memorial

Library Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-9 100



Community Development Fund. . . . . . . . . . . . . . . . . . . . . . . . . . C-10 101


Balance – Budget (GAAP Basis) and Actual – Animal

Shelter Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-11 102


Balance – Budget (GAAP Basis) and Actual – Law

Library Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-12 103



Historical Commission Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-13 104



Alternate Dispute Resolution Fund . . . . . . . . . . . . . . . . . . . . . . . . C-14 105


Balance – Budget (GAAP Basis) and Actual – Juvenile

Probation Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-15 106


Balance – Budget (GAAP Basis) and Actual – Records

Management and Preservation Fund . . . . . . . . . . . . . . . . . . . . . . . C-16 107


Balance – Budget (GAAP Basis) and Actual – Child

Welfare Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-17 108


Balance – Budget (GAAP Basis) and Actual – Airport

Maintenance Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-18 109

ii





Table of Contents


SCHEDULE PAGE

Combining Balance Sheet – Nonmajor Debt Service Funds . . . . . . . D-1 112

Combining Statement of Revenues, Expenditures, and

Changes in Fund Balances – Nonmajor Capital

Project Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-2 113


alance – Budget (GAAP Basis) and Actual – Debt Service

Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-3 114


Balance – Budget (GAAP Basis) and Actual – Jail Financing

Corporation Debt Service Fund . . . . . . . . . . . . . . . . . . . . . . . . . . D-4 115

Combining Balance Sheet – Nonmajor Capital Project Funds . . . . . . . E-1 118

Combining Statement of Revenues, Expenditures, and

Changes in Fund Balances – Nonmajor Capital

Project Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-2 120

Combining Statement of Assets and Liabilities – Agency

Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 124

Combining Statement of Changes in Assets and Liabilities –

Agency Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 125

Capital Assets Used in the Operation of Governmental Funds:

Schedule by Source . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1 127

Schedule by Function and Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . G-2 128

Schedule of Changes by Function and Activity . . . . . . . . . . . . . . . . . . G-3 130

STATISTICAL SECTION

TABLE

Financial Trends:

Net Assets by Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 135

Changes in Net Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II 136

Governmental Fund Balances – Last Ten Fiscal Years. . . . . . . . . . . . . III 138

Changes in Fund Balances, Governmental Funds – Last

Ten Fiscal Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV 140

Revenue Capacity:

Taxable Assessed Value and Actual Value of Property – Last

Ten Fiscal Years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V 143

Property Tax Rates – Direct and Overlapping Governments –

Last Ten Fiscal Years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI 144

Principal Taxpayers – Current Year and Nine Years Ago . . . . . . . . . . VII 152

Property Tax Levies and Collections – Last Ten Fiscal Years. . . . . . . VIII 153

Debt Capacity:

Ratios of Outstanding Debt by Type – Last Ten Fiscal Years. . . . . . . IX 154

Ratios of Net General Bonded Debt Outstanding – Last

Ten Fiscal Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X 155

iii





Table of Contents


TABLE

Legal Debt Margin – Last Ten Fiscal Years. . . . . . . . . . . . . . . . . . . . . XI 156

Direct and Overlapping Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XII 158

Pledged-Revenue Coverage – Last Ten Fiscal Years. . . . . . . . . . . . . . XIII 161

Economic and Demographic Indicators:

Demographic and Economic Statistics – Last Ten Fiscal Years. . . . . . XIV 162

Principal Employers – Current Year and Nine Years Ago . . . . . . . . . . XV 163

Operating Information:

County Employees by Function – Last Ten Fiscal Years. . . . . . . . . . . XVI 165

Operating Indicators by Function – Last Ten Fiscal Years . . . . . . . . . XVII 166

Capital Asset and Infrastructure Statistics by Function –

Last Ten Fiscal Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVIII 169

iv



Montgomery County, TexasOffice of the County Auditor

301 North Thompson, Suite 202, Conroe, Texas 77301

P. O. Box 539, Conroe, Texas 77305

Phyllis L. MCounty A

Peggie Ru1

st Assistant County A

March 23, 2009

The Board of District JudgesThe Commissioners’ CourtMontgomery County, Texas

Honorable Judges and Commissioners:

The Comprehensive Annual Financial Report of Montgomery County, Texas, for the year endedSeptember 30, 2008, is submitted herewith. This report was prepared by the County Auditor inaccordance with generally accepted accounting principles as promulgated by the GovernmentalAccounting Standards Board, and is in compliance with Chapter 114.025 and Chapter 115.045 of theLocal Government Code.

Responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the County. To provide a reasonable basis for makingthis representation, Montgomery County management has established a comprehensive internal control

framework designed both to protect governmental assets from loss, theft, or misuse, and to compilesufficient reliable information for the preparation of the county’s financial statements in conformity withGenerally Accepted Accounting Principles (GAAP). Montgomery County’s comprehensive framework, because the cost of internal controls should not outweigh their benefits, has been designed to providereasonable, rather than absolute, assurance that the financial statements will be free from materialmisstatement. We believe the data as presented is accurate in all material aspects; that it is presented in amanner designed to fairly set forth the financial position and results of operations of Montgomery Countyas measured by the financial activity of its various funds; and that all disclosures necessary to enable thereader to gain the maximum understanding of the County’s financial activity have been included.

Montgomery County’s financial statements have been audited by Hereford, Lynch, Sellars & Kirkham,P.C., a firm of licensed certified public accountants. The goal of the independent audit was to providereasonable assurance that the financial statements of the County for the fiscal year ended September 30,2008 are free of material misstatement. The independent audit involved examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial presentation. The independent auditor concluded, based on the audit, that there was a reasonable basis forrendering an unqualified opinion that the financial statements of Montgomery County for the year endedSeptember 30, 2008 are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report.

The independent audit of the financial statements of Montgomery County was a part of a broader,federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The

Tele: (936) 539-7820•••Fax (936) 788-8390•••Email: [email protected]



standards governing Single Audit engagements require the independent auditor to report not only on thefair presentation of the financial statements, but also on the government’s internal controls andcompliance with legal requirements. Specific emphasis was placed on internal controls and compliancewith laws and regulations involving the administration of federal awards. This Single Audit Report isavailable as a separate report from Montgomery County.

GAAP require that management provide a narrative introduction, overview, and analysis to accompany

the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). Thisletter of transmittal is designed to compliment MD&A and should be read in conjunction with it.Montgomery County’s MD&A can be found immediately following the report of the independentauditors.

Profile of Montgomery County

Montgomery County was created in 1837, and is located on the southern edge of the Big Thicket,approximately forty miles north of metropolitan Houston. The County provides a full range of services,including police protection, legal and judicial services, construction and maintenance of roads and bridges, public health service, and facilities for recreational and cultural use. The County operates a fullservice airport as a reliever to nearby Bush Intercontinental Airport. Three major rail lines intersect in thecounty seat of Conroe. The Lone Star College System offers both 2- and 4-year degree plans in partnership with several universities throughout the state. Scenic Lake Conroe sits among some 1,090square miles of rolling hills and grassy meadows to create an atmosphere of rural America nestledsecurely beside its urban neighbors.

The County operates as specified under the Constitution of The State of Texas, and in accordance with the provisions of the State Statutes of Texas, which provide for a Commissioners’ Court consisting of theCounty Judge and four Commissioners, each of whom is elected from four geographical precincts. TheCounty Judge is elected for a four-year term, and the Commissioners for four-year staggered terms.

The U.S. Census Bureau reported the 1990 population for Montgomery County to be 180,394, and theyear 2000 population to be 293,768. At September 30, 2008 the reported population was 430,768. This47% growth in nine years was evident in the increased demand for service at the county level.

Montgomery County maintains strict budgetary controls to ensure compliance with legal provisions in theannual appropriated budget approved by the governing body. Activities of the General Fund, the SpecialRevenue Funds, and the Debt Service Funds are included in the annual appropriated budget. Budget toactual comparisons are provided in this report for all funds for which an annual appropriated budget isadopted. According to the budget laws of the State of Texas, expenditures may not exceed the amountappropriated for each fund. The County Auditor is responsible for compiling and presenting a budget toCommissioners’ Court for their consideration and approval, adhering to a calendar established by thestatutes of the State of Texas. In keeping with those statutes, the ad valorem tax levy cannot beestablished until the budget is adopted. In Montgomery County, the budget is adopted by September 1 ofeach year. Once adopted, the budget is enforced by the County Auditor, as provided by statute.

Factors Affecting Financial Condition

The information presented in the financial statements of Montgomery County is best understood when itis considered from the broader perspective of the specific environment within which Montgomery Countyoperates.

Local economy- The County’s economy has historically been based on mineral production (oil, gas,sand, and gravel), agriculture (horses, cattle, greenhouse nurseries), and lumbering (timber products).Commercial construction has continued to increase as a result of several large shopping centers beingdeveloped along the Interstate 45 corridor. Investments made in Texas highways recently have assisted inattracting new and diverse businesses to the County. The Woodlands, a planned community in south




Montgomery County, is home to energy, biomedical, and technology businesses, causing continuedgrowth in the southern part of the County.

Long-term financial planning- The Commissioners’ Court continues to be very active in infrastructuredevelopment, specifically road improvements, to help insure economic growth. In the second half ofcalendar year 2005, the County executed an agreement with the Texas Department of Transportation thatis facilitating the improvement of five separate state-owned roads. This “pass-thru toll” agreement

provides for the County to pledge local funds to improve these roads, with a partial reimbursement fromhighway funds at a later date. The County pledged $100 million of the Series 2006 $160 million voter-approved road bonds, as well as an additional $88 million of future bonds to leverage the federal funds forthe projects in the hopes of gaining an estimated $232 million in improvements for the citizens ofMontgomery County.

As part of this future planning, the Commissioners’ Court created the Montgomery County Toll RoadAuthority (“MCTRA”) in August 2006. The MCTRA will be charged with the task of collecting tollsfrom vehicles traveling on that portion of State Highway 242 which connects with Interstate 45 insouthern Montgomery County. This project will improve one of the specific roads listed in the agreementwith the Texas Department of Transportation, and is expected to be completed in early 2010. Revenuesgenerated by the authority are anticipated to be used to either retire a portion of the debt related to theconstruction or to fund future improvements.

Recognizing the immediate as well as future need for more bed space in the county jail, Commissioners'Court created the Jail Financing Corporation in September 2006. The primary purpose of the new entitywas to raise the funds necessary to construct a 1,100-bed detention facility adjacent to the existing jail.The Corporation issued $45 million in lease-revenue bonds during 2007, and construction has beencompleted. The facility is being leased to the County by the Corporation to initially house federal inmatesunder the terms of an intergovernmental agreement (IGA) with the federal government. Revenuesreceived from housing the federal inmates are, in turn, being used to retire the outstanding bonds. TheCounty has freed additional bed space by transferring federal inmates from the existing jail to the newfacility.

In an effort to combat the increasing inflationary cost on medical claims and to control utilization of plan

benefits by participants, the County will open an employee/retiree health clinic, which will allow theCounty to pay for minor medical services at substantially reduced pricing. The clinic will also bemodeled to offer Health Risk Assessments (HRA) which will allow for identification and education forthe prevention of medical conditions by the employee/retiree population. With proper maintenance ofcertain medical conditions, the employer sponsored medical plan will be less apt to incur large claims.

In addition to traditional medical claims, the Clinic will offer immediate medical services for WorkersCompensation injuries. A large percentage of workers compensation claims could be resolved at the clinicand the employee would be released to back to work. This method of service would allow for a reductionof workers compensation claim cost and workers compensation indemnity payments for the County.

