$3,800,000CITY OF LAREDO, TEXAS

Public Property Finance Contractual ObligationsSeries 2012

Obligations Delivered: October 30, 2012

Transcript of Proceedings

LAW OFFICESMCCALL, PARKHURST & HORTON L.L.P.

700 N. ST. MARY'S STREET, SUITE 1525SAN ANTONIO, TEXAS 78205

CITY OF LAREDO, TEXAS(WEBB COUNTY)

Public Property Finance Contractual ObligationsSeries 2012$3,800,000

Table of Contents

PRIMARY FINANCING DOCUMENTS AND AGREEMENTS

Ordinance Authorizing the Issuance of the Contractual Obligations . . . . . . . . . . . . . . . . . . . 1

Pricing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Purchase Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Final Official Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Paying Agent/Registrar Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Specimen Contractual Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Blanket Issuer Letter of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

DOCUMENTS RELATED TO TAX EXEMPTION

Federal Tax Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Form 8038-G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

CERTIFICATES

General Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Signature Identification and No-Litigation Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

MISCELLANEOUS DOCUMENTS

Instruction Letters to Attorney General and Comptroller of Public Accounts . . . . . . . . . . . . 13

Closing Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Receipt for Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Rating Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

OPINIONS

Attorney General's Opinion with Comptroller's Registration Certificate . . . . . . . . . . . . . . . . 17

Opinion of Underwriters' Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Opinion of Bond Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Supplemental Opinion of Bond Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

$3,800,000

CITY OF LAREDO, TEXAS PUBLIC PROPERTY FINANCE CONTRACTUAL OBLIGATIONS, SERIES 2012

DISTRIBUTION LIST

ISSUER City of Laredo 1110 Houston Street Laredo, Texas 78040 Ms. Rosario Cabello Mr. Jose Castillo Finance Director Email: rcabello@ci.laredo.tx.us Email: jcastillo@ci.laredo.tx.us Telephone: (956) 791-7425 Fax: (956) 791-7477 BOND COUNSEL McCall, Parkhurst & Horton L.L.P. 700 N. St. Mary's, Suite 1525 San Antonio, Texas 78205 Mr. Noel Valdez Telephone: 210-225-2800 Telecopy: 210-225-2984 Email: nvaldez@mphlegal.com Email: sibarra@mphlegal.com FINANCIAL ADVISOR Estrada Hinojosa & Company, Inc. 1717 Main St. 47th Floor, Suite 4700 Dallas, Texas 75201 Mr. Noe Hinojosa Mr. Adrian Galvan Mr. Wally Sevier Telephone: (214) 658-1670 Fax: (214) 658-1671 Email: nhinojosa@ehmuni.com Email: agalvan@ehmuni.com Email: wsevier@ehmuni.com UNDERWRITERS (Senior Underwriter) Stifel Nicolaus & Company, Inc. Renaissance Plaza 70 Northeast Loop 410, Suite 295 San Antonio, Texas 78216 210-525-8048 Ms. Nora Chavez chavezn@stifel.com Ms. Lizzeth Gamboa gamboal@stifel.com Ms. Marisol Warneke warnekem@stifel.com

UNDERWRITERS – Con't. Stephens Inc. 300 Crescent Court, Suite 600 Dallas, Texas 75201 Mr. Robert Rivera Email: robert.rivera@stephens.com Telephone: (214) 258-2775 Southwest Securities, Inc. 1201 Elm Street, Suite 3500 Dallas, Texas 75270 Mr. John L. Martin, Jr. Email: jmartin@swst.com Telephone: (214) 859-6699 Wells Fargo Bank, N.A. 750 N. St. Paul Place, Suite 1750 Dallas, Texas 75201 Ms. Desrye Morgan Email: desrye.morgan@wellsfargo.com Telephone: (214) 756-7417 UNDERWRITERS’ COUNSEL Escamilla, Poneck & Cruz, Inc. 850 Riverwalk Place 700 North Saint Mary’s Street San Antonio, Texas 78205 Mr. Juan Aguilera Mr. Humberto Aguilera Ms. Glenda Starr Telephone: 210-225-0001 Fax: 210-225-0041 Email:jaguilera@epc-law.com Email:haguilera@epc-law.com Email:gstarr@epc-law.com PAYING AGENT The Bank of New York, N.A. Issuer Administrative Services 2001 Bryan St., 8th Floor Dallas, Texas 75201 Ms. Michelle Baldwin Telephone: (214) 468-6254 Fax: (214) 468-6322 Email: michelle.baldwin@bnymellon.com

CITY OF LAREDO, TEXAS(WEBB COUNTY)

Public Property Finance Contractual ObligationsSeries 2012$3,800,000

Table of Contents

PRIMARY FINANCING DOCUMENTS AND AGREEMENTS

Ordinance Authorizing the Issuance of the Contractual Obligations . . . . . . . . . . . . . . . . . . . 1

Pricing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Purchase Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Final Official Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Paying Agent/Registrar Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Specimen Contractual Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Blanket Issuer Letter of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

DOCUMENTS RELATED TO TAX EXEMPTION

Federal Tax Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Form 8038-G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

CERTIFICATES

General Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Signature Identification and No-Litigation Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

MISCELLANEOUS DOCUMENTS

Instruction Letters to Attorney General and Comptroller of Public Accounts . . . . . . . . . . . . 13

Closing Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Receipt for Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Rating Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

OPINIONS

Attorney General's Opinion with Comptroller's Registration Certificate . . . . . . . . . . . . . . . . 17

Opinion of Underwriters' Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Opinion of Bond Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Supplemental Opinion of Bond Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

ORDINANCE NO. 2012-O-167

ORDINANCE AUTHORIZING THE ISSUANCE, SALE AND DELIVERY OF "CITY OF LAREDO, TEXAS PUBLIC PROPERTY FINANCE CONTRACTUAL OBLIGATIONS, SERIES 2012" FOR THE PURCHASE OF PERSONAL PROPERTY; SECURING THE PAYMENT THEREOF BY AUTHORIZING THE LEVY OF AN ANNUAL AD VALOREM TAX; APPROVING AND AUTHORIZING THE EXECUTION OF ALL INSTRUMENTS AND PROCEDURES RELATED THERETO INCLUDING A PAYING AGENT/REGISTRAR AGREEMENT AND A PURCHASE CONTRACT; APPROVING THE FORM OF AN OFFICIAL STATEMENT; DELEGATING TO THE MAYOR OR THE CITY MANAGER THE AUTHORITY TO APPROVE ALL FINAL TERMS OF THE CONTRACTUAL OBLIGATIONS; AUTHORIZING AMENDMENT TO THE CITY’S BUDGET TO APPROPRIATE SUCH PROCEEDS FOR PURPOSES AUTHORIZED HEREIN; AND DECLARING AN EFFECTIVE DATE

THE STATE OF TEXAS COUNTY OF VAL VERDE CITY OF LAREDO WHEREAS, the Public Property Finance Act, Section 271.001 et seq. of the Local Government Code (the “Act”), authorizes the CITY OF LAREDO, TEXAS (the "City") to execute, perform, and make payments under contracts with any person for the use, acquisition or purchase of personal property as described in said Act; and WHEREAS, the Act permits the City Council to execute contracts in any form deemed appropriate by said City Council in connection with the use, acquisition or purchase of personal property; and WHEREAS, the City Council desires to acquire or purchase personal property, all as described in Schedule I attached hereto, or such other personal property, appliances, equipment, facilities, furnishings or interests therein, whether movable or fixed, deemed by the City Council to be necessary, useful and/or appropriate for the purposes of the City (the “Project”); and WHEREAS, the City is an "Issuer" under Section 1371.001(4)(A), Texas Government Code, being a home-rule municipality that: (i) adopted its charter under Section 5, Article XI, Texas Constitution; (ii) has a population of 50,000 or more; and (iii) has outstanding long-term indebtedness that is rated by a nationally recognized rating agency for municipal securities in one of the four highest rating categories for a long-term obligation; and WHEREAS, the City Council hereby finds and determines that it is in the best interests of the City to issue the contractual obligations hereinafter authorized, for the purposes stated, and to delegate to the Pricing Officer (hereinafter designated) the authority to act on behalf of the City in selling and delivering the contractual obligations and setting the dates, price, interest rates, interest payment periods and other procedures relating thereto, as hereinafter specified, with such information and terms to be included in a pricing certificate (the "Pricing Certificate")

to be executed by the Pricing Officer, all in accordance with the provisions of Section 1371.053, Texas Government Code; and WHEREAS, the City Council deems it appropriate to adopt this Ordinance and issue the "Contractual Obligations" herein authorized as permitted by the Act. NOW THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LAREDO, TEXAS, THAT: SECTION 1. AMOUNT AND PURPOSE OF THE CONTRACTUAL OBLIGATIONS. (a) The contractual obligation or contractual obligations of the City of Laredo (the "Issuer") are hereby authorized to be issued and delivered in the aggregate principal amount as designated by the Pricing Officer of the City pursuant to the provisions of Section 1(b) of this Ordinance FOR THE PURPOSE OF PAYING ALL OR A PORTION OF THE ISSUER'S CONTRACTUAL OBLIGATIONS TO BE INCURRED IN CONNECTION WITH THE ACQUISITION OR PURCHASE OF PERSONAL PROPERTY, IN ACCORDANCE WITH THE PROVISIONS OF THE PUBLIC PROPERTY FINANCE ACT, SECTION 271.001 ET SEQ. OF THE LOCAL GOVERNMENT CODE AND TO PAY COSTS OF ISSUANCE. (b) As authorized by Section 1371.053, Texas Government Code, as amended, the Mayor or the City Manager of the City (each a "Pricing Officer") is hereby authorized to act on behalf of the City in selling and delivering the Contractual Obligations and carrying out the other procedures specified in this Ordinance, including, determining the date of the Contractual Obligations, any additional or different designation or title by which the Contractual Obligations shall be known, the price at which the Contractual Obligations will be sold, the years in which the Contractual Obligations will mature, the principal amount to mature in each of such years, the rate of interest to be borne by each such maturity, the interest payment and record dates, the price and terms upon and at which the Contractual Obligations shall be subject to redemption prior to maturity at the option of the City, as well as any mandatory sinking fund redemption provisions, and all other matters relating to the issuance, sale, and delivery of the Contractual Obligations, including without limitation procuring municipal bond insurance (if it is determined that such insurance would be financially desirable and advantageous), and approving modifications to this Ordinance and executing such instruments, documents and agreements as may be necessary with respect thereto, all of which shall be specified in the Pricing Certificate, provided that: (i) the aggregate original principal amount of the Contractual Obligations shall not exceed $4,500,000; (ii) the final maturity of the Contractual Obligations shall not exceed February 15, 2030; (iii) the maximum interest rate on the Contractual Obligations shall not exceed the highest rate permitted by Chapter 1204, Texas Government Code; (iv) the true interest cost of the Contractual Obligations shall not exceed 5.50%; and

(v) the delegation made hereby shall expire if not exercised by the Pricing Officer prior to April 1, 2013. (c) In establishing the aggregate principal amount of the Contractual Obligations, the Pricing Officer shall establish an amount not exceeding the amount authorized in Subsection (b) above, which shall be sufficient in amount to provide for the purposes for which the Contractual Obligations are authorized and to pay costs of issuing the Contractual Obligations. The Contractual Obligations shall be sold with and subject to such terms as set forth in the Pricing Certificate. (d) Determination Required by Section 1201.022(a)(3), Texas Government Code. In satisfaction of Section 1201.022(a)(3), Texas Government Code, the City Council hereby determines that the delegation of the authority to each Pricing Officer to approve the final terms of the Contractual Obligations set forth in this Ordinance is, and the decisions made by a Pricing Officer pursuant to such delegated authority will be, in the City's best interests, and each Pricing Officer is hereby authorized to make an appropriate finding to that effect. SECTION 2. DESIGNATION, DATE, DENOMINATIONS, NUMBERS AND MATURITIES OF THE CONTRACTUAL OBLIGATIONS. Each contractual obligation issued pursuant to and for the purpose described in Section 1 of this Ordinance shall be designated: CITY OF LAREDO, TEXAS PUBLIC PROPERTY FINANCE CONTRACTUAL OBLIGATIONS, SERIES 2012, and initially there shall be issued, sold and delivered hereunder one fully registered contractual obligation, dated as determined in the Pricing Certificate, without interest coupons, in the denomination and aggregate principal amount as set forth in the Pricing Certificate numbered T-1 (the "Initial Contractual Obligation"), with contractual obligations issued in replacement thereof being in the denomination of $5,000 or any integral multiple thereof and numbered consecutively from R-1 upward, all payable to the initial registered owner thereof (with the Initial Contractual Obligation being payable to the initial purchaser designated in the Pricing Certificate), or to the registered assignee or assignees of said contractual obligations or any portion or portions thereof (in each case, the "Registered Owner"). The Initial Contractual Obligation (i) may be prepaid or redeemed prior to the respective scheduled due dates of installments of principal thereof, (ii) may be assigned and transferred, (iii) may be converted and exchanged for other Contractual Obligations, (iv) shall have the characteristics, and (v) shall be signed and sealed, and the principal of and interest on the Initial Contractual Obligation shall be payable, all as provided, and in the manner required or indicated, in the FORM OF CONTRACTUAL OBLIGATION set forth in this Ordinance with such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance, and with the Contractual Obligations to be completed with information set forth in the Pricing Certificate The term "Contractual Obligations" as used in this Ordinance shall mean and include the Contractual Obligations initially issued and delivered pursuant to this Ordinance and all substitute contractual obligations exchanged therefor, as well as all other substitute contractual obligations and replacement contractual obligations issued pursuant hereto, and the term "Contractual Obligation" shall mean any of the Contractual Obligations.

SECTION 3. INTEREST. The Contractual Obligations shall bear interest to their respective dates of maturity or redemption prior to maturity at the rates per annum as set forth in the Pricing Certificate. SECTION 4. CHARACTERISTICS OF THE CONTRACTUAL OBLIGATIONS; APPROVAL OF PAYING AGENT/REGISTRAR AGREEMENT. (a) Registration, Transfer, and Exchange; Authentication. The City shall keep or cause to be kept at the designated corporate trust or commercial banking office of THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., Dallas, Texas (the "Paying Agent/Registrar") books or records for the registration of the transfer and exchange of the Contractual Obligations (the "Registration Books"), and the City hereby appoints the Paying Agent/Registrar as its registrar and transfer agent to keep such books or records and make such registrations of transfers and exchanges under such reasonable regulations as the City and Paying Agent/Registrar may prescribe; and the Paying Agent/Registrar shall make such registrations, transfers and exchanges as herein provided. Attached hereto as Exhibit A is a copy of the Paying Agent/Registrar Agreement between the City and the Paying Agent/Registrar which is hereby approved in substantially final form, and the Mayor, Mayor Pro-Tem and City Secretary of the City are hereby authorized to execute the Paying Agent/Registrar Agreement and approve any changes in the final form thereof. The Paying Agent/Registrar shall obtain and record in the Registration Books the address of the registered owner of each Contractual Obligation to which payments with respect to the Contractual Obligations shall be mailed, as herein provided; but it shall be the duty of each registered owner to notify the Paying Agent/Registrar in writing of the address to which payments shall be mailed, and such interest payments shall not be mailed unless such notice has been given. To the extent possible and under reasonable circumstances, all transfers of Contractual Obligations shall be made within three business days after request and presentation thereof. The City shall have the right to inspect the Registration Books during regular business hours of the Paying Agent/Registrar, but otherwise the Paying Agent/Registrar shall keep the Registration Books confidential and, unless otherwise required by law, shall not permit their inspection by any other entity. The Paying Agent/Registrar's standard or customary fees and charges for making such registration, transfer, exchange and delivery of a substitute Contractual Obligation or Contractual Obligations shall be paid as provided in the FORM CONTRACTUAL OBLIGATION set forth in this Ordinance. Registration of assignments, transfers and exchanges of Contractual Obligations shall be made in the manner provided and with the effect stated in the FORM OF CONTRACTUAL OBLIGATION set forth in this Ordinance. Each substitute Contractual Obligation shall bear a letter and/or number to distinguish it from each other Contractual Obligation. Except as provided in (c) below, an authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Contractual Obligation, date and manually sign the Paying Agent/Registrar's Authentication Certificate, and no such Contractual Obligation shall be deemed to be issued or outstanding unless such Certificate is so executed. The Paying Agent/Registrar promptly shall cancel all paid Contractual Obligations and Contractual Obligations surrendered for transfer and exchange. No additional ordinances, orders, or resolutions need be passed or adopted by the governing body of the City or any other body or

person so as to accomplish the foregoing transfer and exchange of any Contractual Obligation or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Contractual Obligations in the manner prescribed herein, and said Contractual Obligations shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength. Pursuant to Chapter 1201, Texas Government Code, and particularly Subchapter D and Section 1201.067 thereof, the duty of transfer and exchange of Contractual Obligations as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of said Certificate, the transferred and exchanged Contractual Obligation shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Contractual Obligations which initially were issued and delivered pursuant to this Ordinance, approved by the Attorney General, and registered by the Comptroller of Public Accounts. (b) Payment of Contractual Obligations and Interest. The City hereby further appoints the Paying Agent/Registrar to act as the paying agent for paying the principal of and interest on the Contractual Obligations, all as provided in this Ordinance. The Paying Agent/ Registrar shall keep proper records of all payments made by the City and the Paying Agent/Registrar with respect to the Contractual Obligations. (c) In General. The Contractual Obligations (i) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Contractual Obligations to be payable only to the registered owners thereof, (ii) may be redeemed prior to their scheduled maturities (notice of which shall be given to the Paying Agent/Registrar by the City at least 50 days prior to any such redemption date), (iii) may be transferred and assigned, (iv) may be exchanged for other Contractual Obligations, (v) shall have the characteristics, (vi) shall be signed, sealed, executed and authenticated, (vii) shall be payable as to principal and interest, and (viii) shall be administered and the Paying Agent/Registrar and the City shall have certain duties and responsibilities with respect to the Contractual Obligations, all as provided, and in the manner and to the effect as required or indicated, in the FORM OF CONTRACTUAL OBLIGATION set forth in this Ordinance. The Initial Contractual Obligation is not required to be, and shall not be, authenticated by the Paying Agent/Registrar, but on each substitute Contractual Obligation issued in exchange for the Initial Contractual Obligation issued under this Ordinance the Paying Agent/Registrar shall execute the PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE, in the form set forth in the FORM OF CONTRACTUAL OBLIGATION. In lieu of the executed Paying Agent/Registrar’s Authentication Certificate described above, the Initial Contractual Obligation delivered on the closing date (as further described in subparagraph (i) below) shall have attached thereto the Comptroller's Registration Certificate substantially in the form set forth in the FORM OF CONTRACTUAL OBLIGATION below, manually executed by the Comptroller of Public Accounts of the State of Texas or by her duly authorized agent, which certificate shall be evidence that the Initial Contractual Obligation has been duly approved by the Attorney General of the State of Texas and that it is a valid and binding obligation of the City, and has been registered by the Comptroller. (d) Substitute Paying Agent/Registrar. The City covenants with the registered owners of the Contractual Obligations that at all times while the Contractual Obligations are outstanding the City will provide a competent and legally qualified bank, trust company, financial institution, or other entity to act as and perform the services of Paying Agent/Registrar for the Contractual

Obligations under this Ordinance, and that the Paying Agent/Registrar will be one entity and shall be an entity registered with the Securities and Exchange Commission. The City reserves the right to, and may, at its option, change the Paying Agent/Registrar upon not less than 120 days written notice to the Paying Agent/Registrar, to be effective not later than 60 days prior to the next principal or interest payment date after such notice. In the event that the entity at any time acting as Paying Agent/Registrar (or its successor by merger, acquisition, or other method) should resign or otherwise cease to act as such, the City covenants that promptly it will appoint a competent and legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar under this Ordinance. Upon any change in the Paying Agent/Registrar, the previous Paying Agent/Registrar promptly shall transfer and deliver the Registration Books (or a copy thereof), along with all other pertinent books and records relating to the Contractual Obligations, to the new Paying Agent/Registrar designated and appointed by the City. Upon any change in the Paying Agent/Registrar, the City promptly will cause a written notice thereof to be sent by the new Paying Agent/Registrar to each registered owner of the Contractual Obligations, by United States mail, first-class postage prepaid, which notice also shall give the address of the new Paying Agent/Registrar. By accepting the position and performing as such, each Paying Agent/Registrar shall be deemed to have agreed to the provisions of this Ordinance, and a certified copy of this Ordinance shall be delivered to each Paying Agent/Registrar. (e) Book-Entry Only System for Contractual Obligations. The Contractual Obligations issued in exchange for the Contractual Obligations initially issued to the purchaser specified in Section 15 herein shall be initially issued in the form of a separate single fully registered Contractual Obligation for each of the maturities thereof. Upon initial issuance, the ownership of each such Contractual Obligation shall be registered in the name of Cede & Co., as nominee of The Depository Trust Company of New York ("DTC"), and except as provided in subsection (i) hereof, all of the outstanding Contractual Obligations shall be registered in the name of Cede & Co., as nominee of DTC. With respect to Contractual Obligations registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created ("DTC Participant") to hold securities to facilitate the clearance and settlement of securities transaction among DTC Participants or to any person on behalf of whom such a DTC Participant holds an interest in the Contractual Obligations. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Contractual Obligations, (ii) the delivery to any DTC Participant or any other person, other than a registered owner of the Contractual Obligations, as shown on the Registration Books, of any notice with respect to the Contractual Obligations, or (iii) the payment to any DTC Participant or any other person, other than a registered owner of Contractual Obligations, as shown in the Registration Books of any amount with respect to principal of or interest on the Contractual Obligations. Notwithstanding any other provision of this Ordinance to the contrary, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Contractual Obligation is registered in the Registration Books as the absolute owner of such Contractual Obligation for the purpose of

payment of principal and interest with respect to such Contractual Obligation, for the purpose of registering transfers with respect to such Contractual Obligation, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of and interest on the Contractual Obligations only to or upon the order of the registered owners, as shown in the Registration Books as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of and interest on the Contractual Obligations to the extent of the sum or sums so paid. No person other than a registered owner, as shown in the Registration Books, shall receive a Contractual Obligation certificate evidencing the obligation of the City to make payments of principal and interest pursuant to this Ordinance. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Ordinance with respect to interest checks being mailed to the registered owner at the close of business on the Record Date, the words "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. (f) Successor Securities Depository; Transfers Outside Book-Entry Only Systems. In the event that the City determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the City to DTC or that it is in the best interest of the beneficial owners of the Contractual Obligations that they be able to obtain certificated Contractual Obligations, the City shall (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Contractual Obligations to such successor securities depository or (ii) notify DTC and DTC Participants of the availability through DTC of Contractual Obligations and transfer one or more separate Contractual Obligations to DTC Participants having Contractual Obligations credited to their DTC accounts. In such event, the Contractual Obligations shall no longer be restricted to being registered in the Registration Books in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names registered owners transferring or exchanging Contractual Obligations shall designate, in accordance with the provisions of this Ordinance. (g) Payments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as any Contractual Obligation is registered in the name of Cede & Co., as nominee for DTC, all payments with respect to principal of and interest on such Contractual Obligation and all notices with respect to such Contractual Obligation shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. (h) DTC Letter of Representation. The officers of the City are herein authorized for and on behalf of the City and as officers of the City to enter into one or more Letters of Representation with DTC establishing the book-entry only system with respect to the Contractual Obligations. (i) Delivery of Initial Contractual Obligation. On the closing date, one Initial Contractual Obligation representing the entire principal amount of the respective series of Contractual Obligations, payable in stated installments to the initial registered owner named in

Section 15 of this Ordinance or its designee, executed by manual or facsimile signature of the Mayor or Mayor Pro-Tem and City Secretary of the City, approved by the Attorney General of Texas, and registered and manually signed by the Comptroller of Public Accounts of the State of Texas, will be delivered to the initial purchaser or its designee. Upon payment for the Initial Contractual Obligation, the Paying Agent/Registrar shall cancel the Initial Contractual Obligation and deliver to the initial registered owner or its designee one registered definitive Contractual Obligation for each year of maturity of the Contractual Obligations, in the aggregate principal amount of all of the Contractual Obligations for such maturity. SECTION 5. FORM OF CONTRACTUAL OBLIGATION. The form of the Contractual Obligations, including the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas to be endorsed on the Initial Contractual Obligation, shall be substantially as follows, with such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance, and with the Contractual Obligations to be completed with information set forth in the Pricing Certificate.

[The remainder of this page intentionally left blank.]

FORM OF CONTRACTUAL OBLIGATION

R-1 UNITED STATES OF AMERICA PRINCIPAL STATE OF TEXAS AMOUNT

CITY OF LAREDO, TEXAS $ PUBLIC PROPERTY FINANCE CONTRACTUAL OBLIGATIONS, SERIES 2012

INTEREST RATE

MATURITY DATE

CUSIP NO.

______% February 15, ______ ________

DELIVERY DATE: REGISTERED OWNER: PRINCIPAL AMOUNT: ON THE MATURITY DATE specified above, the CITY OF LAREDO, TEXAS (the "City"), being a political subdivision and home-rule municipality of the State of Texas, hereby promises to pay to the Registered Owner specified above, or registered assigns (hereinafter called the "Registered Owner"), the Principal Amount specified above, and to pay interest thereon (calculated on the basis of a 360-day year of twelve 30-day months) from the Delivery Date, at the Interest Rate per annum specified above, payable on February 15, 2013, and semiannually on each August 15 and February 15 thereafter to the Maturity Date specified above, or the date of redemption prior to maturity; except that if this Contractual Obligation is required to be authenticated and the date of its authentication is later than the first Record Date (hereinafter defined), such Principal Amount shall bear interest from the interest payment date next preceding the date of authentication, unless such date of authentication is after any Record Date but on or before the next following interest payment date, in which case such principal amount shall bear interest from such next following interest payment date; provided, however, that if on the date of authentication hereof the interest on the Contractual Obligation or Contractual Obligations, if any, for which this Contractual Obligation is being exchanged is due but has not been paid, then this Contractual Obligation shall bear interest from the date to which such interest has been paid in full. THE PRINCIPAL OF AND INTEREST ON this Contractual Obligation are payable in lawful money of the United States of America, without exchange or collection charges. The principal of this Contractual Obligation shall be paid to the Registered Owner hereof upon presentation and surrender of this Contractual Obligation at maturity or upon the date fixed for redemption prior to maturity, at the designated corporate trust or commercial banking office of THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., Dallas, Texas, which is the "Paying Agent/Registrar" for this Contractual Obligation. The payment of interest on this Contractual Obligation shall be made by the Paying Agent/Registrar to the Registered Owner hereof on each interest payment date by check, dated as of such interest payment date, drawn by

the Paying Agent/Registrar on, and payable solely from, funds of the City required by the Ordinance authorizing the issuance of this Contractual Obligation (the "Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, on each such interest payment date, to the Registered Owner hereof, at its address as it appeared on the last business day of the month next preceding each such date (the "Record Date") on the Registration Books kept by the Paying Agent/Registrar, as hereinafter described. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (the "Special Payment Date" which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Registered Owner appearing on the Registration Books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Any accrued interest due upon the redemption of this Contractual Obligation prior to maturity as provided herein shall be paid to the Registered Owner upon presentation and surrender of this Contractual Obligation for redemption and payment at the designated corporate trust office of the Paying Agent/Registrar (unless the redemption date is a regularly scheduled interest payment date, in which case accrued interest on such redeemed Contractual Obligations shall be payable in the regular manner described above). The City covenants with the Registered Owner of this Contractual Obligation that on or before each principal payment date, interest payment date and accrued interest payment date for this Contractual Obligation it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Contractual Obligations, when due. IF THE DATE for the payment of the principal of or interest on this Contractual Obligation shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Paying Agent/Registrar is located are authorized by law or executive order to close, or the United States Postal Service is not open for business, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are authorized to close, or the United States Postal Service is not open for business; and payment on such date shall have the same force and effect as if made on the original date payment was due. THIS CONTRACTUAL OBLIGATION is one of a series of Contractual Obligations dated as of October 1, 2012, authorized in accordance with the Constitution and laws of the State of Texas in the aggregate principal amount of $3,800,000 FOR THE PURPOSE OF PAYING ALL OR A PORTION OF THE ISSUER'S CONTRACTUAL OBLIGATIONS TO BE INCURRED IN CONNECTION WITH THE ACQUISITION OR PURCHASE OF PERSONAL PROPERTY, IN ACCORDANCE WITH THE PROVISIONS OF THE PUBLIC PROPERTY FINANCE ACT, SECTION 271.001 ET SEQ. OF THE LOCAL GOVERNMENT CODE AND TO PAY COSTS OF ISSUANCE.

ALL CONTRACTUAL OBLIGATIONS OF THIS SERIES are issuable solely as fully registered Contractual Obligations, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Ordinance, this Contractual Obligation, may, at the request of the Registered Owner or the assignee or assignees hereof, be assigned, transferred and exchanged for a like aggregate principal amount of fully registered Contractual Obligations, without interest coupons, payable to the appropriate Registered Owner, assignee or assignees, as the case may be, having the same denomination or denominations in any integral multiple of $5,000 as requested in writing by the appropriate Registered Owner, assignee or assignees, as the case may be, upon surrender of this Contractual Obligation to the Paying Agent/Registrar for cancellation, all in accordance with the form and procedures set forth in the Ordinance. Among other requirements for such assignment and transfer, this Contractual Obligation must be presented and surrendered to the Paying Agent/Registrar, together with proper instruments of assignment, in form and with guarantee of signatures satisfactory to the Paying Agent/Registrar, evidencing assignment of this Contractual Obligation or any portion or portions hereof in any integral multiple of $5,000 to the assignee or assignees in whose name or names this Contractual Obligation or any such portion or portions hereof is or are to be registered. The form of Assignment printed or endorsed on this Contractual Obligation may be executed by the Registered Owner to evidence the assignment hereof, but such method is not exclusive, and other instruments of assignment satisfactory to the Paying Agent/Registrar may be used to evidence the assignment of this Contractual Obligation or any portion or portions hereof from time to time by the Registered Owner. The Paying Agent/Registrar's reasonable standard or customary fees and charges for transferring and exchanging any Contractual Obligation or portion thereof shall be paid by the City, but any taxes or governmental charges required to be paid with respect thereto shall be paid by the one requesting such assignment, transfer or exchange as a condition precedent to the exercise of such privilege. The Paying Agent/Registrar shall not be required to make any such transfer or exchange during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date. IN THE EVENT any Paying Agent/Registrar for the Contractual Obligations is changed by the City, resigns, or otherwise ceases to act as such, the City has covenanted in the Ordinance that it promptly will appoint a competent and legally qualified substitute therefor, and cause written notice thereof to be mailed to the Registered Owners of the Contractual Obligations. IT IS HEREBY certified, recited, and covenanted that this Contractual Obligation has been duly and validly authorized, issued, and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the authorization, issuance, and delivery of this Contractual Obligation have been performed, existed, and been done in accordance with law; that this Contractual Obligation is a general obligation of the City, issued on the full faith and credit thereof; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Contractual Obligation, as such interest comes due, and as such principal matures, have been levied and ordered to be levied against all taxable property in the City, and have been pledged for such payment, within the limits prescribed by law.

THE CITY also has reserved the right to amend the Ordinance as provided therein, and under some (but not all) circumstances amendments thereto must be approved by the registered owners of a majority in aggregate principal amount of the outstanding Contractual Obligations. BY BECOMING the Registered Owner of this Contractual Obligation, the Registered Owner thereby acknowledges all of the terms and provisions of the Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Ordinance is duly recorded and available for inspection in the official minutes and records of the governing body of the City, and agrees that the terms and provisions of this Contractual Obligation and the Ordinance constitute a contract between each Registered Owner hereof and the City. IN WITNESS WHEREOF, the City has caused this Contractual Obligation to be signed with the manual or facsimile signature of the Mayor or Mayor Pro-Tem of the City, and countersigned with the manual or facsimile signature of the City Secretary of the City, and the official seal of the City has been duly impressed, or placed in facsimile, on this Contractual Obligation. Countersigned: (facsimile signature) (facsimile signature) City Secretary, City of Laredo, Texas Mayor, City of Laredo, Texas (CITY SEAL)

FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS:

COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. ____________

I hereby certify that this Contractual Obligation has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Contractual Obligation has been registered by the Comptroller of Public Accounts of the State of Texas. Witness my signature and seal this ______________________________ (COMPTROLLER'S SEAL) Comptroller of Public Accounts of the State of Texas

FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE

PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE (To be executed if this Contractual Obligation is not accompanied by an executed Registration Certificate of the Comptroller of Public Accounts of the State of Texas)

It is hereby certified that this Contractual Obligation has been issued under the provisions of the Ordinance described in the text of this Contractual Obligation; and that this Contractual Obligation has been issued in exchange for a contractual obligation or contractual obligations, or a portion of a contractual obligation or contractual obligations of a series which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Dated THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. Dallas, Texas Paying Agent/Registrar By _________________________________ Authorized Representative

FORM OF ASSIGNMENT:

ASSIGNMENT FOR VALUE RECEIVED, the undersigned Registered Owner of this Contractual Obligation, or duly authorized representative or attorney thereof, hereby sells, assigns and transfers this Contractual Obligation and all rights hereunder unto _______________________ / /__________________________________________________________ (Assignee's Social Security or (Please print or typewrite Assignee's name and address, Taxpayer Identification Number) including zip code) ______________________________________________________________________________ and hereby irrevocably constitutes and appoints _____________________________________ attorney to transfer the registration of this Contractual Obligation on the Paying Agent/Registrar's Registration Books with full power of substitution in the premises. Dated: _________________ Signature Guaranteed: ____________________________________ NOTICE: Signature(s) must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company.

____________________________________ NOTICE: The signature above must correspond with the name of the Registered Owner as it appears upon the front of this Contractual Obligation in every particular, without alteration or enlargement or any change whatsoever.

14

INITIAL CONTRACTUAL OBLIGATION INSERTIONS The Initial Contractual Obligation shall be in the form set forth above except that:

(A) Immediately under the name of the Contractual Obligation, the headings "INTEREST RATE" and "MATURITY DATE" shall be completed with the words "As shown below" and "CUSIP NO. _____" shall be deleted. (B) The first paragraph shall be deleted and the following shall be inserted: "ON THE RESPECTIVE MATURITY DATES specified below, the CITY OF LAREDO, TEXAS (the "City"), being a political subdivision and municipal corporation of the State of Texas, hereby promises to pay to the Registered Owner specified above, or registered assigns (hereinafter called the "Registered Owner"), the respective Principal Installments specified below, and to pay interest thereon (calculated on the basis of a 360-day year composed of twelve 30-day months) from the Delivery Date, at the respective Interest Rates per annum specified below, payable on February 15, 2013, and semiannually on each August 15 and February 15 thereafter to the respective Maturity Dates specified below, or the date of redemption prior to maturity. The respective Maturity Dates, Principal Installments and Interest Rates for this Contractual Obligation are set forth in the following schedule:

MATURITY DATE

(FEBRUARY 15)

PRINCIPAL

INSTALLMENT

INTEREST

RATE

MATURITY DATE

(FEBRUARY 15)

PRINCIPAL

INSTALLMENT

INTEREST

RATE

[Insert principal and interest information from Sections 2 and 3 above]"

(C) The Initial Contractual Obligation shall be numbered "T-1." SECTION 6. INTEREST AND SINKING FUND; TAX LEVY. A special Interest and Sinking Fund for the Contractual Obligations (the "Interest and Sinking Fund") is hereby created solely for the benefit of the Contractual Obligations, and the Interest and Sinking Fund shall be established and maintained by the City at an official depository bank of the City. The Interest and Sinking Fund shall be kept separate and apart from all other funds and accounts of the City, and shall be used only for paying the interest on and principal of the Contractual Obligations. All ad valorem taxes levied and collected for and on account of the Contractual Obligations shall be deposited, as collected, to the credit of the Interest and Sinking Fund. During each year while any of the Contractual Obligations or interest thereon are outstanding and unpaid, the City shall compute and ascertain a rate and amount of ad valorem tax which will

15

be sufficient to raise and produce the money required to pay the interest on the Contractual Obligations as such interest comes due, and to provide and maintain a sinking fund adequate to pay the principal of its Contractual Obligations as such principal matures (but never less than 2% of the original principal amount of the Contractual Obligations as a sinking fund each year); and said tax shall be based on the latest approved tax rolls of the City, with full allowance being made for tax delinquencies and the cost of tax collection. Said rate and amount of ad valorem tax is hereby levied, and is hereby ordered to be levied, against all taxable property in the City for each year while any of the Contractual Obligations or interest thereon are outstanding and unpaid; and said tax shall be assessed and collected each such year and deposited to the credit of the respective Interest and Sinking Fund. Said ad valorem taxes sufficient to provide for the payment of the interest on and principal of the Contractual Obligations, as such interest comes due and such principal matures, are hereby pledged for such payment, within the limit prescribed by law. SECTION 7. RESERVED. SECTION 8. CONSTRUCTION FUND. There is hereby created and established in the depository of the City, a fund to be called the CITY OF LAREDO, TEXAS PUBLIC PROPERTY FINANCE CONTRACTUAL OBLIGATIONS (SERIES 2012) CONSTRUCTION FUND (herein called the "Construction Fund"). Proceeds from the sale and delivery of the Contractual Obligations (other than proceeds representing accrued interest on the Contractual Obligations and any premium on the Contractual Obligations that is not used by the City to pay costs of issuance in accordance with the provisions of Section 1201.042(d), Texas Government Code, as amended, which shall be deposited in the Interest and Sinking Fund) shall be deposited in the Construction Fund. Money in the Construction Fund shall be subject to disbursements by the City for payment of all costs incurred in carrying out the purpose for which the Contractual Obligations are issued, including but not limited to costs for construction, engineering, architecture, financing, financial consultants and legal services related to the project being financed with proceeds of the Contractual Obligations and the issuance of the Contractual Obligations. All funds remaining on deposit in the Construction Fund upon completion of the projects being financed with the proceeds from the Contractual Obligations, if any, shall be transferred to the Interest and Sinking Fund. SECTION 9. INVESTMENTS. Funds on deposit in the Interest and Sinking Fund and the Construction Fund shall be secured by the depository bank of the City in the manner and to the extent required by law to secure other public funds of the City and may be invested from time to time in any investment authorized by applicable law, including but not limited to the Public Funds Investment Act (Chapter 2256, Texas Government Code), and the City's investment policy adopted in accordance with the provisions of the Public Funds Investment Act; provided, however, that investments purchased for and held in the Interest and Sinking Fund shall have a final maturity no later than the next principal or interest payment date for which such funds are required, and investments purchased for and held in the Construction Fund shall have a final maturity of not later than the date the City reasonably expects the funds from such investments will be required to pay costs of the projects for which the Contractual Obligations were issued. Income and profits from such investments shall be deposited in the respective Fund

16

which holds such investments; however, any such income and profits from investments in the Construction Fund may be withdrawn by the City and deposited in the Interest and Sinking Fund to pay all or a portion of the interest next coming due on the Contractual Obligations. It is further provided, however, that any interest earnings on Contractual Obligation proceeds which are required to be rebated to the United States of America pursuant to Section 14 hereof in order to prevent the Contractual Obligations from being arbitrage bonds shall be so rebated and not considered as interest earnings for the purposes of this Section. SECTION 10. EMPOWERED. The City Manager and Director of Finance are hereby ordered to do any and all things necessary to accomplish the transfer of monies to the Interest and Sinking Fund of this issue in ample time to pay such items of principal and interest. SECTION 11. DEFEASANCE OF THE CONTRACTUAL OBLIGATIONS. (a) Any Contractual Obligation and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a "Defeased Contractual Obligation") within the meaning of this Ordinance, except to the extent provided in subsection (d) of this Section, when payment of the principal of such Contractual Obligation, plus interest thereon to the due date (whether such due date be by reason of maturity or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof, or (ii) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent/Registrar in accordance with an escrow agreement or other instrument (the "Future Escrow Agreement") for such payment (1) lawful money of the United States of America sufficient to make such payment or (2) Defeasance Securities that mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money to provide for such payment, and when proper arrangements have been made by the City with the Paying Agent/Registrar for the payment of its services until all Defeased Contractual Obligations shall have become due and payable. At such time as a Contractual Obligation shall be deemed to be a Defeased Contractual Obligation hereunder, as aforesaid, such Contractual Obligation and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes herein levied and pledged as provided in this Ordinance, and such principal and interest shall be payable solely from such money or Defeasance Securities. Notwithstanding any other provision of this Ordinance to the contrary, it is hereby provided that any determination not to redeem Defeased Contractual Obligations that is made in conjunction with the payment arrangements specified in subsection (a)(i) or (ii) of this Section shall not be irrevocable, provided that: (1) in the proceedings providing for such payment arrangements, the City expressly reserves the right to call the Defeased Contractual Obligations for redemption; (2) gives notice of the reservation of that right to the owners of the Defeased Contractual Obligations immediately following the making of the payment arrangements; and (3) directs that notice of the reservation be included in any redemption notices that it authorizes. (b) Any moneys so deposited with the Paying Agent/Registrar may at the written direction of the City be invested in Defeasance Securities, maturing in the amounts and times as hereinbefore set forth, and all income from such Defeasance Securities received by the Paying Agent/Registrar that is not required for the payment of the Contractual Obligations and interest thereon, with respect to which such money has been so deposited, shall be turned over to the

17

City, or deposited as directed in writing by the City. Any Future Escrow Agreement pursuant to which the money and/or Defeasance Securities are held for the payment of Defeased Contractual Obligations may contain provisions permitting the investment or reinvestment of such moneys in Defeasance Securities or the substitution of other Defeasance Securities upon the satisfaction of the requirements specified in subsection (a)(i) or (ii) of this Section. All income from such Defeasance Securities received by the Paying Agent/Registrar which is not required for the payment of the Defeased Contractual Obligations, with respect to which such money has been so deposited, shall be remitted to the City or deposited as directed in writing by the City. (c) The term "Defeasance Securities" means (i) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (ii) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date of the purchase thereof are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date on the date the governing body of the City adopts or approves the proceedings authorizing the financial arrangements are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (iv) any other then authorized securities or obligations under applicable state law that may be used to defease obligations such as the Contractual Obligations. (d) Until all Defeased Contractual Obligations shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased Contractual Obligations the same as if they had not been defeased, and the City shall make proper arrangements to provide and pay for such services as required by this Ordinance. (e) In the event that the City elects to defease less than all of the principal amount of Contractual Obligations of a maturity, the Paying Agent/Registrar shall select, or cause to be selected, such amount of Contractual Obligations by such random method as it deems fair and appropriate. SECTION 12. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED CONTRACTUAL OBLIGATIONS. (a) Replacement Contractual Obligations. In the event any outstanding Contractual Obligation is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new contractual obligation of the same principal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Contractual Obligation, in replacement for such Contractual Obligation in the manner hereinafter provided. (b) Application for Replacement Contractual Obligations. Application for replacement of damaged, mutilated, lost, stolen, or destroyed Contractual Obligations shall be made by the registered owner thereof to the Paying Agent/Registrar. In every case of loss, theft, or destruction of a Contractual Obligation, the registered owner applying for a replacement

