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<br />TAX PROCEDURES - _GENERAL OBLlGATIOl"iBj).M)S
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<br />designate more than $10,000,000 of tax-exempt obligations as qualified
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<br />designated is issued. In any event an issuer may not
<br />tax-exempt obligations during anyone calendar year.
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<br />raisatDistrict
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<br />The Texas Property Tax Code (the "Code") establishes among other matters, county-wide appraisal and equalization of taxable
<br />property values and establishes in each county of the State an appraisal district and an appraisal review board. The Harris
<br />County Central Appraisal District (the "Appraisal District") has the responsibility of appraising property for all taxing units
<br />within Harris County, including the City. Such appraisal values will be subject to review and change by the Harris County
<br />Appraisal Review Board (the "Appraisal Review Board"). Such appraisal roll, as approved by the Appraisal Review Board,
<br />will be used by the City in establishing its tax rolls and tax rate.
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<br />The City has designated the Bonds as qualified tax-exempt obligations in the Bond Ordinances authorizing the issuance and
<br />sale of the Bonds and agrees that it will take such action as is necessary for the Bonds to constitute qualified tax-exempt
<br />obligations. Therefore, it is anticipated that financial institutions purchasing the Bonds will not be subject to the 100%
<br />disallowance of interest expense under section 265 of the Code. However, such purchasers would be subject to the 20%
<br />interest disallowance rule applicable under prior law.
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<br />the District
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<br />Except for certain exemptions provided by Texas law, all real and tangible personal property in the City is subject to taxation
<br />by the City; however, no effort is made by the City to collect taxes on personal property, other than on personal property
<br />devoted to commercial or industrial use. Principal categories of exempt property include: property owned by the State of
<br />Texas or its political subdivisions, if the property is used for public purposes; property exempt from ad valorem taxation by
<br />federal law; certain household goods, family supplies and personal effects; farm products owned by the producer, certain
<br />implements of farming and ranching; non-profit cemeteries; certain property of charitable organizations, youth development
<br />associations, religious organizations and qualified schools; designated historical sites; solar and wind-powered energy devices;
<br />and most individually-owned automobiles. In addition, the City may by its own action exempt residential homesteads of
<br />persons 65 years or older and certain disabled persons, to the extent deemed advisable by the City Council of the City, or by
<br />petition and referendum by the City's voters. Furthermore, the City must grant exemptions to disabled veterans, if requested,
<br />but only to the maximum extent of$3,OOO of taxable valuation. The City may also exempt up to 20% of the value of residential
<br />homesteads from ad valorem taxation. However, where ad valorem taxes have previously been pledged for the payment of
<br />debt, the City Council may continue to levy and collect taxes against the value of the exempted homesteads until the debt is
<br />discharged, if the cessation of the levy would impair the obligations of the contract by which the debt was created.
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<br />Valuation of ProDe
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<br />Generally, property in the City must be appraised by the Appraisal District at market value as of January 1 of each year. Once
<br />an appraisal roll is prepared and finally approvcd by the Appraisal Review Board, it is used by the City in establishing its tax
<br />rolls and tax rate. Except for qualifying agricultural and timberland, assessments under the Code are to be based on one
<br />hundred percent (100%) of market value. The Code permits land designated for agricultural use, open-space agricultural use, or
<br />timberland to be appraised at its value based on the land's capacity to produce agricultural or timber products rather than at its
<br />fair market value.
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<br />The Code requires the Appraisal District to implement a plan for periodic reappraisal of property to update appraisal values.
<br />The plan must provide for reappraisal of all real property in the Appraisal District at least once every three years. It is not
<br />known what frequency of reappraisal will be utilized by the Appraisal District or whether reappraisals will be conducted on a
<br />zone or cowlty-wide basis.