If all components of the medical clinic are implemented, including a pharmacy, the County shouldachieve substantial savings now and in the future.

Cash management policies and practices- The County’s investment function operates within theguidelines of a written policy as required by the Public Funds Investment Act. An investment committeecomprised of the County Treasurer, Tax Assessor-Collector, District Clerk, and a member ofCommissioners’ Court oversees the investment activities for the County. The County Auditor andCounty Attorney are advisors to the committee. Commissioners’ Court has designated the CountyTreasurer the investment officer for the County.

Specific investment strategies have been identified for each group of funds. Strategies emphasize safetyof principal as well as liquidity. Demand deposits are covered by pledged collateral maintained in joint




safekeeping accounts at Compass Bank. Special attention is paid to timing maturities to be consistentwith construction project draws and regular operating expenditures.

Risk Management- The County retains various levels of risk, and accounts for the associatedexpenditures in the General Fund. The portions of risk that are not transferred to third party coverage areself-funded by the County under formal arrangements. Additional information concerning the County’srisk management activities is included in the notes to the financial statements.

Pension and other post-employment benefits- The County provides retirement, disability, and death benefits for all of its full-time regular employees through a nontraditional defined benefit pension plan inthe statewide Texas County and District Retirement System (TCDRS). Detailed information on theretirement plan and other post-employment benefits can be found in the notes to the financial statements.

Awards and Acknowledgments

At the annual conference of the National Purchasing Institute (NPI), Montgomery County was awardedan Achievement of Excellence in Procurement for demonstrating extraordinary innovation, professionalism, productivity, and leadership attributes in the Purchasing Department. This was the sixthconsecutive year that the County has achieved this award.

The Government Finance Officers Association of the United States and Canada (GFOA) awarded aCertificate of Achievement for Excellence in Financial Reporting to Montgomery County for itsComprehensive Annual Financial Report (CAFR) for the fiscal year ended September 30, 2007. This wasthe twentieth consecutive year that the County has achieved this prestigious award. In order to beawarded a Certificate of Achievement, a government must publish an easily readable and efficientlyorganized comprehensive annual financial report. This report must satisfy both generally acceptedaccounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that our currentcomprehensive annual financial report continues to meet the Certificate of Achievement Program’srequirements, and we are submitting it to the GFOA to determine its eligibility for another certificate.

The preparation of this report would not have been possible without the efficient and dedicated services of

all County departments. I want to express my appreciation to the entire staff of the Office of CountyAuditor for their continued efforts. I also wish to commend the members of the Commissioners’ Courtfor conducting the financial operations of Montgomery County in a responsible manner, while meetingthe increasing demands for public service.

Respectfully submitted,

Phyllis L. MartinMontgomery County Auditor

/s




Certificate of

Achievement

or

Excellence

in Financial

Reporting

Presented to

Montgomery County

Texas

For its Comprehensive Annual

Financial Report

for the Fiscal Year Ended

September 30, 2007

A Certificate o Achievement for Excellence in Financial

R"porting

is

presented by the Government Finance Officers

Association o the United States and Canada to

government units and public employee retirement

systems whose comprehensive annual financial

reports (CAFRs) achieve the highest

standards in government accounting

and financial reporting.

President

Executive Director



MONTGOMERY COUNTY, TEXAS ORGANIZATION CH

C

J

COUNTY

TREASURER

DIRECTOR OF INFRASTRUCTURE

TAX ASSESSOR

COLLECTOR

COUNTY JUDGE

VOTERS

COMMISSIONERS' COURT

AIRPORT

MAINTENANCE

CIVIC

CENTER

COMMUNITY

DEVELOPMENT

ENVIRONMENTAL

HEALTH

PARKS

PURCHASING

JUSTICES OF

THE

PEACE (5)

COMMISSIONERS

(4)

INFORMATION

TECHNOLOGY

EMERGENCY

MANAGEMENT

RISK

MANAGEMENT

VETERAN

SERVICES

DISTRICT

ATTORNEY

DISTRICT

CLERK

COLLECTIONS

ELECTIONS

LIBRARY

COUNTY

ATTORNEY

COUNTY

CLERK

BUILDING

MAINTENANCE

CUSTODIAL

SERVICES

HUMAN

RESOURCES

SHERIFF

CONSTABLES

(5)

ANIMAL CONTROL

& SHELTER

COUNTY

ENGINEER

FIRE

MARSHAL



7


DIRECTORY OF OFFICIALS

SEPTEMBER 30, 2008

COMMISSIONERS’ COURT:

Alan B. Sadler County Judge

Mike Meador Commissioner, Precinct #1

Craig Doyal Commissioner, Precinct #2

Ernest E. Chance Commissioner, Precinct #3Ed Rinehart Commissioner, Precinct #4

DISTRICT COURT:

Fred Edwards Judge, 9th Judicial District

Suzanne Stovall Judge, 221st Judicial District

Cara Wood Judge, 284th Judicial District

Kathleen Hamilton Judge, 359th Judicial District

K. Michael Mayes Judge, 410th Judicial District

Michael T. Seiler Judge, 435th

Judicial District

Michael McDougal District Attorney

Barbara G. Adamick District ClerkCOUNTY COURT AT LAW:

Dennis Watson Judge, County Court at Law #1

Luther J. Winfree Judge, County Court at Law #2

Patrice McDonald Judge, County Court at Law #3

Mary Ann Turner Judge, County Court at Law #4

David Walker County Attorney

Mark Turnbull County Clerk

JUSTICE COURT:

Lanny Moriarty Justice of Peace, Precinct #1

Grady Trey Spikes Justice of Peace, Precinct #2Mary E. Connelly Justice of Peace, Precinct #3

James Metts Justice of Peace, Precinct #4

Matthew Masden Justice of Peace, Precinct #5

LAW ENFORCEMENT:

Tommy Gage Sheriff

Donnie O. Chumley Constable, Precinct #1

Gene DeForest Constable, Precinct #2

Tim Holifield Constable, Precinct #3

Travis L. Bishop Constable, Precinct #4

David H. Hill Constable, Precinct #5

FINANCIAL ADMINISTRATION:

J.R. Moore, Jr. Tax Assessor-Collector

Martha N. Gustavsen County Treasurer

Phyllis L. Martin County Auditor*

Carolyn Hooper Purchasing Agent*

* Designates appointed official. All others are elected.



8



MANAGEMENT’S DISCUSSION AND ANALYSIS

This discussion and analysis provides readers of the financial statements of Montgomery County, Texas(the County) with a narrative overview and analysis of the County’s financial activities for the fiscal yearended September 30, 2008. The intent of this discussion and analysis is to evaluate the current activities,resulting changes, and currently known facts of the County as a whole. Readers of this discussion and

analysis should consider the information presented here in conjunction with additional information that isfurnished in the accompanying letter of transmittal, which can be found on pages 1-4 of this report. Thisdiscussion should also be read in conjunction with the basic financial statements and the notes to thosefinancial statements (which immediately follow this discussion). The discussion and analysis includescomparative data for the prior year.

FINANCIAL HIGHLIGHTS

• The assets of the County exceeded its liabilities at the close of the fiscal year by $345,753,360

(net assets). Of this amount, $7,656,130 is restricted for specific purposes. With the presentationof the investment in capital assets, unrestricted net assets becomes a negative $61,641,311.Analysis of the negative unrestricted net assets reveals that a large portion of debt was used to purchase land for road expansion projects that are a joint undertaking with the State. In theseinstances of expansion of State-owned roads, the County will report the debt at this time, but notthe asset.

• The revenues of the County’s government-wide activities were $261,537,623 and expenses were$232,751,031. Rapid growth in the county brought about uncommon infrastructurecontributions, adding to an increase in net assets of $28,786,592.

• At September 30, 2008, the County’s governmental funds reported combined ending fund

balances of $162,094,633, an increase of $13,471,268 in comparison with the prior year. Fromthe ending fund balance, $114,640,573 is reserved for specific purposes. Approximately 29% ofthe ending balance, $47,454,060, is available for spending at the government’s discretion.

• At September 30, 2008, unreserved, undesignated fund balance for the General Fund was$25,332,415, or 19.6% of total General Fund expenditures.

•

The County’s total net bonded debt increased by $74,546,835 (22.7%) during the current fiscalyear. This increase was brought about by the issuance of $46,835,000 in general obligation bonds, $9,855,000 in refunding bonds and $33,050,000 in certificates of obligation. Therefunding issue contributed to an increase of outstanding general obligation bonds by $1,760,308,while instrumentally affecting a decrease in outstanding certificates of obligation by $4,455,000.

OVERVIEW OF THE FINANCIAL STATEMENTS

This discussion and analysis is intended to serve as an introduction to Montgomery County’s basicfinancial statements, which are comprised of three components: 1) government-wide financialstatements, 2) fund financial statements, and 3) notes to the financial statements. This report alsocontains additional supplementary information to the financial statements themselves.

Government-Wide Financial Statements

The Statement of Net Assets and the Statement of Activities, the two government-wide financialstatements, are designed to provide readers with a broad overview of Montgomery County’s finances,similar to the financial statements of a private-sector business. Both of these statements are presentedusing the full accrual basis of accounting; therefore, revenues are reported when they are earned andexpenses are reported when the goods and services are received, regardless of the timing of cash beingreceived or disbursed. These statements include capital assets of the County (including infrastructureadded since implementing GASB 34 in fiscal year 2003 and the portion of GASB 34 as it pertains toretroactive infrastructure reporting) as well as all liabilities (including long-term debt). Additionally,

11



certain eliminations have occurred as prescribed by GASB 34 in regards to interfund activity, payablesand receivables.

The Statement of Net Assets presents information on all of Montgomery County’s assets and liabilities,with the difference between the two being reported as net assets. This statement is similar to that of the balance sheet of a private-sector business (with primary sections in a business balance sheet being assets,

liabilities, and equity). The GASB believes that, over time, increases or decreases in the net assets mayserve as a useful indicator of whether the financial position of the County is improving or deteriorating.

The Statement of Activities presents the County’s revenues and expenses for the year, with the difference between the two resulting in the change in net assets for the fiscal year ended September 30, 2008. Allchanges in net assets are reported as soon as the underlying event giving rise to the change occurs,regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statementfor some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes andearned but unused vacation leave). Because the statement of activities separates program revenue(revenue generated by specific programs through fees, fines, forfeitures, charges for services, or grantsreceived) from general revenue (revenue provided by taxes and other sources not tied to a particular program), it shows to what extent each function has to rely on general revenues for funding. Thegovernmental functions of the County include general administration, judicial, legal services, elections,

financial administration, public facilities, public safety, health and welfare, culture and recreation,conservation, public transportation, miscellaneous, and debt service.

Government-wide financial statements include not only the activities of the County itself (known as the primary government), but also those of a legally separate component unit: the Montgomery County JailFinancing Corporation. The County Commissioners’ Court acts as the Board of Directors for thecomponent unit whose activities are blended with those of the primary government because they functionas part of the County government.

The government-wide financial statements can be found on pages 28-29 of this report.

Fund Financial Statements

The fund financial statements focus on the County’s most significant funds (major funds) rather than fundtypes, or the County as a whole. A fund is a grouping of related accounts that is used to maintain controlover resources that have been segregated for specific activities or objectives. Montgomery County, likeother state and local governments, uses fund accounting to ensure and demonstrate compliance withfinance-related legal requirements. All of the funds of the County can be divided into two categories:governmental funds and fiduciary funds.