18

contractual obligation shall furnish to the City and to the Paying Agent/Registrar such security or indemnity as may be required by them to save each of them harmless from any loss or damage with respect thereto. Also, in every case of loss, theft, or destruction of a Contractual Obligation, the registered owner shall furnish to the City and to the Paying Agent/Registrar evidence to their satisfaction of the loss, theft, or destruction of such Contractual Obligation, as the case may be. In every case of damage or mutilation of a Contractual Obligation, the registered owner shall surrender to the Paying Agent/Registrar for cancellation the Contractual Obligation so damaged or mutilated. (c) No Default Occurred. Notwithstanding the foregoing provisions of this Section, in the event any such Contractual Obligation shall have matured, and no default has occurred which is then continuing in the payment of the principal of, redemption premium, if any, or interest on the Contractual Obligation, the City may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Contractual Obligation) instead of issuing a replacement Contractual Obligation, provided security or indemnity is furnished as above provided in this Section. (d) Charge for Issuing Replacement Contractual Obligations. Prior to the issuance of any replacement contractual obligation, the Paying Agent/Registrar shall charge the registered owner of such Contractual Obligation with all legal, printing, and other expenses in connection therewith. Every replacement contractual obligation issued pursuant to the provisions of this Section by virtue of the fact that any Contractual Obligation is lost, stolen, or destroyed shall constitute a contractual obligation of the City whether or not the lost, stolen, or destroyed Contractual Obligation shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Ordinance equally and proportionately with any and all other Contractual Obligations duly issued under this Ordinance. (e) Authority for Issuing Replacement Contractual Obligations. In accordance with Chapter 1201, Texas Government Code, as amended, this Section of this Ordinance shall constitute authority for the issuance of any such replacement contractual obligation without necessity of further action by the governing body of the City or any other body or person, and the duty of the replacement of such contractual obligations is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrar shall authenticate and deliver such Contractual Obligations in the form and manner and with the effect, as provided in Section 4(a) of this Ordinance for Contractual Obligations issued in exchange for other Contractual Obligations. SECTION 13. CUSTODY, APPROVAL, AND REGISTRATION OF THE CONTRACTUAL OBLIGATIONS; BOND COUNSEL'S OPINION, BOND INSURANCE, AND CUSIP NUMBERS. The Mayor or Mayor Pro-Tem of the City is hereby authorized to have control of the Contractual Obligations initially issued and delivered hereunder and all necessary records and proceedings pertaining to the Contractual Obligations pending their delivery and their investigation, examination, and approval by the Attorney General of the State of Texas, and their registration by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Contractual Obligations said Comptroller of Public Accounts (or a

19

deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate attached to such Contractual Obligations, and the seal of said Comptroller shall be impressed, or placed in facsimile, on such Certificate. The approving legal opinion of the City's Bond Counsel (with an appropriate certificate pertaining thereto executed by facsimile signature of the City Secretary of the City), a statement regarding the issuance of a municipal bond insurance policy to secure payment of debt service on the Contractual Obligations, if any, and the assigned CUSIP numbers may, at the option of the City, be printed on the Contractual Obligations issued and delivered under this Ordinance, but neither shall have any legal effect, and shall be solely for the convenience and information of the registered owners of the Contractual Obligations. SECTION 14. COVENANTS REGARDING TAX-EXEMPTION OF INTEREST ON THE CONTRACTUAL OBLIGATIONS. (a) Covenants. The City covenants to take any action necessary to assure, or refrain from any action which would adversely affect, the treatment of the Contractual Obligations as obligations described in section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), the interest on which is not includable in the "gross income" of the holder for purposes of federal income taxation. In furtherance thereof, the City covenants as follows:

(1) to take any action to assure that no more than 10 percent of the proceeds of the Contractual Obligations or the projects financed therewith (less amounts deposited to a reserve fund, if any) are used for any "private business use," as defined in section 141(b)(6) of the Code or, if more than 10 percent of the proceeds of the Contractual Obligations or the projects financed therewith are so used, such amounts, whether or not received by the City, with respect to such private business use, do not, under the terms of this Ordinance or any underlying arrangement, directly or indirectly, secure or provide for the payment of more than 10 percent of the debt service on the Contractual Obligations, in contravention of section 141(b)(2) of the Code;

(2) to take any action to assure that in the event that the "private business use" described in subsection (1) hereof exceeds 5 percent of the proceeds of the Contractual Obligations or the projects financed therewith (less amounts deposited into a reserve fund, if any) then the amount in excess of 5 percent is used for a "private business use" which is "related" and not "disproportionate," within the meaning of section 141(b)(3) of the Code, to the governmental use;

(3) to take any action to assure that no amount which is greater than the lesser of $5,000,000, or 5 percent of the proceeds of the Contractual Obligations (less amounts deposited into a reserve fund, if any) is directly or indirectly used to finance loans to persons, other than state or local governmental units, in contravention of section 141(c) of the Code;

(4) to refrain from taking any action which would otherwise result in the Contractual Obligations being treated as "private activity bonds" within the meaning of section 141(b) of the Code;

20

(5) to refrain from taking any action that would result in the Contractual Obligations being "federally guaranteed" within the meaning of section 149(b) of the Code;

(6) to refrain from using any portion of the proceeds of the Contractual Obligations, directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in section 148(b)(2) of the Code) which produces a materially higher yield over the term of the Contractual Obligations, other than investment property acquired with --

(A) proceeds of the Contractual Obligations invested for a reasonable temporary period of three years or less until such proceeds are needed for the purpose for which the Contractual Obligations are issued,

(B) amounts invested in a bona fide debt service fund, within the meaning of section l.148-1(b) of the Treasury Regulations, and

(C) amounts deposited in any reasonably required reserve or replacement fund to the extent such amounts do not exceed 10 percent of the proceeds of the Contractual Obligations;

(7) to otherwise restrict the use of the proceeds of the Contractual Obligations or amounts treated as proceeds of the Contractual Obligations, as may be necessary, so that the Contractual Obligations do not otherwise contravene the requirements of section 148 of the Code (relating to arbitrage) and, to the extent applicable, section 149(d) of the Code (relating to advance refundings); and

(8) to pay to the United States of America at least once during each five-year period (beginning on the date of delivery of the Contractual Obligations) an amount that is at least equal to 90 percent of the "Excess Earnings," within the meaning of section 148(f) of the Code and to pay to the United States of America, not later than 60 days after the Contractual Obligations have been paid in full, 100 percent of the amount then required to be paid as a result of Excess Earnings under section 148(f) of the Code.

(b) Rebate Fund. In order to facilitate compliance with the above covenant (8), a "Rebate Fund" is hereby established by the City for the sole benefit of the United States of America, and such fund shall not be subject to the claim of any other person, including without limitation the contractual obligationholders. The Rebate Fund is established for the additional purpose of compliance with section 148 of the Code. (c) Proceeds. The City understands that the term "proceeds" includes "disposition proceeds" as defined in the Treasury Regulations and, in the case of refunding bonds, transferred proceeds (if any) and proceeds of the refunded bonds expended prior to the date of issuance of the Contractual Obligations. It is the understanding of the City that the covenants contained

21

herein are intended to assure compliance with the Code and any regulations or rulings promulgated by the U.S. Department of the Treasury pursuant thereto. In the event that regulations or rulings are hereafter promulgated which modify or expand provisions of the Code, as applicable to the Contractual Obligations, the City will not be required to comply with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally recognized bond counsel, will not adversely affect the exemption from federal income taxation of interest on the Contractual Obligations under section 103 of the Code. In the event that regulations or rulings are hereafter promulgated which impose additional requirements which are applicable to the Contractual Obligations, the City agrees to comply with the additional requirements to the extent necessary, in the opinion of nationally recognized bond counsel, to preserve the exemption from federal income taxation of interest on the Contractual Obligations under section 103 of the Code. In furtherance of such intention, the City hereby authorizes and directs the Mayor, the Mayor Pro-Tem, the City Manager or the Director of Finance of the City to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the City, which may be permitted by the Code as are consistent with the purpose for the issuance of the Contractual Obligations. (d) Allocation of, and Limitation on, Expenditures for the Project. The City covenants to account for the expenditure of sale proceeds and investment earnings to be used for the purposes described in Section 1 of this Ordinance (collectively referred to herein as the "Project") on its books and records in accordance with the requirements of the Internal Revenue Code. The City recognizes that in order for the proceeds to be considered used for the reimbursement of costs, the proceeds must be allocated to expenditures within 18 months of the later of the date that (1) the expenditure is made, or (2) the Project is completed; but in no event later than three years after the date on which the original expenditure is paid. The foregoing notwithstanding, the City recognizes that in order for proceeds to be expended under the Internal Revenue Code, the sale proceeds or investment earnings must be expended no more than 60 days after the earlier of (1) the fifth anniversary of the delivery of the Contractual Obligations, or (2) the date the Contractual Obligations are retired. The City agrees to obtain the advice of nationally-recognized bond counsel if such expenditure fails to comply with the foregoing to assure that such expenditure will not adversely affect the tax-exempt status of the Contractual Obligations. For purposes hereof, the City shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. (e) Disposition of Project. The City covenants that the property constituting the projects financed or refinanced with the proceeds of the Contractual Obligations will not be sold or otherwise disposed in a transaction resulting in the receipt by the City of cash or other compensation, unless the City obtains an opinion of nationally-recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Contractual Obligations. For purposes of the foregoing, the portion of the property comprising personal property and disposed in the ordinary course shall not be treated as a transaction resulting in the receipt of cash or other compensation. For purposes hereof, the City shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest.

22

(f) Written Procedures. Unless superseded by another action of the City, to ensure compliance with the covenants contained herein regarding private business use, remedial actions, arbitrage and rebate, the City Council hereby adopts and establishes the instructions attached hereto as Exhibit B as the City's written procedures. SECTION 15. SALE AND DELIVERY OF THE CONTRACTUAL OBLIGATIONS. The Contractual Obligations shall be sold and delivered subject to the provisions of Section 1 and pursuant to the terms and provisions of a bond purchase contract (the "Purchase Agreement") which the Pricing Officer is hereby authorized to execute and deliver and in which the purchaser or purchasers (the "Underwriters") of the Contractual Obligations shall be designated. The Contractual Obligations shall initially be registered in the name of the purchaser thereof as set forth in the Pricing Certificate. SECTION 16. APPROVAL OF OFFICIAL STATEMENT. The Pricing Officer is hereby authorized, in the name and on behalf of the City, to approve, distribute, and deliver a preliminary official statement and a final official statement relating to the Contractual Obligations to be used by the Underwriters in the marketing of the Contractual Obligations. SECTION 17. AUTHORITY FOR OFFICERS TO EXECUTE DOCUMENTS AND APPROVE CHANGES. The Mayor, Mayor Pro-Tem, City Secretary, City Manager and Director of Finance of the City, and all other officers, employees, and agents of the City, and each of them, shall be and they are hereby expressly authorized, empowered, and directed from time to time and at any time to do and perform all such acts and things and to execute, acknowledge, and deliver in the name and under the corporate seal and on behalf of the City all such instruments, whether or not herein mentioned, as may be necessary or desirable in order to carry out the terms and provisions of this Ordinance, the Contractual Obligations, the sale of the Contractual Obligations, the Official Statement, and the Paying Agent/Registrar Agreement. In addition, prior to the initial delivery of the Contractual Obligations, the Mayor, Mayor Pro-Tem, City Secretary, City Manager, Director of Finance, the City Attorney and Bond Counsel are hereby authorized and directed to approve any technical changes or correction to this Ordinance or to any of the instruments authorized and approved by this Ordinance necessary in order to (i) correct any ambiguity or mistake or properly or more completely document the transactions contemplated and approved by this Ordinance and as described in the Official Statement, (ii) obtain a rating from any of the national bond rating agencies or satisfy any requirements of the provider of a municipal bond insurance policy, if any, or (iii) obtain the approval of the Contractual Obligations by the Attorney General's office. In case any officer whose signature shall appear on any Contractual Obligation shall cease to be such officer before the delivery of such Contractual Obligation, such signature shall nevertheless be valid and sufficient for all purposes the same as if such officer had remained in office until such delivery. SECTION 18. ORDINANCE A CONTRACT; AMENDMENTS. This Ordinance shall constitute a contract with the Registered Owners of the Contractual Obligations, binding on the City and its successors and assigns, and shall not be amended or repealed by the City as long as any Contractual Obligation remains outstanding except as permitted in this Section. The City

23

may, without the consent of or notice to any Registered Owners, amend, change, or modify this Ordinance as may be required (i) by the provisions hereof, (ii) for the purpose of curing any ambiguity, inconsistency, or formal defect or omission herein, or (iii) in connection with any other change which is not to the prejudice of the Registered Owners. The City may, with the written consent of the Registered Owners of a majority in aggregate principal amount of the Contractual Obligations then outstanding affected thereby, amend, change, modify, or rescind any provisions of this Ordinance; provided that without the consent of all of the Registered Owners affected, no such amendment, change, modification, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Contractual Obligations, reduce the principal amount thereof or the rate of interest thereon, (ii) give any preference to any Contractual Obligation over any other Contractual Obligation, (iii) extend any waiver of default to subsequent defaults, or (iv) reduce the aggregate principal amount of Contractual Obligations required for consent to any such amendment, change, modification, or rescission. Whenever the City shall desire to make any amendment or addition to or rescission of this Ordinance requiring consent of the Registered Owners, the City shall cause notice of the amendment, addition, or rescission to be sent by first class mail, postage prepaid, to the Registered Owners at the respective addresses shown on the Registration Books. Whenever at any time within one year after the date of the giving of such notice, the City shall receive an instrument or instruments in writing executed by the Registered Owners of a majority in aggregate principal amount of the Contractual Obligations then outstanding affected by any such amendment, addition, or rescission requiring the consent of the Registered Owners, which instrument or instruments shall refer to the proposed amendment, addition, or rescission described in such notice and shall specifically consent to and approve the adoption thereof in substantially the form of the copy thereof referred to in such notice, thereupon, but not otherwise, the City may adopt such amendment, addition, or rescission in substantially such form, except as herein provided. No Registered Owner may thereafter object to the adoption of such amendment, addition, or rescission, or to any of the provisions thereof, and such amendment, addition, or rescission shall be fully effective for all purposes. SECTION 19. CONTINUING DISCLOSURE UNDERTAKING. (a) Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: "EMMA" means the Electronic Municipal Market Access system being established by the MSRB. "MSRB" means the Municipal Securities Rulemaking Board. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. (b) Annual Reports. The City shall provide annually to the MSRB through EMMA within six months after the end of each fiscal year ending in or after 2012, financial information

24

and operating data with respect to the Issuer of the general type included in the final Official Statement authorized by this Ordinance, being the information described in Exhibit C. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in the Pricing Certificate, or such other accounting principles as the Issuer may be required to employ from time to time pursuant to state law or regulation, and (2) audited, if the Issuer commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the Issuer shall provide (1) unaudited financial statements for such fiscal year within such six month period, and (2) audited financial statements for the applicable fiscal year to the MSRB through EMMA when and if the audit report on such statements become available. If the Issuer changes its fiscal year, it will notify the MSRB through EMMA of the date of the new fiscal year end prior to the next date by which the Issuer otherwise would be required to provide financial information and operating data pursuant to this paragraph (b). The financial information and operating data to be provided pursuant to this paragraph (b) may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to the MSRB through EMMA or filed with the SEC. (c) Event Notices.

(i) The Issuer shall notify the MSRB through EMMA in an electronic format as prescribed by the MSRB, in a timely manner (but not in excess of ten business days after the occurrence of the event) of any of the following events with respect to the Contractual Obligations, if such event is material within the meaning of the federal securities laws:

1. Non-payment related defaults;

2. Modifications to rights of Contractual Obligationholders;

3. Contractual Obligation calls;

4. Release, substitution, or sale of property securing repayment of the

Contractual Obligations;

5. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and

25

6. Appointment of a successor or additional trustee or the change of name of

a trustee.

(ii) The Issuer shall notify the MSRB through EMMA in an electronic format as prescribed by the MSRB, in a timely manner (but not in excess of ten business days after the occurrence of the event) of any of the following events with respect to the Contractual Obligations, without regard to whether such event is considered material within the meaning of the federal securities laws:

1. Principal and interest payment delinquencies;

2. Unscheduled draws on debt service reserves reflecting financial

difficulties; 3. Unscheduled draws on credit enhancements reflecting financial

difficulties;

4. Substitution of credit or liquidity providers, or their failure to perform;

5. Adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701–TEB) or other material notices or determinations with respect to the tax-exempt status of the Contractual Obligations, or other events affecting the tax-exempt status of the Contractual Obligations;

6. Tender offers;

7. Defeasances;

8. Rating changes; and

9. Bankruptcy, insolvency, receivership or similar event of an obligated

person .

(iii) The Issuer shall notify the MSRB through EMMA, in a timely manner, of any failure by the Issuer to provide financial information or operating data in accordance with subsection (b) of this Section by the time required by such subsection.

(d) Limitations, Disclaimers, and Amendments. The Issuer shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the Issuer remains an "obligated person" with respect to the Contractual Obligations within the meaning of the Rule, except that the Issuer in any event will give notice of any deposit made in accordance with Section 7 of this Ordinance that causes Contractual Obligations no longer to be outstanding.

26

The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Contractual Obligations, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The Issuer undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the Issuer's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The Issuer does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Contractual Obligations at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE ISSUER, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the Issuer in observing or performing its obligations under this Section shall comprise a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the Issuer under federal and state securities laws. The provisions of this Section may be amended by the Issuer from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the Issuer, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell Contractual Obligations in the primary offering of the Contractual Obligations in compliance with the Rule, taking into account any amendments or interpretations of the Rule since such offering as well as such changed circumstances and (2) either (a) the holders of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the Outstanding Contractual Obligations consent to such amendment or (b) a person that is unaffiliated with the Issuer (such as nationally recognized bond counsel) determined that such amendment will not materially impair the interest of the holders and beneficial owners of the Contractual Obligations. The Issuer may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Contractual

27

Obligations in the primary offering of the Contractual Obligations. If the Issuer so amends the provisions of this Section, it shall include with any amended financial information or operating data next provided in accordance with paragraph (b) of this Section an explanation, in narrative form, of the reason for the amendment and of the impact of any change in the type of financial information or operating data so provided. SECTION 20. SECURITY INTEREST. Chapter 1208, Texas Government Code, applies to the issuance of the Contractual Obligations and the pledge of the ad valorem taxes granted by the City under Sections 6 and 7 of this Ordinance, and is therefore valid, effective, and perfected. If Texas law is amended at any time while the Contractual Obligations are outstanding and unpaid such that the pledge of the ad valorem taxes granted by the City under Section 6 of this Ordinance is to be subject to the filing requirements of Chapter 9, Texas Business & Commerce Code, then in order to preserve to the registered owners of the Contractual Obligations the perfection of the security interest in said pledge, the City agrees to take such measures as it determines are reasonable and necessary under Texas law to comply with the applicable provisions of Chapter 9, Texas Business & Commerce Code, and enable a filing to perfect the security interest in said pledge to occur. SECTION 21. REMEDIES IN EVENT OF DEFAULT. In addition to all the rights and remedies provided by the laws of the State of Texas, it is specifically covenanted and agreed particularly that in the event the City (i) defaults in the payment of the principal, premium, if any, or interest on the Contractual Obligations, (ii) defaults in the deposits and credits required to be made to the Interest and Sinking Fund, or (iii) defaults in the observance or performance of any other of the covenants, conditions or obligations set forth in this Ordinance and the continuation thereof for 30 days after the City has received written notice of such defaults, the Holders of any of the Contractual Obligations shall be entitled to seek a writ of mandamus issued by a court of proper jurisdiction compelling and requiring the governing body of the City and other officers of the City to observe and perform any covenant, condition or obligation prescribed in this Ordinance. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. The specific remedy herein provided shall be cumulative of all other existing remedies, and the specification of such remedy shall not be deemed to be exclusive. SECTION 22. INTERESTED PARTIES. Nothing in this Ordinance expressed or implied is intended or shall be construed to confer upon, or to give to, any person or entity, other than the City, the Underwriters and the registered owners of the Contractual Obligations, any right, remedy or claim under or by reason of this Ordinance or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Ordinance contained by and on behalf of the City shall be for the sole and exclusive benefit of the City, the Underwriters and the registered owners of the Contractual Obligations.

28

SECTION 23. [RESERVED.] SECTION 24. INCORPORATION OF RECITALS. The City hereby finds that the statements set forth in the recitals of this Ordinance are true and correct, and the City hereby incorporates such recitals as a part of this Ordinance. SECTION 25. SEVERABILITY. If any provision of this Ordinance or the application thereof to any circumstance shall be held to be invalid, the remainder of this Ordinance and the application thereof to other circumstances shall nevertheless be valid, and this governing body hereby declares that this Ordinance would have been enacted without such invalid provision. SECTION 26. FINDING AND AMENDMENT TO BUDGET. It is hereby officially found and determined that said meeting was open to the public, and public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551, Texas Government Code, and that this Ordinance shall become effective on final passage, and that the annual budget for this year is hereby amended to appropriate the proceeds from the Contractual Obligations for the purposes authorized herein. SECTION 27. EFFECTIVE DATE. Pursuant to the provisions of Section 1201.028, Texas Government Code, this Ordinance shall become effective immediately after its adoption by the City Council.

[The remainder of this page left blank intentionally.]

SCHEDULE I

LIST OF PERSONAL PROPERTY TO BE ACQUIRED WITH PROCEEDS OF THE CONTRACTUAL OBLIGATIONS

DEPARTMENT/FUND DIVISION DESCRIPTION AMOUNT Useful Life7

Building Development Building Inspections AutomotiveFour 1/2 ton, extended cab replacement trucks 80,000 7

Building Development Total 80,000

Community Development Non CDBG Code Enf. AutomotiveReplace 2000 unit w/ Full Size, Reg. Cab, Short Bed Truck 17,500 7

Community Development Total 17,500

Fire Suppression AutomotiveReplace a 1996 aerial truck 1,175,000 15Replace Engine 3005, year 2001 490,000 10Crew Cabe F250 4x4; replace unit 2111 72,840 5

Information Tech Vehicle needed for IT division 20,329 7EMS Automotive

Replace 2 ambulances at an avg. cost of $217,394 ea. 434,788 5that currently have the following mileage:

2006 unit having 144,048 milesReplace staff Ford Escape with 125,394 miles 20,329 7

Fire Prevention Automotive& Arson Two Ford Escapes for inspectors, at avg. cost of $20,329

ea., to replace Ford Expedition with 144,094 miles 40,658 7and F150 with 143,199 miles

Training - In House Machinery & EquipmentReplace 25 SCBAs at a cost of $5,500 ea. 137,500

Fire Total 2,391,444

Parks & Leisure Services Automotive Eight John Deer riding mowers 88,000 5 Six -Full size extended cab trucks plus accessories 180,000 7 One Full size regular cab tricks -short bed plus acc. 17,000 7

Two Pneumatic Rollers 20,000 10Bobcat steer loader with attachments 14,580 10Two Backhoes with extended boom 190,000 10 Two vans 3/4 Ton with utility shelves 39,000 7

Parks & Leisure Services Total 548,580

CITY OF LAREDOCAPITAL OUTLAY REQUESTS

FY 2012-2013

GENERAL FUND

DEPARTMENT/FUND DIVISION DESCRIPTION AMOUNT Useful Life7

CITY OF LAREDOCAPITAL OUTLAY REQUESTS

FY 2012-2013

Traffic Administration AutomotiveOne truck for warehouse supervisor 25,000 7

Engineering AutomotiveReplace 1998 F150 truck used by engineer technician 25,000 7

Signals AutomotiveReplace 1998 F250 truck for signal supervisor w/ 120K mi. 25,000 7

Traffic Total 75,000

Public Works Public Works Machinery & Equipment() Pot Pachers ($145,000 each) 145,000 7(3) Dump Trucks 225,000 7(1) Water Truck 70,000 7(1) Sweeper 210,000 7

650,000

Capital Outlay for General Fund 3,762,524

OTHER FUNDS

EXHIBIT A

FORM OF PAYING AGENT/REGISTRAR AGREEMENT

THE PAYING AGENT/REGISTRAR AGREEMENT IS OMITTED AT THIS POINT

AS IT APPEARS IN EXECUTED FORM ELSEWHERE IN THIS TRANSCRIPT.

EXHIBIT B

WRITTEN PROCEDURES RELATING TO CONTINUING COMPLIANCE WITH FEDERAL TAX COVENANTS

A. Arbitrage. With respect to the investment and expenditure of the proceeds of the Contractual Obligations, the City's chief financial officer (the "Responsible Person"), which currently is the City's Finance Director, will: (i) monitor all amounts deposited into a sinking fund or funds (e.g., the Interest and Sinking Fund), to assure that the maximum amount invested at a yield higher than the yield on the Contractual Obligations does not exceed an amount equal to the debt service on the Contractual Obligations in the succeeding 12 month period plus a carryover amount equal to one-twelfth of the principal and interest payable on the Contractual Obligations for the immediately preceding 12-month period; (ii) monitor the actions of the Escrow Agent to ensure compliance with the applicable provisions of the Escrow Agreement, including with respect to reinvestment of cash balances; (iii) ensure that the applicable information return (e.g., IRS Form 8038-G, 8038-GC, or any successor forms) is timely filed with the IRS; and (iv) assure that, unless excepted from rebate and yield restriction under section 148(f) of the Code, excess investment earnings are computed and paid to the U.S. government at such time and in such manner as directed by the IRS (A) at least every 5 years after the date of delivery of the Contractual Obligations (the "Issue Date"), and (B) within 30 days after the date the Contractual Obligations are retired. B. Private Business Use. With respect to the use of the facilities financed or refinanced with the proceeds of the Contractual Obligations the Responsible Person will: (i) monitor the date on which the facilities are substantially complete and available to be used for the purpose intended; (ii) monitor whether, at any time the Contractual Obligations are outstanding, any person, other than the City, the employees of the City, the agents of the City or members of the general public has any contractual right (such as a lease, purchase, management or other service agreement) with respect to any portion of the facilities; (iii) monitor whether, at any time the Contractual Obligations are outstanding, any person, other than the City, the employees of the City, the agents of the City or members of the general public has a right to use the output of the facilities (e.g., water, gas, electricity); (iv) monitor whether, at any time the Contractual Obligations are outstanding, any person, other than the City, the employees of the City, the agents of the City or members of the general public has a right to use the facilities to conduct or to direct the conduct of research;

(v) determine whether, at any time the Contractual Obligations are outstanding, any person, other than the City, has a naming right for the facilities or any other contractual right granting an intangible benefit; (vi) determine whether, at any time the Contractual Obligations are outstanding, the facilities are sold or otherwise disposed of; and (vii) take such action as is necessary to remediate any failure to maintain compliance with the covenants contained in the Ordinance related to the public use of the facilities. C. Record Retention. The Responsible Person will maintain or cause to be maintained all records relating to the investment and expenditure of the proceeds of the Contractual Obligations and the use of the facilities financed or refinanced thereby for a period ending three (3) years after the complete extinguishment of the Contractual Obligations. If any portion of the Contractual Obligations is refunded with the proceeds of another series of tax-exempt obligations, such records shall be maintained until the three (3) years after the refunding obligations are completely extinguished. Such records can be maintained in paper or electronic format Responsible Person. D. The Responsible Person shall receive appropriate training regarding the City's accounting system, contract intake system, facilities management and other systems necessary to track the investment and expenditure of the proceeds and the use of the facilities financed or refinanced with the proceeds of the Contractual Obligations. The foregoing notwithstanding, the Responsible Person is authorized and instructed to retain such experienced advisors and agents as may be necessary to carry out the purposes of these instructions.

EXHIBIT C

DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 19 of this Ordinance. Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Section are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: 1. The annual audited financial statements of the City or the unaudited financial statements of the City in the event audited financial statements are not completed within six months after the end of any fiscal year. 2. All quantitative financial information and operating data with respect to the City of the general type included in the Official Statement under Tables 1 through 5 and 7 through 13. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in paragraph 1 above.

PRICING CERTIFICATE

I, the undersigned City Manager of the City of Laredo, Texas (the "Issuer"), acting as Pricing Officerpursuant to the authority granted to me by the ordinance adopted by the City Council of the Issuer onOctober 1, 2012 (the "Ordinance") relating to the issuance of the Issuer's Public Property Finance ContractualObligations, Series 2012 (the "Contractual Obligations") hereby finds, determines and commits on behalf ofthe Issuer to sell and deliver the Contractual Obligations on the following terms:

1. Capitalized terms not otherwise defined herein have the meaning assigned in the Ordinance.

2. The Contractual Obligations are hereby sold and shall be delivered to Stifel, Nicolaus &Company, Incorporated, Stephens Inc., Southwest Securities, Inc., and Wells Fargo Securities for cash at aprice of $3,835,323.04 (being the par amount of the Contractual Obligations, plus a net reoffering premiumof $58,279.00 and less an Underwriters' discount of $22,955.96), according to the following terms:

A. The aggregate principal amount of the Contractual Obligations shall be $3,800,000 maturingon February 15 in each of the years 2013 through 2022, inclusive.

B. The Contractual Obligations shall be dated October 1, 2012, with the initial ContractualObligation being numbered T-1 and definitive Contractual Obligations being numberedconsecutively from R-1 upward.

C. (i) (a) The Contractual Obligations shall mature and be payable on the dates and in theprincipal amounts and shall bear interest at the per annum rates, and shall be sold to yield therates, set forth in the following schedule:

Maturity Date Principal AmountInterest

Rate YieldFebruary 15, 2013 $360,000 2.000% 0.500%February 15, 2014 355,000 2.000 0.610February 15, 2015 360,000 2.000 0.710February 15, 2016 365,000 1.500 0.900February 15, 2017 375,000 2.000 1.100February 15, 2018 380,000 2.000 1.300February 15, 2019 390,000 2.000 1.550February 15, 2020 395,000 2.000 1.900February 15, 2021 405,000 2.000 2.150February 15, 2022 415,000 2.250 2.350

(b) Interest on the Contractual Obligations shall accrue from the Issuance Date, setforth below, and will be payable February 15 and August 15 of each year, commencingFebruary 15, 2013. The record date for the Contractual Obligations will be the last businessday of the month preceding an interest payment date.

(c) The Contractual Obligations shall bear interest calculated on the basis of a 360-day year composed of twelve 30-day months.

(ii) The debt service requirements of the Contractual Obligations are set forth in Exhibit Aattached hereto.

D. The true interest cost on the Contractual Obligations is 1.82%.

E. The Issuance Date (delivery date) of the Contractual Obligations shall be October 30, 2012.

2

F. The Contractual Obligations are not subject to optional redemption prior to stated maturity.

G. The Contractual Obligations shall be initially registered in the name of Stifel, Nicolaus &Company, Incorporated.

H. Pursuant to Section 16 of the Ordinance, and in the name of the Issuer, distribution and useof the Preliminary Official Statement and the final Official Statement by the underwriters ofthe Contractual Obligations designated in paragraph 2 is authorized and approved.

I. In satisfaction of Section 1201.022(a)(3), Texas Government Code, as authorized by Section1(d) of the Ordinance, and in consultation with, and reliance upon the advice of, the financialadvisor for the Issuer, I hereby find that the terms of sale are the most advantageousreasonably available on the date and time of the pricing of the Contractual Obligations giventhe then existing market conditions and the stated terms of sale on such date and at suchtime.

[The remainder of this page intentionally left blank.]

EXHIBIT A

Schedule of Debt Service Requirements

Oct 2, 2012 2:43 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012D) Page 4

BOND DEBT SERVICE

City of Laredo, TexasPPF Contractual Obligations, Series 2012 [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012

Period AnnualEnding Principal Coupon Interest Debt Service Debt Service

02/15/2013 360,000 2.000% 21,936.98 381,936.9808/15/2013 34,006.25 34,006.2509/30/2013 415,943.2302/15/2014 355,000 2.000% 34,006.25 389,006.2508/15/2014 30,456.25 30,456.2509/30/2014 419,462.5002/15/2015 360,000 2.000% 30,456.25 390,456.2508/15/2015 26,856.25 26,856.2509/30/2015 417,312.5002/15/2016 365,000 1.500% 26,856.25 391,856.2508/15/2016 24,118.75 24,118.7509/30/2016 415,975.0002/15/2017 375,000 2.000% 24,118.75 399,118.7508/15/2017 20,368.75 20,368.7509/30/2017 419,487.5002/15/2018 380,000 2.000% 20,368.75 400,368.7508/15/2018 16,568.75 16,568.7509/30/2018 416,937.5002/15/2019 390,000 2.000% 16,568.75 406,568.7508/15/2019 12,668.75 12,668.7509/30/2019 419,237.5002/15/2020 395,000 2.000% 12,668.75 407,668.7508/15/2020 8,718.75 8,718.7509/30/2020 416,387.5002/15/2021 405,000 2.000% 8,718.75 413,718.7508/15/2021 4,668.75 4,668.7509/30/2021 418,387.5002/15/2022 415,000 2.250% 4,668.75 419,668.7509/30/2022 419,668.75

3,800,000 378,799.48 4,178,799.48 4,178,799.48

City of Laredo/BPA

$3,800,000.00 CITY OF LAREDO, TEXAS

PUBLIC PROPERTY FINANCE CONTRACTUAL OBLIGATIONS, SERIES 2012

________________________________

BOND PURCHASE AGREEMENT ________________________________

October 3, 2012

Mayor and City Council City of Laredo, Texas 1110 Houston Street Laredo, Texas 78040

Ladies and Gentlemen:

The undersigned, Stifel, Nicolaus & Company, Incorporated (the "Representative"), acting on its own behalf and on behalf of the other underwriters listed on Schedule I hereto (collectively, the "Underwriters"), and not acting as a fiduciary or agent for you, offers, jointly and severally, to enter into the following agreement (this "Agreement") with City of Laredo, Texas (the "City" or the "Issuer"), which, upon the Issuer's written acceptance of this offer, will be binding upon the Issuer and upon the Underwriters. This offer is made subject to the Issuer's written acceptance hereof on or before 10:00 p.m., Laredo, Texas time, on October 3, 2012, and, if not so accepted, will be subject to withdrawal by the Underwriters upon written notice delivered to the Issuer at any time prior to the acceptance hereof by the Issuer. Terms not otherwise defined in this Agreement shall have the same meanings set forth in the Ordinance (as defined herein) or in the Official Statement (as defined herein).

The Representative represents that it has been duly authorized to execute this Agreement and has been duly authorized to act hereunder as the Representative. All actions which may be taken hereunder by the Underwriters may be taken by the Representative alone.

1. Purchase and Sale of the Obligations. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriters hereby agree, jointly and severally, to purchase from the Issuer, and the Issuer hereby agrees to sell and deliver to the Underwriters, all, but not less than all, of the Issuer's $3,800,000.00 Public Property Finance Contractual Obligations, Series 2012 (the "Obligations"). Inasmuch as this purchase and sale represents a negotiated transaction, the Issuer understands, and hereby confirms, that the Underwriters are not acting as fiduciaries of the Issuer, but rather are acting solely in their capacity as underwriters for their own accounts. The City acknowledges that in connection with the purchase and sale of the Obligations pursuant to this Agreement and the offering of the Obligations for sale and the discussions and negotiations relating to the terms of the Obligations set forth in this Agreement: (a) the Underwriters have acted at arms length, are acting solely as principals for their own account and are not agents of or advisors to, and owe no

City of Laredo/BPA - 2 -

fiduciary duties to, the City or any other person, (b) the Underwriters' duties and obligations to the City shall be limited to those contractual duties and obligations set forth in this Agreement, (c) the Underwriters may have interests that differ from those of the City and (d) the City has consulted its own legal and financial advisors to the extent it deemed appropriate in connection with the offering of the Obligations.

The Obligations shall be as described in, and shall be issued and secured under and pursuant to the provisions of an ordinance adopted by the Issuer on October 1, 2012 and an approval certificate duly executed by an authorized representative of the City on October 3, 2012 (collectively, the "Ordinance").

The purchase price for the Obligations shall be $3,835,323.04 (representing the par amount of the Obligations, plus a net premium of $58,279.00, and less an underwriter's discount of $22,955.96) plus no accrued interest on the Obligations.

Delivered to the Issuer herewith is the Representative's good-faith corporate check payable to the order of the Issuer in the amount of $38,800.00 (the "Check"). In the event the Issuer does not accept this offer, the Check shall be promptly returned uncashed to the Representative. Upon the Issuer's acceptance and countersignature of this offer, the Check (i) shall not be cashed or negotiated but shall be held and retained in safekeeping by the Issuer as security for the performance by the Underwriters of their obligation, subject to the terms and conditions herein set forth, to purchase and accept delivery of the Obligations at the Closing, and (ii) shall be applied and disposed of by the Issuer solely as provided in this Agreement. In the event of the Underwriters' compliance with such obligation to purchase and accept delivery of the Obligations as herein provided, the Check shall be returned to the Representative at the Closing. In the event of the failure by the Issuer to deliver the Obligations at the Closing, or if the Issuer shall be unable to satisfy the conditions to the obligation of the Underwriters contained in this Agreement, or if the obligation of the Underwriters shall be terminated for any reason permitted by this Agreement, the Check shall be returned promptly to the Representative. In the event that the Underwriters fail (other than for a reason permitted hereunder) to purchase and accept delivery of the Obligations as herein provided, the Issuer shall become entitled to cash or negotiate the Check, and the proceeds thereof shall be retained by the Issuer as and for fully liquidated damages for such failure and for any and all defaults on the part of the Underwriters and such proceeds shall constitute a full release and discharge of all claims and damages for such failure and for any and all such defaults. The Underwriters and the Issuer understand that in such event the Issuer's actual damages may be greater or may be less than such amount. Accordingly, the Underwriters hereby waive any right to claim that the Issuer's actual damages are less than such amount, and the Issuer's acceptance of this offer shall constitute a waiver of any right the Issuer may have to additional damages from the Underwriters.

2. Public Offering. The Underwriters agree to make a bona fide public offering of all of the Obligations at prices not to exceed the public offering prices set forth on page ii of the Official Statement (defined herein) and, subsequently, may change such offering prices without any requirement of prior notice. The Underwriters may offer and sell Obligations to certain dealers (including dealers depositing Obligations into investment trusts) and others at prices lower than the public offering prices stated on page ii of the Official Statement. On or before the Closing, the Representative shall execute a certificate provided by Bond Counsel verifying the

City of Laredo/BPA - 3 -

initial offering prices to the public at which a substantial amount of each maturity of the Obligations was sold to the public.

3. The Official Statement.

(a) The Issuer previously has delivered copies of the Preliminary Official Statement dated September 27, 2012 (the "Preliminary Official Statement") to the Underwriters. The Issuer will prepare a final Official Statement relating to the Obligations, which will be (i) dated the date of this Purchase Contract, (ii) complete within the meaning of Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (the "Rule"), and (iii) substantially in the form of the most recent version of the Preliminary Official Statement provided to the Underwriters before the execution hereof. Such final Official Statement, including the cover page thereto, all exhibits, schedules, appendices, maps, charts, pictures, diagrams, reports, and statements included or incorporated therein or attached thereto, and all amendments and supplements thereto that may be authorized for use with respect to the Obligations, is herein referred to as the "Official Statement." Until the Official Statement has been prepared and is available for distribution, the Issuer shall provide to the Underwriters the Preliminary Official Statement in a "designated electronic format" (as defined in and specified by Rule G-32 of the Municipal Securities Rulemaking Board (the "MSRB")) to permit the Underwriters to satisfy their obligations under the Rule with respect to distribution to each potential customer, upon request, of a copy of the Preliminary Official Statement.

(b) The Preliminary Official Statement has been prepared, in a "designated electronic format," for use by the Underwriters in connection with the public offering, sale and distribution of the Obligations. The Issuer hereby represents and warrants that the Preliminary Official Statement has been deemed final by the Issuer as of its date, except for the omission of such information which is dependent upon the final pricing of the Obligations for completion, all as permitted to be excluded by Section (b)(1) of the Rule.

(c) The Issuer hereby authorizes the Official Statement and the information therein contained to be used by the Underwriters in connection with the public offering and the sale of the Obligations. The Issuer consents to the use by the Underwriters prior to the date hereof of the Preliminary Official Statement, in a "designated electronic format", in connection with the public offering of the Obligations. The Issuer shall provide, or cause to be provided, to the Underwriters as soon as practicable after the date of the Issuer's acceptance of this Agreement (but, in any event, not later than within seven (7) business days after the Issuer's acceptance of this Agreement and in sufficient time to accompany any confirmation that requests payment from any customer) the Official Statement in a "designated electronic format," approved by the Issuer's City Council or one or more duly authorized officers of the Issuer, which is complete as of the date of its delivery to the Underwriters. In addition, such Official Statement shall be delivered to the Underwriters in such reasonable quantity as the Representative shall request in order for the Underwriters to comply with Section (b)(4) of the Rule and Rule G-32 of the MSRB obligating the Underwriters to deliver a copy of the Official Statement to a purchaser of Obligations not later than the Closing upon an Underwriter's receipt from such purchaser of a request therefor.