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<br />LEGAL MATTERS
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<br />Legal matters incident to the authorization, issuance and sale of the Bonds are subject to the approval of the Attorney GenCTal
<br />of the State of Texas and of McGinnis, Lochridge & Kilgore, L.L.P., Bond Counsel, whose opinion will be printed on the
<br />Bonds. McGinnis, Lochridge & Kilgore, L.L.P. was not requested to participate, and did not take part in, the preparation of the
<br />Official Statement except as hereinafter noted, and such fmn has not assumed any responsibility with respect thereto or
<br />undertaken independently to verifY any of the information contained herein, except that, in its capacity as Bond Counsel, such
<br />firm has reviewed the information under the captions "DESCRIPTION OF BONDS", "TAX MATTERS" and "LEGAL
<br />MATTERS" in the Official Statement to determine whether such information presents a fair and accurate summary of the
<br />provisions of the law and the instruments described under such captions. The legal fees to be paid to McGinnis, Lochridge &
<br />Kilgore, L.L.P. in connection with the issuance of the Bonds are contingent on the sale and delivery of the Bonds. Certain legal
<br />matters will be passed upon by Mayor, Day, Caldwell & Keeton, L.L.P. Houston, Texas, Counsel to the Underwriters.
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<br />The City will furnish to the Underwriters a certificate, dated as of the date of delivery of the Bonds, executed by an authorized
<br />officer of the City, to the effect that no litigation of any nature has been filed or is then pending or threatened, either in state or
<br />federal courts, contesting or attacking the Bonds; restraining or enjoining the issuance, execution or delivery of the Bonds;
<br />affecting the provisions made for the payment of or security for tile Bonds; in any manner questioning the authority or
<br />proceedings for the issuance, execution, or delivery of the Bonds; or affecting the validity of the Bonds.
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<br />No Material Adverse Chane:e
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<br />The obligations of the Underwriters to take and pay for the Bonds, and of the City to deliver the Bonds, are subject to the
<br />condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse
<br />change in the condition (rmancial or otherwise) of the City subsequent to the date of sale from that set forth or contemplated in
<br />the Preliminary Official Statement, as it may have been supplemented or amended through the date of sale.
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<br />ation Certificate
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<br />aver Remedies
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<br />Under certain circunlstances, taxpayers and taxing units, including the City, may appeal orders of the Appraisal Review Board
<br />by filing a petition for review in district court within forty-five (45) days after notice is received that a fmal order has been
<br />entered. In such event, the property value in question may be determined by the court, or by a jury, if requested by any party.
<br />Additionally, taxing units may bring suit against the Appraisal District to compel compliance with the Code.
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<br />VERIFICATION OF MATHEMATICAL COMPUT A nONS
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<br />The accuracy of (i) the mathematical computations of the adequacy of the maturing principal amounts of the Fedcral Securities
<br />together with the interest income earned and uninvested cash, if any, to pay, when due, the principal of and interest on the
<br />Refunded Bonds and (ii) the mathematical computation of yield supporting Bond Counsel's conclusion that the Bonds are not
<br />"Arbitrage Bonds" under Section 148 of the Internal Revenue Code of 1986 will be verified by the finn of Deloitte & Touche,
<br />independent Certified Public Accountants, whose opinion with respect thereto \vill be available at delivery. Such computations
<br />were based solely upon assumptions and information supplied by the Underwriters. Deloitte & Touche has restricted its
<br />procedures to the examination of the arithmetic accuracy of certain computations and has not made any study or evaluation of
<br />assumptions and information upon which the computations are based and, accordingly, has not expressed an opinion on the
<br />data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome.
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<br />The Code sets forth notice and hearing procedures for certain tax rate increases by the City and provides for taxpayer referenda
<br />which could result in the repeal of certain tax increases. The Code also establishes a procedure for notice to property owners
<br />of reappraisals reflecting increased property values, appraisals that are higher than renditions and appraisals of property not
<br />previously on an appraisal roll.
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<br />and Collection of Taxes
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<br />The City is responsible for the collection of its taxes, unless it elects to transfer such functions to another governmental entity.
<br />By September 1 of each year, or as soon thereafter as practicable, the rate of taxation is set by the city Council of the City based
<br />upon the valuation of property within the District as of the preceding January 1. Taxes are due October 1, or when billed,
<br />whichever comes later, and become delinquent after January 31 of the following year. A delinquent tax incurs an initial
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<br />UNDERWRITING
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<br />The Underwriters, Masterson Moreland Sauer Whisman, Inc. and Rauscher Pierce Refsnes, Inc. agree, subject to certain
<br />conditions, to purchase the Bonds from the City at a price of plus accrued interest. The City agrees to pay the
<br />Underwriters a fee of $ or % of the par value of the issue. The Underwriters' obligations are
<br />subject to certain conditions precedent, and they will be obligated to purchase all of the Bonds if any of the Bonds are
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