1)

Governmental funds are maintained to account for the government’s operating and financingactivities. The measurement focus is on available resources.

2) Fiduciary funds are used to account for resources that are held by the government as a trusteeor agent for parties outside of the government. The resources of fiduciary funds cannot beused to support the government’s own programs.

Governmental funds are used to account for those functions reported as governmental activities in thegovernment-wide financial statements. As mentioned earlier, government-wide financial statements arereported using full accrual accounting; governmental fund financial statements focus on near-term inflowsand outflows of expendable resources, as well as balances of available resources. In other words, revenueis reported when earned, provided it is collectible within the reporting period or soon enough afterward to be used to pay liabilities of the current period. Likewise, liabilities are recognized as expenditures onlywhen payment is due since they must be liquidated with available cash. Such information is useful incomparing a government’s near-term financing requirements to near-term resources available.

12



The focus of governmental funds is narrower than that of the government-wide financial statements;therefore it is useful to compare the information presented for governmental funds with similarinformation presented for governmental activities in the government-wide financial statements. By doingso, readers should better understand the results and long-term impact of the government’s near-termfinancing decisions. The user is assisted in this comparison between the two bases of accounting by wayof a reconciliation statement between the governmental fund balance sheet and the government-wide

statement of net assets, as well as a reconciliation statement between the governmental fund statement ofrevenues, expenditures, and changes in fund balances and the government-wide statement of activities.

Montgomery County maintained 33 individual governmental funds during the fiscal year endedSeptember 30, 2008. Information is presented separately in the governmental fund balance sheet and inthe governmental fund statement of revenues, expenditures, and changes in fund balances for the GeneralFund, the Road and Bridge Fund, the Capital Projects Road Bonds Series 2006B Fund, and the CapitalProjects Road Bonds Series 2008B Fund, all of which are considered to be major funds. Data from theremaining governmental funds (i.e., nonmajor funds) is combined into a single, aggregated presentation.Individual fund data for each nonmajor governmental fund is provided in the form of combiningschedules, which are included in the Other Supplementary Information section following the notes to thefinancial statements.

Montgomery County utilizes and maintains budgetary controls over its operating funds. Budgetarycontrols are used to ensure compliance with legal provisions required under state statute governing theannual appropriated budget. Budgets for governmental funds are established in accordance with state lawand are adopted at the department level for the General Fund, all Special Revenue Funds, and the DebtService Fund using the primary categories of salaries, benefits, supplies, services, and capital outlay. A budgetary comparison statement is provided in the financial section for the General Fund and the Roadand Bridge Special Revenue Fund. Budgetary comparison schedules for the Debt Service Fund and allnonmajor special revenue funds are provided as supplementary information. These budgetarycomparisons can be used to demonstrate compliance with the budget both in its original and final forms.

The basic governmental fund financial statements can be found on pages 30-40 of this report.

Fiduciary funds are used to account for resources held for the benefit of parties other than the County

itself. Agency funds are the only fiduciary fund type used by Montgomery County, and they are notreflected in the government-wide financial statements because the resources of those funds are notavailable to support the programs and expenses of the County. The basis of accounting used for fiduciaryfunds is the full accrual basis, much like that of the government-wide statements.

The basic fiduciary fund financial statements can be found on page 41 of this report.

Notes to the financial statements provide additional information that is essential to a full understandingof the data provided in the government-wide and fund financial statements. As such, the notes are anintegral part of the basic financial statements. They focus on the primary government’s governmentalactivities, major funds, and nonmajor funds in the aggregate.

The notes to the financial statements can be found on pages 43-66 of this report.

Additional supplementary information is comprised of the General Fund final budget versus actual atthe department level. This comparative data can be found on pages 68-80 of this report.

Other supplementary information includes combining financial statements for nonmajor governmentaland fiduciary funds. These funds are totaled by fund type and presented in a single column in the basicfinancial statements. They are not reported individually, as with major funds, on the governmental fundfinancial statements.

Other supplementary information can be found on pages 82-131 of this report.

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GOVERNMENT-WIDE FINANCIAL ANALYSIS

As noted earlier, the GASB believes that net assets may serve over time as a useful indicator of agovernment’s financial position. Montgomery County’s assets exceeded liabilities by $345,753,360 atSeptember 30, 2008, as shown in the table below. This amount represents an increase through

governmental activities of $28,786,592 from the net assets at September 30, 2008.


Net Assets - Governmental Activities

FY 2008 FY 2007

Current and other assets $ 230,963,963 $ 205,233,607

Capital assets 590,403,599 487,246,734

Total assets 821,367,562 692,480,341

Long-term liabilities outstanding 439,396,902 347,275,198

Other liabilities 36,217,300 28,238,375

Total liabilities 475,614,202 375,513,573

Net assets:

Invested in capital assets,net of related debt 399,738,541 368,993,046

Restricted 7,656,130 7,070,714

Unrestricted (61,641,311) (59,096,992)

Total net assets $ 345,753,360 $ 316,966,768

The County’s total assets of $821,367,562 are largely comprised of investments of $165,318,997, or20.2%, and capital assets net of accumulated depreciation of $590,403,599, or 71.9%. The capital assetsof the County include land, buildings, improvements other than buildings, equipment, and infrastructure(roads, bridges, signs, etc.) Capital assets are non-liquid assets that provide services to citizens; as aresult, these assets cannot be utilized to satisfy County obligations.

As in last year, long-term debt of $439,396,902 comprises the largest portion of the County’s totalliabilities of $475,614,202, at 92.4%. Of total long-term liabilities, $13,003,414 is due within one year,with the remainder of $426,393,488 being due over a period of time greater than one year. A more in-depth discussion of long-term debt can be found in the notes to the financial statements.

The County’s assets exceeded its liabilities by $345,753,360 (net assets) on September 30, 2008.Roughly 2.3%, or $7,656,130, of the County’s net assets represents restricted net assets. These resourcesare subject to external restrictions on how they may be used. Restrictions include statutory requirements, bond covenants, and granting conditions. Of those restricted net assets, $38,463 is restricted for capital projects and $7,617,667 is restricted for debt service of compensated absences and arbitrage rebate. Themost significant portion ($399,738,541) of the County’s net assets reflects its investment in capital assets,net of related debt. Although unrestricted net assets is negative for government-wide net assets, it should be noted that the County’s fund financial statements continue to reflect positive unreserved fund balances.

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Montgomery County’s governmental activities increased net assets by $28,786,592. The key componentsof this increase are as follows:


Governmental Activities

FY 2008 FY 2007

Revenues:

Program revenues:

Fees, fines, forfeitures, and charges for services $ 45,404,012 $ 42,109,442

Federal grants and contributions 18,752,348 11,964,706

State grants and contributions 4,485,971 2,761,919

Other grants and contributions 52,567,749 58,884,598

General revenues:

Property taxes 131,600,844 115,740,129

Other taxes 1,610,605 1,381,764

Other general revenues 7,116,094 8,862,425

Total revenues 261,537,623 241,704,983

Expenses:

General administration 16,822,168 11,780,620

Judicial 15,894,641 17,042,393

Legal services 2,445,787 2,233,072

Elections 1,947,963 1,466,229

Financial administration 5,088,713 4,981,536

Public facilities 19,887,748 20,208,449

Public safety 51,558,472 44,725,170

Health and welfare 16,301,079 7,637,646

Culture and recreation 8,697,389 8,460,806

Conservation 825,476 760,370

Public transportation 76,212,732 69,455,834

Miscellaneous 1,070,696 2,846,822

Debt service interest and fiscal charges 15,998,167 11,701,725

Total expenses 232,751,031 203,300,672

Change in net assets 28,786,592 38,404,311 Net assets - beginning 316,966,768 278,562,457

Net assets - ending $ 345,753,360 $ 316,966,768

The County’s total revenues of $261,537,623 were all from governmental activities. Property tax revenueaccounts for $131,600,844, or 50.3%; program revenues of fees, fines, forfeitures, and charges forservices comprise $45,404,012, or 17.4%; and grants and contributions encompass $75,806,068, or 29.0%of total government-wide revenues.

Expenses for the year totaled $232,751,031. The public transportation function accounted for$76,212,732, or 32.8% of this total. The increase in spending in the public transportation functioncontinues to be due to the several large road construction projects the County has undertaken. These projects are primarily for the widening and improvement of State-owned roads, creating inflated

expenditures in the public transportation function, with no offsetting asset capitalization. The publicsafety ($51,558,472), public facilities ($19,887,748), and general administration ($16,822,168) functionsrepresent 22.2%, 8.6%, and 7.2% of total government-wide expenses, respectively. These three functionsshow marked interdependent increases. Expenses of the County jail and law enforcement agencies arereported in the public facilities and public safety functions, respectively. These two functions operatewith the clerks of the court (County and District), which are housed in the general administrationfunction.

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The government’s ending net assets of $345,753,360 represent an increase of $28,786,592 from the prioryear’s $316,966,768 in net assets. The County’s change in net assets is summarized by the followingchart:


Change in Net Assets

FY 2008 FY 2007

Governmental funds activity:

Total revenues $ 208,706,577 $ 183,339,792

Total expenditures 293,231,315 233,438,076

Excess (Deficiency) of revenues over expenditures (84,524,738) (50,098,284)

Capital lease financing 16,599,021 3,953,897

Issuance of certificates of obligation 33,050,000 -

Issuance of general obligation bonds 56,690,000 86,329,989

Payment to refunded bond escrow agent (10,211,444) (41,706,307)

Premiums on obligations, net 1,868,429 820,247

Net change in fund balance 13,471,268 (700,458)

Government-wide activity:

Difference between current year's capital outlay

expenditures and depreciation expense 52,373,421 20,155,851

Net effect of capital asset sales, donations, trade-ins, etc. 50,783,445 57,517,135

Revenues not reported in funds because they do not

provide current-period financial resources 2,047,598 848,056

Long-term debt not reported in funds because it does

not affect the current period (87,864,370) ( 37,805,657)

Expenses not reported in the funds because they do not

use current-period financial resources (2,024,770) (1,610,616)

Total change in net assets $ 28,786,592 $ 38,404,311

This change in net assets begins with the current year’s differences between governmental revenues andexpenditures ($84,524,738), along with other financing sources and uses ($97,996,006). Differences between capital assets added during the year and the depreciation related to all capital assets recorded,

along with the effect of various capital assets transactions, such as dispositions and donations($103,156,866) also affect this change.

Other factors influencing the change in net assets are those revenues and expenses that do not provide orrequire the use of current financial resources ($22,828). GASB 34 dictates that the County record anallowance for accounts that are unlikely to be collected. These allowances for doubtful accounts combinewith items, such as deferrals of long-term balances not being paid in the current year, to constitute furtherchanges in net assets. Additionally, long-term debt, whether being issued or retired, has an effect on thechange in net assets ($87,864,370). During the fiscal year, the County issued new debt and paid off a portion of its existing debt. These financings represent further changes in the net assets of the County.

The overall financial position of the County has improved over the last year. As mentioned earlier, thereis an increase in net assets of $28,786,592. Additionally, the increase of $9,870,269 in the combined fund

balance of Montgomery County’s two major operating funds would indicate an improvement in overallfinancial position. However, total operating fund balance is neither where management desires norintends for it to be. As part of long-range planning, management has pledged to continue increasing thelevel of the operating funds’ fund balances until such time as they represent between 20 and 25 percent ofannual operating costs.