City of Laredo/BPA - 4 -

(d) If, after the date of this Agreement to and including the date the Underwriters are no longer required to provide an Official Statement to potential customers who request the same pursuant to the Rule (the earlier of (i) ninety (90) days from the "end of the underwriting period" (as defined in Rule) and (ii) the time when the Official Statement is available to any person from a nationally recognized municipal securities information repository, but in no case less than twenty-five (25) days after the "end of the underwriting period" for the Obligations), the Issuer becomes aware of any fact or event which might or would cause the Official Statement, as then supplemented or amended, to contain any untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or if it is necessary to amend or supplement the Official Statement to comply with law, the Issuer will notify the Representative (and for the purposes of this clause provide the Representative with such information as the Representative may from time to time reasonably request), and if, in the reasonable opinion of the Representative, such fact or event requires preparation and publication of a supplement or amendment to the Official Statement, the Issuer will forthwith prepare and furnish, at the Issuer's own expense (in a manner approved by the Representative, which approval shall not be unreasonably withheld), either an amendment or supplement to the Official Statement, and make the same available to the Underwriters in a "designated electronic format", so that the statements in the Official Statement as so amended and supplemented will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or so that the Official Statement will comply with law. If such notification shall be subsequent to the Closing, the Issuer shall furnish such legal opinions, certificates, instruments and other documents as the Representative may deem necessary to evidence the truth and accuracy of such supplement or amendment to the Official Statement.

(e) The Representative hereby agrees to timely file the Official Statement with the MSRB through its Electronic Municipal Market Access ("EMMA") System. Unless otherwise notified in writing by the Representative, the Issuer can assume that the "end of the underwriting period" for purposes of the Rule is the date of the Closing.

4. Representations, Warranties, and Covenants of the Issuer. The Issuer hereby represents and warrants to and covenants with the Underwriters that:

(a) The Issuer is a duly organized and validly existing political subdivision of the State of Texas and a body politic and corporate duly created, organized, and existing under the laws of the State of Texas (the "State"), and has full legal right, power and authority pursuant to the Constitution and the laws of the State, including particularly Subchapter A of Chapter 271, as amended, Texas Local Government Code, and Chapter 1371, as amended, Texas Government Code, (the "Acts"), the Issuer's Home Rule Charter, and the Ordinance and at the date of the Closing will have full legal right, power and authority (i) to enter into, execute and deliver this Agreement, the Ordinance, the Paying Agent/Registrar Agreement for the Obligations (the "Paying Agent/Registrar Agreement") between the City and The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (the "Paying Agent/Registrar"), Continuing Disclosure Undertaking (as defined in Section 6(i)(3) hereof), and all documents required hereunder and thereunder to be executed and delivered by the Issuer (this Agreement, the Ordinance, and the Continuing Disclosure Undertaking are hereinafter referred to as the "Issuer Documents"), (ii) to sell, issue and deliver the Obligations to the Underwriters as provided herein, (iii) to carry out

City of Laredo/BPA - 5 -

and consummate the transactions described in the Issuer Documents and the Official Statement; and the Issuer has complied, and will at the Closing be in compliance in all respects with applicable State law (including the Acts) as they pertain to such transactions and the Issuer Documents;

(b) By all necessary official action of the Issuer prior to or concurrently with the acceptance hereof, the Issuer has duly authorized all necessary action to be taken by it for (i) the adoption of the Ordinance and the issuance and sale of the Obligations, (ii) the approval, execution and delivery of, and the performance by the Issuer of the obligations on its part contained in, the Obligations and the Issuer Documents and (iii) the consummation by it of all other transactions described in the Official Statement and the Issuer Documents and any and all such other agreements and documents as may be required to be executed, delivered and/or received by the Issuer in order to carry out, give effect to, and consummate the transactions described herein and in the Official Statement;

(c) The Issuer Documents constitute legal, valid and binding obligations of the Issuer, enforceable in accordance with their respective terms, subject to principles of sovereign immunity and bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights; the Obligations, when issued, delivered and paid for, in accordance with the Ordinance and this Agreement, will constitute legal, valid and binding limited obligations of the Issuer payable from an ad valorem tax levied annually, within limits prescribed by law, against all taxable property in the City, as provided in the Ordinance, entitled to the benefits of the Ordinance and enforceable in accordance with their terms, subject to principles of sovereign immunity and bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights and upon the issuance, authentication and delivery of the Obligations as aforesaid, the Ordinance will provide, for the benefit of the holders, from time to time, of the Obligations, the legally valid and binding obligation to use ad valorem taxes, within the limits prescribed by law for the payment of the Obligations as set forth in the Ordinance;

(d) The Issuer is not in material breach of or default in any material respect under any applicable constitutional provision, law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer is (or any of its property or assets are) otherwise subject; and no event has occurred and is continuing which constitutes or with the passage of time or the giving of notice, or both, would constitute a default or event of default by the Issuer under any of the foregoing; and the execution and delivery of the Obligations, the Issuer Documents and the adoption of the Ordinance and compliance with the provisions on the Issuer's part contained therein, will not conflict with or constitute a material breach of or default under any constitutional provision, law or administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer is or to which any of its property or assets are otherwise subject, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Issuer

City of Laredo/BPA - 6 -

to be pledged to secure the Obligations or under the terms of any such law, regulation or instrument, except as provided by the Obligations and the Ordinance;

(e) All authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction of the matters which are required for the due authorization of, which would constitute a condition precedent to, or the absence of which would materially adversely affect the due performance by the Issuer of its obligations under the Issuer Documents and the Obligations have been duly obtained or will be obtained prior to the Closing, except for such approvals, consents and orders as may be required under the Blue Sky or securities laws of any jurisdiction in connection with the offering and sale of the Obligations;

(f) The Obligations and the Ordinance conform to the descriptions thereof contained in the Official Statement under the caption "THE OBLIGATIONS;" the proceeds of the sale of the Obligations will be applied generally as described in the Official Statement under the captions "PLAN OF FINANCING," "THE OBLIGATIONS – Sources and Uses of Funds of the Contractual Obligations;" and the Continuing Disclosure Undertaking conforms to the description thereof contained in the Official Statement under the caption "OTHER RELEVANT INFORMATION – Continuing Disclosure of Information;"

(g) Except as otherwise provided in the Official Statement under the caption "Continuing Disclosure of Information;" during the last five (5) years the Issuer has complied in all material respects with its previous Continuing Disclosure Undertakings made by it in accordance with the Rule;

(h) Except as otherwise disclosed in the Official Statement, there is no litigation, action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or, to the best knowledge of the Issuer, threatened against the Issuer, affecting the corporate existence of the Issuer or the titles of its officers to their respective offices, or affecting or seeking to prohibit, restrain or enjoin the sale, issuance or delivery of the Obligations or the levy of ad valorem taxes, within the limits prescribed by law, for payment of the principal of and interest on the Obligations pursuant to the Ordinance or in any way contesting or affecting the validity or enforceability of the Obligations or the Issuer Documents or contesting the exclusion from gross income of interest on the Obligations for federal income tax purposes, or contesting in any way the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto, or contesting the powers of the Issuer or any authority for the issuance of the Obligations, the adoption of the Ordinance or the execution and delivery of the Issuer Documents, nor, to the best knowledge of the Issuer, is there any basis therefor, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Obligations (including the security therefor) or the Issuer Documents;

(i) As of the date thereof, the Preliminary Official Statement did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

City of Laredo/BPA - 7 -

(j) At the time of the Issuer's acceptance hereof and (unless the Official Statement is amended or supplemented pursuant to paragraph (d) of Section 3 of this Agreement) at all times subsequent thereto during the period up to and including twenty-five (25) days subsequent to the "end of the underwriting period," the Official Statement does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

(k) If the Official Statement is supplemented or amended pursuant to paragraph (d) of Section 3 of this Agreement, at the time of each supplement or amendment thereto and (unless subsequently again supplemented or amended pursuant to such paragraph) at all times subsequent thereto during the period up to and including twenty-five (25) days subsequent to the "end of the underwriting period," the Official Statement as so supplemented or amended will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which made, not misleading;

(l) The Issuer will apply, or cause to be applied, the proceeds from the sale of the Obligations as provided in and subject to all of the terms and provisions of the Ordinance and will not take or omit to take any action which action or omission will adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Obligations;

(m) The Issuer, at the sole cost of the Underwriters, will furnish such information and execute such instruments and take such action in cooperation with the Underwriters as the Representative may reasonably request (1) to (i) qualify the Obligations for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions in the United States as the Representative may designate and (ii) determine the eligibility of the Obligations for investment under the laws of such states and other jurisdictions and (2) to continue such qualifications in effect so long as required for the distribution of the Obligations (provided, however, that the Issuer will not be required to qualify as a foreign corporation or to file any general or special consents to service of process under the laws of any jurisdiction) and will advise the Representative immediately of receipt by the Issuer of any written notification with respect to the suspension of the qualification of the Obligations for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose;

(n) The Issuer's financial statements and the other information regarding the Issuer's financial condition and operations set forth in the Official Statement fairly present the financial position, results of operations and condition of the Issuer as of the dates and for the periods therein set forth and there has been no adverse change of a material nature in the financial position, results of operations or condition, financial or otherwise, of the Issuer since the dates of such statements and information;

(o) Except as may be otherwise disclosed in the Official Statement, the Issuer is not a party to any litigation or other proceeding pending or, to its knowledge, threatened which, if decided adversely to the Issuer, would have a materially adverse effect on the Issuer's financial condition or operations;

City of Laredo/BPA - 8 -

(p) The Issuer will not offer or issue any bonds, notes or other obligations for borrowed money or incur any material liabilities, direct or contingent (except for issuance of Combination Tax and Revenue Certificates of Obligation, Series 2012A, Combination Tax and Revenue Certificates of Obligation, Taxable Series 2012B, commercial paper under existing programs and other indebtedness incurred in the ordinary course of business excluding bonded debt issued in the ordinary course of business), payable from or secured by ad valorem taxes without the prior approval of the Representative;

(q) Any certificate, signed by any official of the Issuer authorized to do so in connection with the transactions described in this Agreement, shall be deemed a representation and warranty by the Issuer to the Underwriters as to the statements made therein; and

(r) The Issuer covenants that between the date hereof and the date of the Closing it will take no action within its control, which will cause the representations and warranties made in this Section to be untrue as of the Closing.

By delivering the Official Statement to the Representative, the Issuer shall be deemed to have reaffirmed, with respect to the Official Statement, the representations, warranties and covenants set forth above with respect to the Preliminary Official Statement.

5. Closing.

(a) At or before 10:00 a.m., Laredo, Texas time, on October 30, 2012, or at such other time and date as shall have been mutually agreed upon by the Issuer and the Representative, the Issuer will, subject to the terms and conditions hereof, deliver to the Representative the Initial Obligation (as defined in the Ordinance) registered in the name of the Representative, in temporary form, together with the other documents hereinafter mentioned, and will have available for immediate exchange definitive obligations deposited with The Depository Trust Company, New York, New York ("DTC"), or deposited with the Paying Agent/Registrar, if the Obligations are to be held in safekeeping for DTC by the Registrar pursuant to DTC's FAST system and the Ordinance, duly executed and authenticated in the form and manner contemplated below, together with the other documents hereinafter mentioned, and the Representative, on behalf of the Underwriters will, subject to the terms and conditions hereof, accept such delivery and the Underwriters will pay the purchase price of the Obligations as set forth in Section 1 hereof by federal funds wire transfer payable, in immediately available funds, to the order of the Issuer (such events being referred to herein as the "Closing"). Payment for the Obligations as aforesaid shall be made at the offices of the Paying Agent/Registrar, or such other place as shall have been mutually agreed upon by the Issuer and the Representative.

(b) Delivery of the definitive obligations in exchange for the Initial Certificate shall be made through DTC, utilizing the book-entry only form of issuance, and the Issuer agrees to enter into such agreement, including a "Letter of Representations," as may be required to allow for the use of such book-entry only system. The definitive obligations shall be delivered in fully registered form bearing CUSIP numbers without coupons with one certificate for each maturity of obligations, registered in the name of Cede & Co. and shall be made available to the Representative at least one business day before the Closing for purposes of inspection.

City of Laredo/BPA - 9 -

6. Closing Conditions. The Underwriters have entered into this Agreement in reliance upon the representations, warranties and agreements of the Issuer contained herein, and in reliance upon the representations, warranties and agreements to be contained in the documents and instruments to be delivered at the Closing and upon the performance by the Issuer of its obligations hereunder, both as of the date hereof and as of the date of the Closing. Accordingly, the Underwriters' obligation under this Agreement to purchase, to accept delivery of and to pay for the Obligations shall be conditioned upon the performance by the Issuer of its obligations to be performed hereunder and under such documents and instruments at or prior to the Closing, and shall also be subject to the following additional conditions, including the delivery by the Issuer to the Representative of such documents as are enumerated herein, in form and substance reasonably satisfactory to the Representative:

(a) The representations and warranties of the Issuer contained herein shall be true, complete and correct in all material respects on the date hereof and on and as of the date of the Closing, as if made on the date of the Closing;

(b) The Issuer shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing;

(c) At the time of the Closing, (i) the Issuer Documents and the Obligations shall be in full force and effect in the form heretofore approved by the Representative and shall not have been amended, modified or supplemented, and the Official Statement shall not have been supplemented or amended, except in any such case as may have been agreed to by the Representative (which agreement shall not be unreasonably withheld); (ii) the net proceeds of the sale of the Obligations and any funds to be provided by the Issuer shall be deposited and applied as described in the Official Statement and in the Ordinance; and (iii) all actions of the Issuer required to be taken by the Issuer shall be performed in order for Bond Counsel and counsel to the Underwriters to deliver their respective opinions referred to hereafter;

(d) At the time of the Closing, all official action of the Issuer relating to the Obligations and the Issuer Documents shall be in full force and effect and, unless otherwise consented to by the Representative, shall not have been amended, modified or supplemented;

(e) Reserved;

(f) At the time of the Closing, there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or in the revenues or operations of the Issuer, from that set forth in the Official Statement (after amendment, if any, in accordance with Section 3 hereof) that in the reasonable judgment of the Representative is material and adverse and that makes it, in the reasonable judgment of the Representative, impracticable to market the Obligations on the terms and in the manner contemplated in the Official Statement;

(g) The Issuer shall not have failed to pay principal or interest when due on any of its outstanding obligations for borrowed money;

City of Laredo/BPA - 10 -

(h) All steps to be taken and all instruments and other documents to be executed, and all other legal matters in connection with the transactions described in this Agreement shall be reasonably satisfactory in legal form and effect to the Representative;

(i) At or prior to the Closing, the Representative shall have received a copy of each of the following documents:

(1) The Official Statement, and each supplement or amendment thereto, if any, as may have been agreed to by the Representative;

(2) A copy of the Ordinance, certified by the Issuer as having been duly adopted and in full force and effect, with such supplements or amendments thereto as may have been agreed to by the Representative;

(3) The undertaking of the Issuer which satisfies the requirements of section (b)(5)(i) of the Rule (the "Continuing Disclosure Undertaking");

(4) The approving opinion of McCall, Parkhurst & Horton L.L.P., San Antonio, Texas ("Bond Counsel") with respect to the Obligations, in substantially the form attached to the Official Statement as Appendix C;

(5) A supplemental opinion of Bond Counsel addressed to the Issuer and the Underwriters, substantially to the effect that:

(i) The Ordinance has been duly adopted and is in full force and effect;

(ii) the Obligations are exempted securities under section 3(a)(2) of the Securities Act of 1933, as amended (the "1933 Act"), and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and it is not necessary, in connection with the offering and sale of the Obligations to register the Obligations under the 1933 Act or to qualify the Ordinance under the Trust Indenture Act; and

(iii) the statements and information contained in the Official Statement under the caption "PLAN OF FINANCING," "THE OBLIGATIONS" (except "Sources and Uses of Funds of the 2012A Certificates," "Sources and Uses of Funds of the 2012B Certificates," "Sources and Uses of Funds of the Contractual Obligations," "Defaults and Remedies," and "Book-Entry-Only System"), "TAX MATTERS" "OTHER RELEVANT INFORMATION – Continuing Disclosure of Information" (except information under the subcaption "Compliance with Prior Undertakings"), and "OTHER RELEVANT INFORMATION – Registration and Qualification of Obligations for Sale," "—Legal Investments and Eligibility to Secure Public Funds in Texas," "—Legal Opinions and No-Litigation Certificate" fairly and accurately summarize the provisions of the Obligations and the Ordinance and are correct as to matters of law;

(6) An opinion, dated the date of the Closing and addressed to the Underwriters, of counsel for the Underwriters, to the effect that:

City of Laredo/BPA - 11 -

(i) the Obligations are exempted securities that do not require registration under the 1933 Act and the Trust Indenture Act and it is not necessary, in connection with the offering and sale of the Obligations, to register any securities under the 1933 Act and the Ordinance need not be qualified under the Trust Indenture Act; and

(ii) based upon their participation in the preparation of the Official Statement as counsel for the Underwriters and their participation at conferences at which the Official Statement was discussed, but without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement, such counsel has no reason to believe that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except for any financial, forecast, technical and statistical statements and data included in the Official Statement and the information regarding DTC and its book-entry system and the information regarding the municipal bond insurance policy, if any, in each case as to which no view need be expressed);

(7) A certificate, dated the date of Closing, of an appropriate official of the Issuer to the effect that (i) all official actions of the Issuer relating to the Official Statement, the Issuer Documents and the Obligations have been duly taken and adopted by the Issuer, are in full force and effect and have not been modified, amended, supplemented or repealed (except as may have been agreed to by the Representative); (ii) the representations and warranties of the Issuer contained herein or in any certificate or document delivered by the Issuer pursuant to the provisions hereof are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing; (iii) except as disclosed in the Official Statement, no litigation or proceeding against the Issuer is pending or, to the best of his or her knowledge, threatened in any court or administrative body, nor is there a basis for litigation, which would (a) contest the right of the City Council members, officers or officials of the Issuer to hold and exercise their respective positions, (b) contest the due organization and valid existence of the Issuer, (c) attempt to restrain or enjoin the issuance or delivery of the Obligations, or contest the validity, due authorization and execution of the Obligations or the Issuer Documents, or (d) attempt to limit, enjoin or otherwise restrict or prevent the Issuer from functioning and collecting ad valorem taxes (or making payments on the Obligations) pursuant to the Ordinance or other income, pledged or to be pledged to pay the principal of and interest on the Obligations, or the pledge thereof; (iv) to the best of his knowledge, no event affecting the Issuer has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein, in light of the circumstances under which made, not misleading in any material respect as of the time of Closing, and the information contained in the Official Statement is correct in all material respects and, as of the date of the Official Statement did not, and as of the date of the Closing does not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; (v) there has not been any material adverse change in the financial condition of the Issuer since

City of Laredo/BPA - 12 -

September 30, 2011, the latest date as of which audited financial information is available; and (vi) the Issuer is not prohibited by its independent auditors from including the audited financial statements or excerpts of such statements in the Official Statement or incorporating such statements by reference into the Official Statement;

(8) A certificate of the Issuer, dated the date of the Closing, of an appropriate official of the Issuer in form and substance satisfactory to Bond Counsel and counsel to the Underwriters (a) setting forth the facts, estimates and circumstances in existence on the date of the Closing, which establish that it is not expected that the proceeds of the Obligations will be used in a manner that would cause the Obligations to be "arbitrage obligations" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and any applicable regulations (whether final, temporary or proposed), issued pursuant to the Code, and (b) certifying that to the best of the knowledge and belief of the Issuer there are no other facts, estimates or circumstances that would materially change the conclusions, representations and expectations contained in such certificate;

(9) Any other certificates and opinions required by the Ordinance for the issuance thereunder of the Obligations;

(10) The approving opinion of the Attorney General of the State of Texas and the registration certificate of the Comptroller of Public Accounts of the State of Texas in respect of the Obligations;

(11) Evidence of a rating assigned to the Obligations of "AA" by Fitch Ratings, "AA" by Standard & Poor's Rating Services, a Standard & Poor's Financial Services LLC business, and "Aa2" by Moody's Investors Service, Inc.;

(12) Reserved;

(13) Reserved;

(14) The Paying Agent/Registrar Agreement, having been duly executed on behalf of the City and the Paying Agent/Registrar; and

(15) Such additional legal opinions, certificates, instruments and other documents as Bond Counsel, the Representative or counsel to the Underwriters may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the date of the Closing, of the Issuer's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance or satisfaction by the Issuer on or prior to the date of the Closing of all the respective agreements then to be performed and conditions then to be satisfied by the Issuer.

All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to the Representative and to Bond Counsel.

City of Laredo/BPA - 13 -

If the Issuer shall be unable to satisfy the conditions to the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Obligations contained in this Agreement, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Obligations shall be terminated for any reason permitted by this Agreement, this Agreement shall terminate and neither the Underwriters nor the Issuer shall be under any further obligation hereunder, except that the respective obligations of the Issuer and the Underwriters set forth in Sections 1 (with respect to the Check), 4 and 8 hereof shall continue in full force and effect.

7. Termination. The Underwriters shall have the right to cancel their obligation to purchase the Obligations if, between the date of this Agreement and the Closing, the market price or marketability of the Obligations shall be materially adversely affected, in the reasonable judgment of the Representative, by the occurrence of any of the following:

(a) legislation shall be enacted by or introduced in the Congress of the United States or recommended to the Congress for passage by the President of the United States, or the Treasury Department of the United States or the Internal Revenue Service or any member of Congress or favorably reported for passage to either House of the Congress by any committee of such House to which such legislation has been referred for consideration, a decision by a court of the United States or of the State or the United States Tax Court shall be rendered, or an order, ruling, regulation (final, temporary or proposed), press release, statement or other form of notice by or on behalf of the Treasury Department of the United States, the Internal Revenue Service or other governmental agency having jurisdiction of the subject matter shall be made or proposed, the effect of any or all of which would be to impose, directly or indirectly, federal income taxation upon interest received on obligations of the general character of the Obligations of the interest on the Obligations as described in the Official Statement, or other action or events shall have transpired which may have the purpose or effect, directly or indirectly, of changing the federal income tax consequences of any of the transactions described herein;

(b) legislation introduced in or enacted (or resolution passed) by the Congress or an order, decree, or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary, or proposed), press release or other form of notice issued or made by or on behalf of the United States Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Obligations, including any or all underlying arrangements, are not exempt from registration under or other requirements of the 1933 Act, or that the Ordinance is not exempt from qualification under or other requirements of the Trust Indenture Act, or that the issuance, offering, or sale of obligations of the general character of the Obligations, including any or all underlying arrangements, as contemplated hereby or by the Official Statement or otherwise, is or would be in violation of the federal securities laws (as amended and then in effect) or any rule or regulation adopted and in effect thereunder;

(c) any state blue sky or securities commission or other governmental agency or body in any state in which more than 15% of the Obligations have been offered and sold shall have withheld registration, exemption or clearance of the offering of the Obligations as described herein, or issued a stop order or similar ruling relating thereto;

City of Laredo/BPA - 14 -

(d) there shall be in force a general suspension of trading, minimum or maximum prices for trading shall have been fixed and be in force or maximum ranges or prices for securities shall have been required and be in force on the New York Stock Exchange or other national stock exchange whether by virtue of a determination by such exchange or by order of the United States Securities and Exchange Commission or any other governmental authority having jurisdiction;

(e) additional material restrictions upon trading in securities generally not in force as of the date hereof shall have been imposed by the New York Stock Exchange or by any other national securities exchange or any governmental authority having jurisdiction; or the New York Stock Exchange, any other national securities exchange or any governmental authority having jurisdiction, shall have imposed, as to the Obligations or similar obligations, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, the Underwriters;

(f) a major financial crisis or a material disruption in commercial banking or securities settlement or clearance services shall have occurred which in the judgment of the Representative, reasonably exercised, would make the marketing of the Obligations generally impractical; provided, however, that in making such determination, the Representative shall act in good faith so as to treat its obligations hereunder in a manner consistent with its obligations under other municipal underwriting agreements for bond issues of like size, tenor, and ratings quality settling during the same period, and if the Underwriters are in fact satisfying its obligations with respect to such other settling issues, its obligations hereunder shall remain in effect and enforceable without modification or amendment;

(g) a general banking moratorium declared by federal, State of New York, or State officials authorized to do so;

(h) any amendment to the federal or State constitution or action by any federal or State court, legislative body, regulatory body, or other authority materially adversely affecting the tax status of the Issuer, its property, income, securities (or interest thereon), or the validity or enforceability of the Issuer's authority to levy ad valorem taxes, within the limits prescribed by law, to pay the Issuer's obligations, as described in the Official Statement;

(i) any event occurring, or information becoming known which, in the reasonable judgment of the Representative, makes untrue in any material respect any statement or information contained in the Official Statement, or has the effect that the Official Statement contains any untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(j) there shall have occurred since the date of this Agreement any materially adverse change in the operations or financial condition of the Issuer;

(k) there shall have occurred any (i) new material outbreak of hostilities (including, without limitation, an act of terrorism) or (ii) new material other national or international calamity or crisis, or any material adverse change in the financial, political or economic

City of Laredo/BPA - 15 -

conditions affecting the United States, including, but not limited to, an escalation of hostilities that existed prior to the date hereof and the effect of any such event on the financial markets of the United States, shall be such as would make it impracticable, in the reasonable judgment of the Representative, for the Underwriters to sell the Obligations on the terms and in the manner contemplated by the Official Statement;

(l) any fact or event shall exist or have existed that, in the Representative's judgment, requires or has required an amendment of or supplement to the Official Statement and the Issuer has refused to supplement or amend the Official Statement;

(m) there shall have occurred any downgrading, or any notice shall have been given of (A) any intended or potential downgrading or (B) any review or possible change that does not indicate the direction of a possible change, in the rating accorded to the Obligations; and

(n) the purchase of and payment for the Obligations by the Underwriters, or the resale of the Obligations by the Underwriters, on the terms and conditions herein provided shall be prohibited by any applicable law, governmental authority, board, agency or commission having jurisdiction of the subject matter, and such prohibition is not the result of the Underwriters action or inaction.

With respect to the condition described in subparagraph (e) or (n) above, the Underwriters are not aware of any current, pending or proposed law or government inquiry or investigation, as of the date of execution of this Agreement, which would permit the Underwriters to invoke their termination rights hereunder.

8. Expenses.

(a) The Underwriters shall be under no obligation to pay, and the Issuer shall pay, any expenses incident to the performance of the Issuer's obligations hereunder, including, but not limited to (i) the cost of preparation and printing of the Obligations; (ii) the fees and disbursements of Bond Counsel and the Issuer's Financial Advisors; (iii) the fees and disbursements of any other attorneys, engineers, accountants, and other experts, consultants or advisers retained by the Issuer; (iv) the fees, if any, for bond ratings and municipal bond insurance; (v) the costs of preparing, printing and mailing to the Underwriters the Preliminary Official Statement and the Official Statement; (vi) the fees and expenses of the Paying Agent/Registrar; (vii) the out-of-pocket, miscellaneous and closing expenses, including the cost of travel, of the officers and officials of the Issuer; (viii) the Attorney General's review fee; and (ix) any other expenses mutually agreed to by the Issuer and the Representative to be reasonably considered expenses of the Issuer which are incident to the transactions contemplated hereby.

(b) The Underwriters shall pay (i) the cost of preparation and printing of this Agreement, the Blue Sky Survey and Legal Investment Memorandum, if any; (ii) all advertising expenses in connection with the public offering of the Obligations; and (iii) all other expenses incurred by them in connection with the public offering of the Obligations, including the fees and disbursements of counsel retained by the Underwriters and other expenses incurred at the Underwriters' discretion (including, but not limited to, travel, lodging, meals, entertainment, deal momentos, and similar expenses).

City of Laredo/BPA - 16 -

9. Notices. Any notice or other communication to be given to the Issuer under this Agreement may be given by delivering the same in writing to City of Laredo, Texas, 1110 Houston Street, Laredo, Texas 78040, Attention: Ms. Rosario Cabello, Director of Finance; and any notice or other communication to be given to the Underwriters under this Agreement may be given by delivering the same in writing to Stifel, Nicolaus & Company, Incorporated; Attention: Ms. Nora Chavez, 70 Northeast Loop 410, Suite 295, San Antonio, Texas 75216.

10. Parties in Interest. This Agreement as heretofore specified shall constitute the entire agreement between us and is made solely for the benefit of the Issuer and the Underwriters (including successors or assigns of the Underwriters) and no other person shall acquire or have any right hereunder or by virtue hereof. This Agreement may not be assigned by the Issuer. All of the Issuer's representations, warranties and agreements contained in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigations made by or on behalf of any of the Underwriters; and (ii) delivery of and payment for the Obligations pursuant to this Agreement.

11. Effectiveness. This Agreement shall become effective upon the acceptance hereof by the Issuer and shall be valid and enforceable at the time of such acceptance.

12. Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State.

13. Severability. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provision or provisions of any Constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatever.

14. Business Day. For purposes of this Agreement, "business day" means any day on which (a) the New York Stock Exchange is open for trading and (b) the payment system of the Federal Reserve System is operational.

15. Section Headings. Section headings have been inserted in this Agreement as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Agreement and will not be used in the interpretation of any provisions of this Agreement.

16. Counterparts. This Agreement may be executed in several counterparts each of which shall be regarded as an original (with the same effect as if the signatures thereto and hereto were upon the same document) and all of which shall constitute one and the same document

17. No Personal Liability. None of the members of the City Council, nor any officer, agent, or employee of the Issuer, shall be charged personally by the Underwriters with any liability, or be held liable to the Underwriters under any term or provision of this Agreement, or

City of Laredo/BPA - 17 -

because of execution or attempted execution, or because of any breach or attempted or alleged breach of this Agreement.

[Execution Page Follows.]

City of Laredo/BPA Schedule I-1

SCHEDULE I

List of Underwriters

Stifel, Nicolaus & Company, Inc.

Stephens Inc.

Southwest Securities, Inc.

Wells Fargo Bank, N.A.

OFFICIAL STATEMENT Dated October 3, 2012

NEW ISSUE - Book-Entry-Only RATINGS: Moody's: “Aa2” S&P: “AA” Fitch: “AA” (See “OTHER RELEVANT INFORMATION – Ratings” herein.) In the opinion of Bond Counsel, interest on the 2012A Certificates (defined below) and Contractual Obligation (defined below) will be excludable from the gross income of the owners thereof for federal income tax purposes under statutes, regulations, published rulings and court decisions existing on the date thereof, subject to the matters described under “TAX MATTERS RELATING TO THE 2012A CERTIFICATES AND CONTRACTUAL OBLIGATIONS” herein, including the alternative minimum tax on corporations. The 2012B Certificates (defined below) are not obligations described in Section 103(a) of the Internal Revenue Code of 1986. See “CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE 2012B CERTIFICATES” herein.

CITY OF LAREDO, TEXAS (A Home Rule City located in Webb County)

$10,345,000

COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION,

SERIES 2012A

$4,605,000 COMBINATION TAX AND REVENUE

CERTIFICATES OF OBLIGATION, TAXABLE SERIES 2012B

$3,800,000 PUBLIC PROPERTY FINANCE

CONTRACTUAL OBLIGATIONS, SERIES 2012

Dated: October 1, 2012 Due: February 15, as shown herein Interest to accrue from Delivery Date PAYMENT TERMS . . . Interest on the City of Laredo, Texas (the “City” or the “Issuer”) $10,345,000 Combination Tax and Revenue Certificates of Obligation, Series 2012A (the “2012A Certificates”), the $4,605,000 Combination Tax and Revenue Certificates of Obligation, Taxable Series 2012B (the “2012B Certificates”), and the $3,800,000 Public Property Finance Contractual Obligations, Series 2012 (the “Contractual Obligations”) will accrue from the Delivery Date (as defined below) and will be payable on February 15 and August 15 of each year, commencing February 15, 2013, and will be calculated on the basis of a 360-day year of twelve 30-day months. The 2012A Certificates, the 2012B Certificates and the Contractual Obligations are collectively referred to herein as the “Obligations”. The definitive Obligations will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company, New York, New York (“DTC”) pursuant to the Book-Entry-Only System described herein (see “THE OBLIGATIONS – Book-Entry-Only System”). Beneficial ownership of the Obligations may be acquired in beneficial denominations of $5,000 or any integral multiple thereof ("Authorized Denominations"). No physical delivery of the Obligations will be made to the owners thereof. Principal of and interest on the Obligations will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Obligations (see "THE OBLIGATIONS - Book-Entry-Only System"). The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (see "THE OBLIGATIONS - Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE . . . The 2012A Certificates and the 2012B Certificates are being issued by the City pursuant to the Home Rule Charter (“City Charter”) of the City, the Constitution and general laws of the State of Texas (the “State”), particularly Subchapter C of Chapter 271, Texas Local Government Code, as amended, Chapter 1371, Texas Government Code, as amended, and Subchapter B of Chapter 367 Transportation Code, and two separate ordinances adopted by the City Council of the City (the “City Council”) respectively authorizing the issuance of the 2012A Certificates and the 201B Certificates (collectively, the “Certificate Ordinances”). In the Certificate Ordinances, the City Council delegated the authority to the Mayor or the City Manager to execute a respective pricing certificate concerning the sale of the 2012A Certificates and the sale of the 2012B Certificates (collectively, the "Certificate Pricing Certificates"). The Certificate Pricing Certificates were duly executed by the City Manager of the City on October 3, 2012. The 2012A Certificates and the 2012B Certificates are payable as to principal and interest from a combination of (i) an ad valorem tax levied annually, within the limits prescribed by law, against all taxable property in the City and (ii) a pledge of limited surplus revenues of the City's International Toll Bridge System, as provided in the Certificate Ordinances (see "THE OBLIGATIONS - Authority for Issuance " and "- Security for the Obligations"). The Contractual Obligations are being issued by the City pursuant to City Charter, the Constitution and the general laws of the State, particularly Subchapter A of Chapter 271, Texas Local Government Code (the “Public Property Finance Act”), as amended, Chapter 1371, Texas Government Code, as amended, and an ordinance adopted by the City Council of the City authorizing the issuance of the Contractual Obligations (the “Contractual Obligation Ordinance”). In the Contractual Obligation Ordinance, the City Council delegated the authority to the Mayor or the City Manager to execute a pricing certificate concerning the sale of the Contractual Obligations (the "Contractual Obligations Pricing Certificate"). The Contractual Obligations Pricing Certificate was duly executed by the City Manager of the City on October 3, 2012. The Contractual Obligations are payable as to principal and interest from an ad valorem tax levied annually, within the limits prescribed by law, against all taxable property in the City, as provided in the Contractual Obligation Ordinance (see "THE OBLIGATIONS - Authority for Issuance of the Obligations" and "- Security for the Obligations").

_____________

See Maturity Schedules on Pages iii and iv _____________

LEGALITY . . . The Obligations are offered for delivery when, as and if issued and received by the initial Underwriters and subject to the approving opinion of the Attorney General of the State of Texas and the opinion of McCall, Parkhurst & Horton L.L.P., San Antonio, Texas, Bond Counsel (see Appendix C – “Form of Bond Counsel's Opinions”). Certain legal matters will be passed upon for the Underwriters by Escamilla, Poneck & Cruz, LLP, Laredo, Texas.

STIFEL, NICOLAUS & COMPANY, INC. STEPHENS INC.

SOUTHWEST SECURITIES WELLS FARGO SECURITIES

ii

PURPOSE . . . Proceeds from the sale of the 2012A Certificates will be used for (1) acquiring municipal equipment and municipal vehicles for the City's solid waste department, (2) acquiring, designing, constructing, improving and equipping landfill cells and buildings at the City landfill, (3) paying legal, fiscal and engineering fees in connection with such projects and payment of costs of issuance of the 2012A Certificates. (See “PLAN OF FINANCING – Purpose of the Obligations”). Proceeds from the sale of the 2012B Certificates will be used for (1) acquiring, designing, constructing, improving and equipping buildings at the City landfill and (2) paying legal, fiscal and engineering fees in connection with such projects and payment of costs of issuance of the 2012B Certificates. (See “PLAN OF FINANCING – Purpose of the Obligations”). Proceeds from the sale of the Contractual Obligations will be used to acquire and purchase personal property for City purposes and to pay costs of issuance. (See “PLAN OF FINANCING – Purpose of the Obligations”). DELIVERY . . . It is expected that the Obligations will be available for delivery to the Underwriters through the facilities of the Depository Trust Company on or about October 30, 2012 (the “Delivery Date”).

[The remainder of this page intentionally left blank.]

iii

MATURITY SCHEDULE FOR THE 2012A CERTIFICATES CUSIP(1) Prefix: 516823

Maturity CUSIP(1)

(February 15) Amount Rate Yield Suffix2013 1,285,000$ 2.000% 0.500% 2P52014 1,240,000 3.000% 0.610% 2Q32015 1,280,000 4.000% 0.710% 2R12016 1,325,000 3.000% 0.900% 2S92017 1,380,000 5.000% 1.100% 2T72018 1,455,000 5.000% 1.300% 2U42019 1,525,000 5.000% 1.550% 2V22020 275,000 2.000% 1.900% 2W02021 285,000 2.250% 2.150% 2X82022 295,000 2.500% 2.350% 2Y6

(Interest accrues from the Delivery Date)

NO OPTIONAL REDEMPTION OF THE 2012A CERTIFICATES . . . . The 2012A Certificates are not subject to redemption prior to stated maturity (see “THE OBLIGATIONS - No Optional Redemption of the 2012A Certificates and the Contractual Obligations” herein).

MATURITY SCHEDULE FOR THE 2012B CERTIFICATES CUSIP(1) Prefix: 516823

$1,985,000 Serial Certificates Maturity CUSIP(1)

(February 15) Amount Rate Yield Suffix2013 210,000$ 0.500% 0.500% 2Z32014 185,000 0.750% 0.750% 3A72015 185,000 0.950% 0.950% 3B52016 190,000 1.300% 1.300% 3C32017 190,000 1.550% 1.550% 3D12018 200,000 1.800% 1.800% 3E92019 200,000 2.150% 2.150% 3F62020 200,000 2.450% 2.450% 3G42021 210,000 2.700% 2.700% 3H22022 215,000 2.950% 2.950% 3J8

(Interest accrues from the Delivery Date)

$2,620,000 Term 2012B Certificates

$685,000 3.500% Term 2012B Certificate Due February 15, 2025 Priced to Yield 3.500% CUSIP(1) Suffix: 3X7 $500,000 3.750% Term 2012B Certificate Due February 15, 2027 Priced to Yield 3.750% CUSIP(1) Suffix: 3K5 $1,435,000 4.000% Term 2012B Certificate Due February 15, 2032 Priced to Yield 4.000% CUSIP(1) Suffix: 3L3

(Interest accrues from the Delivery Date)

OPTIONAL REDEMPTION OF THE 2012B CERTIFICATES . . . The City reserves the right, at its option, to redeem the 2012B Certificates having stated maturities on and after February 15, 2023, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2022, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption (see " THE OBLIGATIONS - Optional Redemption of the 2012B Certificates" herein). MANDATORY REDEMPTION OF THE TERM 2012B CERTIFICATES . . . The 2012B Certificates maturing on February 15 in the years 2025, 2027 and 2032 (the “Term 2012B Certificates”) are also subject to mandatory sinking fund redemption (see “THE OBLIGATIONS – Mandatory Redemption of the Term 2012B Certificates” herein). ___________________________ (1) CUSIP numbers are included solely for the convenience of owners of the Obligations. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor’s Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. None of the City, the Financial Advisor, nor the Underwriters is responsible for the selection or correctness of the CUSIP numbers set forth herein.

iv

MATURITY SCHEDULE FOR THE CONTRACTUAL OBLIGATIONS CUSIP(1) Prefix: 516823

Maturity CUSIP(1)

(February 15) Amount Rate Yield Suffix2013 360,000$ 2.000% 0.500% 3M12014 355,000 2.000% 0.610% 3N92015 360,000 2.000% 0.710% 3P42016 365,000 1.500% 0.900% 3Q22017 375,000 2.000% 1.100% 3R02018 380,000 2.000% 1.300% 3S82019 390,000 2.000% 1.550% 3T62020 395,000 2.000% 1.900% 3U32021 405,000 2.000% 2.150% 3V12022 415,000 2.250% 2.350% 3W9

(Interest accrues from the Delivery Date)

NO OPTIONAL REDEMPTION OF THE CONTRACTUAL OBLIGATIONS . . . . The Contractual Obligations are not subject to redemption prior to stated maturity (see “THE OBLIGATIONS - No Optional Redemption of the 2012A Certificates and the Contractual Obligations” herein). ___________________________ (1) CUSIP numbers are included solely for the convenience of owners of the Obligations. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor’s Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. None of the City, the Financial Advisor, nor the Underwriters is responsible for the selection or correctness of the CUSIP numbers set forth herein.

[The remainder of this page intentionally left blank.]

v

This Official Statement does not constitute an offer to sell, nor is it to be used in connection with an offer to sell or the solicitation of an offer to buy the Obligations in any jurisdiction in which such offer or solicitation is not authorized or in which the person making 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. No dealer, broker, salesman, or any other person has been authorized by the City or the Underwriters to give any information or make any representations, other than those contained herein, in connection with the offering of the Obligations, and if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Underwriters. Certain information set forth herein has been obtained from the City and other sources which are believed to be reliable, but are not guaranteed as to accuracy or completeness, and are not to be construed as a representation by the Underwriters. The information and expressions of opinion contained herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. The price and other terms respecting the offering and sale of the Obligations may be changed from time to time by the Underwriters after the Obligations are released for sale, and the Obligations may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Obligations into investment accounts. In connection with the offering of the Obligations, the Underwriters may overallot or effect transactions which stabilize or maintain the market price of the Obligations at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. THE OBLIGATIONS ARE EXEMPT FROM REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE OBLIGATIONS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE OBLIGATIONS HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE OBLIGATIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY AND IS NOT INTENDED AS A SUMMARY OF THIS OFFERING. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. THIS OFFICIAL STATEMENT CONTAINS "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE, AND ACHIEVEMENTS TO BE DIFFERENT FROM FUTURE RESULTS, PERFORMANCE, AND ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED THAT THE ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. NEITHER THE CITY, THE FINANCIAL ADVISOR, NOR THE UNDERWRITERS MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK-ENTRY-ONLY SYSTEM OR ANY POTENTIAL BOND INSURER OR ITS MUNICIPAL BOND GUARANTY. (See “BOND INSURANCE” and “BOND INSURANCE RISK FACTORS” herein.)

[The remainder of this page intentionally left blank.]

vi

TABLE OF CONTENTS

OFFICIAL STATEMENT Description of the Obligations ........................................ i CITY OFFICIALS, STAFF AND CONSULTANTS Elected Officials ............................................................ vii Selected Administrative Staff........................................ vii Consultants and Advisors .............................................. vii INTRODUCTION............................................................... 1 PLAN OF FINANCING..................................................... 1 THE OBLIGATIONS......................................................... 2 AD VALOREM TAX INFORMATION Table 1 - Valuation, Exemptions and Debt

Obligations........................................................... 11 Table 2 - Taxable Assessed Valuations by Category ... 12 Table 3 - Valuation and Ad Valorem Tax Debt

History ................................................................. 13 Table 4 - Tax Rate, Levy and Collection History......... 13 Table 5 - Ten Largest Taxpayers .................................. 14 Table 6 - Estimated Overlapping Debt.......................... 14 Table 7 - Tax Debt Interest and Sinking Fund Budget

Projection............................................................. 15 DEBT INFORMATION Table 8 - Ad Valorem Tax Debt Service

Requirements ....................................................... 16 Table 9 - Computation of Self-Supporting Debt........... 17 Anticipated Issuance of Ad Valorem Debt ................... 18 Table 10 - Other Obligations......................................... 18 RETIREMENT PLANS .................................................... 19 FINANCIAL INFORMATION Table 11 - General Fund Revenues and Expenditure

History ................................................................. 21 Table 12 - Municipal Sales Tax History........................ 22 Financial Policies........................................................... 22 Investments .................................................................... 23 Table 13 - Current Investments ..................................... 24 TAX MATTERS RELATING TO THE 2012A

CERTIFICATES AND CONTRACTUAL OBLIGATIONS........................................................... 25

OTHER RELEVANT INFORMATION Ratings ........................................................................... 28 Litigation........................................................................ 28 Registration and Qualification of Obligations for

Sale....................................................................... 28 Legal Investments and Eligibility to Secure Public

Funds in Texas..................................................... 28 Legal Opinions and No-Litigation Certificate .............. 29 Authenticity of Financial Data and Other Information 29 Continuing Disclosure of Information .......................... 29 Financial Advisor........................................................... 31 Underwriting .................................................................. 31 Forward - Looking Statements Disclaimer.................... 32

Authorization of the Official Statement........................ 32 APPENDICES GENERAL INFORMATION REGARDING THE

CITY ......................................................................A EXCERPTS FROM THE CITY OF LAREDO,

TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT .........................................B

FORM OF BOND COUNSEL'S OPINIONS.................C The cover page hereof, this page, the appendices included herein, the Financial Statements and any addenda, supplement or amendment hereto, are part of the Official Statement.

vii

CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS

City Council

Length of Service

Term Expires

Raul G. Salinas Mayor

6 Years Nov, 2014

Jorge A. Vera Councilmember

1 Year Nov, 2012

Esteban Rangel Councilmember

2 Years Nov, 2014

Mike Garza Councilmember

6 Years Nov, 2014

Alejandro Perez, Jr. Councilmember

2 Years Nov, 2014

Charlie San Miguel Councilmember

2 Years Nov, 2014

Juan Narvaez Councilmember

4 Years Nov, 2012

Johnny Rendon Mayor Pro-Tempore

8 Years Nov, 2012

Cindy Liendo Espinoza Councilmember

4 Years Nov, 2012

SELECTED ADMINISTRATIVE STAFF

Name

Position

Length of Service in Current Position

Length of Service With the City

Carlos Villarreal City Manager 5 Years 43 Years (1) Cynthia Collazo Deputy City Manager 13 Years 35 Years Horacio De Leon Assistant City Manager 7 Years 19 Years Jesus M. Olivares Assistant City Manager 5 Years 10 Years (2) Gustavo Guevara, Jr. City Secretary 22 Years 22 Years Raul Casso City Attorney 5 Years 5 Years Rosario Cabello Director of Finance 13 Years 13 Years Martin Aleman Budget Manager 9 Years 18 Years Tomas Rodriguez Utility Director 5 Years 18 Years (3)

______ (1) Over 43 Years of local government experience, prior to being City Manager Mr. Villareal served the City as Assistant City Manager and worked for

the City in various capacities. (2) Over 27 Years of local government experience, including 10 years with the City. (3) Over 25 years of local government experience, including 15 years with the City. CONSULTANTS AND ADVISORS Certified Public Accountants..................................................................................................................... Canales, Garza & Baum, PLLC Laredo, Texas Bond Counsel....................................................................................................................................... McCall, Parkhurst & Horton L.L.P. San Antonio, Texas Financial Advisor..................................................................................................................................Estrada Hinojosa & Company, Inc. Dallas, Texas

viii

For additional information regarding the City, please contact: Ms. Rosario Cabello Mr. Noe Hinojosa, Jr. Director of Finance Estrada Hinojosa & Company, Inc. City of Laredo 1717 Main Street, Suite 4700 1110 Houston Street Dallas, Texas 75201 Laredo, Texas 78040 (214) 658-1670 - Telephone (956) 791-7425 - Telephone (214) 658-1671 - Fax (956) 791-7477 - Fax

[The remainder of this page intentionally left blank.]

1

OFFICIAL STATEMENT

Relating to

CITY OF LAREDO, TEXAS (A Home Rule City located in Webb County)

$10,345,000

COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION,

SERIES 2012A

$4,605,000 COMBINATION TAX AND REVENUE

CERTIFICATES OF OBLIGATION, TAXABLE SERIES 2012B

$3,800,000 PUBLIC PROPERTY FINANCE

CONTRACTUAL OBLIGATIONS, SERIES 2012

INTRODUCTION

This Official Statement, which includes the cover page and the Appendices hereto, provides certain information regarding the issuance by the City of Laredo, Texas (the “City” or the “Issuer”) of its $10,345,000 Combination Tax and Revenue Certificates of Obligation, Series 2012A (the “2012A Certificates”), its $4,605,000 Combination Tax and Revenue Certificates of Obligation, Taxable Series 2012B (the “2012B Certificates”) and its $3,800,000 Public Property Finance Contractual Obligations, Series 2012 (the “Contractual Obligations” and together with the 2012A Certificates and 2012B Certificates, the “Obligations”). Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the respective ordinance authorizing the issuance of the Obligations, except as otherwise indicated herein. There follows in this Official Statement descriptions of the Obligations and certain information regarding the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City's Financial Advisor, Estrada Hinojosa & Company, Inc., 1717 Main Street, Suite 4700, Dallas, Texas 75201, upon payment of reasonable copying and delivery charges. This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of the final Official Statement will be deposited with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access (EMMA) system. DESCRIPTION OF THE CITY . . . The City is a political subdivision and a municipal corporation of the State, organized and existing under the laws of the State, including the City's Home Rule Charter. The City was incorporated in 1848, and first adopted its Home Rule Charter in 1921. The City operates under a Council/Manager form of government with a City Council comprised of the Mayor and eight Councilmembers. The term of office is four years with two year staggered terms on each even numbered year. The City Manager is the chief administrative officer for the City. Some of the services that the City provides are: public safety (police and fire protection), highways and streets, electric, water and sanitary sewer utilities, health and social services, culture-recreation, public transportation, public improvements, planning and zoning, and general administrative services. The 2000 Census population was 176,576, while the 2010 Census population is 233,152. The City covers approximately 79.42 square miles.

PLAN OF FINANCING PURPOSE OF THE OBLIGATIONS . . . Proceeds from the sale of the 2012A Certificates will be used for (1) acquiring municipal equipment and municipal vehicles for the City's solid waste department, (2) acquiring, designing, constructing, improving and equipping landfill cells and buildings at the City landfill, (3) paying legal, fiscal and engineering fees in connection with such projects and payment of costs of issuance of the 2012A Certificates. Proceeds from the sale of the 2012B Certificates will be used for (1) acquiring, designing, constructing, improving and equipping buildings at the City landfill and (2) paying legal, fiscal and engineering fees in connection with such projects and payment of costs of issuance of the 2012B Certificates. Proceeds from the sale of the Contractual Obligations will be used to acquire and purchase personal property for City purposes and payment of costs of issuance of the Contractual Obligations.

2

THE OBLIGATIONS GENERAL DESCRIPTION OF THE OBLIGATIONS . . . The Obligations will be dated October 1, 2012 (the “Dated Date”), will mature on the dates and in the principal amounts and will bear interest at the rates set forth on the inside cover page of this Official Statement. The definitive Obligations will be issued in fully registered form and will be initially registered and delivered to Cede & Co., the nominee of the Depository Trust Company (DTC”) pursuant to the “Book-Entry-Only System” described herein. Beneficial ownership of the Obligations may be acquired in denominations of $5,000 or any integral multiple thereof (“Authorized Denominations”). The Obligations will bear interest from the Delivery Date, or from the most recent date to which interest has been paid or duly provided for, and interest will be paid semiannually on February 15 and August 15 commencing February 15, 2013, calculated on the basis of a 360-day year of twelve 30-day months. AUTHORITY FOR ISSUANCE . . . The 2012A Certificates and the 2012B Certificates are being issued by the City pursuant to the Home Rule Charter (“City Charter”) of the City, the Constitution and general laws of the State of Texas (the “State”), particularly Subchapter C of Chapter 271, Texas Local Government Code, as amended, Chapter 1371, Texas Government Code, as amended, and Subchapter B of Chapter 367 Transportation Code, and two separate ordinances adopted by the City Council of the City (the “City Council”) respectively authorizing the issuance of the 2012A Certificates and the 201B Certificates (collectively, the “Certificate Ordinances”). In the Certificate Ordinances, the City Council delegated the authority to the Mayor or the City Manager to execute a respective pricing certificate concerning the sale of the 2012A Certificates and the sale of the 2012B Certificates (collectively, the "Certificate Pricing Certificates"). The Certificate Pricing Certificates were duly executed by the City Manager of the City on October 3, 2012. The Contractual Obligations are being issued by the City pursuant to City Charter, the Constitution and the general laws of the State, particularly Subchapter A of Chapter 271, Texas Local Government Code (the “Public Property Finance Act”), as amended, Chapter 1371, Texas Government Code, as amended, and an ordinance adopted by the City Council of the City authorizing the issuance of the Contractual Obligations (the “Contractual Obligation Ordinance”). In the Contractual Obligation Ordinance, the City Council delegated the authority to the Mayor or the City Manager to execute a pricing certificate concerning the sale of the Contractual Obligations (the "Contractual Obligations Pricing Certificate"). The Contractual Obligations Pricing Certificate was duly executed by the City Manager of the City on October 3, 2012. The Certificate Ordinances and the Contractual Obligation Ordinance are collectively referred to herein as the “Ordinance”. SECURITY FOR THE OBLIGATIONS . . . The 2012A Certificates and the 2012B Certificates are payable as to principal and interest from a combination of (i) an ad valorem tax levied annually, within the limits prescribed by law, against all taxable property in the City and (ii) a pledge of limited surplus revenues of the City's International Toll Bridge System, as provided in the Certificate Ordinances. The Contractual Obligations constitute direct obligations of the City, payable as to principal and interest from an ad valorem tax levied annually, within the limits prescribed by law, against all taxable property in the City, as provided in the Contractual Obligation Ordinance. All taxable property within the City is subject to a continuing direct annual ad valorem tax levied by the City sufficient to provide for the payment of principal and interest on all obligations payable in whole or in part from ad valorem taxes, including the Obligations, which tax must be levied within limits prescribed by law. In the Ordinance, the City covenants that it will levy and collect an annual ad valorem tax, within the limitations prescribed by law, against all taxable property located within the City sufficient to meet the debt service requirements on the Obligations. TAX RATE LIMITATIONS . . . All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal and interest of all ad valorem tax debt within the limits prescribed by law. The City operates under a home-rule charter as authorized by Article XI, Section 5 of the Constitution of the State. The Constitution of the State and the City Charter provide that ad valorem taxes levied by the City for general purposes and for the purpose of paying the principal of and interest on the City’s indebtedness must not exceed $2.50 for each $100 of assessed valuation of taxable property. There is no constitutional or statutory limitation within the $2.50 rate for interest and sinking fund purposes; however, the Texas Attorney General has adopted an administrative policy that prohibits the issuance of debt by a municipality, such as the City, if its issuance produces debt service requirements exceeding that which can be paid from $1.50 of the foregoing $2.50 maximum tax rate calculated at 90% collection. The issuance of the Obligations does not violate the constitutional restriction or the Texas Attorney General’s administrative policy. NO OPTIONAL REDEMPTION OF THE 2012A CERTIFICATES AND THE CONTRACTUAL OBLIGATIONS . . . . The 2012A Certificates and the Contractual Obligations are not subject to optional redemption prior to stated maturity. OPTIONAL REDEMPTION OF THE 2012B CERTIFICATES . . . The City reserves the right, at its option, to redeem the 2012B Certificates having stated maturities on and after February 15, 2023, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2022, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption.

3

MANDATORY REDEMPTION OF THE TERM 2012B CERTIFICATES . . . The 2012B Certificates maturing on February 15 in the years 2025, 2027, and 2032 (the “Term 2012B Certificates”), are also subject to mandatory redemption in part prior to maturity on February 15, in the years shown below at 100% of the principal amount thereof plus accrued interest to the date of redemption from payments into the Interest and Sinking Fund which are required to be made in amounts sufficient to redeem on February 15 of each year the principal amount of such Term Certificates as follows:

Principal Principal PrincipalYear Amount Year Amount Year Amount2023 220,000$ 2026 245,000$ 2028 265,000$ 2024 230,000 2027 (maturity) 255,000 2029 275,000 2025 (maturity) 235,000 2030 285,000

2031 300,000 2032 (maturity) 310,000

Term 2012B CertificateStated to Mature

on February 15, 2025

Term 2012B CertificateStated to Mature

on February 15, 2027

Term 2012B CertificateStated to Mature

on February 15, 2032

The principal amount of the Term 2012B Certificates required to be redeemed pursuant to the operation of such mandatory redemption requirements may be reduced, at the option of the City, by the principal amount of such Term 2012B Certificates which, prior to the date of the mailing of notice of such mandatory redemption, (1) have been acquired by the City and delivered to the Paying Agent/Registrar for cancellation, (2) have been purchased and canceled by the Paying Agent at the request of the City, or (3) have been redeemed pursuant to the optional redemption provisions described in the preceding paragraph and not theretofore credited against a mandatory redemption requirement. NOTICE OF REDEMPTION . . . Not less than 30 days prior to a redemption date for the 2012B Certificates, a notice of redemption shall be sent by United States mail, first class, postage prepaid, in the name of the City and at the City’s expense, by the Paying Agent/Registrar to each registered owner of a 2012B Certificate to be redeemed in whole or in part at the address of the registered owner appearing on the Security Register at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED WILL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE 2012B CERTIFICATES CALLED FOR REDEMPTION WILL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF WILL CEASE TO ACCRUE. All notices of redemption must (i) specify the date of redemption for the 2012B Certificates, (ii) identify the 2012B Certificates to be redeemed and, in the case of a portion of the principal amount to be redeemed, the principal amount thereof to be redeemed, (iii) state the redemption price, (iv) state that the 2012B Certificates, or the portion of the principal amount thereof to be redeemed, shall become due and payable on the redemption date specified, and the interest thereon, or on the portion of the principal amount thereof to be redeemed, shall cease to accrue from and after the redemption date, and (v) specify that payment of the redemption price for the 2012B Certificates, or the principal amount thereof to be redeemed, shall be made at the designated corporate trust office of the Paying Agent/Registrar only upon presentation and surrender thereof by the registered owner. The Paying Agent/Registrar and the City, so long as a Book-Entry-Only System is used for the Obligations, will send any notice of redemption with regard to the 2012B Certificates, notice of proposed amendment to the Ordinance or other notices with respect to the Obligations only to DTC. Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify the beneficial owner, shall not affect the validity of the redemption of the 2012B Certificates called for redemption or any other action premised or any such notice. Redemption of portions of the 2012B Certificates by the City will reduce the outstanding principal amount of such 2012B Certificates held by DTC. In such event, DTC may implement, through its Book-Entry-Only System, a redemption of such 2012B Certificates held for the account of DTC participants in accordance with its rules or other agreements with DTC participants and then DTC participants and indirect participants may implement a redemption of such 2012B Certificates from the beneficial owners. Any such selection of 2012B Certificates to be redeemed will not be governed by the Ordinance and will not be conducted by the City or the Paying Agent/Registrar. Neither the City or the Paying Agent/Registrar will have any responsibility to DTC participants, indirect participants or the persons for whom DTC participants act as nominees, with respect to the payments on the 2012B Certificates or the providing of notice to DTC participants, indirect participants, or beneficial owners of the selection of portions of the 2012B Certificates for redemption. (See “BOOK-ENTRY-ONLY SYSTEM” herein.) NOTICES THROUGH THE DEPOSITORY TRUST COMPANY . . . The Paying Agent/Registrar and the City, so long as a Book-Entry-Only System is used for the Obligations, will send any notice of proposed amendment to the Ordinance or other notices with respect to the Obligations only to DTC. Any failure by DTC to advise any DTC participant, or of any DTC participant or indirect participant to notify the beneficial owner, shall not affect the validity of the action premised or any such notice.

4

BOOK-ENTRY-ONLY SYSTEM . . . This section describes how ownership of the Obligations is to be transferred and how the principal of, premium, if any, and interest on the Obligations are to be paid to and credited by DTC (as defined below) while the Obligations are registered in its nominee 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 Official Statement. The City, the Financial Advisor, and the Underwriters believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The Depository Trust Company, New York, New York (“DTC”), will act as securities depository for the Obligations. The Obligations will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Obligations, each in the 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 the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds 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 Direct Participants 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 movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.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 (“Indirect Participants”). DTC has Standard & Poor’s rating of “AA+” (CreditWatch negative). The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of Obligations under the DTC system must be made by or through Direct Participants, which will receive a credit for the Obligations on DTC’s records. The ownership interest of each actual purchaser of each Obligation (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Obligations are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Obligations, except in the event that use of the book-entry system for the Obligations is discontinued. To facilitate subsequent transfers, all Obligations 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 Obligations with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Obligations; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Obligations are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Obligations may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Obligations, such as redemptions, tenders, defaults, and proposed amendments to the Obligation documents. For example, Beneficial Owners of Obligations may wish to ascertain that the nominee holding the Obligations for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners 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 with respect to the 2012B Certificates shall be sent to DTC. If less than all of the 2012B Certificates are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Obligations unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Obligations are credited on the record date (identified in a listing attached to the Omnibus Proxy).

5

Principal and interest payments on the Obligations 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 City or the Paying 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,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Obligations at any time by giving reasonable notice to the City or Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, obligations are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, obligations will be printed and delivered. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City, the Financial Advisor, and the Underwriters believe to be reliable, but the City, the Financial Advisor, and the Underwriters take no responsibility for the accuracy thereof. USE OF CERTAIN TERMS IN OTHER SECTIONS OF THIS OFFICIAL STATEMENT . . . In reading this Official Statement it should be understood that while the Obligations are in the Book-Entry-Only System, references in other sections of this Official Statement to "registered owners" should be read to include only DTC as the sole registered owner of the Obligations and, accordingly (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, (ii) all payments with respect to the Obligations will be made to DTC in its capacity as sole registered owner of the Obligations and (iii) except as described above, notices that are to be given to registered owners under the applicable ordinance will be given only to DTC. PAYING AGENT/REGISTRAR . . . The initial Paying Agent/Registrar for the Obligations is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times while the Obligations are outstanding and any successor Paying Agent/Registrar must be a commercial bank or trust company organized under the laws of the State or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Obligations. Upon any change in the Paying Agent/Registrar for the Obligations, the City will promptly cause a written notice thereof to be sent to each registered owner of the Obligations, by United States mail, first class, postage prepaid, which notice will also give the address of the new Paying Agent/Registrar. In the event the Book-Entry-Only System shall be discontinued, the interest on the Obligations shall be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date (hereinafter defined), and such interest shall be paid (i) by check sent United States mail, first class, postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal of the Obligations will be paid to the registered owner at the stated maturity or earlier redemption upon presentation to the designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Obligations shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. TRANSFER, EXCHANGE, AND REGISTRATION . . . In the event the Book-Entry-Only System shall be discontinued, the Obligations may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender thereof to the Paying Agent/Registrar, without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. An Obligation may be assigned by the execution of an assignment form on the Obligation or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Obligation will be delivered by the Paying Agent/Registrar, in lieu of the Obligation being transferred or exchanged, at the principal office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered Obligation owner or his designee. To the extent possible, new Obligations issued in an exchange or transfer of Obligations will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Obligations to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Obligations registered and delivered in an exchange or transfer will be in any integral multiple of $5,000 for any one maturity and for a like aggregate principal amount as the Obligation(s) surrendered for exchange or transfer. The Paying Agent/Registrar is not required to make any such exchange, conversion or replacement of an Obligation or portion thereof (i) during the period commencing with the close of business on any record date and ending with the opening of business on the next following principal or interest payment date and (ii) with respect to any Obligation or portion thereof called for redemption prior to maturity within 45 days prior to its redemption date.

6

RECORD DATE FOR INTEREST PAYMENT . . . The record date ("Record Date") for the interest payable on any interest payment date means the close of business on the last business day of the preceding month. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of past due interest ("Special Payment Date", which will be 15 days after the Special Record Date) must be sent at least five business days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each registered owner of an Obligation appearing on the registration books of the Paying Agent/Registrar at the close of business on the 15th business day next preceding the date of mailing of such notice. DEFAULT AND REMEDIES . . . The Ordinance does not establish specific events of default with respect to the Obligations. If the City defaults in the payment of the principal of or interest on the Obligations when due or the City defaults in the observance or performance of any of the covenants, conditions, or obligations of the City, the failure to perform which materially, adversely affects the rights of the owners, including but not limited to, their prospect or ability to be repaid in accordance with the Ordinance, any registered owner is entitled to seek a writ of mandamus from a court of proper jurisdiction requiring the City to make such payment or observe and perform such covenants, obligations, or conditions. The issuance of a writ of mandamus may be sought if there is no other available remedy at law to compel performance of the Obligations or the Ordinance and the City's obligations are not uncertain or disputed. The remedy of mandamus is controlled by equitable principles, so rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Obligations in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Ordinance does not provide for the appointment of a trustee to represent the interest of the Obligationholders upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition and accordingly all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by, the registered owners. On June 30, 2006, the Texas Supreme Court ruled in Tooke v. City of Mexia 49 Tex. Sup. Ct. J. 819 (Tex. 2006) that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in "clear and unambiguous" language. Chapter 1371, which pertains to the issuance of public securities by issuers such as the City, permits the City to waive sovereign immunity in the proceedings authorizing the issuance of the Obligations. Notwithstanding its reliance upon the provisions of Chapter 1371 in connection with the issuance of the Obligations (as further described under the caption “THE OBLIGATIONS – Authority for Issuance”), the City has not waived the defense of sovereign immunity with respect thereto. Because it is unclear whether the Texas legislature has effectively waived the City’s sovereign immunity from a suit for money damages outside of Chapter 1371, Owners of the Obligations may not be able to bring such a suit against the City for breach of the Obligations or the Ordinance. Even if a judgment against the City could be obtained, it could not be enforced by direct levy and execution against the City's property. Further, the registered owners cannot themselves foreclose on property within the City or sell property within the City to enforce the tax lien on taxable property to pay the principal of and interest on the Obligations. Furthermore, the City is 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 pledged source of revenues, the pledge of ad valorem taxes in support of a general obligation of a bankrupt entity is not specifically recognized 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 Obligationholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Obligations are qualified with respect to the customary rights of debtors relative to their creditors. AMENDING THE ORDINANCE . . . The City may amend the Ordinance without the consent of or notice to any registered owners in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein. In addition, the City may, with the written consent of the holders of a majority in aggregate principal amount of the Obligations then outstanding affected thereby, amend, add to, or rescind any of the provisions of the Ordinance; except that, without the consent of the registered owners of all of the Obligations affected, no such amendment, addition, or rescission may (1) change the date specified as the date on which the principal of or any installment of interest on any Obligation is due and payable, reduce the principal amount thereof, or the rate of interest thereon, change the place or places at or the coin or currency in which any Obligation or interest thereon is payable, or in any other way modify the terms of payment of the principal of or interest on the Obligations, (2) give any preference to any Obligation over any other Obligation, (3) extend any waiver of default to subsequent defaults or (4) reduce the aggregate principal amount of Obligations required for consent to any amendment, addition, or waiver.

7

DEFEASANCE . . .The Ordinance provides for the defeasance of the Obligations when the payment of the principal of and premium, if any, on the Obligations, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption, or otherwise), is provided by irrevocably depositing with the Paying Agent/Registrar or other lawful entity, in trust (1) money sufficient to make such payment or (2) Defeasance Securities, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the availability, without, reinvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation and expenses of the paying agent for the Obligation. The Ordinance provides that “Defeasance Securities” means (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of any agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent, and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that are rated as to investment quality by a nationally recognized rating firm not less than “AAA” or its equivalent. The City has additionally reserved the right, subject to satisfying the requirements of (1) and (2) above, to substitute other Defeasance Securities for the Defeasance Securities originally deposited, to reinvest the uninvested moneys on deposit for such defeasance and to withdraw for the benefit of the City moneys in excess of the amount required for such defeasance. Upon such deposit as described above, such Obligation shall no longer be regarded to be outstanding or unpaid. Provided, however, the City has reserved the option, to be exercised at the time of the defeasance of the 2012 Certificates, to call for redemption, at an earlier date, those 2012 Certificates which have been defeased to their maturity date, if the City: (i) in the proceeding providing for the firm banking and financial arrangements, expressly reserves the right to call the 2012 Certificates for redemption; (ii) gives notice of the reservation of that right to the owners of the 2012 Certificates immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. SOURCES AND USES OF FUNDS OF THE 2012A CERTIFICATES . . . The proceeds of the 2012A Certificates will be applied as follows:

Sources: Par Amount 10,345,000.00$ Net Premium 1,050,481.50 Total Sources of Funds 11,395,481.50$

Uses: Deposit to Construction Fund 11,219,000.00$ Costs of Issuance 120,879.08 Underwriters' Discount 55,602.42 Total Uses of Funds 11,395,481.50$

SOURCES AND USES OF FUNDS OF THE 2012B CERTIFICATES . . . The proceeds of the 2012B Certificates will be applied as follows:

Sources: Par Amount 4,605,000.00$ Total Sources of Funds 4,605,000.00$

Uses: Deposit to Construction Fund 4,500,000.00$ Costs of Issuance 74,140.75 Underwriters' Discount 30,859.25 Total Uses of Funds 4,605,000.00$

8

SOURCES AND USES OF FUNDS OF THE CONTRACTUAL OBLIGATIONS . . . The proceeds of the Contractual Obligations will be applied as follows:

Sources: Par Amount 3,800,000.00$ Net Premium 58,279.00 Total Sources of Funds 3,858,279.00$

Uses: Deposit to Construction Fund 3,762,524.00$ Costs of Issuance 72,799.04 Underwriters' Discount 22,955.96 Total Uses of Funds 3,858,279.00$

AD VALOREM TAX INFORMATION

AD VALOREM TAX LAW . . . The appraisal of property within the City is the responsibility of the Webb County Appraisal District (the “Appraisal District”). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Texas Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. The value placed upon property within the Appraisal District is subject to review by three members appointed by the Board of Directors of the Appraisal District (the “Appraisal Review Board”). The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the Texas Tax Code (the "Tax Code"), for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxation. Article VIII of the Texas Constitution ("Article VIII") and State law provides for certain exemptions from property taxes, the valuation of agricultural and open space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Article VIII, Section 1-b and other State law, the governing body of a political subdivision, at its option, may grant: (1) an exemption of not less than $3,000 of the market value of residence homesteads of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; (2) an exemption of up to 20% of the market value of residence homesteads; minimum exemption $5,000. Other State law and Article VIII, Section 2 allow for an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open-space land (Section 1-d-1), including open-space land devoted to farm or ranch purposes or open-space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-1. Nonbusiness vehicles, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1-j provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. The exemption became effective for the 1990-91 fiscal year and thereafter, unless action to tax such property has been taken prior to April 1, 1990. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City and the other taxing bodies within its territory may agree to jointly create tax increment financing zones, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to ten years.

9

As of January 1, 2004, under Article VIII of the Constitution and under State law, a county, a municipality or a junior college, at its option, may provide for a prohibition on increasing the total ad valorem tax, except for increases attributable to certain improvements, on the residence homestead of a disabled person or persons 65 years of age or older, above the amount of tax imposed in the year such residence qualified for such exemption. If the City Council does not take action to establish the tax limitation, City voters may submit a petition requiring the City Council to call an election to determine by majority vote whether to establish the tax limitation. Such freeze on ad valorem taxes is transferable to a different residence homestead and to a surviving spouse living in such homestead who is disabled or is at least 55 years of age. Once established, the tax rate limitation may not be repealed or rescinded. The City can make no representations or predictions concerning the impact such a tax limitation would have on the City’s tax rate, financial condition or ability to make debt service payments. Article VIII, section 1-n of the Texas Constitution provides for the exemption from taxation of “goods-in-transit.” “Goods-in-transit” is defined by a provision of the Tax Code, which is effective for tax years 2008 and thereafter, as personal property acquired or imported into Texas and transported to another location in the State or outside of the State within 175 days of the date the property was acquired or imported into Texas. The exemption excludes oil, natural gas, petroleum products, aircraft and special inventory, including motor vehicle, vessel and out-board motor, heavy equipment and manufactured housing inventory. The Tax Code provision permits local governmental entities, on a local option basis, to take official action by January 1 of the year preceding a tax year, after holding a public hearing, to tax goods-in- transit during the following tax year. A taxpayer may receive only one of the freeport exemptions or the goods-in-transit exemptions for items of personal property. The appraised value of a residence homestead for a tax year may not exceed the lesser of (1) the market value of the property or (2) the sum of (A) ten percent (10%) of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised; (B) the appraised value of the property for the last year in which the property was appraised; and (C) the market value of all new improvements to the property. EFFECTIVE TAX RATE AND ROLLBACK TAX RATE . . . The City must annually calculate and publicize its “effective tax rate” and “rollback tax rate.” “Effective tax rate” means the rate that will produce the previous year’s total tax levy (adjusted) from this year’s total taxable values (adjusted). “Adjusted” means lost values are not included in the calculation of the previous year’s taxes and new values are not included in the current year’s taxable values. “Rollback tax rate” means the rate that will produce the previous year’s maintenance and operation tax levy (adjusted) from the current year’s values (adjusted) multiplied by 1.08 plus a rate that will produce the current year’s debt service from the current year’s values (unadjusted) divided by the anticipated tax collection rate. Section 26.05 of the Property Tax Code provides that the governing body of a taxing unit is required to adopt the annual tax rate for the unit before the later of September 30 or the 60th day after the date the certified appraisal role is received by the taxing unit, and failure to adopt a tax rate by such required date will result in the tax rate for the taxing unit for the tax year to be the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the taxing unit for the preceding tax year. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures and (2) a rate for debt service. The City may not adopt a tax rate that exceeds the lower of the effective tax rate or rollback tax rate until it has held two public hearings on the proposed rate following notice to the taxpayers and otherwise complied with the Property Tax Code. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City, by petition, may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT AND TAX PAYMENT . . . Property within the City is assessed as of January 1 of each year. (Business inventory may, at the option of the taxpayer, be assessed as of September 1; oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year). Taxes become due October 1 of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on January 31 of each year and the final installment due on August 1.

10

PENALTIES AND INTEREST . . . Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Month Penalty Interest Total February 6% 1% 7% March 7% 2% 9% April 8% 3% 11% May 9% 4% 13% June 10% 5% 15% July 12% 6% 18% After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, an attorney's collection fee of up to 20% is added to the total tax penalty and interest charge. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF TAX CODE . . . The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $30,000; disabled veterans are granted an exemption of $5,000 to $12,000. The City has not granted an additional homestead exemption of the market value of residence homesteads; minimum exemption of $5,000. See “Table 1 – Valuation, Exemptions and Debt Obligations” for a listing of the amounts of the exemptions described above. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; and the City collects its own taxes. The City does not permit split payments, and discounts are not allowed. The City does not tax freeport property. The City does not collect the additional one-half cent sales tax for reduction of ad valorem taxes. The City has adopted a tax abatement policy. The City has not created a tax increment financing zone.

[The remainder of this page intentionally left blank]

11

TABLE 1 - VALUATION, EXEMPTIONS AND DEBT OBLIGATIONS

Tax Year 2011-2012 Market Valuation Established by Webb County Appraisal District (1) 11,287,371,388$

Less Exemptions/Reductions at 100% Market Value: Local over-65/disabled exemption loss 230,925,954$ Disabled Veterans Exemptions 27,491,998 Productivity Loss 164,341,317 Freeport Exemptions 201,774,896 Pollution Control 13,103,530 Abatement Loss 93,627,120 Exempt (prorated) 2,426,941 GIT 12,370 Homestead Cap 2,850,953 736,555,079$

Tax Year 2011 Taxable Assessed Valuation 10,550,816,309$

Debt Payable from Ad Valorem Taxes (as of September 30, 2012) General Obligation Bonds 51,140,000$ Certificates of Obligation 261,765,000 Contractual Obligations 9,800,000 The 2012A Certificates 10,345,000 (2)

The 2012B Certificates 4,605,000 (2)

The Contractual Obligations 3,800,000 (2)

Funded Debt Payable From Ad Valorem Taxes

Less: Self-Supporting Debt(2)

Waterworks System General Obligation 10,945,452$ Waterworks System Certificates of Obligation 63,187,421 Waterworks System Public Property Contractual Obligations 191,079 Sewer System General Obligation Debt 8,348,800 Sewer System Certificates of Obligation 28,272,579 Sewer System Public Property Contractual Obligations 745,731 Parking System General Obligation 1,727,497 Parking System Certificates of Obligation 205,000 Mass Transit General Obligation Debt 4,312,163 Mass Transit Certificates of Obligation 865,000 Mass Transit Public Property Finance Contractual Obligations 2,555,000 Landfill General General Obligation 3,721,949 Landfill Certificates of Obligation 14,965,000 Landfill Public Property Finance Contractual Obligations 2,616,103 Police Trust Public Property Finance Contractual Obligations 1,318,000 Airport System Certificates of Obligation 5,720,000 Environmental Services Property Finance Contractual Obligations 397,088 CIF Bridge Transfer General Obligation 5,567,290 NPDES Transfer Certificates of Obligation 21,035,000 176,696,151$

Net General Purpose Funded Debt Payable from Ad Valorem Taxes (176,696,151)$

Interest and Sinking Fund (as of August 1, 2012) 13,155,023$

Ratio Funded Debt to Taxable Assessed Valuation 0.00%Ratio Net General Purpose Funded Debt to Taxable Assessed Valuation -1.67%

2012 Estimated Population - 237,800 Per Capita Taxable Assessed Valuation - 44,368$

Per Capita Funded Debt - -$ Per Capita General Purpose Funded Debt - (743)$

______ (1) Source: Texas Comptroller of Public Accounts. (2) Historically, the City has authorized the transfer of revenues from various revenue-producing systems to pay certain portions of its general obligation debt. The

City, however, is not under any legal requirement to continue such transfers of revenues. See Table 9 - Computation of Self-Supporting Debt.

12

TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY

% of % of % ofAmount Total Amount Total Amount Total

Real, Residential, Single-Family $ 5,735,984,795 50.82% $ 5,758,393,175 50.52% $ 5,642,149,175 49.51%Real, Residential, Multi-Family 368,898,916 3.27% 363,783,782 3.19% 350,283,403 3.07%Real, Vacant Lots/Tracts 350,912,767 3.11% 374,194,726 3.28% 377,615,393 3.31%Real, Acreage (Land Only) 315,215,941 2.79% 364,100,202 3.19% 377,971,484 3.32%Real, Farm and Ranch Improvements 1,173,090 0.01% 2,094,360 0.02% 2,104,590 0.02%Real, Commercial/Industrial 2,974,095,525 26.35% 3,013,478,258 26.44% 3,005,989,286 26.38%Real, Oil, Gas and Other Mineral Reserves 10,887,358 0.10% 20,194,565 0.18% 20,606,845 0.18%Real and Tangible Personal, Utilities 211,669,018 1.88% 217,971,470 1.91% 196,643,590 1.73%Tangible Personal, Commercial/Industrial 1,174,027,368 10.40% 1,135,466,249 9.96% 1,264,466,251 11.09%Tangible Personal, Other 75,687,820 0.67% 75,657,587 0.66% 75,679,927 0.66%Real Property, Inventory (1) 47,172,340 0.42% 52,822,580 0.46% 63,248,160 0.55%Special Inventory 21,646,450 0.19% 20,359,840 0.18% 20,204,920 0.18%Total Appraised Value Before Exemptions 11,287,371,388$ 100.00% 11,398,516,794$ 100.00% 11,396,963,024$ 100.00%Less: Total Exemptions/Reductions 736,555,079 761,010,658 773,831,223 Taxable Assessed Value $ 10,550,816,309 $ 10,637,506,136 $ 10,623,131,801

% of % ofAmount Total Amount Total

Real, Residential, Single-Family $ 5,512,603,199 49.86% $ 4,953,719,865 49.33%Real, Residential, Multi-Family 334,225,503 3.02% 314,091,897 3.13%Real, Vacant Lots/Tracts 397,063,450 3.59% 369,653,970 3.68%Real, Acreage (Land Only) 330,731,232 2.99% 349,849,007 3.48%Real, Farm and Ranch Improvements 2,535,420 0.02% 1,404,310 0.01%Real, Commercial/Industrial 2,862,878,623 25.89% 2,623,142,905 26.12%Real, Oil, Gas and Other Mineral Reserves 33,697,085 0.30% 27,148,765 0.27%Real and Tangible Personal, Utilities 230,761,250 2.09% 172,801,560 1.72%Tangible Personal, Commercial/Industrial 1,210,295,466 10.95% 1,102,980,512 10.98%Tangible Personal, Other 76,578,281 0.69% 80,523,130 0.80%Real Property, Inventory (1) 39,264,150 0.36% 18,066,770 0.18%Special Inventory 25,647,590 0.23% 27,723,990 0.28%Total Appraised Value Before Exemptions 11,056,281,249$ 100.00% 10,041,106,681$ 100.00%Less: Total Exemptions/Reductions 670,313,954 647,577,934 Taxable Assessed Value $ 10,385,967,295 $ 9,393,528,747

Taxable Assessed Valuation for Fiscal Year Ended September 30,2011 2010

2009

2012

Taxable Assessed Valuation for Fiscal Year Ended September 30,2008

________ NOTE: Valuations shown are certified taxable assessed values reported by the Webb County Appraisal District to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. (1) Real property in the hands of developers or builders; each group of properties in this category is appraised on the basis of its value as a whole as a sale to another developer or builder.

13

TABLE 3 - VALUATION AND AD VALOREM TAX DEBT HISTORY

Ratio ofFiscal Taxable Tax Debt Tax DebtYear Taxable Assessed Outstanding to Taxable Tax

Ended Estimated Assessed Valuation at End Assessed Debt30-Sep Population(1) Valuation(2) Per Capita of Year Valuation Per Capita 2003 195,060 $ 5,558,982,217 $ 28,499 $ 151,940,000 2.73% $ 779 2004 200,502 6,018,213,713 30,016 152,500,000 2.53% 761 2005 205,770 6,773,135,203 32,916 153,725,000 2.27% 747 2006 210,841 7,448,311,159 35,327 155,940,000 2.09% 740 2007 215,789 8,408,036,926 38,964 217,945,000 2.59% 1,010 2008 220,801 9,393,528,747 42,543 282,840,000 3.01% 1,281 2009 226,122 10,385,967,295 45,931 347,925,000 3.35% 1,539 2010 233,152 10,623,131,801 45,563 342,955,000 3.23% 1,471 2011 233,152 10,637,506,136 45,625 334,905,000 3.15% 1,436 2012 237,800 10,550,816,309 44,368 341,455,000 (3) 3.24% 1,436

________ (1) Source: City of Laredo and Laredo Development Foundation. (2) As reported by the Webb County Appraisal District on the City's annual State Property Tax Board Reports. (3) Includes the Obligations. TABLE 4 - TAX RATE, LEVY AND COLLECTION HISTORY

FiscalYear

Ended Tax General Interest and % Current % Total30-Sep Rate Fund Sinking Fund Tax Levy(1) Collections Collections 2003 $ 0.630535 $ 0.484759 $ 0.145776 $ 33,435,345 99.97% 103.34%2004 0.641761 0.500648 0.141113 38,455,159 97.42% 101.63%2005 0.637000 0.508677 0.128323 43,209,681 96.49% 100.72%2006 0.637000 0.512019 0.124981 47,451,046 96.84% 100.15%2007 0.637000 0.513745 0.123255 53,559,195 97.14% 100.43%2008 0.637000 0.511426 0.125574 59,584,704 97.08% 99.89%2009 0.637000 0.512737 0.124263 65,642,287 96.27% 99.13%2010 0.637000 0.512772 0.124228 66,926,927 96.19% 99.42%2011 0.637000 0.512304 0.124696 67,103,437 96.52% 99.13%2012 0.637000 0.512296 0.124704 67,365,292 96.50% 99.56%

Distribution

_________ (1) Tax levies are calculated on taxable assessed values included in Table 3.

[The remainder of this page intentionally left blank.]

14

TABLE 5 - TEN LARGEST TAXPAYERS

2011 % of TotalAssessed Assessed

Name of Taxpayer Nature of Property Valuation Valuation Laredo Texas Hospital Co. LP Medical $ 103,826,630 0.98%AEP Texas Central Company Utility 53,470,930 0.51%Mall Del Norte LLC Shopping Mall 51,752,510 0.49%The Geo Group Inc. Correctional Services 49,979,180 0.47%Laredo Regional Medical Center LP Medical 41,405,090 0.39%AEP Electric Transmission of Texas LLC Utility 40,634,910 0.39%International Bank of Commerce Commercial Bank 39,033,603 0.37%Halliburton Energy Services Oil/Gas Company 37,396,790 0.35%Killam Industrial Development Partnership LTD Development 30,143,550 0.29%H E Butt Grocery Co Grocery Store 28,283,840 0.27%

$ 475,927,033 4.51%

__________ Note: These taxpayers are current on all taxes. Source: Webb County Appraisal District TABLE 6 - ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities may have issued additional debt since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional debt, the amount of which cannot be determined. The following table reflects the estimated share of overlapping tax debt of the City.