16



The following chart depicts expenses and program revenues for the fiscal year ending September 30, 2008for governmental activities.

Expenses and Program Revenues - Governmental Activities

$0$2$4$6$8

$10$12$14$16$18$20$22$24$26$28$30

$32

G e n e r a l

a d m i n i s t

r a t i o n

J u d i c i a l

L e g a l s e r v i

c e s

E

l e c t i o

n s

F i n a n c i a l a

d m i n i s t

r a t i o n

P u b l i c

f a c i l i t

i e s

P u b l i c

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H e a l t h a n d

w e l f

a r e

C u l t u

r e a n d r e

c r e a t i o n

C o n s e r v

a t i o n

P u b l i

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M i s c e l l a

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D e b t

s e r v i c

e i n t e

r e s t a n d

f i s c a l c h a

r g e s

Expense

Revenue

* See note below * See note below

* Public safety expenses and revenues have each been decreased by $19million; public transportation expenses and revenues have each been decreased $49millionfor the purpose of a more easily read chart. No other expenses or revenues have

been altered in any way and are accurate as shown.

Key elements of the analysis of government-wide program revenues and expenses as they relate to eachfunction reflect the following:

• Program revenues of $121,210,080 are comprised in large part (55.3%) of public transportation’srevenues of $67,035,732 and public safety’s revenues of $19,715,813 (16.3%). The health and

welfare function comprises 9.1% of program revenues with $11,049,260, the judicial functionmakes up 7.7% of program revenues with $9,342,159 and, the general administration functioncovers 4.8% of program revenues with $5,799,253. The expenses of these functions account for32.7%, 22.20%, 4.0%, 6.8%, and 7.3%, respectively. As expected, general revenues provided therequired support and coverage in areas where expenses exceeded revenues.

• The public transportation function experienced an increase in expenses of $6,756,898 whilerealizing a decrease in revenues of $5,079,162. The increase in expenses is the result of anaggressive effort on the part of commissioners to improve and expand roads, many of which arestate-owned, located in the County. These roads, because they are not owned by the County,cannot be shown as capital assets in the government-wide analysis; this creates a large expense,with no corresponding asset.

•

On September 13, 2008, Hurricane Ike slammed into the Houston metropolitan area, leaving a

wide swathe of destruction in its wake. After a Presidentially-declared disaster, the FederalEmergency Management Agency (FEMA) moved into the area to provide cleanup and debrisremoval assistance. During a long and difficult recovery hampered by power outages, the County provided assistance to citizens at many levels. The public safety, public facilities, generaladministration, public transportation and health and welfare functions experienced increasedexpenses while coping with an influx of citizens and officials. The County provided variedservices such as debris removal and disposal, staging areas for utility companies to coordinaterestoration of power to homes and businesses and housing of FEMA officials.

17



The following chart depicts revenues of the governmental activities for the fiscal year ended September30, 2008.

Revenues by Source - Governmental Activities

Property taxes

50.3%

Fees, fines, forfeitures, and

charges for services

17.4%

Other grants and contributions

20.1%

State grants and contributions

1.7%

Federal grants and contributions

7.2%

Other general revenues

2.7%

Other taxes

0.6%

GOVERNMENTAL FUND FINANCIAL ANALYSIS

Montgomery County uses fund accounting to ensure and demonstrate compliance with finance-relatedlegal requirements.

Governmental funds are a means of providing information on near-term inflows, outflows, and balancesof usable resources. Such information is useful in assessing Montgomery County’s financingrequirements. In particular, unreserved, undesignated fund balance may serve as a useful measure of agovernment’s net resources available for spending at the end of the fiscal year.

As of September 30, 2008, the County’s governmental funds reported combined ending unreserved,undesignated fund balances of $47,153,272, an increase of $28,354,859 in comparison with the prior year.This unreserved, undesignated fund balance is available for spending at the County’s discretion. Theremainder of fund balance is reserved or designated to indicate that it is not available for new spending because it has already been committed. These commitments can be to fund capital projects($109,016,095), pay debt service ($4,561,190), reflect inventories ($67,641), and reflect prepaid items($995,647). Commitments also come in the form of designations that will fund encumbrances from the prior year ($300,788). On September 30, 2008, the total fund balance of the General Fund (the chiefoperating fund of the County) was $25,847,632. Of that amount, $25,332,415 was available for spendingat the County’s discretion, $289,129 was designated for encumbrances, and $226,088 was reserved for prepaid items.

Total assets in the General Fund amounted to $62,874,678, accounting for 27.4% of total governmentalfund assets. The total assets of other major funds include Road and Bridge Special Revenue Fund($7,825,701), Capital Projects Road Bonds Series 2006B Fund ($25,738,010), and Capital Projects Road

18



Bonds Series 2008B Fund ($34,932,888). Together, all major funds account for $131,371,248 (57.3%) ofthe County’s $229,345,175 in total assets.

The fund balance of the County’s General Fund grew by $5,084,572 during the current fiscal year. Keyfactors in this growth are as follows:

• The Commissioners’ Court, as part of long-range planning, budgeted a $2,000,000 fund balance

increase.• An increase in the appraised value of real and personal property boosted ad valorem tax revenues

$11,971,628.

• The County has multiple contracts with outside entities for security services through the offices of

the Sheriff and the Constables. Increases in the number of contracts generated larger thanexpected reimbursements from these organizations, resulting in an increase to contractreimbursements of $731,399 over the past year.

The Road and Bridge Special Revenue Fund has a total fund balance of $6,006,863 which is reported as$67,641 reserved for inventory, $3,202 designated for encumbrances and $5,935,863 unreserved,undesignated. The unreserved, undesignated portion of the fund balance increased $5,540,350 during thecurrent year due to focus by the Commissioners for various capital projects funds to help finance road

construction contracts that were paid through the capital projects funds. Additionally, permittingdifficulties for utility relocation involved with the building of a precinct barn necessitated the delay of itsconstruction.

The Capital Projects Road Bonds Series 2006B Fund has a fund balance of $21,573,561 at the end of thefiscal year. The decrease of $18,535,175 is due to the swift progress in road construction projectsthroughout the County.

At year end, the $33,736,679 fund balance of the Capital Projects Road Bonds Series 2006B was reservedfor capital projects to illustrate the County’s commitment to rapid road expansion and its pioneeringimplementation of the State of Texas “pass-through toll” program.

GENERAL FUND BUDGETARY HIGHLIGHTS

The published budget of Montgomery County for the fiscal 2008 was prepared on a modified accrual basis, and includes all elements required by Texas Local Government Code Section 111.063, applicableto counties of population more than 125,000 that have appointed a County Budget Officer. The originaladopted budget of the General Fund includes revenues of $120,771,453 and expenditures of$108,496,003. The General Fund’s final budget, as amended, contains revenues of $136,861,463 andexpenditures of $148,262,777.

19



The following table presents the changes between the original adopted budget and the final budget for theGeneral Fund as of September 30, 2008.

General Fund

Budget Variances


Original Budget Final Budget

Variance withOriginal Budget

Positive (Negative)

Revenues:

Taxes $ 97,679,584 $ 98,470,862 $ 791,278

Licenses and Permits 1,342,015 1,393,108 51,093

Fees 12,004,306 11,846,368 (157,938)

Intergovernmental 683,896 7,879,050 7,195,154

Charges for Services 255,000 437,704 182,704

Interest 1,340,750 1,392,950 52,200

Contract Reimbursements 5,556,002 10,794,861 5,238,859

Inmate Housing 1,200,000 3,542,602 2,342,602

Fines and Forfeitures 73,500 73,500 -

Miscellaneous 636,400 1,030,458 394,058

Total Revenues 120,771,453 136,861,463 16,090,010Expenditures:

General Administration 15,325,670 17,758,987 (2,443,317)

Judicial 12,149,494 12,467,487 (317,993)

Legal Services 1,779,377 2,086,222 (306,845)

Elections 1,351,519 1,862,664 (511,145)

Financial Administration 5,573,006 5,680,038 (107,032)

Public Facilities 22,992,398 26,548,614 (3,556,216)

Public Safety 39,750,735 68,924,001 (29,173,266)

Health and Welfare 3,998,600 6,435,672 (2,437,072)

Conservation 461,065 501,487 (40,422)

Miscellaneous 5,114,139 5,997,605 (883,466)

Total Expenditures 108,496,003 148,262,777 (39,766,774)

Excess Revenues Over Expenditures 12,275,450 (11,401,314) (23,676,764)

Other Financing Sources/(Uses):

Transfers In - 1,032,407 1,032,407

Transfers Out - (1,920,487) (1,920,487)

Capital Lease Financing - 16,515,427 16,515,427

Total Other Financing Sources/(Uses) - 15,627,347 15,627,347

Net Change in Fund Balances 12,275,450 4,226,033 (8,049,417)

Fund Balance - Beginning 20,763,060 20,763,060 -

Fund Balance - Ending $ 33,038,510 $ 24,989,093 $ (8,049,417)

Final budgeted revenues were higher than originally planned by $16,090,010. The final amended budgetfor taxes increased $791,278 over the original budget due to an aggressive collection effort, whichresulted in higher than originally expected collections of current and delinquent taxes, along with the penalties and interest associated with those delinquent taxes. Intergovernmental revenue contained

$7,195,154 more in the final budget than in the original budget. This increase is largely due to theanticipated receipt of several large federal and state grants during the year that were not foreseen at thetime the original budget was adopted. The final budget for contract reimbursements was $5,238,859 morethan the original budget. The increase in the anticipated revenue was primarily due to a $4,844,630 budgeted contract reimbursement for the Community Supervision and Corrections Department’s salaryand fringe benefits. During the original budget process, Commissioners’ Court does not budget for fundsthat are not at the discretion of the County to spend. Since this contract reimbursement is earmarked forspecific purposes, it is not included in the original budget. During the course of the fiscal year, the

20



County entered into several contracts for law enforcement services with local agencies. These contractswere also contributing factors to the increase in the budget. An increase of $2,342,602 in the final budgetfor inmate housing was due to the Joe Corley Detention Facility opening earlier and at a higher capacity,allowing for more federal inmates to be housed at the facility.

The originally unanticipated revenue partially offset the expenditure differences of $39,766,774 between

the original budget and the final amended budget. The general administration function had a finalexpenditure budget that is $2,433,317 higher than the original budget. This increase was due in large partto employee health coverage in the County’s self-insured benefit plan. Estimated reserves are requiredfor self-insurance programs, which are recorded as they become available. At the time of the original budget process, these amounts were not readily identifiable.

The public facilities function had a final budget $3,556,216 higher than the original budget. As discussedearlier, the Joe Corley Detention Facility opened earlier than anticipated, resulting in a need to budgetadditional operating expenses.

Funds that were originally scheduled in prior fiscal years were not included in the original budget forfiscal year 2008. This practice reflects the County’s policy of letting encumbrances lapse at year-end andre-appropriating them in the current year. This policy created increases in the amended budget forcarryovers from the prior year in the general administration, elections, public facilities, health andwelfare, public safety, and miscellaneous functions.

A $29,173,266 increase in the final budget over the original budget for expenditures in the public safetyfunction was the result of several factors, including encumbrance carryovers as mentioned above.Included in the public safety function is the Community Supervision and Corrections Department(CSCD), which is not a County department. However, the County has entered into a contract with theCSCD that enables those employees to participate in the County’s employee benefit plan. CSCDreimburses the County 100% of the costs associated with said participation. Management believesinclusion of 100% reimbursed contracts in the original budget would unnecessarily inflate revenues andexpenditures because the revenues will always be sufficient to cover the expenditures. The County haselected not to include these amounts in the original, adopted budget each year.