City'sOverlapping Authorized

2011 2011 Total Estimated Funded Debt But UnissuedAssessed Tax Funded % As Of Debt As Of

Taxing Jurisdiction Valuation Rate Debt (1) Applicable 10/30/2012 8/1/2012City of Laredo 10,550,816,309$ 0.637000$ 341,455,000$ (2) 100.00% 341,455,000$ -$ Laredo Independent School District 2,208,434,168 1.274000 192,969,910 (3) 100.00% 192,969,910 - Laredo Community College District 10,614,922,560 0.258540 84,276,943 100.00% 84,276,943 - United Independent School District 10,296,645,310 1.194860 243,045,434 (4) 78.99% 191,981,588 74 Webb County 14,187,900,118 0.405824 64,775,000 77.45% 50,168,238 - Total Direct and Overlapping Tax Debt 860,851,679$ (5)

Ratio of Direct and Overlapping Tax Debt to Taxable Assessed Valuation 8.16%

Ratio of Direct and Overlapping Tax Debt to Taxable Assessed Valuation After State Aid 6.56%

Per Capita Overlapping Tax Debt 3,692$

Source: "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. (1) As of October 30, 2012. (2) Includes the Obligations. (3) Approximately 72% of the debt service of Laredo Independent School District’s currently outstanding tax supported debt is supported with funds received from

either the Existing Debt Allotment Program or the Instructional Facilities Allotment Program from the Texas Education Agency. Both the Existing Debt Allotment Program funds and the Instructional Facilities Allotment Program funds are subject to biennial appropriation by the Texas Legislature. The District’s Series2001, 2005, 2006, 2010, and 2011 Bonds are secured by the Permanent School Fund Guarantee.

(4) Approximately 30% of the debt service of United Independent School District’s currently outstanding tax supported debt is supported with funds received from either the Existing Debt Allotment Program or the Instructional Facilities Allotment Program from the Texas Education Agency. Both the Existing Debt Allotment Program funds and the Instructional Facilities Allotment Program funds are subject to biennial appropriation by the Texas Legislature. The District’s Series 1998, 1999, 2000, 2001, 2004, 2005, 2006, 2008, and 2011 Bonds are secured by the Permanent School Fund Guarantee.

(5) The amount shown does not account for funds received from the Texas Education Agency referenced in footnotes 3 and 4. The City’s overlapping funded debt after the State aid will be approximately $692,011,901.

15

TABLE 7 - TAX DEBT INTEREST AND SINKING FUND BUDGET PROJECTION

Estimated Debt Service Requirements, Fiscal Year Ending 09/30/2013 24,751,600$ (1)

Interest & Sinking Fund 09/30/2012 6,099,305 Interest & Sinking Fund Tax Levy @ 95% Collection 14,546,175 Paving Assessments 328,013 Budgeted Transfers 8,203,002 Estimated Investment Income 21,300 29,197,795

Estimated Balance 09/30/2013 4,446,195$

_______ (1) Excludes self-supporting ad valorem tax debt of the City.

[The remainder of this page intentionally left blank.]

16

DEBT INFORMATION TABLE 8 – AD VALOREM TAX DEBT SERVICE REQUIREMENTS

FiscalYear

Ending Principal9/30 Principal Interest Total Principal Interest Total Principal Interest Total Principal Interest Total Principal Interest Total Retired2012 20,375,000$ 15,769,468$ 36,144,468$ -$ -$ -$ 20,375,000$ 15,769,468$ 36,144,468$ 2013 21,585,000 15,089,783 36,674,783 1,285,000 296,801 1,581,801 210,000 105,992 315,992 360,000 55,943 415,943 23,440,000 15,548,519 38,988,519 2014 21,490,000 14,293,135 35,783,135 1,240,000 346,838 1,586,838 185,000 132,804 317,804 355,000 64,463 419,463 23,270,000 14,837,239 38,107,239 2015 17,060,000 13,473,838 30,533,838 1,280,000 302,638 1,582,638 185,000 131,231 316,231 360,000 57,313 417,313 18,885,000 13,965,019 32,850,019 2016 17,825,000 12,725,193 30,550,193 1,325,000 257,163 1,582,163 190,000 129,118 319,118 365,000 50,975 415,975 19,705,000 13,162,448 32,867,448 2017 18,690,000 11,936,004 30,626,004 1,380,000 202,788 1,582,788 190,000 126,410 316,410 375,000 44,488 419,488 20,635,000 12,309,689 32,944,689 34.92%2018 18,345,000 11,082,926 29,427,926 1,455,000 131,913 1,586,913 200,000 123,138 323,138 380,000 36,938 416,938 20,380,000 11,374,914 31,754,914 2019 16,495,000 10,265,606 26,760,606 1,525,000 57,413 1,582,413 200,000 119,188 319,188 390,000 29,238 419,238 18,610,000 10,471,444 29,081,444 2020 16,935,000 9,530,886 26,465,886 275,000 16,538 291,538 200,000 114,588 314,588 395,000 21,388 416,388 17,805,000 9,683,399 27,488,399 2021 16,750,000 8,776,322 25,526,322 285,000 10,581 295,581 210,000 109,303 319,303 405,000 13,388 418,388 17,650,000 8,909,594 26,559,594 2022 16,735,000 7,988,468 24,723,468 295,000 3,688 298,688 215,000 103,296 318,296 415,000 4,669 419,669 17,660,000 8,100,120 25,760,120 60.38%2023 16,740,000 7,182,161 23,922,161 220,000 96,275 316,275 16,960,000 7,278,436 24,238,436 2024 16,960,000 6,339,538 23,299,538 230,000 88,400 318,400 17,190,000 6,427,938 23,617,938 2025 17,185,000 5,461,766 22,646,766 235,000 80,263 315,263 17,420,000 5,542,029 22,962,029 2026 16,810,000 4,556,553 21,366,553 245,000 71,556 316,556 17,055,000 4,628,109 21,683,109 2027 16,265,000 3,703,623 19,968,623 255,000 62,181 317,181 16,520,000 3,765,805 20,285,805 83.92%2028 10,350,000 3,013,380 13,363,380 265,000 52,100 317,100 10,615,000 3,065,480 13,680,480 2029 8,160,000 2,517,412 10,677,412 275,000 41,300 316,300 8,435,000 2,558,712 10,993,712 2030 5,840,000 2,132,494 7,972,494 285,000 30,100 315,100 6,125,000 2,162,594 8,287,594 2031 5,375,000 1,810,192 7,185,192 300,000 18,400 318,400 5,675,000 1,828,592 7,503,592 2032 5,630,000 1,508,989 7,138,989 310,000 6,200 316,200 5,940,000 1,515,189 7,455,189 94.09%2033 5,380,000 1,202,334 6,582,334 5,380,000 1,202,334 6,582,334 2034 2,390,000 971,440 3,361,440 2,390,000 971,440 3,361,440 2035 2,495,000 811,065 3,306,065 2,495,000 811,065 3,306,065 2036 2,600,000 643,796 3,243,796 2,600,000 643,796 3,243,796 2037 2,715,000 469,305 3,184,305 2,715,000 469,305 3,184,305 98.40%2038 2,835,000 287,098 3,122,098 2,835,000 287,098 3,122,098 2039 2,955,000 97,013 3,052,013 2,955,000 97,013 3,052,013 100.00%2040 - - - - - -

342,970,000$ 173,639,788$ 516,609,788$ 10,345,000$ 1,626,357$ 11,971,357$ 4,605,000$ 1,741,841$ 6,346,841$ 3,800,000$ 378,799$ 4,178,799$ 361,720,000$ 177,386,785$ 539,106,785$

Existing Debt ServiceTotal General Obligation

Debt Service RequirementsCombination Tax & Revenue Certificates of

Obligation, Series 2012-APublic Property Finance Contractual

Obligations,Series 2012Combination Tax & Revenue Certificates of

Obligation, Taxable Series 2012-B

17

TABLE 9 - COMPUTATION OF SELF-SUPPORTING DEBT (1)

Computation of Self-Supporting Debt - Airport

Net Revenue from Fiscal Year Ended 9-30-11 $ (60,160)Less: Airport Revenue Bond Requirements, 2012 Fiscal Year End 500,537

Balance Available for Other Purposes $ (560,697)Airport General Obligation Bond Requirements, 2012 Fiscal Year End -

Balance $ (560,697)

Percentage of Airport General Obligation Bonds Self-Supporting 0.00%

Computation of Self-Supporting Debt - Sewer System

Net Revenue from Fiscal Year Ended 9-30-11 $ 14,988,760 Less: Sewer System Revenue Bond Requirements, 2012 Fiscal Year End 2,953,840

Balance Available for Other Purposes $ 12,034,920 Sewer System General Obligation Bond Requirements, 2012 Fiscal Year End 2,524,434

Balance $ 9,510,486

Percentage of Sewer System General Obligation Bonds Self-Supporting 100.00%

Computation of Self-Supporting Debt - Waterworks System

Net Revenue from Fiscal Year Ended 9-30-11 $ 17,899,759 Less: Waterworks Revenue Bond Requirements, 2012 Fiscal Year End 4,721,384

Balance Available for Other Purposes $ 13,178,375 Waterworks System General Obligation Bond Requirements, 2012 Fiscal Year End 3,413,992

Balance $ 9,764,383

Percentage of Waterworks System General Obligation Bonds Self-Supporting 100.00% ______ (1) Unaudited. Historically, the City has authorized the transfer of revenues from related revenue-producing systems as set forth in Table 9 to pay certain portions of its general obligation debt. The City, however, is not under any legal requirement to continue such transfers of revenues.

18

Computation of Self-Supporting Debt - Mass Transit

Net Revenue from Fiscal Year Ended 9-30-11 $ (448,926)Less: Mass Transit Revenue Bond Requirements, 2012 Fiscal Year End 827,187

Balance Available for Other Purposes $ (1,276,113)Mass Transit General Obligation Bond Requirements, 2012 Fiscal Year End 443,600

Balance $ (1,719,713)

Percentage of Mass Transit General Obligation Bonds Self-Supporting 0.00%

Computation of Self-Supporting Debt - Landfill

Net Revenue from Fiscal Year Ended 9-30-11 $ 1,163,550 Less: Landfill Revenue Bond Requirements, 2012 Fiscal Year End 1,319,906

Balance Available for Other Purposes $ (156,356)Landfill General Obligation Bond Requirements, 2012 Fiscal Year End 196,502

Balance $ (352,858)

Percentage of Landfill General Obligation Bonds Self-Supporting 0.00% ANTICIPATED ISSUANCE OF AD VALOREM DEBT The City does not anticipate the issuance of additional ad valorem debt within the next twelve months. ANTICIPATED ISSUANCE OF WATERWORKS AND SEWER SYSTEM REVENUE DEBT Simultaneously with the issuance of the Obligations, the City is issuing $41,120,000 Waterworks and Sewer System Revenue Bonds, New Series 2012. TABLE 10 - OTHER OBLIGATIONS The City has several lease purchase agreements outstanding for various personal property. As of September 30, 2011 the minimum lease payments over the next two years for all governmental funds are as follows:

Fiscal Year EndedSeptember 30 Lease Payments

2012 522,756$ 2013 522,756 2014 214,956

Total Minimum Lease Payments 1,260,468$

19

RETIREMENT PLANS EMPLOYEES PENSION FUND . . . The City provides benefits for all of its full-time employees (except for firefighters) through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), one of 827 administered by TMRS, an agent multiple-employer public employee retirement system. Benefits depend upon the sum of the employee’s contributions to the plan, with interest, and the City-financed monetary credits, with interest. At the date the plan began, the City granted monetary credits for services rendered before the plan began using a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percentage (100%, 150%, or 200%) of the employee’s accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee’s accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contribution rate and City matching percent had always been in existence and if the employee’s salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee’s accumulated contributions with interest and the employer-financed monetary credits with interest were used to purchase an annuity. Members can retire at certain ages, based on the years of service with the City. The Service Retirement Eligibilities for the City are: 5 yrs/age 60, 20-yrs/any age. Under the state law governing TMRS, the actuary annually determines the City contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, which are the obligation of the City as of an employee’s retirement date, not at the time the employee’s contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the remainder of the plan’s 25-year amortization period. The unit credit actuarial cost method is used for determining the City contribution rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect. (i.e. December 31, 2010 valuation is effective for rate beginning January 2012). (For more detailed information concerning the retirement plan and deferred compensation plans, including post-retirement health care, see Appendix B, “Excerpts from the City of Laredo, Texas Comprehensive Annual Financial Report” – Note 9). FIREFIGHTERS’ RETIREMENT SYSTEM . . . The Board of Trustees of the Laredo Firefighters Retirement System is the administrator of a single-employer defined benefit pension plan. The Laredo Firefighters Retirement System is considered part of the City of Laredo financial reporting entity and is included in the City’s financial reports as a pension trust fund. The Laredo Firefighters Retirement System provides service retirement, death, disability, and withdrawal benefits. These benefits vest after 20 years of credited service. Employees may retire at age 50 with 20 years of service. The Plan effective July 20, 2011 (in effect on the March 31, 2010 valuation date) provides a monthly normal service retirement benefit, payable in a Joint and Two-Thirds to Spouse form of annuity. The monthly benefit is equal to 3.03% of Final Average Monthly Salary for each year of service. There is no provision for automatic post retirement benefit increases. The Laredo Firefighters Retirement System has the authority to provide, and has periodically in the past provided for, ad hoc post retirement benefit increases. The Texas Local Fire Fighters’ Retirement Act (TLFFRA) authorizes the benefit provisions of this plan. TLFFRA provides the authority and procedure to amend benefit provisions. The contribution provisions of this plan are authorized by TLFFRA. TLFFRA provides the authority and procedure to change the amount of contributions determined as a percentage of pay by each firefighter and a percentage of payroll by the City. While the contribution requirements are not actuarially determined, State law requires that each plan of benefits adopted by the Laredo Firefighters Retirement System must be approved by an eligible actuary. The actuary certifies that the contribution commitment by the firefighters and the City provides an adequate financing arrangement. Using the entry age actuarial cost method the plan’s normal cost contribution rate is determined as a percentage of payrolls. The excess of the total contribution rate over the normal cost contributions rate is used to amortize the plan’s unfunded actuarial accrued liability, and the number of years needed to amortize the plan’s unfunded actuarial accrued liability is determined using an open, level percentage of payroll method.

20

The costs of administering the plan are financed from the trust. For the Plan effective July 20,2011, (Plan effective March 31, 2010), the funding policy of the Laredo Firefighters Retirement System requires contributions equal to 14% of pay by the firefighters. On October 1, 2010, the city contribution rate was 17.65% of pay for all firefighters. The revised actuarial valuation as of May 31, 2010 reflected the scheduled increases in the city contribution rate from 17.65% to 17.90% in June 2011, to 18.15% in October 2012, to the ultimate rate of 20.10% in October 2013, and assumed the 20.10% rate will continue at least for the remainder of the UAAL amortization period. (For more detailed information concerning the retirement plan and deferred compensation plans, including post-retirement health care, see Appendix B, “Excerpts from the City of Laredo, Texas Comprehensive Annual Financial Report” – Note 9).

POST EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Police and City Employees who have twenty years of service or have attained age sixty with five years of service and Firefighters who have attained age forty-five with twenty years of service or have attained age sixty with five years of service with the City of Laredo are eligible for a service or early retirement, or qualified for a disability retirement under the Texas Municipal Retirement System, or the Fireman’s Relief and Retirement Fund, may continue coverage in the City of Laredo Medical Plan as a retiree, at the time service terminate with the City of Laredo. An eligible employee may elect coverage for his or her dependants. The widow/widower of a retiree who has coverage as a retiree under the City of Laredo Medical Plan may continue coverage as a retiree. Currently, 166 retirees meet those eligibility requirements. The City reimburses 80% of the amount of validated claims for medical and hospitalization costs incurred by pre-Medicare retirees and their dependants. Expenditures for postretirement health care benefits are recognized as retirees report claims and include a provision for estimated claims incurred but not yet reported to the City. Prior to age 65, retirees participate in the City’s Medical Plan. At age 65, retirees are offered a Medicare Supplemental Plan (Monumental), but the full cost is borne by the retirees. However retirees can continue to participant in the City’s prescription drug program after age 65. There is a $750-$1,000 deductible per person with an additional maximum out of pocket cost of $2,000. The prescription co-pay is $10 for generic and $35 for brand name prescriptions and $55 for preferred brand. (For more detailed information concerning Post Employment Benefits see Appendix B, “Excerpts from the City of Laredo, Texas Comprehensive Annual Financial Report” – Note 10).

[The remainder of this page intentionally left blank.]

21

FINANCIAL INFORMATION TABLE 11 - GENERAL FUND REVENUES AND EXPENDITURE HISTORY

Revenues: 2011 2010 2009 2008 2007 Taxes $ 82,825,288 $ 79,720,751 $ 79,205,602 $ 76,258,746 $ 70,690,523 Franchises 6,995,838 6,668,731 6,788,837 6,793,268 6,506,014 Licenses and Permits 5,795,171 5,833,700 5,804,115 5,423,364 6,148,720 Intergovernmental 1,629,571 1,581,037 506,126 880,661 1,351,157 Charges for Services 32,061,368 32,533,435 30,572,648 32,406,865 28,275,249 Fines and Special Assessments 3,248,911 3,230,565 2,819,186 3,006,348 2,629,702 Interest and Other 931,281 921,017 1,568,003 1,758,899 1,889,840 Miscellaneous 1,687,095 1,390,982 1,578,719 2,199,545 1,750,572 Total Revenues $ 135,174,523 $ 131,880,218 $ 128,843,236 $ 128,727,696 $ 119,241,777

Expenditures: General Government $ 18,295,821 $ 17,864,806 $ 17,603,178 $ 16,708,796 $ 16,548,260 Public Safety 92,803,746 89,777,961 86,642,904 84,875,344 75,891,973 Public Works 7,049,101 6,838,476 6,603,736 7,261,913 7,465,068 Health and Welfare 839,064 870,349 958,764 920,952 560,866 Culture and Recreation 11,139,218 10,499,519 10,162,597 11,114,135 10,551,572 Capital Outlay 11,291,552 18,458,452 9,539,344 323,317 - Miscellaneous - - - - 400,000 Total Expenditures $ 141,418,502 $ 144,309,563 $ 131,510,523 $ 121,204,457 $ 111,417,739

Excess (Deficiency) of Revenues Over Expenditures $ (6,243,979) $ (12,429,345) $ (2,667,287) $ 7,523,239 $ 7,824,038

Operating Transfers In $ 6,681,267 $ 2,608,800 $ 1,969,695 $ 12,685 $ 733,997 Bond/Capital Lease Proceeds - 2,070,000 - 46,235,000 144,235 Bond Costs - (70,000) - (766,853) - Bond Premium - - - 772,484 - Operating Transfers Out (9,738,939) (5,326,814) (4,527,830) (3,885,302) (6,836,898) Contributions 9,749,327 17,394,912 9,340,787 (46,471,173) - Sale of Assets 126,432 6,356 58,685 155,843 192,338 Capital Lease Payments - - (102,232) (102,232) - Total Transfers $ 6,818,087 $ 16,683,254 $ 6,739,105 $ (4,049,548) $ (5,766,328)

Net Increase (Decrease) $ 574,108 $ 4,253,909 $ 4,071,818 $ 3,473,691 $ 2,057,710 Other Miscellaneous Adjustments - - - - - Beginning Fund Balance 34,946,332 30,692,423 26,620,605 23,146,914 21,089,204 Ending Fund Balance $ 35,520,440 $ 34,946,332 $ 30,692,423 $ 26,620,605 $ 23,146,914

Fiscal Years Ended September 30,

22

TABLE 12 - MUNICIPAL SALES TAX HISTORY(1) The City has adopted the Municipal Sales and Use Tax Act Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% local sales and use tax within the City, the proceeds of which are credited to the General Fund and are not pledged to the payment of the Obligations. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 2% service fee, to the City monthly.

Fiscal Year Ended 9/30

1% Sales & Use Tax Receipts

1/4 of 1% Mass Transit Sales Tax

Receipts

1/4 of 1% Sports Venue

Sales Tax Receipts

2002 17,158,252$ 4,092,649$ 4,289,563$ 2003 18,037,788 4,331,368 4,509,447 2004 19,288,848 4,690,014 4,822,212 2005 21,075,125 5,026,869 5,268,782 2006 23,862,994 5,658,730 5,965,748 2007 25,426,235 5,881,063 6,356,559 2008 25,962,162 6,122,978 6,490,541 2009 24,315,518 5,760,681 6,078,880 2010 23,471,292 5,512,908 5,867,823 2011 26,935,219 6,311,746 6,733,805

_______ (1) Source: Texas Comptroller of Public Accounts. The sales tax breakdown for the City is as follows:

Sports Venue Tax 0.25% Webb County Sales & Use Tax 0.50% Mass Transit Sales & Use Tax 0.25% City Sales & Use Tax 1.00% State Sales & Use Tax 6.25% Total 8.25%

FINANCIAL POLICIES Basis of Accounting . . . All governmental funds, the expendable trust fund and the agency funds are accounted for using the modified accrual basis of accounting. Their revenues are recognized in the accounting period in which they become measurable and available as net current assets, that is, when they become susceptible to accrual. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, except for unmatured interest on general long-term debt, which is recognized when due. All proprietary fund and pension trust fund revenues and expenses are recognized on the accrual basis of accounting, whereby revenues are recognized in the accounting period in which they are earned, and expenses are recognized in the period on which they are incurred. General Fund Balance . . . Over the past three fiscal years, the City operated with an unencumbered fund balance of approximately 20% of annual General Fund expenditures. Furthermore, the City Council has adopted a resolution that a 15% fund balance must be maintained. Debt Service Fund Balance . . . The City does not have a formal policy but the surplus funds have been maintained at 25% of the annual debt service requirements in tax supported Debt Service Funds. Interest and Sinking Funds for the Waterworks System Revenue Bonds, the Sewer System Revenue Bonds, and the International Bridge System Revenue Bonds are accumulated monthly; Reserve Funds for each of these Enterprise System revenue obligations are fully established in excess of the amounts required under ordinances. Use of Bond Proceeds, Certificate Proceeds, Grants, etc. . . . Bond and certificate proceeds are utilized to fund capital improvement projects. Grant proceeds are generally utilized for capital improvement projects unless otherwise specifically required for other purposes under the terms of the grant.

23

Budgetary Procedures . . . The City adheres to the following procedures in establishing the operating budgets reflected in the general purpose financial statements: (1) Sixty (60) days prior to the beginning of each fiscal year, the City Manager submits to the City Council a proposed budget for the fiscal year beginning October 1. (2) Public hearings are conducted at which all interested persons may comment concerning the proposed budget. (3) The City Council adopts the budget on or before the last day of the month of the fiscal year currently ending through passage of an appropriation ordinance and tax levying ordinance. If the City Council fails to adopt the budget at that time, the budget of the previous year is deemed to be adopted. INVESTMENTS The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City. Both state law and the City's investment policies are subject to change. Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas 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 of Texas or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than “A” or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit and share certificates meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code, as amended) (i) that are issued by or through an institution that has its main office or a branch office in Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits; or (ii) where (a) the funds are invested by the City through (I) a broker that has its main office or a branch office in the State of Texas and is selected from a list adopted by the City as required by law or (II) a depository institution that has its main office or a branch office in the State of Texas that is selected by the City; (b) the broker or the depository institution selected by the City arranges for the deposit of the funds in certificates of deposit in one or more federally insured depository institutions, wherever located, for the account of the City; (c) the full amount of the principal and accrued interest of each of the certificates of deposit is insured by the United States or an instrumentality of the United States, and (d) the City appoints the depository institution selected under (a) above, a custodian as described by Section 2257.041(d) of the Texas Government Code, or a clearing broker-dealer registered with the Securities and Exchange Commission and operating pursuant to Securities and Exchange Commission Rule 15c3-3 (17 C.F.R. Section 240.15c3-3) as custodian for the City with respect to the certificates of deposit; (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by a combination of cash and obligations described in clause (1) which are pledged to the City, held in the City’s name, and deposited at the time the investment is made with the City or with a third party selected and approved by the City and are placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing 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 program is 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 firm at 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 City, held in the City’s name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities 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 by at 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 credit issued by a U.S. or state bank; (12) no-load money market mutual funds registered with and regulated by the United States Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include 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 United States Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than “AAA” or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph.

24

The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than “AAA” or “AAAm” or an equivalent by at least one nationally recognized rating service. The City may also contract with an investment management firm registered under 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 of its public funds or other funds under its control for a term up to two years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance, or resolution. The City is specifically prohibited from investing 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 represents the 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) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that include a list of authorized investments for City funds, the maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups, methods to monitor the market price of investments acquired with public funds, a requirement for settlement of all transactions, except investment pool funds and mutual funds, on a delivery versus payment basis, and procedures to monitor rating changes in investments acquired with public funds and the liquidation of such investments consistent with the Public Funds Investment Act. All City funds must be invested consistent with a formally adopted “Investment Strategy Statement” that specifically addresses each fund’s investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under Texas law, the City’s investments must be made “with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person’s own affairs, not for speculation, but for investment considering the probable safety of capital and the probable income to be derived.” At least quarterly the City’s investment officers must submit an investment report to the City Council detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, the ending market value and the fully accrued interest for the reporting period of each pooled fund group, (4) the book value and market value of each separately listed asset at the end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategies and (b) Texas law. No person may invest City funds without express written authority from the City Council. Under State law, the City is additionally required to: (1) annually review its adopted policies and strategies; (2) adopt by written instrument a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order, ordinance or resolution; (3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (4) require the qualified representative of firms offering to engage in an investment transaction with the City to: (a) receive and review the City’s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the City and the business organization that are not authorized by the City’s investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the City’s entire portfolio or requires an interpretation of subjective investment standards), and (c) deliver a written statement in a form acceptable to the City and the business organization attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the City’s investment policy; (6) provide specific investment training for the Treasurer, chief financial officer and investment officers; (7) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse purchase agreement; (8) restrict the investment in no-load mutual funds in the aggregate to no more than 15% of the City’s monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; and (10) at least annually review, revise and adopt a list of qualified brokers that are authorized to engage in investment transactions with the City. TABLE 13 - CURRENT INVESTMENTS As of July 31, 2012, the City's investments were in government investment pools or Certificates of Deposit. The City’s investment portfolio had a weighted average maturity of 69 days to its final maturity. The City’s funds are invested as follows:

Investment Pools 75,245,302$ Certificates of Deposit 333,772,287 Total 409,017,589$

25

TAX MATTERS RELATING TO THE 2012A CERTIFICATES AND CONTRACTUAL OBLIGATIONS

OPINION . . . On the date of initial delivery of the 2012A Certificates and the Contractual Obligations (referred to collectively throughout this section as the “Tax-exempt Obligations”), McCall, Parkhurst & Horton L.L.P., San Antonio, Texas, Bond Counsel to the Issuer, will render its opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof ("Existing Law") (i) interest on the Tax-exempt Obligations will be excludable from the "gross income" of the holders thereof, and (ii) the Tax-exempt Obligations will not be treated as "specified private activity bonds" the interest on which would be included as an alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Code"). Except as stated above, Bond Counsel to the Issuer will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Tax-exempt Obligations. See Appendix C - Form of Bond Counsel’s Opinions. In rendering its opinion, Bond Counsel to the Issuer will rely upon (a) certain information and representations of the Issuer, including information and representations contained in the Issuer's federal tax certificate, and (b) covenants of the Issuer contained in the Tax-exempt Obligation documents relating to certain matters, including arbitrage and the use of the proceeds of the Tax-exempt Obligations and the property financed or refinanced therewith. Failure by the Issuer to observe the aforementioned representations or covenants could cause the interest on the Tax-exempt Obligations to become taxable retroactively to the date of issuance. The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied subsequent to the issuance of the Tax-exempt Obligations in order for interest on the Tax-exempt Obligations to be, and to remain, excludable from gross income for federal income tax purposes. Failure to comply with such requirements may cause interest on the Tax-exempt Obligations to be included in gross income retroactively to the date of issuance of the Tax-exempt Obligations. The opinion of Bond Counsel to the Issuer is conditioned on compliance by the Issuer with such requirements, and Bond Counsel to the Issuer has not been retained to monitor compliance with these requirements subsequent to the issuance of the Tax-exempt Obligations. Bond Counsel's opinion represents its legal judgment based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. Bond Counsel's opinion is not a guarantee of a result. Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Tax-exempt Obligations. A ruling was not sought from the Internal Revenue Service by the Issuer with respect to the Tax-exempt Obligations or the property financed or refinanced with proceeds of the Tax-exempt Obligations. No assurances can be given as to whether the Internal Revenue Service will commence an audit of the Tax-exempt Obligations, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an Internal Revenue Service audit is commenced, under current procedures the Internal Revenue Service is likely to treat the Issuer as the taxpayer and the Tax-exempt Obligationholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. FEDERAL INCOME TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT . . . The initial public offering price to be paid for one or more maturities of the Tax-exempt Obligations may be less than the principal amount thereof or one or more periods for the payment of interest on the Tax-exempt Obligations may not be equal to the accrual period or be in excess of one year (the "Original Issue Discount Tax-exempt Obligation"). In such event, the difference between (i) the "stated redemption price at maturity" of each Original Issue Discount Tax-exempt Obligation, and (ii) the initial offering price to the public of such Original Issue Discount Tax-exempt Obligation would constitute original issue discount. The "stated redemption price at maturity" means the sum of all payments to be made on the Tax-exempt Obligations less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods which do not exceed one year. Under existing law, any owner who has purchased such Original Issue Discount Tax-exempt Obligation in the initial public offering is entitled to exclude from gross income (as defined in section 61 of the Code) an amount of income with respect to such Original Issue Discount Tax-exempt Obligation equal to that portion of the amount of such original issue discount allocable to the accrual period. For a discussion of certain collateral federal tax consequences, see discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Tax-exempt Obligation prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Tax-exempt Obligation in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Tax-exempt Obligation was held by such initial owner) is includable in gross income. Under existing law, the original issue discount on each Original Issue Discount Tax-exempt Obligation is accrued daily to the stated maturity thereof (in amounts calculated as described below for each accrual period and ratably within each such accrual period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Tax-exempt Obligation for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof.

26

The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Original Issue Discount Tax-exempt Obligation. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Tax-exempt Obligations which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Tax-exempt Obligations should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Tax-exempt Obligations and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Tax-exempt Obligations. COLLATERAL FEDERAL INCOME TAX CONSEQUENCES . . . The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Tax-exempt Obligations. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with accumulated earnings and profits and excess passive investment income, foreign corporations subject to the branch profits tax and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt Tax-exempt Obligations. THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF TAX-EXEMPT TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE TAX-EXEMPT OBLIGATIONS. Interest on the Tax-exempt Obligations will be includable as an adjustment for "adjusted current earnings" to calculate the alternative minimum tax imposed on corporations by section 55 of the Code. Under section 6012 of the Code, holders of tax-exempt Tax-exempt Obligations, such as the Tax-exempt Obligations, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax-exempt Tax-exempt Obligation, such as the Tax-exempt Obligations, if such Tax-exempt Obligation was acquired at a "market discount" and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to "market discount bonds" to the extent such gain does not exceed the accrued market discount of such bonds; although for this purpose, a de minimis amount of market discount is ignored. A "market discount bond" is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the "revised issue price" (i.e., the issue price plus accrued original issue discount). The "accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. STATE, LOCAL AND FOREIGN TAXES . . . Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Tax-exempt Obligations under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE 2012B CERTIFICATES

THE FOLLOWING DISCUSSION, WHICH WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE SALE OF THE 2012B CERTIFICATES, IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY ANY TAXPAYER, TO AVOID PENALTIES THAT MIGHT BE IMPOSED ON THE TAXPAYER IN CONNECTION WITH THE MATTERS DISCUSSED THEREIN.

General. The following discussion is a summary of certain expected material federal income tax consequences of the purchase, ownership and disposition of the 2012B Certificates and is based on the the Code, the regulations promulgated thereunder, published rulings and pronouncements of the IRS and court decisions currently in effect. There can be no assurance that the IRS will not take a contrary view, and no ruling from the IRS, has been, or is expected to be, sought on the issues discussed herein. Any subsequent changes or interpretations may apply retroactively and could affect the opinion and summary of federal income tax consequences discussed herein.

27

The following discussion is not a complete analysis or description of all potential U.S. federal tax considerations that may be relevant to, or of the actual tax effect that any of the matters described herein will have on, particular holders of the 2012B Certificates and does not address U.S. federal gift or estate tax or the alternative minimum tax, state, local or other tax consequences. This summary does not address special classes of taxpayers (such as partnerships, or other pass-thru entities treated as a partnerships for U.S. federal income tax purposes, S corporations, mutual funds, insurance companies, financial institutions, small business investment companies, regulated investment companies, real estate investment trusts, grantor trusts, former citizens of the U.S., broker-dealers, traders in securities and tax-exempt organizations, taxpayers who may be subject to or personal holding company provisions of the Code) that are subject to special treatment under U.S. federal income tax laws, or persons that hold 2012B Certificates as a hedge against, or that are hedged against, currency risk or that are part of hedge, straddle, conversion or other integrated transaction, or persons whose functional currency is not the U.S. dollar". This summary is further limited to investors who will hold the 2012B Certificates as “capital assets” (generally, property held for investment) within the meaning of Section 1221 of the Code.

As used herein, the term “U.S. Holder” means a beneficial owner of a 2012B Certificate who or which is: (i) an individual citizen or resident of the United States, (ii) a corporation or partnership created or organized under the laws of the United States or any political subdivision thereof or therein, (iii) an estate, the income of which is subject to U.S. federal income tax regardless of the source; or (iv) a trust, if (a) a court within the U.S. is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust validly elects to be treated as a U.S. person for U.S. federal income tax purposes. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a 2012B Certificate that is not a U.S. Holder.

THIS SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND DOES NOT DISCUSS ALL ASPECTS OF THE U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF 2012B CERTIFICATES IN LIGHT OF THE HOLDER’S PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. PROSPECTIVE HOLDERS OF THE 2012B CERTIFICATES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE 2012B CERTIFICATES BEFORE DETERMINING WHETHER TO PURCHASE 2012B CERTIFICATES.

INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX IMPLICATIONS OF THE PURCHASE, OWNERSHIP OR DISPOSITION OF THE 2012B CERTIFICATES UNDER APPLICABLE STATE OR LOCAL LAWS, OR ANY OTHER TAX CONSEQUENCE. FOREIGN INVESTORS SHOULD ALSO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES UNIQUE TO NON-U.S. HOLDERS.

Certain U.S. Federal Income Tax Consequences to U.S. Holders

Periodic Interest Payments and Original Issue Discount. The 2012B Certificates are not obligations described in Section 103(a) of the Code. Accordingly, the stated interest paid on the 2012B Certificates or original issue discount, if any, accruing on the 2012B Certificates will be includable in “gross income” within the meaning of Section 61 of the Code of each owner thereof and be subject to federal income taxation when received or accrued, depending upon the tax accounting method applicable to such owner.

Disposition of 2012B Certificates. An owner will recognize gain or loss on the redemption, sale, exchange or other disposition of a 2012B Certificate equal to the difference between the redemption or sale price (exclusive of any amount paid for accrued interest) and the owner's tax basis in the 2012B Certificates. Generally, a U.S. Holder's tax basis in the 2012B Certificates will be the owner's initial cost, increased by income reported by such U.S. Holder, including original issue discount and market discount income, and reduced, but not below zero, by any amortized premium. Any gain or loss generally will be a capital gain or loss and either will be long-term or short-term depending on whether the 2012B Certificates has been held for more than one year.

Defeasance of the 2012B Certificates. Defeasance of any 2012B Certificate may result in a reissuance thereof, for U.S. federal income tax purposes, in which event a U.S. Holder will recognize taxable gain or loss as described above.

Certain U.S. Federal Income Tax Consequences to Non-U.S. Holders.

A Non-U.S. Holder that is not subject to U.S. federal income tax as a result of any direct or indirect connection to the U.S. in addition to its ownership of a 2012B Certificate, will not be subject to U.S. federal income or withholding tax in respect of a 2012B Certificate, provided that such Non-U.S. Holder complies, to the extent necessary, with identification requirements including delivery of a signed statement under penalties of perjury, certifying that such Non-U.S. Holder is not a U.S. person and providing the name and address of such Non-U.S. Holder. Absent such exemption, payments of interest, including any amounts paid or accrued in respect of accrued original issue discount, may be subject to withholding taxes, subject to reduction under any applicable tax treaty. Non-U.S. Holders are urged to consult their own tax advisors regarding the ownership, sale or other disposition of a 2012B Certificate.

The foregoing rules will not apply to exempt a U.S. shareholder of a controlled foreign corporation from taxation on the U.S. shareholder's allocable portion of the interest income received by the controlled foreign corporation.

28

Information Reporting and Backup Withholding.

Subject to certain exceptions, information reports describing interest income, including original issue discount, with respect to the 2012B Certificates will be sent to each registered holder and to the IRS. Payments of interest and principal may be subject to backup withholding under Section 3406 of the Code if a recipient of the payments fails to furnish to the payor such owner's social security number or other taxpayer identification number (“TIN”), furnishes an incorrect TIN, or otherwise fails to establish an exemption from the backup withholding tax. Any amounts so withheld would be allowed as a credit against the recipient’s federal income tax. Special rules apply to partnerships, estates and trusts, and in certain circumstances, and in respect of Non-U.S. Holders, certifications as to foreign status and other matters may be required to be provided by partners and beneficiaries thereof. State, Local and Other Tax Consequences. Investors should consult their own tax advisors concerning the tax implications of holding and disposing of the 2012B Certificates under applicable state or local laws, or any other tax consequence, including the application of gift and estate taxes.

OTHER RELEVANT INFORMATION RATINGS The Obligations and the presently outstanding tax supported debt of the City has an underlying rating of “Aa2” by Moody's Investors Service, Inc. (“Moody’s”), “AA” by Standard & Poor's Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), and “AA” by Fitch Ratings (“Fitch”). The City also has several series of obligations outstanding with enhanced ratings from various municipal bond insurance companies. An explanation of the significance of any rating may be obtained from the company furnishing the rating. Any rating reflects only the view of the rating organization and the City makes no representation as to the appropriateness of any rating. There is no assurance that any rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by such rating organization, if in the judgment of such organization, circumstances so warrant. Any such downward revision or withdrawal of any rating may have an adverse effect on the market price of the Obligations. LITIGATION It is the opinion of the City Attorney that there is no pending litigation against the City that would have a material adverse financial impact upon the City or its operations. REGISTRATION AND QUALIFICATION OF OBLIGATIONS FOR SALE The sale of the Obligations has not been registered under the federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a); and the Obligations have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Obligations been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Obligations under the securities laws of any jurisdiction in which the Obligations may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Obligations will not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Obligations are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State. In addition, various provisions of the Texas Finance Code provide that, subject to a prudence standard, the Obligations are legal investments for state banks, savings banks, trust companies with at least $1 million of capital, and savings and loan associations. In accordance with the Public Funds Investment Act, Chapter 2256, Texas Government Code, the Obligations must be rated at least “A” or its equivalent as to investment quality by a national rating agency in order for most municipalities or other political subdivisions or public agencies of the State to invest in the Obligations, except for purchases for interest and sinking funds of such entities. See “OTHER RELEVANT INFORMATION – Ratings” herein. Moreover, municipalities or other political subdivisions or public agencies of the State that have adopted investment policies and guidelines in accordance with the Public Funds Investment Act may have other, more stringent requirements for purchasing securities, including the Obligations. The Obligations are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. The City has made no investigation of other laws, rules, regulations or investment criteria which might apply to such institutions or entities or which might limit the suitability of the Obligations for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Obligations for such purposes. The City has made no review of laws in other states to determine whether the Obligations are legal investments for various institutions in those states.

29

LEGAL OPINIONS AND NO-LITIGATION CERTIFICATE The City will furnish the Underwriters with a complete transcript of proceedings incident to the authorization and issuance of the Obligations, including the unqualified approving legal opinions of the Attorney General of the State to the effect that the Obligations are valid and legally binding obligations of the City, and based upon examination of such transcript of proceedings, the approval of certain legal matters by Bond Counsel, to the effect that the Obligations are valid and legally binding obligations of the City and subject to the qualifications set forth herein under “TAX MATTERS”, the interest on the 2012A Certificates and the Contractual Obligations is excludable from the gross income of the owners thereof for federal income tax purposes under existing statutes, regulations, published rulings, and court decisions existing on the date thereof. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Obligations, or which would affect the provision made for their payment or security, or in any manner questioning the validity of the Obligations will also be furnished. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Obligations in the Official Statement under the captions “PLAN OF FINANCING”, “THE OBLIGATIONS” (except “Sources and Uses of Funds”, “Default and Remedies”, and “Book-Entry-Only System”), “TAX MATTERS RELATING TO THE 2012A CERTIFICATES AND CONTRACTUAL OBLIGATIONS”, CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE 2012B CERTIFICATES “OTHER RELEVANT INFORMATION – Continuing Disclosure of Information” (except information under the subcaption “Compliance with Prior Undertakings”), and “OTHER RELEVANT INFORMATION – Registration and Qualification of Obligations for Sale,” “-Legal Investments and Eligibility to Secure Public Funds in Texas,” “-Legal Opinions and No-Litigation Certificate” and such firm is of the opinion that the information relating to the Obligations and the legal issues contained under such captions and subcaptions is an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Obligations, such information conforms to the Ordinance. Such firm has not, however, independently verified any of the factual information contained in this Official Statement nor has it conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon such firm’s limited participation as an assumption of responsibility for, or an expression of opinion of any kind with regard to the accuracy or completeness of any of the information contained herein. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Obligations are contingent on the sale and delivery of the Obligations. The legal opinion of Bond Counsel relating to the Obligations will be printed on, or will accompany the definitive Obligations and the forms of such opinions are attached hereto as Appendix C. Escamilla, Poneck & Cruz, LLP, Laredo, Texas will pass on certain matters for the Underwriters. The various legal opinions to be delivered concurrently with the delivery of the Obligations express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise from the transaction. AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION The financial data and other information contained herein have been obtained from the City's records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes and documents contained in this Official Statement are made subject to all of the provisions of such statues, documents and ordinances. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. CONTINUING DISCLOSURE OF INFORMATION The City in the Ordinance has made the following agreement for the benefit of the holders and beneficial owners of the Obligations. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Obligations. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified events, to the Municipal Securities Rulemaking Board (“MSRB”). This information will be available to the public at no charge via the MSRB’s Electronic Municipal Market Access (“EMMA”) system at www.emma.msrb.org as described below under “Availability of Information from MSRB”. ANNUAL REPORTS . . . Under Texas law, including, but not limited to, Chapter 103, as amended, Texas Local Government Code, the City must keep its fiscal records in accordance with generally accepted accounting principles, must have its financial accounts and records audited by a certified public accountant and must file each audit report within 120 days after the close of the Issuer's fiscal year. The City's fiscal records and audit reports are available for public inspection during the regular business hours, and the Issuer is required to provide a copy of the Issuer's audit reports to any obligationholder or other member of the public within a reasonable time on request upon payment of charges prescribed by the Texas General Services Commission.