Also contributing to the budgeted variances for the public safety function is the County’s participation in

several contracts with local agencies for law enforcement services. During the course of the fiscal year,additional interlocal agreements were created with local agencies for the performance of security services.These additional contracts created increased expenditures for the County, but also created an increase inthe revenue line supporting the associated expenditure.

During the fiscal year, the County entered into a contract with Motorola, Incorporated to provideinfrastructure and subscriber equipment (Montgomery County Radio System). This radio system is partof a Regional Radio System that incorporates Galveston, Harris, Fort Bend, Brazoria, Walker, Wharton,Matagorda, Liberty and Montgomery Counties and provides interoperable communication between all ofthese agencies with more than 38,000 users. Five Radio Consoles were purchased and are housed in theCommunication Division of the Sheriff’s Office and include computer and radio equipment. As part ofthe contract with Motorola, Incorporated, Montgomery County purchased P25 compliant digital radios for

the County and other law enforcement agencies in the County.The health and welfare function had final budgeted expenditures $2,437,072 higher than the original budget for expenditures. This function includes two grants that are managed by the University of TexasMedical Branch for the County. Both grants are pass-through in nature, ultimately resulting in acorresponding revenue for the expense incurred. To prevent any increase in taxes for the constituents ofthe County for this grant-funded cost, the expense is not budgeted until the revenue is budgeted, whichwas after the original budget process.

21



The increase of expenditures in the final amended budget over the original budget that was not covered bythe revenues’ increase was reported as a decrease in the final amended budgeted net change in fund balances. This amount was reduced by $8,049,417.

The following table presents the differences between the final amended budget and actual expendituresfor the General Fund as of September 30, 2008.

General FundBudget Variances


Final Budget Actual

Variance with Final

Budget Positive

(Negative)

Revenues:

Taxes $ 98,470,862 $ 98,955,742 $ 484,880

Licenses and Permits 1,393,108 1,375,221 (17,887)

Fees 11,846,368 13,376,504 1,530,136

Intergovernmental 7,879,050 5,533,821 (2,345,229)

Charges for Services 437,704 449,802 12,098

Interest 1,392,950 2,149,826 756,876

Contract Reimbursements 10,794,861 10,968,433 173,572

Inmate Housing 3,542,602 3,566,886 24,284Fines and Forfeitures 73,500 125,152 51,652

Miscellaneous 1,030,458 1,390,327 359,869

Total Revenues 136,861,463 137,891,714 1,030,251

Expenditures:

General Administration 17,758,987 12,905,900 4,853,087

Judicial 12,467,487 12,020,750 446,737

Legal Services 2,086,222 1,985,918 100,304

Elections 1,862,664 1,606,046 256,618

Financial Administration 5,680,038 5,251,827 428,211

Public Facilities 26,548,614 25,448,843 1,099,771

Public Safety 68,924,001 61,944,932 6,979,069

Health and Welfare 6,435,672 6,369,418 66,254

Conservation 501,487 481,849 19,638

Miscellaneous 5,997,605 1,070,696 4,926,909Total Expenditures 148,262,777 129,086,179 19,176,598

Excess Revenues Over Expenditures (11,401,314) 8,805,535 20,206,849

Other Financing Sources/(Uses):

Transfers In 1,032,407 1,032,407 -

Transfers Out (1,920,487) (17,281,134) (15,360,647)

Capital Lease Financing 16,515,427 16,515,427 -

Total Other Financing Sources/(Uses) 15,627,347 266,700 (15,360,647)

Net Change in Fund Balances 4,226,033 9,072,235 4,846,202

Fund Balance - Beginning 20,763,060 20,763,060 -

Change in Accounting Principle - (3,987,663) (3,987,663)

Fund Balance - Ending $ 24,989,093 $ 25,847,932 $ 858,539

Actual revenues exceeded budgeted revenues by $1,030,251. Fee increases approved by the statelegislature comprise a share of the increase ($1,530,136) and serve to offset the shortfall inintergovernmental revenues. The County’s policy for multiple year grants is to budget the entire grant inthe year in which it is received. In the case of Homeland Security grants, which span multiple Countyfiscal years, $2,695,385 was budgeted, of which $891,643 was spent during the fiscal year.

Actual expenditures were $19,176,598 lower than final budgeted expenditures. The generaladministration function contributed $4,853,087 toward that amount. The risk management department ofthe County is charged with recording costs of various liability and property claims and settlements.

22



During the fiscal year, costs of those claims were significantly lower than had been anticipated at the timeof the budget process.

The public facilities function had expenditures that were $1,099,771 less than was approved in the finalamended budget. The early opening of the new Joe Corley Detention Facility to house federal inmatesfreed bed space at the County’s own Jail and allowed for cost savings.

All departments in the public safety function of the General Fund expended less than was approved in thefinal amended budget by $6,979,069. The difference is primarily due to the Sheriff’s departmentexperiencing difficulty in retaining qualified staff. In fiscal year 2009 the Sheriff’s departmentimplemented a structured salary plan to attract and retain qualified staff. In addition, grants that spanmultiple County fiscal years or are awarded late in the fiscal year contain monies that are spent insubsequent years.

The miscellaneous function showed actual expenditures less than the final budget by $4,926,909. Asdiscussed in the original to final budget comparisons, this was due in large part to the funding ofanticipated salary increases. At the time an increase is approved, the funds are transferred to theappropriate department or function. Therefore, actual expenditures in the miscellaneous function were farless than originally budgeted.

The actual net change in fund balance was $4,846,202 greater than anticipated with the final budget. Thisis the result of both an increase in actual revenues and a reduction in actual expenditures that includedsufficient amounts to cover transfers to other funds. The Jury Special Revenue Fund and the MemorialLibrary Special Revenue Fund each received $7,269,478 and $7,125,000 more than shown in the final budget. In all of these funds, the emphasis is on providing a service. In the case of the Jury SpecialRevenue Fund, that service is in the form of a court system. The Memorial Library Special RevenueFund’s emphasis is on culture and recreation. These funds are not expected in any year to provide enoughrevenues to adequately fund their own services. Therefore, it is anticipated that the General Fund willservice the expenditures of those funds every year. Transfers in and out simply provide a mechanism tomove funds from one self-balancing set of accounts (a fund) to another self-balancing set of accounts.

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

Montgomery County’s investment in capital assets for its governmental activities as of September 30,2008 amounted to $590,403,599 (net of accumulated depreciation). This investment in capital assetsincludes land, buildings, improvements, equipment, infrastructure that was purchased, completed ordonated since the fiscal year ending September 30, 1981, and construction in progress.

Major capital asset events during the current fiscal year included the following:

• Additions to land totaled $1,712,285 and included a purchase of land for the Spring CreekGreenway.

• Purchases in the buildings category of $39,615,766 included a building that will be remodeled inthe future to accommodate County growth.

• Vehicles, vehicle modifications, and other various equipment items were purchased at a cost of$19,513,726. To support the County’s commitment to law enforcement, 1,556 radios were purchased at a cost of $14,263,857.

• A variety of projects for both new infrastructure construction and for expansion or updating ofexisting infrastructure were ongoing during the year. Infrastructure projects begun and completedin 2008 amounted to $17,989,738.

23



•

Montgomery County is the 25th fastest growing county in the United States1. This brisk growth brings with it a need for vast improvements to a rural infrastructure system. Developmentfrequently comes with donations in the form of roads. Infrastructure donations for the yeartotaled $51,217,202.

• Projects that were capitalized from ongoing construction throughout the year, including adetention facility, totaled $44,492,871. Additional expenditures of $52,454,254 were incurred for

construction that was in progress throughout the year.• Increases in assets were offset by depreciation expense of $42,415,613.


Capital Assets

(net of depreciation)

September 30, 2008

with Comparative Totals for September 30, 2007

Value of Capital Asset Net of

Accumulated Depreciation Increase

FY 2008 FY 2007 (Decrease)

Land $ 11,891,395 $ 10,179,111 $ 1,712,284

Buildings 121,968,821 84,902,379 37,066,442

Improvements 8,939,070 4,895,280 4,043,790Equipment 30,915,808 17,308,832 13,606,976

Infrastructure 392,947,448 354,181,457 38,765,991

Construction in Progress 23,741,057 15,779,675 7,961,382

Total $590,403,599 $ 487,246,734 $ 103,156,865

In a continued effort to improve services to citizens, the County purchased radios, at a cost of$14,263,857, in order to implement an interoperability agreement with various law enforcement agenciesin the County. The County is in the process of constructing a new building for Justice of the Peace,Precinct 2 in the central part of the County. By September 30, 2008, $1,580,800 had been spent on thenew Justice of the Peace building.

Efforts to assist constituents in obtaining services and the County’s obligation to provide those services in

a rapidly growing county come with many challenges. In 2008, the Commissioner’s Court has met someof those challenges by beginning construction on a new administration building and an accompanying parking garage. The new administration building will house the Commissioner’s Court Room andCounty Judge’s offices as well as various general administration and financial administration offices. Thenew administration building will also house Montgomery County Community Development, the CountyEngineer and Environmental Health. By September 30, 2008, $7,352,802 had been spent and the building and parking garage are scheduled for completion late in fiscal year 2009.

The County has committed to multiple road construction projects in fiscal year 2008. In 2005, the votersof Montgomery County approved $160,000,000 in road bonds to fund road improvements throughout thecounty. The bonds will be issued in phases to fund road construction as the need arises. The remainderof the authorized road bonds were issued in the second half of fiscal year 2008.

Additional information on the County’s capital assets can be found in Note 7 starting on page 55 of thisreport.

Long-Term Debt

At September 30, 2008, Montgomery County had total bonded debt outstanding of $403,660,690(inclusive of the accreted portion of various capital appreciation bonds). Commissioners’ Court continues

1 http://www.census.gov

24



to keep maturity dates confined to no more than 22 years. The County’s underlying rating was upgraded by Standard and Poor’s Corporation during current fiscal year to “AA”.

The County issues three types of debt; general obligation bonds are approved by the voters of the Countywhile lease-revenue bonds and certificates of obligation are approved by Commissioners’ Court. Of theCounty’s total debt, $285,396,527 corresponds to general obligation debt, $44,834,989 is in the form of

lease revenue bonds and $73,180,000 represents certificates of obligation. Montgomery County’s total bonded debt had a net increase of $74,546,835 during 2008. The following table represents the entirelong-term debt of the County at September 30, 2008 on a comparative basis.


Governmental Activities

Outstanding Long-Term Debt

FY 2008 FY 2007

General obligation bonds $ 285,396,527 $ 234,277,478

Lease revenue bonds 44,834,989 44,834,989

Certificates of obligation 73,180,000 46,660,000

Accreted interest 249,174 3,341,388

Capital Leases 19,053,887 3,452,124

Premiums, net of discounts 9,064,658 7,715,713

Compensated absences 7,262,318 6,855,903

Arbitrage rebate 355,349 137,603

Total $ 439,396,902 $ 347,275,198

Debt activity in 2008 included an issue of $9,855,000 in refunding bonds. This issue refunded two seriesof general obligation and certificates of obligation and resulted in an economic gain of $493,572. Inaddition, County issued $33,050,000 in certificates of obligation and $46,835,000 in general obligation bonds. The County retired $7,690,955 in debt through scheduled principal payments made during theyear.