30

The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in Tables 1 through 5 and 7 through 13 in this Official Statement and in Appendix B to this Official Statement. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2012. The City will provide the updated information to the MSRB. The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12. The updated information will include audited financial statements for the City, if the City commissions an audit and it is completed by the required time. If audited financial statements are not provided by that time, the City will provide unaudited financial statements for the applicable fiscal year to the MSRB, with the financial information and operating data and will file the annual audit report when and if the same becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in the City's annual financial statements or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by the end of March in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. NOTICE OF OCCURRENCE OF CERTAIN EVENTS, WHETHER OR NOT MATERIAL . . . The City will notify the MSRB through EMMA (in an electronic format as prescribed by the MSRB) within ten business days following the occurrence of any of the following events with respect to the Obligations, without regard to whether such event is material within the meaning of the federal securities laws: (1) principal and interest payment delinquencies; (2) unscheduled draws on debt service reserves reflecting financial difficulties; (3) unscheduled draws on credit enhancements reflecting financial difficulties; (4) substitution of credit or liquidity providers, or their failure to perform; (5) adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax-exempt status of the 2012A Certificates or the Contractual Obligations, or other events affecting the tax-exempt status of the 2012A Certificates or the Contractual Obligations; (6) tender offers; (7) defeasances; (8) rating changes; and (9) bankruptcy, insolvency, receivership or similar event of an obligated person. NOTICE OF OCCURRENCE OF CERTAIN EVENTS, IF MATERIAL . . . The City also will notify the MSRB through EMMA (in an electronic format as prescribed by the MSRB) within ten business days following the occurrence of any of the following events with respect to the Obligations, if such event is material within the meaning of the federal securities laws: (1) non-payment related defaults; (2) modifications to rights of Obligationholders; (3) 2012B Certificate Calls; (4) release, substitution, or sale of property securing repayment of the Obligations; (5) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and (6) appointment of a successor or additional trustee or the change of name of a trustee. NOTICE OF FAILURE TO TIMELY FILE . . . The City also will notify the MSRB through EMMA, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with the provisions described above. AVAILABILITY OF INFORMATION FROM MSRB . . . Effective July 1, 2009 (the "EMMA Effective Date"), the SEC implemented amendments to the Rule which approved the establishment by the MSRB of EMMA, which is now the sole successor to the national municipal securities information repositories with respect to filings made in connection with undertakings made under the Rule after the EMMA Effective Date. Commencing with the EMMA Effective Date, all information and documentation filing required to be made by the City in accordance with its undertaking made for the Obligations will be made with the MSRB in electronic format in accordance with MSRB guidelines. Access to such filings will be provided, without charge to the general public, by the MSRB. With respect to debt of the City issued prior to the EMMA Effective Date, the City remains obligated to make annual required filings, as well as notices of material events, under its continuing disclosure obligations relating to those debt obligations (which includes a continuing obligation to make such filings with the Texas state information repository (the “SID”)). Prior to the EMMA Effective Date, the Municipal Advisory Council of Texas (the “MAC”) had been designated by the State and approved by the SEC staff as a qualified SID. Subsequent to the EMMA Effective Date, the MAC has entered into a Subscription Agreement with the MSRB pursuant to which the MSRB makes available to the MAC, in electronic format, all Texas-issuer continuing disclosure documents and related information posted to EMMA’s website simultaneously with such posting. Until the City receives notice of a change in this contractual agreement between the MAC and EMMA or of a failure of either party to perform as specified thereunder, the City has determined, in reliance on guidance from the MAC, that making its continuing disclosure filings solely with the MSRB will satisfy its obligations to make filings with the SID pursuant to its continuing disclosure agreements entered into prior to the EMMA Effective Date.

31

LIMITATIONS AND AMENDMENTS . . . The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Obligations at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders or beneficial owners of Obligations may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if the agreement, as amended, would have permitted Underwriters to purchase or sell Obligations in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and either the holders of a majority in aggregate principal amount of the outstanding Obligations consent or any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the beneficial owners of the Obligations. The City may also repeal or amend these provisions if the SEC amends or repeals the applicable provisions of the Rule or any court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the applicable provisions of the Ordinance in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Obligations in the primary offering of the Obligations giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. If the City amends 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 the amendment and of the impact of any change in the type of information and data provided. COMPLIANCE WITH PRIOR UNDERTAKINGS . . . During the past five years, the City has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule. FINANCIAL ADVISOR Estrada Hinojosa & Company, Inc. is employed as Financial Advisor to the City in connection with the issuance of the Obligations. The Financial Advisor's fee for services rendered with respect to the sale of the Obligations is contingent upon the issuance and delivery of the Obligations. Estrada Hinojosa & Company, Inc., in its capacity as Financial Advisor, has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Obligations, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies, and has relied on the opinion of Bond Counsel for federal income tax status of the Obligations. UNDERWRITING The Underwriters named on the cover page hereof have agreed, subject to certain conditions, to purchase the 2012A Certificates from the City, at a discount of $55,602.42 from the respective initial offering prices of the 2012A Certificates. The Underwriters will be obligated to purchase all of the 2012A Certificates if any 2012A Certificates are purchased. The 2012A Certificates to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing 2012A Certificates into investment trusts) at prices lower than the public offering prices of such 2012A Certificates and such public offering prices may be changed, from time to time, by the Underwriters. The Underwriters named on the cover page hereof have agreed, subject to certain conditions, to purchase the 2012B Certificates from the City, at a discount of $30,859.25 from the respective initial offering prices of the 2012B Certificates. The Underwriters will be obligated to purchase all of the 2012B Certificates if any 2012B Certificates are purchased. The 2012B Certificates to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing 2012B Certificates into investment trusts) at prices lower than the public offering prices of such 2012B Certificates and such public offering prices may be changed, from time to time, by the Underwriters. The Underwriters named on the cover page hereof have agreed, subject to certain conditions, to purchase the Contractual Obligations from the City, at a discount of $22,955.96 from the respective initial offering prices of the Contractual Obligations. The Underwriters will be obligated to purchase all of the Contractual Obligations if any Contractual Obligations are purchased. The Contractual Obligations to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Contractual Obligations into investment trusts) at prices lower than the public offering prices of such Contractual Obligations and such public offering prices may be changed, from time to time, by the Underwriters. Wells Fargo Securities is the trade name for certain capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association (“WFBNA”). WFBNA, one of the Underwriters of the Obligations, has entered into an agreement (the "Distribution Agreement") with Wells Fargo Advisors, LLC ("WFA") for the retail distribution of certain municipal securities offerings, including the Obligations. Pursuant to the Distribution Agreement, WFBNA will share a portion of its underwriting compensation with respect to the Obligations with WFA. WFBNA and WFA are both subsidiaries of Wells Fargo & Company.

32

FORWARD-LOOKING STATEMENTS DISCLAIMER The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City's actual results could differ materially from those discussed in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties 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 conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, 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 market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. AUTHORIZATION OF THE OFFICIAL STATEMENT The Official Statement will be approved as to form and content and the use thereof in the offering of the Obligations will be authorized, ratified and approved by the City Council on the date of sale, and the Underwriters will be furnished, upon request, at the time of payment for and the delivery of the Obligations, a certified copy of such approval, duly executed by the proper officials of the City. This Official Statement has been approved by the City Council of the City for distribution in accordance with the provisions of the Securities and Exchange Commission's rule codified at 17 C.F.R. Section 240.15c2-12.

/s/ Raul G. Salinas Mayor

City of Laredo, Texas

ATTEST: /s/ Gustavo Guevara, Jr. City Secretary

City of Laredo, Texas

APPENDIX A

GENERAL INFORMATION REGARDING THE CITY

(THIS PAGE LEFT BLANK INTENTIONALLY)

A-1

THE CITY LOCATION/HISTORY The City of Laredo, Texas (the “City” or “Laredo”) is situated by the banks of the Rio Grande, about midway between San Antonio, Texas, and Monterrey, Mexico. The river forms the international boundary between the United States and Mexico and separates Laredo, Texas from its sister-city Nuevo Laredo, Mexico. "Los Dos Laredos" actually constitutes one metropolitan center, as pedestrians and vehicles pass freely from one city to the other over the toll bridge facilities of the Laredo Bridge System with minimal inconvenience at the U.S. and Mexican customs and immigration inspection stations. The distance separating the central shopping districts of the two cities is only one-half mile. The U.S. census reported Laredo's population in 2000 at 176,576, and in 2010 at 233,152. The City has a current estimated 2012 population of 237,800. Approximately 92% of all inhabitants of the 3,363 square miles comprising Webb County, Texas (designated as the Laredo Metropolitan Statistical Area) reside in the City. With the population of Nuevo Laredo now estimated to have reached over 300,000, Los Dos Laredos have over 450,000 inhabitants. Laredo is the southern terminus of U.S. Interstate 35, which originates at the Canadian border and serves such metropolitan centers as Minneapolis-St. Paul, Des Moines, Kansas City, Oklahoma City, Dallas-Fort Worth and San Antonio. U.S. Highway 59, which crosses Texas in a direct line from Texarkana through Houston, also ends at Laredo; U.S. Highway 83, extending from Brownsville, at the southmost tip of Texas to Canada via the Texas Panhandle and midwestern plains states, passes through the City. At Laredo, these arterial highways join the Pan American Highway, extending south to Central and South America. ECONOMY The economy of Laredo is based on import/export trade, retail trade, tourism, mineral production and some agriculture. Laredo is one of the 23 Ports of Entry into Mexico, and one of eleven Ports of Entry in U.S. Customs District No. 23. The other Ports of Entry in District No. 23 include Brownsville, Los Indios, Progreso, Pharr, Hidalgo, Rio Grande City, Roma, Eagle Pass, Del Rio and San Antonio, all of which are in Texas. Customs officials estimate that the Port of Laredo accounts for approximately 40% of all imports and 50% of all exports within Customs District No. 23. Being an inland port, the City is a major center for international trade. Laredo, via the Pan American Highway, is the corridor by which traffic and freight going to and from Latin America enters and leaves the United States. With the increase in the number of "maquiladoras" or twin plants, the City is moving towards diversifying its economy. International trade with Mexico is increasing at a steady pace. As a result of the plant expansion along the Laredo/Nuevo Laredo border, the City has experienced a significant increase in the number of jobs in the areas of freight handling, warehousing, trucking, wholesale operations, and management. It is indirectly benefiting from this expansion by the compounding effect that a growing economy provides. The amount of the wholesale business that is transacted in Laredo is not measured by the municipal sales tax receipts. Most of the businesses in the downtown area are both wholesalers and retailers, with the majority of their business being wholesale trade. Common items that are sold in large volumes are electrical supplies, dental and medical supplies, office materials, fine perfumes, and clothing. Mexico's border industrialization program has affected development on both sides of the river. Under this program, the Mexican Government offers import duty exemptions and other inducements to foreign-owned companies locating in Mexico. American equipment can be imported duty-free and American citizens can cross the border to work in the plants; however, the products of these operations must be sold in the United States. The program has produced the "Twin Plant Concept" of manufacturing, whereunder the assembly function of the production work is carried on in facilities located in Nuevo Laredo, where abundant semi-skilled labor is available, and the finishing operations are conducted in Laredo. Among the twin-plants operating in Los Dos Laredos are several concerns engaged in the manufacture of transistors, television tuners and other electronic components.

A-2

MAJOR EMPLOYERS Major employers within the City include the following as of September 30, 2011:

Type of Number ofName Business Employees

United Independent School District Education 6,179 Laredo Independent School District Education 4,500 City of Laredo Government Entity 2,371 U.S. Border Patrol Government Entity 2,000 H. E. B. Grocery Grocery Chain 1,626 Webb County Government Entity 1,500 Laredo Medical Center Medical Services 1,300 Texas A & M International University Education 1,215 McDonalds Restaurants Food Services 1,200 Wal-Mart Retail 937

_____ Source: City of Laredo Audited Financial Statement. HISTORICAL EMPLOYMENT DATA(1)

June June June June2012 2011 2010 2009

Civilian Labor Force 99,416 95,580 92,318 89,854Total Employed 91,916 87,332 84,301 81,788Total Unemployed 7,500 8,248 8,017 8,066 % Unemployed 7.5% 8.6% 8.7% 9.0%% Unemployed Texas 7.6% 8.6% 8.4% 8.1%

___________ (1) Source: Texas Workforce Commission. TRANSPORTATION In addition to the excellent highways serving the City, Laredo is served by the Union Pacific and Texas-Mexican Railroads. From Nuevo Laredo, travel to Mexico City and other points south of the border is available via Aztec Eagle, a deluxe passenger train operated daily by the National Railways of Mexico. Bus transportation in the Laredo area is furnished by Greyhound Trailways Bus Lines and Valley Transit. Transportes Del Norte and other Mexican bus lines operate in and out of Laredo and Nuevo Laredo. An inter-city bus system serves Los Dos Laredos and the City's transportation company provides service in Laredo. The City completed a $12 million Mass Transit Center in 1997 which serves as a bus terminal to bus companies which currently serve the region and both Mexico and the United States. The City owns and operates the Laredo International Municipal Airport, and is currently served by Continental Airlines and American Airlines. Cargo service is provided by Emery, Burlington, AeroPak, Air Cargo Carriers, and Barron. EDUCATION There are 46 elementary schools, 12 middle schools, seven senior high schools, eight magnet schools, and three alternative schools in the public school systems serving Laredo. There are also seven parochial and 14 non-parochial private schools. In 2010 there were 65,900 students in the Laredo’s public school systems. Laredo Community College District, located in the City, was founded in 1947 and originally quartered in abandoned buildings of Fort McIntosh, which was acquired from the U.S. government. The college and its growing campus has ten new buildings all completed since 1967. The college has full accreditation by the Southern Association of Colleges and Secondary Schools, the Association of Texas Colleges and the Texas Education Agency. The school offers the first two college years of pre-professional courses in engineering, education, medicine, dentistry, nursing, law, business administration and computer science leading to an Associate in Arts diploma, transferable to a senior institution. Texas A&M International University, formerly Laredo State University, has constructed a 200-acre campus in north Laredo. The initial construction plans are for $70 million of capital improvements. Construction is in four phases. Phase One was completed in the fall of 1995. Phase Two was completed in the spring of 1997. Prior to that it was a division of Texas A&I University which began an extension program in 1970. The University offers junior and senior level work in the fields of business administration, arts and science, teacher education and psychology.

A-3

UTILITIES Electric power is supplied by American Electric Power Company (“AEP”). One of AEP’s generating plants, a 171,000 KVA facility, is located in Laredo. Natural gas is supplied to Laredo users by Entex, Inc. and Proviron Inc. Telephone service is provided by AT&T. HEALTH FACILITIES Laredo Medical Center, formerly known as Mercy Health Center, was founded in 1894 by the Sisters of Mercy, a group of Catholic nuns. In 2003, Mercy Health Center was sold to Community Health Systems based in Brentwood, Tennessee. The hospital now occupies a modern 326 license bed facility. Hospital staff exceeds 1,950. The current facility opened in 1999 at an estimated cost of $140 million. Laredo Medical Center also operates an ambulatory care center and physician office building in north Laredo. Doctors Hospital was established by a group of doctors and dentists in 1974. Its present location is situated on 58 acres in the newest and most rapidly developing section of Laredo. The facility is a 180 license bed and features comprehensive inpatient and outpatient services, a Women’s Center, Sleep Center and a Regional Cancer Treatment Center that offers comprehensive cancer services. Hospital is staff by over 525 employees and an active medical staff of 164. The hospital is owned and operated by Universal Health Service, Inc. TOURISM Tourism is a service business that is basic in Laredo's economy. The City is a popular site for conventions, sales meetings and other gatherings, and thousands of visitors are attracted to the City every year by such activities. Many other visitors come from points elsewhere in Texas and other states, and from Canada, for brief vacations and visits to Nuevo Laredo. Laredo is the leading point of entry from American and Canadian tourists traveling to the interior of Mexico. RECREATIONAL FACILITIES Hunting and fishing are good in the Laredo area. Lake Casa Blanca, a 1,500-acre lake built by Webb County on the outskirts of Laredo, provides diversified recreational opportunities. The lake yields black bass, catfish and other varieties of fish and is used for boating and water skiing. The adjacent park area provides a large swimming pool, picnic and game areas and an 18-hole public golf course and club house. Falcon Lake, covering 86,905 acres, is located on the Rio Grande about 50 miles down-stream from Laredo. It also affords excellent fishing. Falcon State Park adjoins the lake. Many ranches in the Laredo area provide excellent deer hunting, and leasing land for hunting is a common practice and provides additional income to many ranchers. Quarter horse race meets are held several times each year at the LIFE Downs track located at the Laredo International Fair and Exposition grounds near Lake Casa Blanca. Many thoroughbred horse owners and trainers stable their horses at LIFE Downs during winter months, where permanent stables can accommodate over 300 animals. The annual Laredo International Fair and Exposition attracts visitors from all parts of Texas and Mexico. Other events that attract visitors are the Washington's Birthday Celebration which has been held nearly every year since 1897 and the annual Border Olympics Track Meet and Golf Tournament, which was started in 1933, in which athletes from universities, colleges and high schools throughout Texas, New Mexico, Oklahoma, and Arkansas, as well as the Republic of Mexico, compete. GROWTH INDICES(1)

Fiscal YearEnded Bank Building9/30 Electric Gas Water Sewer Deposits Permits2002 63,946 23,543 49,158 47,041 6,390,861,000 306,699,591 2003 66,504 23,717 50,997 48,715 6,671,288,000 199,818,955 2004 69,164 23,414 52,754 50,282 9,050,235,000 276,942,142 2005 72,604 27,617 55,252 52,565 9,080,074,000 376,368,536 2006 70,083 31,733 57,489 54,568 9,871,067,000 388,339,445 2007 72,624 32,123 59,409 56,065 10,830,093,000 378,575,951 2008 78,080 33,054 60,519 57,851 7,606,202,000 284,940,087 2009 75,042 33,702 61,171 57,903 7,592,090,000 148,073,814 2010 75,497 28,862 62,195 58,726 8,183,979,000 166,847,822 2011 77,141 28,942 63,703 59,955 8,478,675,000 203,252,031

Connections

________________ (1) Source: Finance Departments of respective entities.

A-4

THE WATERWORKS AND SEWER SYSTEM

THE WATERWORKS SYSTEM AND WATER SUPPLY The City uses surface water from the Rio Grande for its source of supply for raw water. Water is diverted directly from the river and to the immediately adjacent water treatment plant facilities by two separate river intakes and two separate river pump structures and related multiple pump units. The City water allotment is approximately 54,526 acre feet of municipal water rights. The first “modern” design rapid sand filter plant for the City was constructed in the years 1928-1929. The original plant constructed on a land elevation of 400 feet had periodically been shut down due to high flood waters of the river. Due to this flooding experience, it was decided by the City Council to purchase sufficient land immediately east of the original plant site for location of the new plant. The acquired land has an elevation of 420 feet, which is above any historically recorded flood level of the Rio Grande at this location. This second plant has a capacity of one million gallons per day. The combined pumpage capacity of the City’s Upper and Lower Treatment Plants is 65 million gallons per day. The average daily demand during 2011 was approximately 32.4 million gallons per day and peak demand for 2011 was 44.7 million gallons per day. Connections to the water system as of September 30, 2011 were 62,195. WATER STORAGE AND DISTRIBUTION At the present time the system incorporates the following treated water storage facilities:

No. No.Location Tanks Clearwells

"Old" Water Treatment Plant --- 1 1,000,000 gallons"New" Water Treatment Plant --- 1 2,500,000 gallonsHendricks Avenue and Main Street 2 --- 4,000,000 gallonsLyon Street and Meadow Avenue 2 --- 11,000,000 gallonsTexas Street and Milmo 2 --- 3,000,000 gallonsAirbase Storage 1 (elevated) --- 500,000 gallonsStation H (#2) 1 --- 170,000 gallonsEast Corridor 1 --- 250,000 gallonsLarga Vista 1 --- 33,000 gallonsUnitec Highway 35 North 2 --- 170,000 gallonsSouth Laredo 1 (elevated) --- 1,000,000 gallonsNorth Laredo (Highland) 1 (elevated) --- 1,000,000 gallonsNorthwest Laredo 1 (elevated) --- 1,000,000 gallonsMHOC 2 --- 10,000,000 gallonsSierra Vista 1 --- 5,000,000 gallonsUnion Pacific 1 --- 88,000 gallonsHachar 1 --- 280,000 gallonsSan Isidro 2 --- 590,000 gallonsSan Isidro NE 1 --- 311,000 gallonsMillenium 1 --- 280,000 gallonsHwy 359 1 --- 211,000 gallonsLas Blancas 1 (elevated) --- 500,000 gallonsPico Road 1 --- 278,000 gallonsTAMIU Tank 1 (elevated) --- 2,000,000 gallonsCuatro Vientos 1 (elevated) --- 2,000,000 gallonsNixon 3,000,000 gallons Total Treated Water Storage 50,161,000 gallons

Storage Capacity

In conjunction with the existing storage, automatic booster or pumping stations serve the system. These stations are located at the tanks listed above. Two pumping stations are served by two clearwells. Currently, the system consists of approximately 708 miles of transmission and distribution lines.

A-5

In 1957, the City entered into an agreement with Webb County to use Lake Casa Blanca Reservoir as an off-channel storage for emergency use. This reservoir has an impoundment capacity of 77,800 acre feet at top of the dam, 58,600 acre feet at maximum pool, (PMF – Probable Maximum Feet) of which 20,000 acre feet are reserved for emergency use. This agreement is still in effect. WATER USAGE (GALLONS) Historical water usage for the City is as follows:

Fiscal Year Ended 9/30

Average Day Usage (000 Gallons)

Peak Day Usage (000 Gallons)

Total Usage (000 Gallons)

2002 37,254 61,120 13,654,310 2003 31,288 59,754 11,420,232 2004 32,231 50,231 11,764,315 2005 34,675 55,034 12,820,865 2006 40,918 58,940 14,086,761 2007 33,550 49,000 12,245,329 2008 36,720 53,640 13,345,812 2009 35,900 51,810 13,047,594 2010 32,565 47,470 11,900,196 2011 32,600 39,764 11,726,000

TEN LARGEST WATER USERS (GALLONS)

2011 WaterUser Consumption

Laredo Medical Center 142,255,100 Texas A&M International University 81,455,400 Laredo Community College 43,159,500 United High School 32,806,200 Laredo Municipal Housing Corp. 31,427,500 New Webb County Jail 22,542,900 Laredo Regional Medical Center 21,576,900 La Bota Ranch Owner Association 16,452,500 Towne North Mobil Homes 14,606,300 Winfield Community Association 12,434,200

418,716,500

MONTHLY WATER RATES (Effective October 1, 2011) Inside City Limits Residential Monthly minimum, including use of 2,000 gallons per month........................................................................ $8.20 Per 1,000 gallons (for the next 2,000 gallons) per month in excess of 2,000 gallons per month..................... $1.60 Per 1,000 gallons (for the next 6,000 gallons) per month in excess of 4,000 gallons per month..................... $1.71 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 10,000 gallons per month................. $1.78 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 20,000 gallons per month................. $1.90 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 30,000 gallons per month................. $2.00 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 40,000 gallons per month................ $2.10 Per 1,000 gallons per month in excess of 50,000 gallons per month............................................................... $4.19

A-6

Multi-Family and Commercial: Monthly minimum, including use of 2,000 gallons per month...................................................................... $30.99 Per 1,000 gallons (for the next 2,000 gallons) per month in excess of 2,000 gallons per month.................... $1.71 Per 1,000 gallons (for the next 6,000 gallons) per month in excess of 4,000 gallons per month..................... $1.98 Per 1,000 gallons (for the next 30,000 gallons) per month in excess of 10,000 gallons per month................. $2.43 Per 1,000 gallons (for the next 110,000 gallons) per month in excess of 40,000 gallons per month............... $2.73 Per 1,000 gallons (for the next 150,000 gallons) per month in excess of 150,000 gallons per month............. $3.03 Per 1,000 gallons (for the next 300,000 gallons) per month in excess of 300,000 gallons per month............. $3.35 Per 1,000 gallons (for the next 400,000 gallons) per month in excess of 600,000 gallons per month............. $3.96 Per 1,000 gallons per month in excess of 1,000,000 gallons per month .......................................................... $4.05 Outside City Limits The rates for water outside the City limits shall be two times those established for commercial rates. VALUE OF THE WATERWORKS SYSTEM

2011 2010 2009 2008 2007System Improvements $ 154,422,056 $ 153,166,635 $ 145,432,603 $ 120,792,897 $ 113,881,674 Vehicles and Equipment 8,417,463 7,512,781 6,914,288 6,811,377 5,449,703 Buildings 23,917,848 22,206,391 13,395,112 13,245,692 13,245,692 Land and Improvements 44,686,054 34,482,381 29,811,988 21,617,530 19,792,793 Easements 170,534 121,934 - - - Construction in Progress 60,961,884 36,186,936 28,722,303 16,385,573 10,870,641

$ 292,575,839 $ 253,677,058 $ 224,276,294 $ 178,853,069 $ 163,240,503 Less: Total Depreciation 92,880,401 86,006,220 79,123,908 73,120,032 68,006,208 Value After Depreciation $ 199,695,438 $ 167,670,838 $ 145,152,386 $ 105,733,037 $ 95,234,295

For Fiscal Year Ended September 30,

A-7

CITY'S EQUITY IN WATERWORKS SYSTEM

2011 2010 2009 2008 2007Resources:Net System Value $199,695,438 $167,670,838 $145,152,386 $105,733,037 $95,124,295 Cash and Investments 140,604,318 81,639,476 91,353,207 73,341,316 57,112,032Other Sources 12,143,781 13,201,529 5,665,612 5,241,840 4,701,477

$352,443,537 $262,511,843 $242,171,205 $184,316,193 $156,937,804

Obligations:Revenue Bonds Payable $176,603,068 $112,753,816 $107,802,522 $72,779,717 $51,247,410 Less: Bond Funds 6,236,122 2,370,132 2,060,373 2,128,548 2,145,992

$170,366,946 $110,383,684 $105,742,149 $70,651,169 $49,101,418 Other Obligations(1) 21,425,167 18,296,292 14,185,069 11,215,993 10,178,418

$ 191,792,113 $ 128,679,976 $ 119,927,218 $ 81,867,162 $ 59,279,836

City's Equity in System $160,651,424 $133,831,867 $122,243,987 $102,449,031 $97,657,968 Percentage City's Equity in System 45.58% 50.98% 50.48% 55.58% 62.23%

For Fiscal Year Ended September 30,

_________ (1) Does not include general obligation debt of the City issued for waterworks purposes. THE SEWER SYSTEM The City’s Sewer System is described below. GENERAL The City owns and operates five wastewater treatment plants which have a combined total design capacity of 24.713 million gallons per day (“MGD”). The Sewer System includes approximately 519 miles of sewer lines and 71 lift stations. The average daily treatment is 18.78 MGD with 58,726 sewer connections as of September 30, 2011. SEWAGE FLOW (THOUSAND GALLONS)

Fiscal Year Ended 9-30

Average Daily Flow

Total Sewage Flow

2002 15,435 5,634,655 2003 16,767 6,120,027 2004 17,015 6,210,520 2005 16,776 6,123,186 2006 16,796 6,130,409 2007 18,095 6,648,535 2008 17,899 6,551,082 2009 17,800 6,413,631 2010 18,256 6,663,368 2011 18,783 6,855,795

A-8

TEN LARGEST SEWER CUSTOMERS (THOUSAND GALLONS)

2011 SewerUser Consumption

Laredo Medical Center 142,255,100 Texas A&M International University 81,455,400 Laredo Community College 43,159,500 United High School 32,806,200 Laredo Municipal Housing Corp. 31,427,500 New Webb County Jail 22,542,900 Laredo Regional Medical Center 21,576,900 La Bota Ranch Owner Association 16,452,500 Towne North Mobil Homes 14,606,300 Winfield Community Association 12,434,200

418,716,500

MONTHLY SEWER RATES (BASED ON WATER CONSUMPTION) (Effective October 1, 2011) Inside City Limits Residential Monthly minimum, including use of 2,000 gallons per month........................................................................ $8.50 Per 1,000 gallons (for the next 2,000 gallons) per month in excess of 2,000 gallons...................................... $2.77 Per 1,000 gallons (for the next 6,000 gallons) per month in excess of 4,000 gallons...................................... $2.82 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 10,000 gallons.................................. $2.96 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 20,000 gallons.................................. $3.18 The maximum charge will be up to 30,000 gallons and the equivalent of $36.89. Commercial & Multifamily: Monthly minimum, including use of 2,000 gallons per month...................................................................... $21.68 Per 1,000 gallons (for the next 2,000 gallons) per month in excess of 2,000 gallons per month..................... $2.00 Per 1,000 gallons (for the next 6,000 gallons) per month in excess of 4,000 gallons per month..................... $2.10 Per 1,000 gallons (for the next 20,000 gallons) per month in excess of 10,000 gallons per month................. $2.20 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 30,000 gallons per month................. $2.41 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 40,000 gallons per month................. $2.49 Per 1,000 gallons (for the next 150,000 gallons) per month in excess of 150,000 gallons per month............. $2.78 Per 1,000 gallons (for the next 300,000 gallons) per month in excess of 300,000 gallons per month............. $3.06 Per 1,000 gallons (for the next 400,000 gallons) per month in excess of 600,000 gallons per month............. $3.63 Per 1,000 gallons per month in excess of 1,000,000 gallons per month .......................................................... $4.41 There shall be no maximum monthly charges for commercial users. Outside City Limits The rates for sewer outside the City limits shall be two times those established for commercial rates.

A-9

VALUE OF THE SEWER SYSTEM - FIXED ASSETS

2011 2010 2009 2008 2007Sewer System $ 121,178,164 $ 114,484,049 $ 112,466,222 $ 93,917,054 $ 89,431,498 Vehicles, Machinery, and Equipment 8,090,771 7,649,439 7,322,401 7,494,843 5,865,521 Buildings 27,403,618 21,224,034 21,209,597 18,308,734 18,308,734 Land and Improvements 4,531,525 4,531,525 4,531,525 4,531,525 4,531,525 Easements 201,395 201,395 - - - Construction in Progress 19,498,038 24,817,915 11,528,447 7,948,202 4,769,294

$ 180,903,511 $ 172,908,357 $ 157,058,192 $ 132,200,358 $ 122,906,572 Less: Total Depreciation 61,020,411 55,378,617 49,705,564 44,615,508 39,990,212 Value After Depreciation $ 119,883,100 $ 117,529,740 $ 107,352,628 $ 87,584,850 $ 82,916,360

For Fiscal Year Ended September 30,

CITY'S EQUITY IN SEWER SYSTEM

2011 2010 2009 2008 2007Resources:Net System Value $ 119,883,100 $ 117,529,740 $ 107,352,628 $ 87,584,850 $ 82,916,560 Cash and Investments 51,530,635 44,109,722 56,418,094 50,294,270 34,294,373 Other Resources 4,514,104 4,155,250 3,520,180 4,000,808 2,513,872

$ 175,927,839 $ 165,794,712 $ 167,290,902 $ 141,879,928 $ 119,724,805

Obligations:Revenue Bonds Payable $ 68,790,522 $ 62,641,553 $ 66,627,155 $ 59,144,593 $ 41,006,234 Less: Bond Funds 1,568,062 1,531,444 1,546,107 1,583,837 1,624,617

$ 67,222,460 $ 61,110,109 $ 65,081,048 $ 57,560,756 $ 39,381,617 Other Obligations(1) 3,847,482 5,539,658 3,167,643 3,793,936 2,978,020

$ 71,069,942 $ 66,649,767 $ 68,248,691 $ 61,354,692 $ 42,359,637

City's Equity in System $ 104,857,897 $ 99,144,945 $ 99,042,211 $ 80,525,236 $ 77,365,168 Percentage City's Equity in System 59.60% 59.80% 59.20% 56.76% 64.62%_______(1) Does not include subordinated debt or the general obligation debt of the City issued for sewer purposes.

For Fiscal Year Ended September 30,

A-10

COMBINED WATERWORKS AND SEWER SYSTEM CONDENSED STATEMENT OF OPERATIONS For Fiscal Year EndedSeptember 30,

Total Total TotalWater Sewer Utilities Water Sewer Utilities Water Sewer Utilities

Revenues:Charges for Services $ 31,391,552 $ 27,438,365 $ 58,829,917 $ 25,455,038 $ 22,612,937 $ 48,067,975 $ 26,937,378 $ 19,819,164 $ 46,756,542 Rental of Facilities 40,128 - 40,128 40,128 - 40,128 40,128 - 40,128 Interest 79,399 64,847 144,246 121,919 84,664 206,583 350,531 273,926 624,457 Miscellaneous 3,625,787 100,640 3,726,427 3,535,088 110,909 3,645,997 1,555,527 269,182 1,824,709 Total Revenues $ 35,136,866 $ 27,603,852 $ 62,740,718 $ 29,152,173 $ 22,808,510 $ 51,960,683 $ 28,883,564 $ 20,362,272 $ 49,245,836

Expenses:

Administrative $ 2,850,418 $ 4,260,760 $ 7,111,178 $ 2,793,650 $ 4,038,665 $ 6,832,315 $ 2,991,019 $ 2,000,407 $ 4,991,426 Utility Engineering 876,627 - 876,627 826,978 - 826,978 690,694 - 690,694 Utility Compliance - - - - - - - - - City Managed Employees - - - - - - - - - Utility Billing 3,030,774 - 3,030,774 2,929,649 - 2,929,649 2,818,275 - 2,818,275 Asset Management 277,917 - 277,917 260,108 - 260,108 234,988 - 234,988 Water Treatment Plant 7,073,309 - 7,073,309 6,414,438 - 6,414,438 6,819,136 - 6,819,136 Transmission and Distribution 2,700,232 - 2,700,232 3,600,821 - 3,600,821 3,835,000 - 3,835,000 Water Pollution Control 427,830 - 427,830 392,207 - 392,207 393,211 - 393,211 Wastewater Treatment - 5,351,976 5,351,976 - 5,319,244 5,319,244 - 4,765,446 4,765,446 Wastewater Collection - 3,002,356 3,002,356 - 2,733,149 2,733,149 - 2,665,461 2,665,461 Corrective Maintenance - - - - - - - - - Construction Salaries - - - - - - - - - Total Expenses $ 17,237,107 $ 12,615,092 $ 29,852,199 $ 17,217,851 $ 12,091,058 $ 29,308,909 $ 17,782,323 $ 9,431,314 $ 27,213,637

Net Available for Debt Service 17,899,759$ 14,988,760$ 32,888,519$ 11,934,322$ 10,717,452$ 22,651,774$ 11,101,241$ 10,930,958$ 22,032,199$

Number of Customers 63,703 59,995 62,195 58,726 61,171 57,903

2011 2010 2009

A-11

COMBINED WATERWORKS AND SEWER SYSTEM CONDENSED STATEMENT OF OPERATIONS (CONTINUED) For Fiscal Year EndedSeptember 30,

Total Total TotalWater Sewer Utilities Water Sewer Utilities Water Sewer Utilities

Revenues:Charges for Services $ 26,265,698 $ 14,006,232 $ 40,271,930 $ 24,977,835 $ 13,055,433 $ 38,033,268 $ 23,129,654 $ 14,108,373 $ 37,238,027 Rental of Facilities 40,128 - 40,128 40,128 - 40,128 38,122 - 38,122 Interest 711,991 265,542 977,533 2,721,712 1,505,282 4,226,994 1,743,571 1,062,886 2,806,457 Miscellaneous 339,801 369,861 709,662 463,192 587,121 1,050,313 294,506 429,905 724,411 Total Revenues $ 27,357,618 $ 14,641,635 $ 41,999,253 $ 28,202,867 $ 15,147,836 $ 43,350,703 $ 25,205,853 $ 15,601,164 $ 40,807,017

Expenses:

Administrative $ 2,583,385 $ 2,097,387 $ 4,680,772 $ 2,076,626 $ 2,872,599 $ 4,949,225 $ 1,779,174 $ 2,543,621 $ 4,322,795 Utility Engineering 799,864 - 799,864 752,441 - 752,441 638,979 - 638,979 Utility Compliance - - - - - - - - - City Managed Employees - - - - - - - - - Utility Billing 2,724,036 - 2,724,036 2,368,785 - 2,368,785 1,950,102 - 1,950,102 Asset Management 247,660 - 247,660 270,448 - 270,448 246,510 - 246,510 Water Treatment Plant 6,742,276 - 6,742,276 5,956,680 - 5,956,680 6,090,084 - 6,090,084 Transmission and Distribution 3,495,224 - 3,495,224 3,144,501 - 3,144,501 2,803,090 - 2,803,090 Water Pollution Control 437,807 - 437,807 528,799 - 528,799 502,870 - 502,870 Wastewater Treatment - 4,792,566 4,792,566 - 4,133,862 4,133,862 - 3,662,090 3,662,090 Wastewater Collection - 2,620,294 2,620,294 - 2,526,732 2,526,732 - 2,280,698 2,280,698 Corrective Maintenance - - - - - - - - - Construction Salaries - - - - - - - - - Total Expenses $ 17,030,252 $ 9,510,247 $ 26,540,499 $ 15,098,280 $ 9,533,193 $ 24,631,473 $ 14,010,809 $ 8,486,409 $ 22,497,218

Net Available for Debt Service 10,327,366$ 5,131,388$ 15,458,754$ 13,104,587$ 5,614,643$ 18,719,230$ 11,195,044$ 7,114,755$ 18,309,799$

Number of Customers 60,519 57,851 59,409 56,065 57,489 54,568

2008 2007 2006

A-12

COMBINED WATERWORKS SYSTEM AND SEWER SYSTEM COVERAGE AND FUND BALANCES (1)

Average Annual Principal and Interest Requirements (2012-2042)........................................... $ 10,598,259 Coverage of Average Requirements by 2011 Net Income ......................................................... 3.10 Times Maximum Principal and Interest Requirements, 2013................................................................ $12,867,799

Coverage of Maximum Requirements by 2011 Net Income...................................................... 2.56 Times Interest and Sinking Fund Balance as of 09/30/2011.................................................................. $ 5,703,000 Reserve Fund as of 09/30/2011 ................................................................................................... $ 5,393,673 Contingency Fund as of 09/30/2011 ........................................................................................... $ 3,198,429

________ (1) Does not include subordinated debt or general obligation debt of the City issued for waterworks or sewer purposes. ANTICIPATED ISSUANCE OF COMBINED WATERWORKS SYSTEM AND SEWER SYSTEM REVENUE BONDS Simultaneously with the issuance of the Obligations, the City is issuing $41,120,000 Waterworks and Sewer System Revenue Bonds, Series 2012.

[The remainder of this page intentionally left blank.]

A-13

THE INTERNATIONAL TOLL BRIDGE SYSTEM GENERAL . . . The System presently consists of the Gateway to the Americas Bridge ("Bridge No. 1"), the Juarez/Lincoln International Bridge ("Bridge No. 2"), and the Laredo-Colombia Bridge (the "Colombia Bridge" or “Bridge No. 3”), and Bridge No. 4 as further described herein. BRIDGE NO. 1 . . . The first bridge of the System, known as the Gateway to the Americas Bridge, is located in the central business district, and was reconstructed in December of 1956. It is built of pre-stressed, precast concrete. Enlarged to a 40-foot width, it carries four vehicular traffic lanes with 8-foot pedestrian walks on each side, and aluminum outside railings. A U.S. border station is also part of the Bridge No. 1 facilities. BRIDGE NO. 2 . . . The second bridge of the System, known as the Juarez/Lincoln International Bridge, was completed and opened on November 26, 1976. It is located approximately 1200 feet east of and downstream from Bridge No. 1. The bridge proper is a 1007-foot long, pre-stressed concrete structure with 11 spans, each approximately 91 feet in length. Total width of this bridge is 98.4 feet, and it accommodates up to six vehicular traffic lanes, and has 10-foot sidewalks with protective railings and high curbs separating roadways and sidewalks on each side. The bridge abutment at each end is at an elevation of 403 feet above sea level, or about four feet higher than Bridge No. 1. Other facilities associated with Bridge No. 2 include a U.S. border station, located on the east side of the bridgehead area, consisting of structures containing administrative and inspection areas, primary and secondary inspection areas with canopies, a parking garage, and other related improvements, facilities, and devices utilized by the U.S. Customs Service, Immigration and Naturalization Service, and other U.S. federal government agencies. The border station facility has a capacity for 18 traffic lanes to handle traffic northbound from Mexico, with large areas for processing import cargo. BRIDGE NO. 3 - THE COLOMBIA BRIDGE . . . The third bridge of the System is the Colombia Bridge which is a crossing and support facility between northwest Laredo and Colombia, Mexico and was constructed in 1991. The bridge is approximately 21 miles northwest of Bridge No. 1 and Bridge No. 2. The facilities include the bridge structure, a State Highway road from the bridge to Farm-to-Market Road ("FM") 1472, the U.S. customs border and import lot facilities, the City toll plaza and export lot, and certain water and sewer facilities. The bridge structure is a simple span structure consisting of eight 12' wide travel lanes (four in each direction). The U.S. Customs border and import lot facilities are constructed on a 75-acre tract of land and are operated by the U.S. General Services Administration (“GSA”). The facilities include ten commercial primary inspection stations, secondary inspection stations, pedestrian facilities, and a large import lot with inspection facilities including a building dock and an administration building for federal agencies. The City toll plaza and export lot occupies a 75-acre tract of land, and includes an administration building, six toll booths, and an export lot. The export lot occupies 20 acres and is designed for future expansion. The Lack of Infrastructure on the Mexican Side of the Colombia Bridge Traffic in general is limited on the Colombia Bridge, and the northbound truck traffic is particularly limited because truckers can more economically utilize the other bridges in the System, and because direct access to this bridge on the Mexican side from industrial centers in Mexico has not been constructed due to the reordering of infrastructure priorities in the Mexican State of Nuevo Leon. The City predicts that traffic on this bridge will continue to increase due, in part, to the requirement of the City that commercial traffic may only use Bridge No. 4 and the Colombia Bridge and that all hazardous material must cross at the Colombia Bridge. BRIDGE NO. 4 . . . The fourth bridge of the System is located approximately six miles northwest of Bridge No. 1 and Number 2, and approximately 15 miles southeast of the Colombia Bridge. The eight-lane bridge and the facilities associated with Bridge No. 4 include U.S. customs and immigration facilities, a toll plaza, interchanges, and approach and connecting roadways. While the Mexican side of the Colombia bridge is located in the State of Nuevo Leon, the Mexican side of Bridge No. 4 is located in the State of Tamaulipas. Bridges 1 and 2 are also across the river at Tamaulipas. On the Mexican side of Bridge No. 4 the State of Tamaulipas has completed the roadway linking the bridge to the Mexican highway system. BRIDGE NO. 5 . . . The City of Laredo has been actively working with the State of Tamaulipas for the ultimate purpose of constructing an international bridge between Nuevo Laredo, Tamaulipas and Laredo, Texas. At its meeting of September 18, 2000, Laredo’s City Council passed Resolution 2000-R-128, declaring the City’s intent to sponsor the construction of a fifth international bridge crossing joining the Mexican State of Tamaulipas and the State of Texas. Support for this project was based on the area’s growing population and the need to facilitate the movement of non-commercial vehicles and pedestrians. This resolution further instructed the City Manager to notify all applicable levels of government in Mexico and the United States of the City’s intent and to formalize discussions and initiate technical studies needed to move this project forward. The intent to construct this crossing was further reiterated by both Laredo and Nuevo Laredo officials at the XXVIII Meeting of Bridges and Border Crossings sponsored by the U.S. Department of State and held in Scotsdale, Arizona on September 19, 2000 and continuously at each Binational meeting thereafter.

A-14

On April 20, 2001 a Covenant was executed by the City of Laredo and the City of Nuevo Laredo indicating the desire of both communities to commence the necessary procedures to construct a fourth bridge between Laredo, Texas and Nuevo Laredo, Tamaulipas, Mexico. Laredo’s Fifth Bridge, (Nuevo Laredo’s Fourth) is intended to be a full service, non-commercial crossing and is proposed to be constructed in South Laredo to connect to U.S. Highway 83 and Mexico 85 in Nuevo Laredo. Project objectives center on improving mobility, reducing congestion, improving safety and enhancing social and economic development within the region. On May 21, 2001, Laredo’s City Council passed Resolution No. 2001-R-061 that opposes the construction of an international bridge crossing that is not part of, and that would compete with the Laredo Bridge System. The resolution further opposes the construction of an international bridge facility within the City’s corporate limits including its extra territorial jurisdiction that is not constructed or sponsored by the City. A second resolution No. 2002-R-025 was passed in March 11, 2002 resolutely opposing and refusing to consent to the unilateral sponsorship and construction by Webb County, of a bridge across the Rio Grande River within the corporate limits of the City of Laredo. Authority for the City of Laredo to make an application to the federal government for the construction of an international bridge crossing is granted pursuant to the provisions of the International Bridge Act of 1972, (33 United States Code Section 535, et seq.), and Executive Order (E.O.) 11423 of August 16, 1968, 33, FR 11741, as amended by Executive Order 12847 of May 17, 1993 (58 FR. 96). The application must further comply with the National Environmental Policy Act (NEPA) of 1969 (42 U.S.C. Section 4321 et seq.), the National Historic Preservation Act (NHPA) of 1966 (16 U.S.C. Section 470 et seq.), and Executive Order 12898 of February 11, 1994. The City of Laredo derives its specific authority under state law to make this application pursuant to Section 367.001 et.seq. of the Texas Transportation Code, Section 1509.202 et.seq. of the Texas Government Code. Prior to the submission of a presidential permit application to the U.S. Department of State to construct a fifth international bridge crossing, the City of Laredo is required to submit a bridge permit application to the Texas Department of Transportation for review and approval by the Texas Transportation Commission. The City’s bridge permit application for a fifth bridge was approved by the Texas Transportation Commission on May 27, 2004. Webb County also submitted a bridge permit application, which was approved by the Texas Transportation Commission on April 29, 2004. The City has made significant strides in regard to the technical studies required as a part of the bridge application approval process. An economic feasibility and impact study conducted by McCray Research and a site location engineering study by Paul Garza and Associates have been completed. Also, an environmental assessment was conducted for the City of Laredo by the firm of Parsons Brinckerhoff Quade and Douglas (Austin, TX) and submitted to the Texas Department of Transportation for review in May 2002. Upon obtaining the necessary permits, it is anticipated that the project will take 16 months for design of the bridge structure and an additional four months for the design of border facilities. Construction time for the bridge structure is 15 months and 18 months for construction of the border facilities. In Webb County v. City of Laredo, Cause No. GV403943 in the 261st District Court of Travis County, Texas, Webb County sought a ruling that it could construct an international bridge within the city limits of the City of Laredo without having to obtain the permission of the City of Laredo. The trial court judgment dated March 1, 2005, ruled in favor of the County. The City of Laredo appealed from that decision. On appeal the 3rd Court of Appeals in Case No. 03-05-00168-CV on April 4, 2007, ruled that "Webb County lacks the statutory authority to construct a toll bridge within the City of Laredo without the City;'s consent or approval" and reversed the judgment of the 261st District Court on that issue. While the case was pending on petition for review to the Texas Supreme Court filed by Webb County, the parties settled the remaining issues, Webb County withdrew its petition for review, and the April 4, 2007 judgment of the Court of Appeals stands as the final ruling in favor of the City of Laredo. The mandate of the 3rd Court of Appeals issued on July 11, 2007. OPERATION OF THE SYSTEM . . . The System presently has 15 toll lanes, all of which are equipped for a toll collection process which counts truck axles and charges accordingly. After the construction of Bridge No. 4 in December of 1999, the toll collection system was restructured and upgraded to include a weight in motion system for truck toll collection for the System. To administer, operate, and maintain the System, the City has approximately 84 employees, approximately 46 of whom are directly involved in toll collection operations. Another 42 employees are involved in various aspects of administration, including maintenance, engineering, accounting, traffic control, and general administration. OFFICIALS OF THE SYSTEM . . . The System is managed by the Bridge Director who is responsible for System operation and maintenance, and who oversees the Bridge Operations Superintendent and the Bridge Cashier Superintendent. The Bridge Director reports to the City Manager. The City Manager is appointed by, and serves at the pleasure of, the City Council.

A-15

INTERNATIONAL TOLL BRIDGE SYSTEM CONDENSED STATEMENT OF OPERATIONS

REVENUES 2011 2010 2009 2008 2007Toll Receipts $ 43,638,202 $ 42,820,134 $ 40,816,254 $ 45,576,258 $ 38,051,562 Rental of Facilities 2,734,637 2,700,169 2,417,709 2,182,015 2,120,862 Miscellaneous 59,631 377,044 29,871 61,891 14,811 Total $ 46,432,470 $ 45,897,347 $ 43,263,834 $ 47,820,164 $ 40,187,235

EXPENSESPersonnel Services $ 7,451,573 $ 6,950,196 $ 7,759,920 $ 7,646,420 $ 7,474,294 Materials and Supplies 566,377 494,239 403,344 749,864 677,734 Contractual Services(1) 3,558,081 3,867,475 3,316,797 3,589,207 3,250,608 Other 1,300 52,093 15,593 15,229 18,268 Total $ 11,577,331 $ 11,364,003 $ 11,495,654 $ 12,000,720 $ 11,420,904

NON-OPERATING REVENUEInterest Earnings Restricted $ 55,901 $ 163,246 $ 103,219 $ 762,427 $ 1,114,714 Interest Earnings Unrestricted 23,032 37,064 369,021 204,796 259,386 Unrealized Gain/(Loss) on Investments - - (11,939) (30,307) 81,636 Net Revenues Available For Debt Service $ 34,934,072 $ 34,733,654 $ 32,228,481 $ 36,756,360 $ 30,222,067 Debt Service 8,784,606 8,789,230 8,325,916 8,147,182 8,259,332 Surplus Revenues $ 26,149,466 $ 25,944,424 $ 23,902,565 $ 28,609,178 $ 21,962,735

For the Fiscal Year Ended September 30,

________ (1) Contractual Services consist of administrative overhead and monthly payments made to the City for services provided to the System from surplus revenues of the System.

A-16

THE INTERNATIONAL AIRPORT SUMMARY OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE

2011 2010 2009 2008 2007Revenues:FAA $ 69,880 $ - $ - $ - $ 388,321 State Operating Grant 2,924 106,939 109,807 82,190 100,235 Rents 4,129,984 5,002,207 4,281,154 4,448,507 4,399,983 Interest Earnings 2,775 2,354 55 (59) 9,019 Proceeds from Asset Disposition - - - - - Miscellaneous 456,453 514,497 343,539 370,831 404,742 Total Revenues $ 4,662,016 $ 5,625,997 $ 4,734,555 $ 4,901,469 $ 5,302,300

Expenditures:Administration $ 2,460,491 $ 2,530,733 $ 2,433,606 $ 2,192,701 $ 2,318,266 Building Maintenance 723,818 638,191 618,010 568,963 654,188 Ground Maintenance 409,318 340,024 385,009 379,262 454,977 Control Tower - - - - 684,924 Foreign Trade Zone 23,239 19,151 19,900 18,540 14,952 Airport Police 1,034,819 910,926 861,261 950,347 1,033,311 Total Expenditures $ 4,651,685 $ 4,439,025 $ 4,317,786 $ 4,109,813 $ 5,160,618

Net Operating Revenues $ 10,331 $ 1,186,972 $ 416,769 $ 791,656 $ 141,682

Other Sources (Uses):Debt Service (495,697) (542,210) (729,105) (734,444) (407,640)Sale of Assets 18,314 - 1,518 1,496 4,800 Noise Abatement Fund - 403,071 649,682 89,431 - Airport Construction Fund (47,286) (49,993) (49,887) (50,000) - Capital Outlay (70,491) (81,556) - (35,361) (302,285)Communication System Fund - - - - (270,000)New Airport Terminal - - - - 306,641 Total Other Sources (Uses) $ (595,160) $ (270,688) $ (127,792) $ (728,878) $ (668,484)

Excess (Deficiency) of Revenues Over Expenditures $ (584,829) $ 916,284 $ 288,977 $ 62,778 $ (526,802)Beginning Fund Balance 753,531 (162,753) (451,730) (514,508) 12,294 Equity Transfers - - - - Ending Fund Balance $ 168,702 $ 753,531 $ (162,753) $ (451,730) $ (514,508)

Fiscal Years Ended September 30,

A-17

AIRPORT DESCRIPTION The City of Laredo International Airport encompasses approximately 1,892 acres of which 900 acres are dedicated to aviation for passenger and air cargo terminals, runways, taxiways and aprons, and 982 acres are dedicated for industrial, commercial, retail, institutional, and recreational. The Airport is currently being served by the following scheduled airlines: American Airlines to Dallas/Fort Worth, United Express to Houston Bush Intercontinental and Allegiant Air to Las Vegas, Nevada and Orlando, Florida. On average, the airlines have in total nine (9) daily scheduled round trip flights. A top priority for the Airport is the re-instatement of direct air service to Mexico City and Guadalajara, Mexico. Furthermore, our passenger terminal also houses a full service restaurant, gift shop & duty free concession, ATM, five car rental companies, Federal Inspection Facility with 24/7 services, and Transportation Security Administration. In the area of commercial passenger enplanement activity for 2011 decreased by 9.69% compared to 2010. Allegiant Air has added additional summer time flights including new scheduled flight service to Orlando, Florida and this will boost passenger activity. Allegiant Air operates the 150-passenger MD-80 mainline jet aircraft The airport passenger terminal is master planned to expand from the original three gates with four passenger-boarding bridges to twenty gates by the year 2025. The passenger capacity for the terminal is 600 passengers per hour and the Federal Inspection Station has capacity for 300 passengers per hour. Three (3) scheduled cargo operators and fifteen (25) charter air cargo companies are currently serving the Airport. Major air cargo operators at the Laredo International Airport include: Federal Express, UPS Supply Chain Solutions, Air Transport Inc., Kallita Charters, USA Jet, AmeriJet, USA/TSM, Cherry Air, AmeriStar, IFL Group, Air Cargo Carriers, Inc., National Air Cargo, Northern Air Cargo, Lynden Air, and Contract Air. Cargo increased during 2011 by approximately 9.37% as a result of the improved global economy primarily the automotive sector which sector accounts for approximately 90 percent of Laredo’s air cargo. During June 2007 the Federal Aviation Administration’s approved Laredo’s Airport Noise Compatibility Update Study. A significant number of residents became eligible to participate in the City’s voluntary noise abatement program. This program consists of the following options:

• Offer to acquire the fee simple interest, or • Offer to soundproof, if feasible, the residential structure in exchange for an avigation easement, or • Offer to acquire the avigation easement.

The estimated cost of the airport noise abatement program for the next eight to ten years is $48.0 million of which the Federal Aviation Administration, under the current program, would fund 95% of the program cost. Projects completed during 2011 included the Extension of Runway 17R, Rehabilitate GA Apron Phase 5, Airport Wildlife Hazardous Study, installation & upgrade of Airport Security Access System, architectural / engineering work of a Federal Inspection Facility. The Federal Aviation Administration paid 95% of the cost. Projects for 2012 include construct a Federal Inspection Facility, Airport Geographic Information System “AGIS” Survey, FAR Part 150 Airport Noise Contour Update Study, Rehabilitate GA Apron Phase 6 realignment of a portion of Taxiway F, construction for realignment of a portion of Taxiway F & J, rehabilitation and upgrade of EMAS, construction of Airport Rescue and Fire Fighting Station, Mexican Customs, Application to the Foreign Trade Zone’s Board of the Alternative Site Framework “ASF”, and FAA Contract Tower 24/7 Services. During the past eighteen (18) years, the City and the Federal Aviation Administration have invested over $185 million in Laredo International Airport infrastructure including noise abatement. This trend we anticipate will continue in 2012 and into the future. The airport leases facilities and land to non-aviation and aviation service providers, retailers, medical institutions, and public entities. New leases in 2011 included aeronautical land lease agreements with Uni-Trade and Air Trade Laredo for construction of new cargo warehouse facilities along the GA Apron West Side. The goal of City Council to develop a Regional Medical Center on airport non-aeronautical use land is being realized. The University of Texas Health Science Center (UTHSC) inaugurated the first building of its medical research and education campus in Laredo in 2002, and the second building was completed in 2007. UTHSC is located adjacent to Mercy Regional Medical Center. During 2006, Laredo Specialty Hospital and Gateway Health Clinic completed the construction of their facilities and are currently offering medical services to the public. Forthcoming is a new Veteran’s Administration Clinic partnered with the UT Health and Science Center.

A-18

Calendar Year

Enplaned Passengers

Deplaned Passengers

Gross Landed Weight (lbs.)

1999 89,306 87,017 374,202,303 2000 89,905 87,807 420,000,000 2001 69,049(1) 67,835 226,136,780

2002 74,286 73,179 261,473,820

2003 73,638 72,345(2) 272,367,959

2004 81,342 81,924(2) 366,161,425

2005 90,653 92,932(2) 374,434,576

2006 92,783 93,979(2) 360,000,000

2007 113,004 111,464 341,198,304

2008(3) 107,553 109,912 272,960,000

2009 102,065 105,107 265,480,642

2010(4) 110,615 113,219 419,323,814

2011 99,893 98,213 458,595,636

_______ (1) Because of the terrorists’ attacks of September 11, 2001, the airport experienced an 8.0 percent decline in passenger activity for CY 2001.

As a result of a weak national economy during all of CY 2001, air cargo declined by approximately 46 percent. (2) Based on calendar year figures. (3) Global economic conditions during 2008 negatively affected both passenger and cargo activity. (4) An improved global economy is reason for the significant increase in both passenger and air cargo activity. The City intends to make the Airport self-sufficient over time, but initially the obligations will be paid primarily from ad valorem taxes. Revenues currently generated from the Airport are primarily from the sale and lease of land owned by the City as part of the Airport, and it is impossible to predict the timing or amount of revenues which may be generated by such sales and leases. The City hopes to increase passenger and cargo traffic to and from the City and continues to negotiate with airlines for the provision of additional flights to and from the City. However, it is not possible to predict what the outcome of such negotiations will be and what impact the outcome may have on Airport revenues.

APPENDIX B

EXCERPTS FROM THE CITY OF LAREDO, TEXAS

COMPREHENSIVE ANNUAL FINANCIAL REPORT (For the Year Ended September 30, 2011)

The information contained in this Appendix consists of excerpts from the City of Laredo, Texas Comprehensive Annual

Financial Report for the Year Ended September 30, 2011 and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete report for further information.

(THIS PAGE LEFT BLANK INTENTIONALLY)

MANAGEMENT’S DISCUSSION AND ANALYSIS

The City of Laredo’s Management’s Discussion and Analysis is designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the City’s financial activity, (c) identify changes in the City’s financial position (its ability to address the next and subsequent years’ challenges), (d) identify any material deviations from the financial plan (the approved budget), and (e) identify individual fund issues or concerns. This section of the City of Laredo’s annual financial report presents our discussion and analysis of the City’s financial performance during the fiscal year that ended September 30, 2011. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal. FINANCIAL HIGHLIGHTS

• On a government-wide basis, the Primary Government total assets exceeded its liabilities as of September 30, 2011 by $799.1 million. There was a $71.3 million in unrestricted net assets.

• The Primary Government’s total net assets increased by $63.6 million as compared to prior year. Net Assets increased for governmental activities by $24.8 million while business type activities increased by $38.7 from prior year. The primary government’s total expenses were $376.9 million; this is less than the $301.5 million generated in charges for services, grants, taxes and other revenues.

• The cost of the Primary Government’s governmental activities was $236 million for the 2011 fiscal year.

• As of September 30, 2011, the City’s governmental fund reported combined ending fund balances of $158.2; a decrease of $11.2 million compared to prior year activities. Approximately 7% of the combined fund balances or $10.6 million is unassigned and available for the discretional use of which the funds are collected.

• The unassigned fund balance in General Fund was $10.7 million or 7.6 % of total General Fund current year expenditures.

• In fiscal year 2011, the City issued $23.9 million in debt to finance capital projects. There was a decrease of $ 10.4 million in long-term liabilities from the prior year.

OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of four parts-management’s discussion and analysis (this section), the basic financial statements, required supplemental information, and an option section that presents combining statements for non-major Governmental funds and internal service funds. The basic financial statements include two kinds of statements that present different views of the City. The first two statements are Government-wide financial statements that provide both long-term and

short-term information about the City’s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the City

Government, reporting the City’s operations in more detail than the Governmental-wide statements. The Governmental funds statements tell how General Government services like public safety were

financed in the short term as well as what remains for future spending. Proprietary fund statements offer short-and long-term financial information about the activities the

Government operates like a business, such as the Bridge, Transit and Water and Sewer funds. Fiduciary fund statements provide information about the financial relationships as an example, the

retirement plan for the City’s employees in which the City acts solely as a trustee or agent for the benefit of others, to whom the resources above belong.

3

FUND FINANCIAL STATEMENTS Government –

Wide Statements Governmental Funds

Proprietary Funds Fiduciary Funds

Scope • Statement of

net assets • Statement of

activities

• Balance sheet • Statement of

Revenues and Expenditures, and changes in fund balances

• Statement of net assets

• Statement of Revenues expenses, and changes in net assets

• Statement of Cash Flows

• Statement of fiduciary net assets

• Statement of changes in fiduciary net assets

Accounting basis and measurement focus

Accrual accounting and economic resources focus

Modified accrual accounting and current financial resources focus

Accrual accounting and economic resources focus

Accrual accounting and economic resources focus

Type of asset/liability information

All assets and liabilities, both financial and capital, and short-term and long-term

Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included

All assets and liabilities, both financial and capital and short-term and long-term

All assets and liabilities, both short-term and long-term the City’s funds do not currently contain capital assets, although they can.

Type of inflow/outflow information

All revenues and expenses during the year, regardless of when cash is received or paid.

Revenues for which cash is received during or soon after the year; expenditures when goods and services have been received and payment is due during the year or soon thereafter

All revenues and expenses during the year; regardless of when cash is received or paid

All revenues and expenses during the year, regardless when cash is received or paid

The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the information in the financial statements. Figure A-1 shows how the required parts of this annual report are arranged and relate to one another. In addition these required elements, we have included a section with combining statements that provide details about our non-major Governmental Funds and Internal Service Funds, each of which are added together and presented in single columns in the basic financial statements. Figure A-1

Required Components of the City of Laredo’s Basic Financial Report

4

Figure A-2 summarizes the major features of the City’s financial statements, including the portion of the City government they cover and the types of information they contain. The remainder of this overview section of management’s discussion and analysis explains the structure and contents of each of the financial statements. Government-wide Statements The Government-wide statements are designed to provide readers with a broad overview of the City of Laredo’s finances, in a manner similar to a private-sector business. The Statement of Net Assets presents information on all of the City’s assets and liabilities, with the difference between the two reported as net assets. Overtime, increases and decreases in net assets may serve as a useful indicator of the City’s financial health or position.

• Increases or decreases in the City’s net assets are indicators of whether its financial health is improving or deteriorating, respectively.

• To assess the overall health of the City consideration to non-financial factors such as changes in the City’s property tax base and the condition of the City’s roads.

The Government-wide financial statements of the City are divided into three activities:

• Government activities- Most of the City’s basic services are included here, such as the police, fire, parks, public works, health, library departments, and general administration. Sales taxes and property taxes, charges for services, and the state and federal grants finance most of these activities.

• Business-type activities – The City charges fees to customers to help it cover its cost of certain services it provides. The City’s Municipal Court operations and a portion of the Bridge revenues are included here.

• Blended Component units – The City includes six other entities in its report. These entities are:

Laredo Municipal Housing Corp., Laredo Municipal Transit System, Laredo Convention and Visitors’ Bureau, Laredo Firefighters’ Retirement System, Laredo Public Facilities Corporation-La Terraza,

Management's Basic RequiredDiscussion Financial Supplemental

And Statements InformationAnalysis

Government- Fund Notes Wide Financial To the

Financial Summaries FinancialStatements Statements

Summary Detail

5

LLC, and the Laredo Energy Arena. Although legally separate, these “component units” are important because the City is financially accountable for them.

Fund Financial Statements The fund financial statements provide more detailed information about the City’s most significant funds – not the City as a whole. Funds are grouping or related accounts that the City uses to keep track of the specific sources of funding and spending for particular purposes.

• Some funds are required by State law and by bond covenants.

• The City Council has established other funds to account for particular purposes or projects and or to show that it is properly using certain revenue sources.

The City has three kinds of funds:

• Governmental funds – Most of the City’s basic services are included in Governmental funds, which focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the Governmental funds statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. Because this information does not encompass the additional long-term focus of the Government-wide Statements, we provide additional information at the bottom of the Governmental Funds Statements, or on the subsequent page, that explains the relationship (or differences) between them.

• Proprietary funds – Services for which the City charges customers a fee are generally reported in proprietary funds. Proprietary funds, like the Government-wide Statements, provide both long- and short-term financial information. These funds are generally used to account for services for which the City charges customers either outside customers or internal cost centers of the City.

o Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its Municipal Transit System, Bridge System, Municipal Housing, Waterworks, Sewer, and Solid Waste Funds.

o Internal service funds are an accounting devise used to accumulate and allocate costs internally among the City’s various functions. The City uses its internal service funds to account for its Risk Management, Health & Benefits, Fleet and Information Technology Funds.

• Fiduciary funds – The City is the trustee, or fiduciary, for its employee’s pension plans. It is also

responsible for other assets that – because of a trust arrangement can be used only for the trust beneficiaries. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. All of the City’s fiduciary activities are reported in a separate statement of fiduciary net assets and a statement of changes in fiduciary net assets. We exclude these activities from the City’s Government-wide financial statements because the City cannot use these assets to finance operations.

Notes to the Financial Statements - The Notes provide additional information that is essential to a full understanding of the data provided in the Government-wide and fund financial statements. The notes to the financial statements follow the basic financial statements.

6

Required Supplemental Information – In addition to the basic financial statements and accompanying notes, the CAFR also presents certain required supplemental information. These schedules include a budgetary comparison and information concerning the City’s funding of its pension obligations and other postemployment benefits. Other Information – Following the required supplemental information are additional schedules such as the combining statements referred to above in connection with non-major governmental funds, internal service funds and fiduciary funds and schedules of expenditures for capital projects.

GOVERNMENT-WIDE FINANCIAL ANALYSIS Net Assets. The City’s combined net assets totaled $799.1 million as of September 30, 2011. Analyzing the net assets and net expenses of the governmental and business-type activities separately, the business type activities net assets are $343.7 million and the government type activities are $455.4 million. This analysis focuses on the net assets (Table A-1) and changes in general revenues (Table A-2) and significant expenses of the City’s governmental and business-type activities. The largest portion of the City’s net assets reflects its investment in capital assets (e.g., land, building, equipment, improvements, construction in progress and infrastructure), less any debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide service to citizens; consequently these assets are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Table A-1

City of Laredo’s Net Assets September 30, 2011 and 2010

2011 2010 2011 2010 2011 2010Current and other assets 218,591,259$ 225,848,059$ 246,605,303$ 184,775,286$ 465,196,562$ 410,623,345$ Capital assets 573,867,035 513,872,337 465,505,124 428,607,886 1,039,372,159 942,480,223 Unamortized Bond Costs 4,617,550 4,436,239 4,081,902 3,333,943 8,699,452 7,770,182 Total assets 797,075,844 744,156,635 716,192,329 616,717,115 1,513,268,173 1,360,873,750

Current liabilities 42,564,674 36,707,797 38,126,375 39,570,677 80,691,049 76,278,474 Non-current liabilities 299,098,678 276,858,075 334,345,651 272,167,887 633,444,329 549,025,962 Total liabilities 341,663,352 313,565,872 372,472,026 311,738,564 714,135,378 625,304,436

Net Assets: Invested in capital assets, net of related debt 404,332,329 371,030,290 273,496,354 251,995,464 677,828,683 623,025,754 Restricted 24,098,965 23,051,240 25,879,932 16,695,175 49,978,897 39,746,415 Unrestricted 26,981,198 36,509,233 44,344,017 36,287,912 71,325,215 72,797,145 Total net assets 455,412,492$ 430,590,763$ 343,720,303$ 304,978,551$ 799,132,795$ 735,569,314$

Governmental Business-Type Activities Activities Total

A portion of the City’s net assets, $49.98 million represents resources that are subject to external restrictions on how they may be used. The City of Laredo has sufficient funds to meet requirements for cash outlays in the next fiscal year and has the financial capacity to meet its long-term obligations in the years to come. The

7

City’s policy has been to make reasonable and continuous efforts to fund all long-term liabilities. The City’s restricted net assets increased by 25.7% over the prior year. Generally, all net assets generated by governmental actives are either externally restricted or invested in capital assets. Unrestricted governmental activities net assets are $26.98 million for the year. Unrestricted net assets in the business- type activities are $44.34 million, increasing by $8.1 million from prior year. The table below provides a summary of the City’s operations for the year ended September 30, 2011. Governmental activities increased the City’s net assets by $24.8 million, while Business-Type activities increased by $38.7 million, overall the City’s Net Assets increased by $63.5 million. Total revenues realized for the City increased by $30.5 million over the previous year. (See Table A-2). The largest revenue category was charges for services, which are comprised for the most part of administrative fees from all departments, bridge tolls and utility charges. Total operating cost of all programs increased by $19.6 million from prior year to $376.9 million. The most significant governmental expense for the City was in providing public safety, cultural and recreational, and air transportation as compared to prior year. These expenses were offset by revenues collected by a variety of sources such as property taxes and fines and forfeitures. The most significant portion of the police activity is the cost of personnel, which is approximately $48.4 million and the fire department with $35.6 million (both areas including benefits and overtime expenditures). Table A-2

City of Laredo’s Changes in Net Assets September 30, 2011 and 2010

2011 2010 2011 2010 2011 2010Revenues: Program revenues: Charges for services 73,120,474$ 73,280,328$ 132,488,632$ 120,119,380$ 205,609,106$ 193,399,708$ Operating grants and - contributions 23,499,860 21,833,031 4,279,722 5,439,854 27,779,582 27,272,885 Capital grants and contributions 36,020,500 48,006,390 36,609,025 26,282,072 72,629,525 74,288,462 General revenues: Sales tax 39,050,113 29,790,610 6,311,745 5,512,908 45,361,858 35,303,518 Property taxes 69,142,902 69,155,582 - - 69,142,902 69,155,582 Other taxes 11,466,079 10,078,239 - - 11,466,079 10,078,239 Other 2,662,326 740,113 5,796,304 (245,475) 8,458,630 494,638 Total revenue 254,962,254$ 252,884,293$ 185,485,428$ 157,108,739$ 440,447,682$ 409,993,032$

Governmental Business-Type Activities Activities Total

8

2011 2010 2011 2010 2011 2010Expenses: General Government 33,212,469$ 33,057,032$ -$ -$ 33,212,469$ 33,057,032$ Public Safety 108,220,849 96,731,529 - - 108,220,849 96,731,529 Public Works 28,971,676 31,945,598 - - 28,971,676 31,945,598 Health & Welfare 21,559,624 21,408,808 - - 21,559,624 21,408,808 Culture & Recreation 24,351,217 21,989,636 - - 24,351,217 21,989,636 Air Transportation 8,337,337 5,592,799 - - 8,337,337 5,592,799 Interest & Other long - - - term debt 11,330,317 11,170,771 - - 11,330,317 11,170,771 Transit System - - 15,011,164 15,264,944 15,011,164 15,264,944 Bridge System - - 41,558,090 40,917,048 41,558,090 40,917,048 Solid Waste - - 15,794,014 14,516,888 15,794,014 14,516,888 Water System - - 42,840,185 40,110,255 42,840,185 40,110,255 Sewer System - - 24,269,283 25,526,830 24,269,283 25,526,830 Municipal Housing - - 1,427,976 2,013,781 1,427,976 2,013,781 Total expenses 235,983,489 221,896,173 140,900,712 138,349,746 376,884,201 360,245,919 Inc (dec) in net assets before transfers 18,978,765 30,988,120 44,584,716 18,758,993 63,563,481 49,747,113 Transfers 5,842,964 4,683,701 (5,842,964) (4,683,701) - - Incr (Dec) in net assets 24,821,729 35,671,821 38,741,752 14,075,292 63,563,481 49,747,113 Net assets, beginning 430,590,763 388,203,399 304,978,551 297,468,259 735,569,314 685,671,658 Prior Period Adj. - 6,715,543 - (6,565,000) - 150,543 Net assets, ending 455,412,492$ 430,590,763$ 343,720,303$ 304,978,551$ 799,132,795$ 735,569,314$

Activities Activities TotalGovernmental Business-Type

Graph 1

9

Graph 1 represents the cost of each of the City’s 7 largest programs as well as each of the programs revenue. Net cost (total cost less fees generated by the activities and intergovernmental aid) is also reflected for each program. The net cost is the financial burden that was placed on the City’s taxpayers by each of these functions.

• The cost of all Governmental activities this year was $236 million. • The amount that our citizens paid for these activities through City taxes and revenues such as interest

earnings, franchise fees, and unrestricted grants was $128.2 million. • 45.9% of all Governmental activities expenses were from Public Safety, 12.3% were from Public

Works, 9% were from Health & Welfare, 10.3% were from Cultural & Recreational, 14.2% were for general governmental activities and 8.3% were from “Other” categories. (See Graph 3).

• General Government (support services) comprised approximately 14.2% of the total expenses in fiscal year 2011; a very stable expenditure line item with an increase of only $155 thousand from prior year.

• Expenses for Public Safety represent 45.9% of total expenditures with an increase of 11.9% or $11.5 million from prior year. A portion of the increase was due to increased contractual obligations with the Fire and Police Unions where a 4% cost of living increase was given to Police totaling $1.5 million and 3.25% to the Fire Department totaling $1 million. In addition, there was a significant adjustment for uncompensated absences of $9.6 million of which $3.1 million was unused leave by the Police Department.

• Public Works expenses represent 12.3% of total expenditures with a decrease of $3 million or 9.3% as compared to the prior year. The decrease in this area is due to a reduction of charges and activity for the Colonias Projects in Webb County as it relates to heavy construction.

• Cultural & Recreational increased by $2.4 million or 10.7% as compared to prior year. This is due to increased funding for parks projects by Community Development Block Grants of $1.5 million and other smaller increases in Friends of the Library Fund of $500 thousand.

• Air Transportation I.e. the International Airport increased by $2.7 million or 49.07% as compared to prior year. The increase of $2.5 million is due to depreciation expenses of its assets.

• Business Type Activities transferred to Governmental Activities $5.8 million, an increase of $1.2 million from the prior year.

• Overall, there was an increase in net assets of $13.8 million for the City. There was a $24.6 million increase in the business type activities and a decrease of $10.9 million in the governmental activities generating the $24.6 million.

• 29% of all Governmental Activities revenue came from charges for services, 27% from property taxes and 16% from sales taxes (see Graph 2).

Graph 2

10

Graph 3

Business-type Activities Revenues of the City’s business-type activities were $185.5 million for the fiscal year ending September 30, 2011, an increase of $28.4 million from prior year. The increase was for various reasons including an increase in capital grants and contributions in the amount of $10.3 million and $12.4 million in charges for services. Other major revenue categories remained at the same level as in the prior year. Expenses for the City’s business-type activities were $140.9 million for the year, a difference of $2.6 million from the prior fiscal year. (Refer to Table A-2). The areas where these increases and decreases occurred are as follows:

• $2.7 million increase in Water System for non-operating expenses such as interest of $2.7 million. • $1.3 million increase in Solid Waste System; operational expenses increased in Sanitation and Landfill

divisions including the following: personnel with $79 thousand, materials and supplies $341 thousand, contractual services $929 thousand and Closure and Post Closure expenses of $208 thousand.

• $1.3 million decrease in the Sewer System; operating expenses increased $700 thousand in the following divisions: Administration $222 thousand, Wastewater Collection $269 thousand, and depreciation expenses of $175 thousand. Non-operating expenses decreased by $2.1 million.

• Bridge System increased by $641 thousand due to increases in operating expenses of $911 thousand and decreases in non-operating expenses of $270 thousand.

• Other business-type activities decreased by $740 thousand in operating expenses for the Transit System and Municipal Housing Fund and others.

FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City of Laredo uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City of Laredo is to provide information on near term inflows (current resources) outflows, and balances of available resources. Such information is useful in assessing the City of

11

Laredo’s financial requirements. In particular, unreserved fund balances may serve as a useful measure of the Government’s net resources available for spending at the end of the fiscal year. As the City completed the year, its governmental funds reported a combined fund balance of $158.2 million. The fund balance category is as follows: $134 thousand for non-spendable funds which are used for inventory items within general fund; $105 million which are restricted for debt and grants; $29.2 are committed for specific purposes as it relates to reserves, public safety, etc.; $13.3 million are assigned for a specific use for General Fund and $10.6 are unassigned which can be used by the City government as it is needed. The General Fund is the chief operating fund of the City of Laredo. At the end of the current fiscal year, fund balance of the General Fund was $35.5 million of which $22.4 million is committed, and $10.7 is unassigned, $1.6 million is assigned and the remaining amount is restricted and non-spendable. As a measure of the General Fund’s liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenses. A healthy unassigned General Fund balance represents 30.16 % of the total fund balance category. During the current fiscal year, the City’s General Fund balance increased by $574 thousand as compared to prior year. In spite of the current national economic crisis, the City was able to manage its resources and implement a plan in order to save funds without interrupting or affecting services provided to the citizen of the Laredo. Some of the key factors are as follows:

• As compared to prior year, property tax revenues slightly increased by $128 thousand. There was no growth in assessed valuations from prior year. The City has not increased its tax rate for the last eight consecutive years. We remain hopeful that while other City’s revenues are constant, others areas will show larger improvements.

• Sales Tax revenues increased by $3.5 million as compared to the prior year. The increase is a great indication that the Eagle Ford Shale gas industrial boom has significantly boosted the economy in our City this year.

• Charges for Services increased by $472 thousand as compared to prior year. • General Fund expenses decreased by $2.9 million from prior year. Where most of the departments

remained stable, growth (increases) occurred in categories such as: Public Safety by $3.1million, General Government by $431 thousand, and Cultural and Recreational by $670 thousand. Offsetting the increases, capital outlay decreased by $7.2 million. The major increase for public safety was in personnel expenses by $3.0 million due to contractual obligations in payroll. Other Financing Uses reflected an increase of $2.2 million due partially to transfers-in from the Capital Improvements Fund.

The Debt Service fund has a total fund balance of $8.3 million, all of which is reserved for the payment of debt. The Debt Service Fund had an increase of $1.9 million over prior year. Proprietary funds. The City of Laredo’s proprietary funds provide the same type of information found in the Government-wide Financial Statements, but in more detail. Total net assets of the Business – Type Activities at the end of the year totaled $344 million. The total net assets increased by $39 million as compared to prior year. The largest area of change is in the Waterworks System, with an increase of $26.8 million, and the Sewer System had an increase of $5.8 million. The Other Funds category is reported at $43.6 million; a decreased of $5.6 million. An increase of $24.6 million is the result of operations of the proprietary funds for the fiscal year. The increase can be further broken down into operating revenues of $12.08 million and other non-operating revenues, net of expenses, of $6.3 million. The business-type activity funds increased in revenues in the amount of $12.1 million. Charges for Services revenues increased by $11.5 million over prior year due to a higher number of customers serviced in the Water and Sewer Systems. Capital Grants and Contributions increased by $12.2 million due to completion of projects financed with grants and contribution from other categories as it relates to intergovernmental funds.

12

Other factors concerning the finances of this fund have already been addressed in the discussion of the City’s business-type activities. General Fund Budgetary Highlights Overall, the City has not only maintained at least a 15% fund balance as required by City Charter, but has also has been able to increase the rate to 25.12% of operating expenditures in FY 2011. Steadily and in spite of current economic conditions, the City has been able to sustain and strengthen its economic condition. An example of an indicator that led us to this position is that sales tax collections increased by 14.8% over prior year and Hotel/Motel by 58.3% or $1.4 million as compared to budget. With appropriate planning and cautious financial spending, the City’s General Fund balance increased to $35,520,440 or 25.12% of operating expenditures as of September 30, 2011. Original Budget vs. Final Amended Budget: Revenues and Other Financing Sources:

• During the year, the General Fund budget was amended by increasing additional appropriations of $3.5 million. The largest increase was to amend the budget in the capital outlay category in order to account for various City street improvements.

Expenses and Other Financing Uses: • Surprisingly, the original and amended budget remained virtually unchanged thought the year; no

changes were made to the budget.

Amended Budget as compared to Actual Expenses: Revenues:

• The actual revenues reflect an overall favorable variance of $12.5 million as compared to the amended budget. This variance had various attributes:

o Sales tax revenues increased by $3.35 million. o Contribution and Donations exceeded the projected revenues by $9.7 million. This amount is

as a result of the recognition of the value of donated for storm drainage, street improvements and sidewalk improvements by developers to the City.

Expenses and Other Financing Sources (Uses): • An overall negative variance of $3.9 million when comparing the amended budget to the actual

expenses increased (prior to adjustments). A large portion of the increase was due to capital outlay and $3 million transferred from the Capital Improvement Fund for the completion of various projects in General Fund during the year.

o General Government realized savings in the amount of $1.3 million from various areas including the Municipal Court, City Attorney, Building, and Planning Departments.

o Public Works realized savings of $839 thousand in the divisions of Drafting & Surveying, Street Maintenance and Street Construction.

o Cultural & Recreational had savings of $1.1 million in the Library and & Cemetery divisions. o All other departments of General Fund played a proactive role in limiting and restricting

expenses and ensuring that the City’s fund balance remain at the same level as in prior years.

CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City of Laredo’s investment in capital assets for its Governmental and Business-Type activities as of September 30, 2011 is $1.04 million (net of accumulated depreciation). The total increase in the City’s investment in capital assets for the current fiscal year was $142.2 million net increase over prior year. Additions, to capital assets such as land, infrastructure, equipment, construction in progress and buildings for the year totaled $62.6 million for governmental activities and $36.9 million for business type activities.

13

Deletions of such items were immaterial for the year. (Table A-3) Additional information about the City’s Capital Assets is presented in Note 8 to the financial statements.

Table A-3 City of Laredo – Capital Assets

Major capital asset acquisitions during the current fiscal year included the following:

Governmental • Various land acquisitions totaling $6 million. Largely, the land acquisition was for the purchase of a City

Hall Annex totaling $3.0 million, various Airport properties totaling $2.8 million. • Assets for Building category increased by $13.1 million mainly due to a City Hall Annex with a cost of

$5.5 million for the building, an additional phase to the Haynes Recreation Center with a cost of $3.6 million and several other recreational centers including the Civic Center with $500 thousand.

• Infrastructure Improvements in the amount of $47.4 million for various projects including Airport runways and cargo at a cost of $13 million, various industrial truck route with a cost of $6.7 million, Street Improvements of $3.6 million, drainage improvements of $4.8 million, parks improvements of $19 million including a municipal golf course and baseball stadium.

• Machinery, equipment, vehicles and heavy equipment acquired during the fiscal year amounted to $3.3 million for all departments within the City.

• Construction in Progress increased by $14.5 due to commencement of various projects.

Proprietary • Building capital assets increased by $7.9 million for the proprietary funds, this is mostly due to a

desalination brackish water plant with a cost of $1.6 million, South and North Laredo Waste Water Treatment Plants for a cost of $5.2 million and various other improvements.

• Machinery, equipment, vehicles and heavy equipment acquired totaled $8.6 million. Some of the items purchased were landfill equipment totaling $2.2 million, $4.6 million for 14 buses in our Transit System and various equipment needs in the Water and Sewer Departments totaling $1.8 million.

• Water Rights increased by $10.2 million. • Improvement other than building and construction in progress increased by $31.1 million which includes

Water and Sewer plant improvements, collection and distribution systems.

The Governmental activities consists of improvements to and / or construction of the City’s streets, parks and recreational facilities, police substations, fire protection facility, and airport improvements. Contractual Obligation bonds and grant awards are the primary financing mechanism for these capital improvements.