The County is authorized under Article III, Section 52 of the State Constitution to issue bonds payablefrom ad valorem taxes for the construction and maintenance of roads. There is no constitutional or

statutory limit as to rate on bonds issued pursuant to such constitutional provision. However, the amountof bonds that may be issued is limited to 25% of the assessed valuation of real property in the County.The current debt limitation for the County is $5,517,355,611, which is significantly in excess of theCounty’s outstanding debt obligation, despite the increases in debt issuance during 2008.

Additional information on Montgomery County’s long-term debt can be found in Note 9 beginning on page 56 of this report.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGET AND RATES

•

The unemployment rate for the County is currently 4.7%2, which is an increase from a rate of3.9% a year ago. This compares favorably to the State’s average unemployment rate of 5.2%3 and the national average rate of 6.2%4.

• Commissioners’ Court approved allocating a 3% cost of living adjustment and a 3% merit

increase in salary in fiscal year 2009.

• Increased demand for law enforcement services propelled Commissioners’ Court to bring theannualized budget in the Sheriff’s department to $61,836,349 in fiscal year 2009.

• The estimated debt service obligation increased by $2.2 million in fiscal year 2009 to$23,022,850.

2 The Work Source. http://www.wrksolutions.com/employer/lmi/unemploymentrates/LAUSHISTORY.pdf.3 The Work Source. http://www.wrksolutions.com/employer/lmi/unemploymentrates/LAUSHISTORY.pdf.4 U.S. Department of Labor, Bureau of Labor Statistics. http://data.bls.gov/PDQ/servlet/SurveyOutputServlet.

25



•

Commissioners’ Court has made a commitment to increase the County’s fund balance by$2,000,000 during the next fiscal year, as well as increase the fund balance by at least $2,000,000in subsequent years. This commitment is intended to provide the County with a strong equity base.

All of these factors were considered in preparing the Adopted Budget of Montgomery County, Texas for

the fiscal year ending September 30, 2009.

REQUESTS FOR INFORMATION

This financial report is designed to provide a general overview of Montgomery County’s finances for allthose with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to theMontgomery County Auditor, P. O. Box 539, Conroe, Texas 77305-0539.

26



BASIC FINANCIAL STATEMENTS

27




Statement of Net Assets

September 30, 2008

EXHIBIT I

ASSETS: Governmental Activities

Cash 9,894,470$Investments, at Fair Value 165,318,997

Cash, Restricted 818,701

Cash, Restricted for Retainage 1,456,266

Receivables:

Taxes (net) 5,933,245

Accounts (net) 17,529,454

Accrued Interest 16,700

Due from Other Governments 13,570,556

Inventory, at Cost 67,641

Deferred Charges 15,362,286 Prepaid Items 995,647

Capital Assets, net of accumulated depreciation

Land 11,891,395

Buildings 121,968,821

Improvements 8,939,070

Equipment 30,915,808

Infrastructure 392,947,448

Construction in Progress 23,741,057

Total Assets 821,367,562

LIABILITIES:

Accounts Payable 28,344,077

Retainage Payable 2,477,566

Accrued Interest Payable 3,050,429

Due to Other Governments 1,240,933

Unearned Revenue 1,104,295

Noncurrent Liabilities:

Due within one year 13,003,414

Due in more than one year 426,393,488

Total Liabilities 475,614,202

NET ASSETS:

Invested in Capital Assets, net of related debt 399,738,541 Restricted for:

Capital Projects 38,463

Debt Service 7,617,667

Unrestricted (61,641,311)

Total Net Assets 345,753,360$

See accompanying notes to the financial statements.

28




Statement of Activities


EXHIBI

Program Revenues

Fees, Fines, Net (ExpenForfeitures, Operating Capital Revenue a

and Charges Grants and Grants and Changes i

Functions/Programs Expenses for Services Contributions Contributions Net Asset

Primary Government:

Governmental Activities:

Current:

General Administration 16,822,168$ 5,797,753$ -$ 1,500$ (11,022,9$

Judicial 15,894,641 8,712,572 629,587 - (6,552,4

Legal Services 2,445,787 483,018 - - (1,962,7

Elections 1,947,963 2,081 698,910 2,266 (1,244,7 Financial Administration 5,088,713 2,101,194 - - (2,987,5

Public Facilities 19,887,748 4,548,064 - 6,367 (15,333,3

Public Safety 51,558,472 14,255,517 4,491,912 968,384 (31,842,6

Health and Welfare 16,301,079 1,495,403 9,281,939 271,918 (5,251,8

Culture and Recreation 8,697,389 294,045 119,973 - (8,283,3

Conservation 825,476 - 11,945 - (813,5

Public Transportation 76,212,732 7,714,365 141,969 59,179,398 (9,177,0

Miscellaneous 1,070,696 - - - (1,070,6

Debt Service Interest and

Fiscal Charges 15,998,167 - - - (15,998,1 Total Governmental Activities 232,751,031$ 45,404,012$ 15,376,235$ 60,429,833$ (111,540,9

General Revenues:

Property Taxes 131,600,8

Other Taxes 144,6

Mixed Beverage Taxes 1,146,1

Bingo Taxes 148,4

Vehicle Weight Tax 171,3

Insurance Reimbursements 199,1

Unrestricted Investment Earnings 5,680,8

Gain on Sale of Capital Assets 1,236,0

Total General Revenues 140,327,5

Change in Net Assets 28,786,5

Net Assets - Beginning 316,966,7

Net Assets - Ending 345,753,3$


29




Balance Sheet

Governmental Funds

September 30, 2008

EXHIBIT III

Road General and Bridge

ASSETS:

Cash 3,477,678$ 1,206,700$

Investments, at Fair Value 43,253,298 4,048,553

Cash, Restricted - -

Cash, Restricted for Retainage - 226,286 Receivables:

Taxes (net) 4,398,410 579,782

Accounts (net) 2,733,807 34,234

Accrued Interest - -

Due from Other Funds 3,063,204 1,416,936

Due from Other Governments 5,722,164 245,569

Inventory, at Cost - 67,641

Prepaid Items 226,088 -

TOTAL ASSETS 62,874,649$ 7,825,701$

LIABILITIES AND FUND BALANCES:

Liabilities:

Accounts Payable 12,052,116$ 949,950$

Retainage Payable - 226,286

Due to Other Funds 19,150,347 47,995

Due to Other Governments 1,240,933 -

Deferred Revenue 4,583,621 594,764

Total liabilities 37,027,017 1,818,995 Fund Balances:

Reserved for:

Prepaid Items 226,088 -

Capital Projects - -

Inventory - 67,641

Debt Service - - Unreserved, designated for encumbrances, reported in :

General Fund 289,129 -

Special Revenue Funds - 3,202 Unreserved, undesignated, reported in:

General Fund 25,332,415 -

Special Revenue Funds - 5,935,863

Total Fund Balances 25,847,632 6,006,706

TOTAL LIABILITIES AND

FUND BALANCES 62,874,649$ 7,825,701$


30



Road Bonds Road Bonds Other TotalSeries 2006B Series 2008B Governmental Funds Governmental Funds

-$ 21,421$ 5,188,671$ 9,894,470$

24,622,229 34,878,338 58,516,579 165,318,997

- - 818,701 818,701

130 - 1,229,850 1,456,266

- - 955,053 5,933,245

16,618 33,129 135,682 2,953,470

- - 16,700 16,700

1,099,033 - 22,740,309 28,319,482

- - 7,602,823 13,570,556

- - - 67,641

- - 769,559 995,647

25,738,010$ 34,932,888$ 97,973,927$ 229,345,175$

4,116,100$ 1,196,209$ 10,029,702$ 28,344,077$

7,349 - 2,243,931 2,477,566

41,000 - 9,080,140 28,319,482

- - - 1,240,933

- - 1,690,099 6,868,484

4,164,449 1,196,209 23,043,872 67,250,542

- - 769,559 995,647

21,573,561 33,736,679 53,705,855 109,016,095

- - - 67,641

- - 4,561,190 4,561,190

- - - 289,129

- - 8,457 11,659

- - - 25,332,415

- - 15,884,994 21,820,857

21,573,561 33,736,679 74,930,055 162,094,633

25,738,010$ 34,932,888$ 97,973,927$ 229,345,175$

31



32




Reconciliation of the Balance Sheet of the Governmental Funds

to the Statement of Net Assets


Total fund balances - governmental funds (page 31) 162,094,633$

Amounts reported for governmental activities in

the statement of net assets are different because:

Bond issuance costs are expenditures in the funds

but are amortized over the life of the bonds in

government-wide statements. 15,362,286

Capital assets used in governmental activities are

not financial resources and therefore are not reported in

the funds. These capital assets (net of accumulated

depreciation) consist of:Land 11,891,395

Buildings 121,968,821

Improvements 8,939,070

Equipment 30,915,808

Infrastructure 392,947,448

Construction in Progress 23,741,057

Total Capital Assets 590,403,599

Other long term assets that were not available to

pay for current-period expenditures were deferred in the

funds. These assets consist of fines and fees receivable,

net of allowance. 14,575,984

Property taxes earned that are not available to pay for

current-period expenditures are deferred in the funds. 5,764,190

Some liabilities are not due and payable in the current

period and therefore are not reported in the funds. Those

liabilities consist of:

Interest payable (3,050,430)

Bonds and capital leases payable (431,779,235)

Arbitrage payable (355,349)

Compensated absences (7,262,318)

Total future period liabilities (442,447,332)

Net assets of governmental activities 345,753,360$


33



MONTGOMERY COUNTY, TEXASStatement of Revenues, Expenditures, and Changes in Fund Balances

Governmental FundsYear Ended September 30, 2008

EXHIBIT I

Road REVENUES: General and Bridge

Taxes 98,955,742$ 13,013,191$Licenses and Permits 1,375,221 6,285,623 Fees 13,376,504 106,707 Intergovernmental 5,533,821 313,657 Charges for Services 449,802 - Interest 2,149,826 150,334 Contract Reimbursements 10,968,433 - Inmate Housing 3,566,886 - Fines and Forfeitures 125,152 972,168 Miscellaneous 1,390,327 2,084,758

TOTAL REVENUES 137,891,714 22,926,438

EXPENDITURES:Current:

General Administration 12,905,900 - Judicial 12,020,750 - Legal Services 1,985,918 - Elections 1,606,046 - Financial Administration 5,251,827 - Public Facilities 25,448,843 - Public Safety 61,944,932 - Health and Welfare 6,369,418 - Culture and Recreation - - Conservation 481,849 321,959 Public Transportation - 18,623,895 Miscellaneous 1,070,696 -

Capital Project - - Debt Service:

Principal Retirement - - Interest and Fiscal Charges - - Issuance Costs - -

TOTAL EXPENDITURES 129,086,179 18,945,854

Excess (Deficiency) RevenuesOver Expenditures 8,805,535 3,980,584

OTHER FINANCING SOURCES/(USES):

Transfers In 1,032,407 918,150 Transfers Out (17,281,134) (196,631) Capital Lease Financing 16,515,427 83,594 Issuance of General Obligation Debt - - Issuance of Refunding Bonds - -

Issuance of Certificates of Obligation - - Premium on Debt Issuance - - Payment to Refunded Bond Escrow Agent - - Discounts on Debt Issuanc - - TOTAL OTHER FINANCING

SOURCES/(USES) 266,700 805,113

Net Change in Fund Balances 9,072,235 4,785,697 Fund Balances at Beginning of Year 20,763,060 1,221,009 Change in Accounting Principle (3,987,663) -

FUND BALANCES AT END OF YEAR 25,847,632$ 6,006,706$


34



Other TotalRoad Bond Road Bond Governmental Governmental

Series 2006B Series 2008B Funds Funds

-$ -$ 20,683,280$ 132,652,213$- - 153,085 7,813,929 - - 1,219,353 14,702,564 - - 19,329,405 25,176,883 - - 1,478,107 1,927,909

1,082,129 82,470 2,433,815 5,898,574 - - 169,827 11,138,260 - - - 3,566,886 - - 929,244 2,026,564

225,000 - 102,710 3,802,795

1,307,129 82,470 46,498,826 208,706,577

- - 626,519 13,532,419 - - 6,483,955 18,504,705 - - 411,911 2,397,829 - - - 1,606,046 - - - 5,251,827 - - - 25,448,843 - - 2,539,767 64,484,699 - - 11,482,218 17,851,636 - - 7,314,312 7,314,312 - - - 803,808 - - 367,942 18,991,837 - - - 1,070,696

19,801,304 1,161,453 72,943,445 93,906,202

- - 4,598,741 4,598,741 - - 16,024,292 16,024,292 - 314,474 1,128,949 1,443,423

19,801,304 1,475,927 123,922,051 293,231,315

(18,494,175) (1,393,457) (77,423,225) (84,524,738)

- - 19,713,129 21,663,686 (41,000) - (4,144,921) (21,663,686)

- - - 16,599,021 - 34,705,000 12,130,000 46,835,000 - - 9,855,000 9,855,000

- - 33,050,000 33,050,000 - 425,136 1,629,343 2,054,479 - - (10,211,444) (10,211,444) - - (186,050) (186,050)

(41,000) 35,130,136 61,835,057 97,996,006

(18,535,175) 33,736,679 (15,588,168) 13,471,268 40,108,736 - 86,530,560 148,623,365

- - 3,987,663 -

21,573,561$ 33,736,679$ 74,930,055$ 162,094,633$

35



36




Reconciliation of the Statement of Revenues, Expenditures,

and Changes in Fund Balances of the Governmental Funds

to the Statement of Activities


Amounts reported for governmental activities in the statement of activities (page 29)

are different because:

Net change in fund balances - total governmental funds (page 35) 13,471,268$

Governmental funds report capital outlays as expenditures.

However, in the statement of activities the cost of those assets is

allocated over their estimated useful lives and reported as depreciation

expense. This is the amount by which capital outlays exceeded

depreciation in the current period. 52,373,421

The net effect of various miscellaneous transactions involving

capital assets (i.e., sales, trade-ins, seizures, and donations) is to increase

net assets. 50,783,445

Revenues in the statement of activities that do not providecurrent financial resources are not reported as revenues in the funds. 2,047,598

The issuance of long-term debt (e.g., bonds, leases) provides

current financial resources to governmental funds, while the repayment

of the principal of long-term debt consumes the current financial

resources of governmental funds. Neither transaction, however, has any

effect on net assets. Also, governmental funds report the effect of

issuance costs, premiums, discounts, and similar items when debt is first

issued, whereas these amounts are deferred and amortized in the

statement of activities. This amount is the net effect of these differences

in the treatment of long-term debt and related items. (87,864,370)

Some expenses reported in the statement of activities do not

require the use of current financial resources and, therefore, are not

reported as expenditures in governmental funds. (2,024,770)

Change in net assets of governmental activities (page 29) 28,786,592$


37




Budget (GAAP Basis) and ActualMajor Governmental Funds


EXHIBIT V

Page 1 of 3

General Fund

Variance with

Original Final Final Budget

Budget Budget Actual Positive (Negative)

REVENUES:

Taxes 97,679,584$ 98,470,862$ 98,955,742$ 484,880$

Licenses and Permits 1,342,015 1,393,108 1,375,221 (17,887)

Fees 12,004,306 11,846,368 13,376,504 1,530,136

Intergovernmental 683,896 7,879,050 5,533,821 (2,345,229)

Charges for Services 255,000 437,704 449,802 12,098

Interest 1,340,750 1,392,950 2,149,826 756,876

Contract Reimbursements 5,556,002 10,794,861 10,968,433 173,572

Inmate Housing 1,200,000 3,542,602 3,566,886 24,284

Fines and Forfeitures 73,500 73,500 125,152 51,652

Miscellaneous 636,400 1,030,458 1,390,327 359,869

TOTAL REVENUES 120,771,453 136,861,463 137,891,714 1,030,251

EXPENDITURES:

Current:

General Administration 15,325,670 17,758,987 12,905,900 4,853,087

Judicial 12,149,494 12,467,487 12,020,750 446,737

Legal Services 1,779,377 2,086,222 1,985,918 100,304

Elections 1,351,519 1,862,664 1,606,046 256,618

Financial Administration 5,573,006 5,680,038 5,251,827 428,211

Public Facilities 22,992,398 26,548,614 25,448,843 1,099,771

Public Safety 39,750,735 68,924,001 61,944,932 6,979,069

Health and Welfare 3,998,600 6,435,672 6,369,418 66,254

Conservation 461,065 501,487 481,849 19,638

Public Transportation - - - -

Miscellaneous 5,114,139 5,997,605 1,070,696 4,926,909

TOTAL EXPENDITURES 108,496,003 148,262,777 129,086,179 19,176,598

Excess (Deficiency) Revenues Over

Expenditures 12,275,450 (11,401,314) 8,805,535 20,206,849

OTHER FINANCING SOURCES/

(USES):

Transfers In - 1,032,407 1,032,407 -

Transfers Out - (1,920,487) (17,281,134) (15,360,647) Capital Lease Financing - 16,515,427 16,515,427 -

TOTAL OTHER FINANCING

SOURCES - 15,627,347 266,700 (15,360,647)

Net Change in Fund Balances 12,275,450 4,226,033 9,072,235 4,846,202

Fund Balances at Beginning of Year 20,763,060 20,763,060 20,763,060 -

Change in Accounting Principle - - (3,987,663) 3,987,663

FUND BALANCES AT END OF YEAR 33,038,510$ 24,989,093$ 25,847,632$ 8,833,865$


38






EXHIBIT V

Page 2 of 3

Road and Bridge Fund

Variance with



REVENUES:

Taxes 12,899,300$ 12,899,300$ 13,013,191$ 113,891$

Licenses and Permits 6,132,730 6,132,730 6,285,623 152,893

Fees - 114,157 106,707 (7,450)

Intergovernmental 130,000 259,361 313,657 54,296

Charges for Services - - - -

Interest 55,000 55,000 150,334 95,334

Contract Reimbursements - - - -

Inmate Housing - - - -

Fines and Forfeitures 1,000,000 1,000,000 972,168 (27,832)

Miscellaneous - 1,975,291 2,084,758 109,467

TOTAL REVENUES 20,217,030 22,435,839 22,926,438 490,599

EXPENDITURES:

Current:

General Administration - - - -

Judicial - - - -

Legal Services - - - -

Elections - - - -

Financial Administration - - - -

Public Facilities - - - -

Public Safety - - - -

Health and Welfare - - - -

Conservation 257,088 321,959 321,959 -

Public Transportation 18,017,530 24,005,389 18,623,895 5,381,494

Miscellaneous - - - -



Expenditures 1,942,412 (1,891,509) 3,980,584 5,872,093


(USES):

Transfers In - 918,150 918,150 -

Transfers Out - (177,635) (196,631) (18,996) Capital Lease Financing - 83,594 83,594 -


SOURCES - 824,109 805,113 (18,996)

Net Change in Fund Balances 1,942,412 (1,067,400) 4,785,697 5,853,097


Change in Accounting Principle - - - -

FUND BALANCES AT END OF YEAR 3,163,421$ 153,609$ 6,006,706$ 5,853,097$


39






EXHIBIT V

Page 3 of 3

Totals

Variance with



REVENUES:

Taxes 110,578,884$ 111,370,162$ 111,968,933$ 598,771$

Licenses and Permits 7,474,745 7,525,838 7,660,844 135,006

Fees 12,004,306 11,960,525 13,483,211 1,522,686

Intergovernmental 813,896 8,138,411 5,847,478 (2,290,933)

Charges for Services 255,000 437,704 449,802 12,098

Interest 1,395,750 1,447,950 2,300,160 852,210

Contract Reimbursements 5,556,002 10,794,861 10,968,433 173,572

Inmate Housing 1,200,000 3,542,602 3,566,886 24,284

Fines and Forfeitures 1,073,500 1,073,500 1,097,320 23,820

Miscellaneous 636,400 3,005,749 3,475,085 469,336

TOTAL REVENUES 140,988,483 159,297,302 160,818,152 1,520,850

EXPENDITURES:

Current:

General Administration 15,325,670 17,758,987 12,905,900 4,853,087

Judicial 12,149,494 12,467,487 12,020,750 446,737

Legal Services 1,779,377 2,086,222 1,985,918 100,304

Elections 1,351,519 1,862,664 1,606,046 256,618

Financial Administration 5,573,006 5,680,038 5,251,827 428,211

Public Facilities 22,992,398 26,548,614 25,448,843 1,099,771

Public Safety 39,750,735 68,924,001 61,944,932 6,979,069

Health and Welfare 3,998,600 6,435,672 6,369,418 66,254

Conservation 718,153 823,446 803,808 19,638

Public Transportation 18,017,530 24,005,389 18,623,895 5,381,494

Miscellaneous 5,114,139 5,997,605 1,070,696 4,926,909



Expenditures 14,217,862 (13,292,823) 12,786,119 26,078,942


(USES):

Transfers In - 1,950,557 1,950,557 -

Transfers Out - (2,098,122) (17,477,765) (15,379,643) Capital Lease Financing - 16,599,021 16,599,021 -


SOURCES - 16,451,456 1,071,813 (15,379,643)

Net Change in Fund Balances 14,217,862 3,158,633 13,857,932 10,699,299


Change in Accounting Principle - - (3,987,663) 3,987,663

FUND BALANCES AT END OF YEAR 36,201,931$ 25,142,702$ 31,854,338$ 14,686,962$


40




Statement of Assets and Liabilities

Fiduciary Funds

September 30, 2008

EXHIBIT VI

Agency Funds

ASSETS:

Cash 12,555,598$

Investments, at Fair Value 1,095,368

Accounts Receivable 7,569

TOTAL ASSETS 13,658,535$

LIABILITIES:

Accounts Payable 8,435,423$

Due to Other Governments 5,223,112

TOTAL LIABILITIES 13,658,535$


41



C-1

HOU:2940412.4

APPENDIX C

FORM OF LEGAL OPINIONS PROVIDED UPON REMARKETING OF THE BONDS



Fulbright Jaworski l.l.p.

A Registered Limited Liability Partnership

Fulbright Tower

1301 McKinney, Suite 5100Houston, Texas 77010-3095

www.fulbright.com

telephone: (713) 651-5151 facsimile: (713) 651-5246

60187719.2/10505457 Austin • Beijing • Dallas • Denver • Dubai • Hong Kong • Houston • London • Los Angeles • Minneapolis

Munich • New York • Riyadh • San Antonio • St. Louis • Washington DC

Regions Bank, as Paying Agent/Registrar

1717 St. James PlaceSuite 500

Houston, Texas 77056

Wells Fargo Brokerage Services LLC, as

Remarketing AgentMAC# T5001-060

1000 Louisiana Street, Suite 600


Re: Montgomery County, Texas, Unlimited Tax Adjustable Rate Road Bonds, Series 2008B

Ladies and Gentlemen:

In connection with the conversion of the interest rate of the above-described Bonds (the“ Bonds”) from an Adjustable Rate to a Fixed Rate on September 1, 2009, we are of the opinion

that such conversion is in accordance with the terms of the order authorizing the issuance of the

Bonds on June 16, 2008, and an order adopted on July 27, 2009 (together, the “Order ”) and will

not have an adverse effect on the exclusion from federal income tax of the interest on the Bonds.In rendering this opinion, we have made no investigation of, and except as expressly set forth

herein, we express no opinion with respect to, the current status of the interest on the Bonds

under section 103 of the Internal Revenue Code of 1986, as amended, or any other federal taxmatter.

Terms not otherwise defined herein shall have the meaning given in the Order.

The opinion expressed herein is subject to the following qualifications, limitations andassumptions:

A. The foregoing opinion is limited solely to the currently existing laws of the Stateof Texas and applicable federal law. We express no opinion as to the applicability of the laws of

any other particular jurisdiction to the transactions described in this opinion.

B. In rendering the foregoing opinion, we have made no investigation of, and

consequently express no opinion with respect to, the qualification of the Bonds as obligationsdescribed in section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), or the



Page 2

60187719.2

present status of the interest on the Bonds under section 103 of the Code, or (except for the

matters specifically addressed above) any other federal tax matter.

C. In rendering the foregoing opinion, we have made no independent investigation asto the existence of any facts reflected in the factual assumptions we have made as described

hereinabove, nor have we made any investigation as to the accuracy or completeness of any

representations, warranties, data or other information, whether written or oral, that may have been made by, or on behalf of, Montgomery County, Texas, and we assume, in rendering such

opinions, that none of such information, if any, contains any untrue statement of a material fact

or omits to state a material fact necessary to make the statements made, in light of the

circumstances in which they were made, not misleading.

D. There are no changes or modifications being made to any of the terms of theBonds, other than the change to a Fixed Rate as described herein and a change to the Order

allowing the Bonds to be remarketed at a premium.

This opinion is limited to the specific opinion expressly stated herein, and no other

opinion is to be implied or may be inferred beyond the specific opinion expressly stated herein.

Without limiting the foregoing, in rendering the opinion expressed herein, we express no opinionregarding the applicability or effect of or compliance with any federal and state securities laws

and regulations or federal and state tax laws and regulations (except as specifically addressed

above).

This opinion is intended solely for your benefit and is not to be quoted in whole or in

part, disclosed, made available to, or relied upon by any other person, firm or entity without our

express prior written consent.

This opinion is based on existing law, which is subject to change. Such opinion is further

based on our knowledge of facts as of the date hereof. We assume no duty to update orsupplement our opinion to reflect any changes in any facts, circumstances or law that may

thereafter occur or become effective. Moreover, our opinion is not a guarantee of result and is

not binding on the Internal Revenue Service; rather, such opinion represents our legal judgment based upon our review of existing law we deem relevant to such opinion and in reliance upon the

assumptions referenced above.

This opinion is furnished to the addressees solely for your benefit and no other party is

entitled to rely hereon.

Very truly yours,



Fulbright Jaworski l.l.p.

A Registered Limited Liability Partnership

Fulbright Tower

1301 McKinney, Suite 5100Houston, Texas 77010-3095

www.fulbright.com

telephone: (713) 651-5151 facsimile: (713) 651-5246

60184964.1/10505457 Austin • Beijing • Dallas • Denver • Dubai • Hong Kong • Houston • London • Los Angeles • Minneapolis

Munich • New York • Riyadh • San Antonio • St. Louis • Washington DC

The Bank of New York Mellon Trust Company, N.A.,

as Paying Agent/Registrar2001 Bryan Street, 11th Floor

Dallas, Texas 75201

Wells Fargo Brokerage Services, LLC,

as Remarketing AgentMAC# T5001-060

1000 Louisiana Street, Suite 600


Re: Montgomery County, Texas, Unlimited Tax Adjustable Rate Road Bonds, Series 2006B

Ladies and Gentlemen:

In connection with the conversion of the interest rate of the March 1, 2028 maturity of theabove-described Bonds (the “ Bonds”) from an Adjustable Rate to a Fixed Rate on September 1,

2009, we are of the opinion that such conversion is in accordance with the terms of the order

authorizing the issuance of the Bonds (the “Order ”) and will not have an adverse effect on the

exclusion from federal income tax of the interest on the Bonds. In rendering this opinion, wehave made no investigation of, and except as expressly set forth herein, we express no opinion

with respect to, the current status of the interest on the Bonds under section 103 of the Internal

Revenue Code of 1986, as amended, or any other federal tax matter.

Terms not otherwise defined herein shall have the meaning given in the Order.

The opinion expressed herein is subject to the following qualifications, limitations and

assumptions:

A. The foregoing opinion is limited solely to the currently existing laws of the State

of Texas and applicable federal law. We express no opinion as to the applicability of the laws ofany other particular jurisdiction to the transactions described in this opinion.

B. In rendering the foregoing opinion, we have made no investigation of, and

consequently express no opinion with respect to, the qualification of the Bonds as obligations

described in section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), or the present status of the interest on the Bonds under section 103 of the Code, or (except for the

matters specifically addressed above) any other federal tax matter.



Page 2

60184964.1

C. In rendering the foregoing opinion, we have made no independent investigation as

to the existence of any facts reflected in the factual assumptions we have made as describedhereinabove, nor have we made any investigation as to the accuracy or completeness of any

representations, warranties, data or other information, whether written or oral, that may have been made by, or on behalf of, Montgomery County, Texas, and we assume, in rendering suchopinions, that none of such information, if any, contains any untrue statement of a material fact

or omits to state a material fact necessary to make the statements made, in light of the

circumstances in which they were made, not misleading.

D. There are no changes or modifications being made to any of the terms of the

Bonds, other than the change to a Fixed Rate as described herein.

This opinion is limited to the specific opinion expressly stated herein, and no otheropinion is to be implied or may be inferred beyond the specific opinion expressly stated herein.

Without limiting the foregoing, in rendering the opinion expressed herein, we express no opinionregarding the applicability or effect of or compliance with any federal and state securities lawsand regulations or federal and state tax laws and regulations (except as specifically addressed

above).

This opinion is intended solely for your benefit and is not to be quoted in whole or in

part, disclosed, made available to, or relied upon by any other person, firm or entity without our

express prior written consent.

This opinion is based on existing law, which is subject to change. Such opinion is further

based on our knowledge of facts as of the date hereof. We assume no duty to update or

supplement our opinion to reflect any changes in any facts, circumstances or law that maythereafter occur or become effective. Moreover, our opinion is not a guarantee of result and isnot binding on the Internal Revenue Service; rather, such opinion represents our legal judgment

based upon our review of existing law we deem relevant to such opinion and in reliance upon the

assumptions referenced above.

This opinion is furnished to the addressees solely for your benefit and no other party isentitled to rely hereon.

Very truly yours,



D-1

HOU:2940412.4

APPENDIX D

FORM OF LEGAL OPINIONS PROVIDED UPON ORIGINAL ISSUANCE OF THE BONDS



E-1

HOU:2940412.4

APPENDIX E

PASS-THROUGH TOLL AGREEMENT



F-1

HOU:2940412.4

APPENDIX F

FORM OF MUNICIPAL BOND INSURANCE POLICY



FINANCIAL

SECURITYASSURANCE®

MUNICIPAL BOND

INSURANCE POLICY

ISSUER:

BONDS:

Policy No.: -N

Effective Date:

Premium: $

FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), for consideration received,hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") orpaying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of andsecuring the Bonds) for the Bonds, for the benefit of the Owners or, at the election of FinancialSecurity, directly to each Owner, subject only to the terms of this Policy (which includes eachendorsement hereto), that portion of the principal of and interest on the Bonds that shall become Duefor Payment but shall be unpaid by reason of Nonpayment by the Issuer.

On the later of the day on which such principal and interest becomes Due for Payment or theBusiness Day next following the Business Day on which Financial Security shall have received Notice ofNonpayment, Financial Security will disburse to or for the benefit of each Owner of a Bond the faceamount of principal of and interest on the Bond that is then Due for Payment but is then unpaid byreason of Nonpayment by the Issuer, but only upon receipt by Financial Security, in a form reasonablysatisfactory to it, of (a) evidence of the Owner's right to receive payment of the principal or interest thenDue for Payment and (b) evidence, including any appropriate instruments of assignment, that all of theOwner's rights with respect to payment of such principal or interest that is Due for Payment shallthereupon vest in Financial Security. A Notice of Nonpayment will be deemed received on a givenBusiness Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it willbe deemed received on the next Business Day. If any Notice of Nonpayment received by FinancialSecurity is incomplete, it shall be deemed not to have been received by Financial Security for purposesof the preceding sentence and Financial Security shall promptly so advise the Trustee, Paying Agent or

Owner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement inrespect of a Bond, Financial Security shall become the owner of the Bond, any appurtenant coupon tothe Bond or right to receipt of payment of principal of or interest on the Bond and shall be fullysubrogated to the rights of the Owner, including the Owner's right to receive payments under the Bond,to the extent of any payment by Financial Security hereunder. Payment by Financial Security to theTrustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge theobligation of Financial Security under this Policy.

Except to the extent expressly modified by an endorsement hereto, the following terms shall havethe meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) aSaturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer'sFiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment"means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or thedate on which the same shall have been duly called for mandatory sinking fund redemption and doesnot refer to any earlier date on which payment is due by reason of call for redemption (other than bymandatory sinking fund redemption), acceleration or other advancement of maturity unless FinancialSecurity shall elect, in its sole discretion, to pay such principal due upon such acceleration together withany accrued interest to the date of acceleration and (b) when referring to interest on a Bond, payable onthe stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of theIssuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent forpayment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shallalso include, in respect of a Bond, any payment of principal or interest that is Due for Payment



Page 2 of 2Policy No. -N

made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant tothe United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealableorder of a court having competent jurisdiction. "Notice" means telephonic or telecopied notice,subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner,the Trustee or the Paying Agent to Financial Security which notice shall specify (a) the person or entitymaking the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amountbecame Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time ofNonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner" shall notinclude the Issuer or any person or entity whose direct or indirect obligation constitutes the underlyingsecurity for the Bonds.

Financial Security may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policyby giving written notice to the Trustee and the Paying Agent specifying the name and notice address of theInsurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the Paying Agent, (a) copies of all notices required to be delivered to Financial Security pursuant to this Policy shall besimultaneously delivered to the Insurer's Fiscal Agent and to Financial Security and shall not be deemedreceived until received by both and (b) all payments required to be made by Financial Security under thisPolicy may be made directly by Financial Security or by the Insurer's Fiscal Agent on behalf of FinancialSecurity. The Insurer's Fiscal Agent is the agent of Financial Security only and the Insurer's Fiscal Agentshall in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of FinancialSecurity to deposit or cause to be deposited sufficient funds to make payments due under this Policy.

To the fullest extent permitted by applicable law, Financial Security agrees not to assert, and herebywaives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) anddefenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignmentor otherwise, to the extent that such rights and defenses may be available to Financial Security to avoidpayment of its obligations under this Policy in accordance with the express provisions of this Policy

Montgomery County Texas road bonds Ser2006B

Documents

Transcript of Montgomery County Texas road bonds Ser2006B