2011 2010 2011 2010 2011 2010 Land 76,466,440 $ 70,500,680 $ 31,229,059 $ 31,180,460 $ 107,695,499 $ 101,681,140 $ Buildings 161,893,800 148,755,547 103,983,287 96,084,537 265,877,087 244,840,084 Machinery & Equipment 92,401,725 89,151,249 80,324,733 71,703,748 172,726,458 160,854,997 Water Rights - 40,050,823 29,847,150 40,050,823 29,847,150 Improve'ts other than Bldg 530,418,410 483,021,096 367,677,009 353,237,984 898,095,419 836,259,080 Construction in Progress 19,810,403 5,266,211 83,622,885 66,962,317 103,433,288 72,228,528

Total 880,990,778 $ 796,694,783 $ 706,887,796 $ 649,016,196 $ 1,587,878,574 $ 1,445,710,979 $

Total Activities Activities Business-Type Governmental

14

Bond Ratings The City most recent general obligation bond ratings are the following: Standard & Poor’s AA- Moody’s Aa2 Fitch A+

The Business Type activities consist of improvements to and/or construction of water and wastewater systems and international bridge improvements. These projects are primarily funded by the transfer of enterprise revenues and the issuance of debt I.e.: Revenue Bonds. Long-term Debt At year-end, the City had $314.8 million in outstanding bonds and other long term debt; an increase of $27.8 million over last year (See Table A-4) for the Governmental Activities. The Business Type Activities recorded an increase of $218.2 million. More detailed information about the City’s long-term liabilities is presented in Note 11 and 12 of the financial statements. New debt resulted mainly from various issues totaling $23.5 million; $3.5 for a General Obligation Refunding, $9.5 in Certificate of Obligation Bond Series 2011 for various capital projects and a Revenue Bond from paid from sales tax for the construction of a new baseball stadium for $10.5 million. For proprietary debt, $80.4 million was issued for Water and Sewer Systems projects as well as a $5.8 million refunding. The issuance of long term debt is to finance various projects including constructing City buildings, land acquisition, equipment and vehicles for vehicles for various City Departments and water rights acquisition.

Table A-4

City of Laredo’s Outstanding Debt

2011 2010 2011 2010 2011 2010General obligation bonds 25,154,037$ 24,945,491$ 181,297,000$ 26,894,509$ 206,451,037$ 51,840,000$ Certificates of obligation 168,839,892 167,815,685 113,545,109 123,299,316 282,385,001 291,115,001 Revenue bonds 40,160,000 31,290,000 181,297,000 107,656,000 221,457,000 138,946,000 Capital lease obligations 1,175,951 938,307 - - 1,175,951 938,307 Compensated Absences 23,343,701 16,530,088 1,813,806 1,009,275 25,157,507 17,539,363 Notes payable 680,000 765,000 19,637,040 20,494,474 20,317,040 21,259,474 Net Penion Ob. - OPEB 55,468,398 44,707,668 - - 55,468,398 44,707,668

Total 314,821,979$ 286,992,239$ 497,589,955$ 279,353,574$ 812,411,934$ 566,345,813$

Governmental Business-Type Activities Activities Total

Economic Factors and Next Year’s Budgets and Rates

The City Council considered many factors when setting the fiscal year 2012 budget. General Fund revenues for FY 11-12 are proposed to be $143,765,731; an increase of $6,156,126 or 4.47% over the prior year’s original budget. Expenditures are proposed to be $143,821,421; an increase of $4,148,861 or 2.97% over prior year budgeted expenditures. The City’s unemployment rate increase by 0.2% to 7.7% as of September 30, 2011 compared to prior year’s 7.5%. This average places it slightly below the State average of 8.0%. Building permit revenues, sales tax revenues and bridge toll revenues are areas which we use to measure the local economy. These areas are showing slight growth and are good indicators of the local state of the economy. The total 2010-2011 consolidated budget revenue appropriation is $577,391,493 million. This represents an increase in revenues of $139.5 million or 31.88% over the 2010-2011 Original Budget. The property tax rate for 2012 is .6370 per $100 valuation; the rate has remained the same for the last eighth consecutive years. Assessed valuations for FY 2012 are $10.5 billion which represents a decrease of 0.56% over prior

15

year with an estimated levy of $66.8 million. Of the .6370 tax rate, 80.4% or .512296 cents are utilized for General Fund activities, the remaining 19.6% or .124704 cents are used for Debt Service. The General Fund’s portion of property tax revenue for FY 2012 is projected to be $51.8 million. Sales tax revenues for the General Fund for FY 2012 are budgeted to be $27.4 million, an increase of $3.8 million or 16.27% as compared prior year’s budgeted amounts. A cost of living increase of 2% is included for all personnel beginning April 1st, excluding the Fire and Police Departments. The budget does include a $1.4 million or 4% salary increase for the Police Departments as per contractual obligations. The proposed budget also includes $1.0 million salary increase for Fire Department, an average of 3.25% depending on the position as per contractual obligations. There were a total of 2,617.60 full time equivalent positions with an estimated budget of $169.9 million.

The City of Laredo will continue to work on various projects for continued economic growth in the area of international trade through our airport and four international bridges. We will continue to revitalize our downtown, protect our green spaces, continue to rehabilitate our water and sewer lines, increase water distribution and water treatment for the future growth of our community, and create new park spaces such as a baseball field and new golf course among other projects. These significant investments will help assure future fiscal stability for the City and its citizens.

Requests for Information

This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for the money it receives. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Office of the Finance Director, 1110 Houston Street, City of Laredo, Texas, 78040.

16

BASIC FINANCIAL STATEMENTS

CITY OF LAREDO, TEXASSTATEMENT OF NET ASSETS

September 30, 2011

Governmental Business-typeActivities Activities Total

ASSETSCurrent Assets:Cash and Cash Equivalents: (Note 4) Cash $ 499,965 $ 16,700 $ 516,665 Investments (Note 5) 172,838,330 80,279,110 253,117,440 Receivable, net of allowances: (Note 6) Accrued Interest 1,501,975 68,586 1,570,561 Property Taxes, Penalty and Interest 9,114,577 - 9,114,577 Hotel-Motel Tax, Penalty and Interest 343,495 - 343,495 Accounts 13,495,700 9,955,160 23,450,860 Notes 14,760,391 16,180 14,776,571 Paving Assessments 7,870 - 7,870 Internal Balances (Note 13) (1,725,716) 1,725,716 - Due From Other Governments 6,901,489 927,860 7,829,349 Inventory, at cost 489,314 1,606,872 2,096,186 Prepaid Items 363,869 - 363,869 Total Current Assets 218,591,259 94,596,184 313,187,443

Noncurrent Assets:Restricted Assets: (Note 7) Investments (Note 5) - 147,398,442 147,398,442 Accrued Interest - 194,486 194,486 Notes - 63 63 Due From Other Governments - 4,416,128 4,416,128 Capital Assets: (Note 8) Nondepreciable Assets: Land and Improvements 76,466,440 71,279,883 147,746,323 Construction in Progress 19,810,402 83,622,885 103,433,287 Depreciable Assets: Buildings 161,893,799 103,983,287 265,877,086 Machinery and Equipment 92,401,726 80,324,733 172,726,459 Infrastructure 530,418,410 367,677,009 898,095,419 Accumulated Depreciation (307,123,742) (241,382,673) (548,506,415) Unamortized Bond Issuance Costs 4,617,550 4,081,902 8,699,452 Total Non Current Assets 578,484,585 621,596,145 1,200,080,730 TOTAL ASSETS $ 797,075,844 $ 716,192,329 $ 1,513,268,173

(Continued)

Primary Government

17

CITY OF LAREDO, TEXASSTATEMENT OF NET ASSETS

September 30, 2011(Continued)

Governmental Business-typeActivities Activities Total

LIABILITIESCurrent Liabilities:Accounts Payable $ 5,872,090 $ 2,172,574 $ 8,044,664 Claims and Judgments Payable (Note 18) 4,283,348 - 4,283,348 Retainage Payable 2,344,195 2,750,449 5,094,644 Accrued Wages and Employee Benefits 5,034,121 1,377,044 6,411,165 Accrued Interest Payable 1,244,803 1,358,582 2,603,385 Compensated Absences (Note 11 & 12) 2,630,835 726,404 3,357,239 Contracts Payable 4,179,314 3,292,847 7,472,161 Customer and Tenant Deposits 156,349 4,684,690 4,841,039 Due To Other Governments 479,044 - 479,044 Due to Developers 337,187 - 337,187 Unearned Revenue 2,910,922 3,257,585 6,168,507 General Obligation Bonds (Note 11 & 12) 3,476,586 5,538,414 9,015,000 Certificates of Obligation (Note 11 & 12) 7,157,804 4,092,196 11,250,000 Revenue Bond Payable (Note 11 & 12) 1,900,000 7,983,000 9,883,000 Notes Payable (Note 11 & 12) 85,000 892,590 977,590 Capital Lease Obligation (Note 11) 473,076 - 473,076 Total Current Liabilities 42,564,674 38,126,375 80,691,049

Noncurrent Liabilities:Noncurrent portion of long term liabilities: General Obligation Bonds (Note 11 & 12) 21,677,451 21,297,317 42,974,768 Certificates of Obligation (Note 11 & 12) 161,682,088 109,452,913 271,135,001 Revenue Bonds Payable (Note 11 & 12) 38,260,000 173,314,000 211,574,000 Notes Payable (Note 11 & 12) 595,000 18,744,450 19,339,450 Capital Lease Obligations (Note 11) 702,875 - 702,875 Compensated Absences (Note 11 & 12) 20,712,866 1,087,402 21,800,268 Net Pension Obligations - OPEB (Note 11) 55,468,398 - 55,468,398 Landfill Closure & Postclosure Costs (Note 12) - 10,449,569 10,449,569 Total Noncurrent Liabilities 299,098,678 334,345,651 633,444,329 TOTAL LIABILITIES 341,663,352 372,472,026 714,135,378

NET ASSETSInvestments in Capital Assets, net of related debt 404,332,329 273,496,354 677,828,683 Restricted for: Debt Service 10,692,075 20,349,643 31,041,718 Capital Projects 13,334,525 - 13,334,525 Improvements - 5,530,289 5,530,289 Canseco Endowment Fund Nonexpendable 72,365 - 72,365 Unrestricted 26,981,198 44,344,017 71,325,215 TOTAL NET ASSETS $ 455,412,492 $ 343,720,303 $ 799,132,795

The notes to the financial statements are an integral part of this statement.

Primary Government

18

Net

(Exp

ense

) Rev

enue

and

Cha

nges

in N

et A

sset

sPr

ogra

m R

even

ues

Prim

ary

Gov

ernm

ent

Ope

ratin

gC

apita

l C

harg

es fo

rG

rant

s an

dG

rant

s an

dG

over

nmen

tal

Bus

ines

s-Ty

peEx

pens

esSe

rvic

esC

ontr

ibut

ions

Con

trib

utio

nsA

ctiv

ities

Act

iviti

esTo

tal

Func

tions

/Pro

gram

s

Prim

ary

Gov

ernm

ent:

Gov

ernm

enta

l Act

iviti

es:

G

ener

al G

over

nmen

t$

33,2

12,4

69

40,3

74,8

02

984,

808

-

8,

147,

141

-

8,14

7,14

1

Pub

lic S

afet

y10

8,22

0,84

9

8,

589,

950

6,29

8,43

5

-

(9

3,33

2,46

4)

-

(93,

332,

464)

Pub

lic W

orks

28,9

71,6

76

2,15

8,28

4

1,

555,

902

32,9

35,9

15

7,67

8,42

5

-

7,

678,

425

H

ealth

and

Wel

fare

21,5

59,6

24

11,9

98,6

83

12,6

40,9

39

1,90

2,08

0

4,

982,

078

-

4,98

2,07

8

Cul

ture

and

Rec

reat

ion

24,3

51,2

17

5,41

2,31

8

1,

946,

972

1,18

2,50

5

(1

5,80

9,42

2)

-

(15,

809,

422)

Air

Tran

spor

tatio

n8,

337,

337

4,58

6,43

7

72

,804

-

(3

,678

,096

)

-

(3,6

78,0

96)

Inte

rest

and

Oth

er o

n Lo

ng-T

erm

Deb

t11

,330

,317

-

-

-

(1

1,33

0,31

7)

-

(11,

330,

317)

Tota

l Gov

ernm

enta

l Act

iviti

es23

5,98

3,48

9

73

,120

,474

23

,499

,860

36

,020

,500

(1

03,3

42,6

55)

-

(103

,342

,655

)

Bus

ines

s-Ty

pe A

ctiv

ities

:

Tra

nsit

Syst

em15

,011

,164

3,

971,

867

4,25

9,64

1

4,

991,

135

-

(1,7

88,5

21)

(1

,788

,521

)

B

ridge

Sys

tem

41,5

58,0

90

46,4

33,3

96

13,7

27

55,9

01

-

4,94

4,93

4

4,

944,

934

W

ater

wor

ks S

yste

m42

,840

,185

36

,301

,316

-

30

,068

,701

-

23

,529

,832

23

,529

,832

Sew

er S

yste

m24

,269

,283

27

,711

,393

6,

354

1,42

5,57

5

-

4,

874,

039

4,87

4,03

9

Sol

id W

aste

Man

agem

ent S

yste

m15

,794

,014

16

,657

,612

-

67

,713

-

93

1,31

1

931,

311

Mun

icip

al H

ousi

ng1,

427,

976

1,41

3,04

8

-

-

-

(1

4,92

8)

(14,

928)

Tota

l Bus

ines

s-Ty

pe A

ctiv

ities

140,

900,

712

132,

488,

632

4,27

9,72

2

36

,609

,025

-

32

,476

,667

32

,476

,667

Tota

l Prim

ary

Gov

ernm

ent

$37

6,88

4,20

1

20

5,60

9,10

6

27

,779

,582

72

,629

,525

(1

03,3

42,6

55)

32,4

76,6

67

(70,

865,

988)

Gen

eral

Rev

enue

s: P

rope

rty T

axes

69,1

42,9

02

-

69,1

42,9

02

Sal

es T

ax

39,0

50,1

13

6,31

1,74

5

45

,361

,858

F

ranc

hise

Tax

7,01

8,60

2

-

7,

018,

602

Hot

el M

otel

Tax

4,11

7,95

6

-

4,

117,

956

Alc

ohol

ic B

ever

age

Tax

329,

521

-

32

9,52

1

Unr

estri

cted

inve

stm

ent e

arni

ngs

505,

944

20

3,74

3

709,

687

G

ain

on s

ale

of c

apita

l ass

ets

1,32

7,29

6

15

2,89

3

1,48

0,18

9

B

ond

Pre

miu

m82

9,08

6

5,43

9,66

8

6,

268,

754

Tra

nsfe

rs (N

ote

14)

5,84

2,96

4

(5

,842

,964

)

-

T

otal

gen

eral

reve

nues

and

tran

sfer

s12

8,16

4,38

4

6,

265,

085

134,

429,

469

Cha

nge

in n

et a

sset

s24

,821

,729

38

,741

,752

63

,563

,481

N

et a

sset

s-be

ginn

ing

430,

590,

763

304,

978,

551

735,

569,

314

Net

ass

ets-

endi

ng$

455,

412,

492

343,

720,

303

799,

132,

795

The

note

s to

the

finan

cial

sta

tem

ents

are

an

inte

gral

par

t of t

his

stat

emen

t.

For t

he Y

ear E

nded

Sep

tem

ber 3

0, 2

011

STAT

EMEN

T O

F AC

TIVI

TIES

CIT

Y O

F LA

RED

O, T

EXAS

19

CITY OF LAREDO, TEXASBALANCE SHEET

GOVERNMENTAL FUNDSSeptember 30, 2011

OTHER TOTALDEBT GOVERNMENTAL GOVERNMENTAL

GENERAL SERVICE FUNDS FUNDS

ASSETS Cash and Cash Equivalents: Cash $ 15,084 - 484,431 499,515 Investments 38,286,530 8,269,231 121,011,349 167,567,110 Receivable, net of allowances: Accrued Interest 40,502 3,913 1,451,867 1,496,282 Taxes, Penalty and Interest (Note 6) 7,832,042 1,217,241 46,824 9,096,107 Accounts (Note 6) 3,455,095 - 1,784,765 5,239,860 Notes (Note 6) - - 14,760,391 14,760,391 Paving Assessments (Note 6) - 7,870 - 7,870 Due from Other Funds 2,955,441 - 2,950 2,958,391 Due from Other Governments 358,194 - 6,543,295 6,901,489 Inventory, at cost 14,937 - 69,161 84,098

TOTAL ASSETS 52,957,825 9,498,255 146,155,033 208,611,113

LIABILITIES AND FUND BALANCES

LIABILITIESAccounts Payable 1,830,889 903 2,555,123 4,386,915 Retainage Payable - - 2,344,195 2,344,195 Accrued Wages and Employee Benefits 3,958,909 - 916,557 4,875,466 Contracts Payable 34,843 - 4,144,471 4,179,314 Customer and Tenant Deposits 625 - 155,724 156,349 Due to Other Funds - - 3,171,805 3,171,805 Due to Other Governments 387,044 - 92,000 479,044 Due to Developers - - 337,187 337,187 Deferred Revenue 11,225,075 1,225,324 17,990,827 30,441,226

TOTAL LIABILITIES 17,437,385 1,226,227 31,707,889 50,371,501

FUND BALANCES (Note 22) Nonspendable 14,937 - 119,161 134,098 Restricted 786,681 8,272,028 95,987,821 105,046,530 Committed 22,393,198 - 6,756,570 29,149,768 Assigned 1,613,435 - 11,709,333 13,322,768 Unassigned (Deficit) 10,712,189 - (125,741) 10,586,448

TOTAL FUND BALANCES 35,520,440 8,272,028 114,447,144 158,239,612

TOTAL LIABILITIES AND FUND BALANCES $ 52,957,825 9,498,255 146,155,033

Amounts reported for governmental activities in the statement of net assets are different because:

Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 572,956,104 Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds. 9,806,101 Internal service funds are used by management to charge the costs of fleet management, risk management, and health benefits to individual funds. The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net assets. (72,468) Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore, are not reported in the funds. (Note 2) (285,516,857)

Net assets of governmental activities $ 455,412,492

The notes to the financial statements are in integral part of this statement.

20

CITY OF LAREDO, TEXASSTATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

GOVERNMENTAL FUNDSFor the Year Ended September 30, 2011

OTHER TOTALDEBT GOVERNMENTAL GOVERNMENTAL

GENERAL SERVICE FUNDS FUNDS

REVENUES:

Taxes: Property $ 55,890,069 13,108,222 - 68,998,291 Sales 26,935,219 - 6,733,805 33,669,024 Franchise Fees 6,995,838 - - 6,995,838 Bingo Tax 74,345 - - 74,345 Alcoholic Beverage 341,545 - - 341,545 Hotel Motel - - 4,055,510 4,055,510 Licenses and Permits 5,795,171 - 692,547 6,487,718 Intergovernmental Revenues 1,629,571 - 48,171,579 49,801,150 Charges for Services 32,061,368 - 9,667,053 41,728,421 Fines 3,248,911 - 514,066 3,762,977 Fees and Collections 790,739 - 2,756,806 3,547,545 Rents - - 5,731,032 5,731,032 Interest and Other 931,281 67,636 512,963 1,511,880 Miscellaneous 480,466 304,116 3,938,247 4,722,829 Contributions & Donations 9,749,327 - 1,202,123 10,951,450 Reimbursements - 38,578 2,242,035 2,280,613

TOTAL REVENUES 144,923,850 13,518,552 86,217,766 244,660,168

EXPENDITURES:

Current: General Government 18,295,821 14,822 787,486 19,098,129 Public Safety 92,803,746 - 8,253,548 101,057,294 Public Works 7,049,101 - 3,136,007 10,185,108 Health and Welfare 839,064 - 19,321,739 20,160,803 Cultural and Recreational 11,139,218 - 12,501,448 23,640,666 Air Transportation Services - - 4,651,685 4,651,685 Capital Outlay 11,291,552 - 74,420,482 85,712,034 Debt Service: Bond Costs - 64,452 640,403 704,855 Principal Retirement - 9,676,355 570,009 10,246,364 Interest and Fiscal Expenditures - 10,816,364 50,550 10,866,914

TOTAL EXPENDITURES 141,418,502 20,571,993 124,333,357 286,323,852

Excess (Deficiency) of Revenues Over (Under) Expenditures 3,505,348 (7,053,441) (38,115,591) (41,663,684)

OTHER FINANCING SOURCES (USES):

Transfers In 6,681,267 8,736,563 31,282,112 46,699,942 Issuance of Debt - 3,199,078 19,990,000 23,189,078 Bond Premium - 178,683 650,403 829,086 Transfers Out (9,738,939) - (29,334,061) (39,073,000) Capital Leases - - 807,653 807,653 Sale of Assets 126,432 - 1,248,646 1,375,078 Payment to Refunded Bond Escrow Agent - (3,317,933) - (3,317,933)

TOTAL OTHER FINANCING SOURCES (USES) (2,931,240) 8,796,391 24,644,753 30,509,904

Net Change in Fund Balances 574,108 1,742,950 (13,470,838) (11,153,780) Fund Balances-Beginning 34,946,332 6,529,078 127,917,982 169,393,392

FUND BALANCES-ENDING $ 35,520,440 8,272,028 114,447,144 158,239,612

21

CITY OF LAREDO, TEXASRECONCILIATION OF THE STATEMENT OF REVENUES,

EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDSTO THE STATEMENT OF ACTIVITIES

For the Year Ended September 30, 2011

Amounts reported for governmental activities in the statement of activities are different because:

Net change in fund balances-total governmental funds $ (11,153,780)

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. (Note 2) 59,956,857

Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. 8,131,933

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. (Note 2) (10,432,434) Accrued interest expense recorded for entity-wide statements. 60,141

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. (19,848,584) Internal service funds are used by management to charge the costs of fleet management, risk management, and health and benefits to individual funds. The net revenue of certain activities of internal service funds is reported with governmental activities. (1,892,404)

Change in net assets of governmental activities $ 24,821,729

22

This page intentionally left blank

23

CITY OF LAREDO, TEXASGENERAL FUND

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES INFUND BALANCES - BUDGET AND ACTUAL

Year Ended September 30, 2011

Budgeted Amounts Actual VarianceBudget Positive

Original Final Actual Adjustments Basis (Negative)

REVENUES:

TaxesProperty Taxes $ 54,109,923 54,109,923 53,783,005 - 53,783,005 (326,918) Penalty and Interest 2,421,767 2,421,767 2,107,064 - 2,107,064 (314,703) Alcoholic Beverage 314,028 314,028 341,545 - 341,545 27,517 Bingo Tax 73,153 73,153 74,345 - 74,345 1,192 Sales and Use 23,589,876 23,589,876 26,935,219 - 26,935,219 3,345,343

Franchise Fees 6,645,215 6,645,215 6,995,838 - 6,995,838 350,623 Licenses and Permits 5,856,543 5,856,543 5,795,171 - 5,795,171 (61,372) Intergovernmental Revenues 622,500 2,107,842 1,629,571 - 1,629,571 (478,271) Charges for Services 32,198,266 32,198,266 32,061,368 - 32,061,368 (136,898) Fines 3,394,911 3,394,911 3,248,911 - 3,248,911 (146,000) Fees and Collections 744,297 744,297 790,739 - 790,739 46,442 Interest and Other 922,047 922,047 931,281 - 931,281 9,234 Miscellaneous 4,893 40,532 480,466 - 480,466 439,934 Contributions and Donations 15,000 15,000 9,749,327 - 9,749,327 9,734,327

TOTAL REVENUES 130,912,419 132,433,400 144,923,850 - 144,923,850 12,490,450

EXPENDITURES:

General GovernmentMayor and City Council 730,270 741,310 747,064 4,863 751,927 (10,617) City Manager 1,200,526 1,201,026 1,195,295 3,197 1,198,492 2,534 Internal Audit 240,405 240,405 237,591 - 237,591 2,814 Public Information Office 175,321 174,821 86,254 156 86,410 88,411 City Hall Maintenance 530,165 530,165 452,865 65,272 518,137 12,028 Municipal Court 1,472,707 1,485,946 1,317,366 16,269 1,333,635 152,311 Building Inspections 1,539,897 1,509,897 1,282,574 1,494 1,284,068 225,829 Development Review Engineering 490,076 489,917 508,728 - 508,728 (18,811) Code Enforcement 340,512 340,512 337,235 - 337,235 3,277 Public Right of Way 198,875 199,034 196,532 - 196,532 2,502 Geographic Information Systems 204,913 204,913 193,508 2,231 195,739 9,174 City Attorney 1,021,245 1,021,245 892,478 8,159 900,637 120,608 City Secretary 449,186 457,911 426,102 2,250 428,352 29,559 Elections 87,492 275,823 274,221 - 274,221 1,602 Tax Office 1,058,789 1,058,789 1,035,938 3,565 1,039,503 19,286 Accounting 1,180,614 1,175,104 1,080,648 677 1,081,325 93,779 Purchasing 483,910 483,910 480,506 1,126 481,632 2,278 Payroll 218,809 218,809 216,775 255 217,030 1,779 Accounts Payable 347,100 351,700 351,698 320 352,018 (318) Budget 362,596 363,506 361,640 351 361,991 1,515 Personnel and Civil Service 538,739 538,739 518,335 128 518,463 20,276 Training 334,021 334,021 291,776 105 291,881 42,140 Planning 909,474 933,474 847,343 16,136 863,479 69,995 Section 112 500,000 500,000 283,926 902 284,828 215,172 311 Program 297,952 297,952 269,280 27,389 296,669 1,283 Communications & Admin. Support 341,605 341,605 247,845 6,118 253,963 87,642 Center for Non-Profit 97,379 97,379 90,537 2,178 92,715 4,664 Real Estate 165,358 175,358 159,203 9,800 169,003 6,355 Economic Development 75,000 75,000 - - - 75,000

Public SafetyPolice 4,139,742 4,259,803 3,897,386 32,890 3,930,276 329,527 Records/Property 1,313,130 1,312,585 1,178,585 1,888 1,180,473 132,112 Autotheft Grant Match 813,514 699,238 638,663 - 638,663 60,575 Detective 5,801,983 5,556,093 5,406,773 11,646 5,418,419 137,674 LISD SRO Program 11,205 - - - - - Narcotics/Pipeline/K-9 3,286,953 3,261,166 3,010,767 14,884 3,025,651 235,515 911 Communications 2,749,481 2,782,525 2,431,069 - 2,431,069 351,456 Criminal Int. Acquisition 387,627 385,965 361,452 1,523 362,975 22,990 Patrols 34,436,185 34,718,221 34,667,037 305,619 34,972,656 (254,435) Fire 23,763,599 23,719,497 24,813,386 19,439 24,832,825 (1,113,328) Fire - EMS Division 8,287,077 8,293,806 7,684,557 3,013 7,687,570 606,236 Fire - EMS Trauma (Webb Co.) 14,000 14,000 6,650 - 6,650 7,350 Fire Civilians 551,782 572,022 611,431 - 611,431 (39,409) Fire - Prevention & Arson 1,566,354 1,578,072 1,467,252 11 1,467,263 110,809 Fire Airport 975,269 976,664 1,143,472 - 1,143,472 (166,808) Fire - Training (In House) 438,286 442,251 505,860 - 505,860 (63,609) Fire - Training 418,895 419,472 402,409 1,115 403,524 15,948 Fire Emergency Management 12,294 11,772 11,878 780 12,658 (886) Homeland Security Grant - 101,756 27,500 16,366 43,866 57,890 Traffic 2,443,556 2,463,490 2,360,236 4,060 2,364,296 99,194 Street Lighting $ 2,280,834 2,252,134 2,177,383 - 2,177,383 74,751

(Continued)

24

CITY OF LAREDO, TEXASGENERAL FUND

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES INFUND BALANCES - BUDGET AND ACTUAL

Year Ended September 30, 2011

Budgeted Amounts Actual VarianceBudget Positive

Original Final Actual Adjustments Basis (Negative)

Public WorksAdministration $ 711,419 733,225 673,471 14,103 687,574 45,651 Engineering 565,405 565,405 557,817 299 558,116 7,289 Street Maintenance 1,231,639 1,226,939 954,410 11,850 966,260 260,679 Drafting & Surveying 1,212,945 1,215,732 968,093 1,101 969,194 246,538 Street Construction 1,071,786 1,015,508 912,433 6,456 918,889 96,619 Construction & Inspections 476,743 473,956 504,973 589 505,562 (31,606) Street Cleaning 1,362,328 1,364,678 1,280,637 970 1,281,607 83,071 Building Rehabilitation 810,896 808,396 629,467 2,730 632,197 176,199 Warehouse 111,170 103,034 90,239 822 91,061 11,973 Special Construction Projects 437,734 419,396 477,561 - 477,561 (58,165)

Health and WelfareThird-Party Funding 696,700 696,700 689,900 2,952 692,852 3,848 Non CDBG Code Enforcement 154,645 154,645 149,164 418 149,582 5,063

Cultural and RecreationalParks 555,449 549,962 469,088 3,304 472,392 77,570 Maintenance 4,474,530 4,534,893 4,645,347 82,555 4,727,902 (193,009) Recreation 681,700 666,200 837,876 4,124 842,000 (175,800) Recreation Centers 1,816,850 1,767,688 1,802,643 34,633 1,837,276 (69,588) Cemetery 325,287 325,287 298,548 3,418 301,966 23,321 Library 3,536,707 3,536,052 3,085,716 136,652 3,222,368 313,684

Other 4,480,564 4,996,008 3,912,558 8,835 3,921,393 1,074,615 Capital Outlay - 2,727,673 11,291,552 236,202 11,527,754 (8,800,081)

TOTAL EXPENDITURES 133,999,199 137,520,180 141,418,502 1,138,188 142,556,690 (5,036,510)

Excess (Deficiency) of Revenues Over Expenditures (3,086,780) (5,086,780) 3,505,348 (1,138,188) 2,367,160 7,453,940

OTHER FINANCING SOURCES (USES):

Transfers In: Hotel Motel Fund 19,807 19,807 7,538 - 7,538 (12,269) Capital Improvements Fund 3,889,751 3,889,751 3,889,751 - 3,889,751 - Parking Meters 1,000,000 1,000,000 1,000,000 - 1,000,000 - Fleet Management 457,591 457,591 457,591 - 457,591 - Risk Management 1,026,387 1,026,387 1,026,387 - 1,026,387 - Information Technology 300,000 300,000 300,000 - 300,000 -

Transfers Out: Auto Theft Task Force (241,646) (241,646) (235,507) - (235,507) 6,139 Health Fund (2,985,441) (2,985,441) (3,058,484) - (3,058,484) (73,043) Special Police Program (190,112) (190,112) (50,401) - (50,401) 139,711 Public Access Fund (312,121) (312,121) (304,287) - (304,287) 7,834 Special Fire Grants (1,059,269) (1,059,269) (1,090,260) - (1,090,260) (30,991) Debt Service Fund (2,000,000) (2,000,000) (2,000,000) - (2,000,000) - Capital Improvements Fund - - (3,000,000) - (3,000,000) (3,000,000)

Sale of Assets 3,650 3,650 126,432 - 126,432 122,782

TOTAL OTHER FINANCING SOURCES (USES) (91,403) (91,403) (2,931,240) - (2,931,240) (2,839,837)

Net Change in Fund Balance (3,178,183) (5,178,183) 574,108 (1,138,188) (564,080) 4,614,103

Fund Balances at Beginning of Year 32,968,293 34,946,332 34,946,332 (42,235) 34,904,097 (42,235)

FUND BALANCES AT END OF YEAR $ 29,790,110 29,768,149 35,520,440 (1,180,423) 34,340,017 4,571,868

The notes to the financial statements are an integral part of this statement.

25

CIT

Y O

F LA

RED

O, T

EXAS

STAT

EMEN

T O

F N

ET A

SSET

SPR

OPR

IETA

RY

FUN

DS

Sept

embe

r 30,

201

1

BU

SIN

ESS-

TYPE

AC

TIVI

TIES

-EN

TER

PRIS

E FU

ND

S

BR

IDG

EW

ATE

RW

OR

KS

SEW

ERO

THER

IN

TER

NA

L SE

RVI

CE

SYST

EMSY

STEM

SYST

EMEN

TER

PRIS

E FU

ND

STO

TALS

FUN

DS

ASS

ETS

Cur

rent

Ass

ets:

Cas

h an

d C

ash

Equ

ival

ents

: (N

ote

4)

Cas

h$

10,0

00

1,

950

300

4,

450

16,7

00

45

0

I

nves

tmen

ts (N

ote

5)8,

261,

309

33,7

04,1

15

25,4

62,5

72

12,8

51,1

14

80,2

79,1

10

5,27

1,22

0

R

ecei

vabl

e:

Acc

rued

Inte

rest

4,78

8

31

,253

21,7

02

10

,843

68,5

86

5,

693

Acc

ount

s (N

ote

6)65

5,49

2

4,35

1,16

9

3,

731,

552

1,21

6,94

7

9,

955,

160

470,

863

Not

es (N

ote

6)-

607

15

,573

-

16

,180

-

P

repa

id It

ems

-

-

-

-

-

36

3,86

9

Due

Fro

m O

ther

Gov

ernm

ents

3,57

1

44

,225

12,8

17

86

7,24

7

927,

860

-

Due

Fro

m O

ther

Fun

ds-

368,

797

10

,582

3,02

0,97

4

3,

400,

353

-

I

nven

tory

, at C

ost

-

1,

001,

767

71,9

99

53

3,10

6

1,60

6,87

2

40

5,21

6

T

otal

Cur

rent

Ass

ets

8,93

5,16

0

39

,503

,883

29

,327

,097

18

,504

,681

96

,270

,821

6,

517,

311

Non

curre

nt A

sset

s: R

estri

cted

Ass

ets:

In

vest

men

ts (N

ote

5)4,

924,

974

106,

697,

849

26

,050

,902

9,

724,

717

147,

398,

442

-

A

ccru

ed In

tere

st R

ecei

vabl

e59

169,

151

25

,159

117

19

4,48

6

-

Not

es R

ecei

vabl

e (N

ote

6)-

63

-

-

63

-

Due

Fro

m O

ther

Fun

ds-

-

-

1,40

5,06

7

1,

405,

067

-

Due

Fro

m O

ther

Gov

ernm

ents

-

4,

416,

128

-

-

4,41

6,12

8

-

Tota

l Res

trict

ed A

sset

s (N

ote

7)4,

925,

033

111,

283,

191

26

,076

,061

11

,129

,901

15

3,41

4,18

6

-

Cap

ital A

sset

s: (N

ote

8)

Tra

nspo

rtatio

n V

ehic

les

and

Equ

ipm

ent

14,9

98,1

33

8,41

7,46

3

8,

090,

771

48,8

18,3

66

80,3

24,7

33

1,63

4,65

0

Bui

ldin

gs33

,617

,727

23

,917

,848

27

,403

,618

19

,044

,094

10

3,98

3,28

7

401,

188

Impr

ovem

ents

79,2

74,5

90

154,

422,

056

12

1,17

8,16

4

12,8

02,1

99

367,

677,

009

11

,391

L

and

and

Impr

ovem

ents

11,2

65,2

65

44,6

86,0

54

4,53

1,52

5

10

,425

,110

70

,907

,954

-

L

and

Eas

emen

ts-

170,

534

20

1,39

5

-

37

1,92

9

-

Con

stru

ctio

n in

Pro

gres

s2,

017,

143

60,9

61,8

84

19,4

98,0

38

1,14

5,82

0

83

,622

,885

-

L

ess

Acc

umul

ated

Dep

reci

atio

n(4

4,96

1,41

5)

(92,

880,

401)

(6

1,02

0,41

1)

(42,

520,

446)

(2

41,3

82,6

73)

(1,1

36,2

98)

T

otal

Cap

ital A

sset

s (n

et o

f

ac

cum

ulat

ed d

epre

ciat

ion)

96,2

11,4

43

199,

695,

438

11

9,88

3,10

0

49,7

15,1

43

465,

505,

124

91

0,93

1

Oth

er A

sset

s:

Una

mor

tized

Bon

d Is

suan

ce C

osts

1,33

1,50

6

1,

961,

025

671,

581

11

7,79

0

4,08

1,90

2

-

T

otal

Non

curre

nt A

sset

s10

2,46

7,98

2

312,

939,

654

14

6,63

0,74

2

60,9

62,8

34

623,

001,

212

91

0,93

1

TOTA

L A

SSET

S$

111,

403,

142

35

2,44

3,53

7

175,

957,

839

79

,467

,515

71

9,27

2,03

3

7,42

8,24

2

(Con

tinue

d)

26

CIT

Y O

F LA

RED

O, T

EXAS

STAT

EMEN

T O

F N

ET A

SSET

SPR

OPR

IETA

RY

FUN

DS

Sept

embe

r 30,

201

1(C

ontin

ued)

BU

SIN

ESS-

TYPE

AC

TIVI

TIES

-EN

TER

PRIS

E FU

ND

S

BR

IDG

EW

ATE

RW

OR

KS

SEW

ERO

THER

IN

TER

NA

L SE

RVI

CE

SYST

EMSY

STEM

SYST

EMEN

TER

PRIS

E FU

ND

STO

TALS

FUN

DS

LIA

BIL

ITIE

S

Cur

rent

Lia

bilit

ies:

Acc

ount

s P

ayab

le$

178,

166

1,

058,

524

402,

659

53

3,22

5

2,17

2,57

4

1,

485,

174

Ret

aina

ge P

ayab

le85

,617

2,34

1,34

8

31

0,49

5

12,9

89

2,

750,

449

-

C

ontra

cts

Pay

able

244,

365

2,

081,

458

844,

751

12

2,27

3

3,29

2,84

7

-

Due

To

Oth

er F

unds

(Not

e 13

)-

1,90

1,20

9

10

,582

1,94

7,42

7

3,

859,

218

714,

509

A

ccru

ed In

tere

st-

902,

500

32

1,21

2

134,

870

1,

358,

582

-

A

ccru

ed W

ages

& E

mpl

oyee

Ben

efits

273,

619

38

4,02

4

167,

787

55

1,61

4

1,37

7,04

4

15

8,65

5

Cla

ims

and

Judg

men

ts P

ayab

le-

-

-

-

-

4,28

3,34

8

C

ompe

nsat

ed A

bsen

ces

202,

315

18

4,10

8

72,7

12

26

7,26

9

726,

404

10

2,88

0

Cus

tom

er D

epos

its8,

000

4,58

9,79

9

-

86,8

91

4,

684,

690

-

U

near

ned

Rev

enue

1,67

6,28

3

1,

467,

009

61,7

51

52

,542

3,25

7,58

5

79

,509

Gen

eral

Obl

igat

ion

Bon

ds (N

ote

12)

-

2,

875,

951

2,20

0,70

9

46

1,75

4

5,53

8,41

4

-

Cer

tific

ates

of O

blig

atio

n (N

ote

12)

-

1,

061,

751

1,60

1,38

5

1,

429,

060

4,09

2,19

6

-

Rev

enue

Bon

ds P

ayab

le (N

ote

12)

4,39

0,00

0

2,

597,

000

996,

000

-

7,98

3,00

0

-

Not

es P

ayab

le (N

ote

12)

892,

590

-

-

-

892,

590

-

T

otal

Cur

rent

Lia

bilit

ies

7,95

0,95

5

21

,444

,681

6,

990,

043

5,59

9,91

4

41

,985

,593

6,

824,

075

Non

curre

nt L

iabi

litie

s:

Gen

eral

Obl

igat

ion

Bon

ds (N

ote

12)

-

10

,716

,866

6,

718,

118

3,86

2,33

3

21

,297

,317

-

Cer

tific

ates

of O

blig

atio

n (N

ote

12)

-

63

,378

,500

30

,528

,310

15

,546

,103

10

9,45

2,91

3

-

R

even

ue B

onds

Pay

able

(Not

e 12

)50

,595

,000

95

,973

,000

26

,746

,000

-

173,

314,

000

-

Not

es P

ayab

le (N

ote

12)

18,7

44,4

50

-

-

-

18

,744

,450

-

Com

pens

ated

Abs

ence

s35

5,04

2

279,

066

87

,471

365,

823

1,

087,

402

210,

753

C

losu

re a

nd P

ostc

losu

re C

ost (

Not

e 12

)-

-

-

10,4

49,5

69

10,4

49,5

69

-

T

otal

Non

curre

nt L

iabi

litie

s69

,694

,492

17

0,34

7,43

2

64,0

79,8

99

30,2

23,8

28

334,

345,

651

21

0,75

3

TOTA

L LI

AB

ILIT

IES

77,6

45,4

47

191,

792,

113

71

,069

,942

35

,823

,742

37

6,33

1,24

4

7,03

4,82

8

NET

ASS

ETS

Inve

sted

in C

apita

l Ass

ets,

Net

of R

elat

ed D

ebt

25,5

51,7

20

133,

657,

327

82

,514

,140

31

,773

,167

27

3,49

6,35

4

910,

931

R

estri

cted

for D

ebt S

ervi

ce4,

792,

178

10,5

56,2

70

5,00

1,19

5

-

20,3

49,6

43

-

R

estri

cted

for I

mpr

ovem

ents

-

5,

530,

289

-

-

5,53

0,28

9

-

Unr

estri

cted

(Def

icit)

3,41

3,79

7

10

,907

,538

17

,372

,562

11

,870

,606

43

,564

,503

(5

17,5

17)

TOTA

L N

ET A

SSET

S$

33,7

57,6

95

160,

651,

424

10

4,88

7,89

7

43,6

43,7

73

342,

940,

789

39

3,41

4

Adj

ustm

ent t

o re

flect

the

cons

olid

atio

n of

inte

rnal

ser

vice

fund

act

iviti

es re

late

d to

ent

erpr

ise

fund

s.77

9,51

4

Net

ass

ets

of b

usin

ess-

type

act

iviti

es$

343,

720,

303

The

note

s to

the

finan

cial

sta

tem

ents

are

an

inte

gral

par

t of t

his

stat

emen

t.

27

CIT

Y O

F LA

RED

O, T

EXA

SST

ATE

MEN

T O

F R

EVEN

UES

, EXP

ENSE

S, A

ND

CH

AN

GES

IN F

UN

D N

ET A

SSET

SPR

OPR

IETA

RY

FUN

DS

Year

end

ed S

epte

mbe

r 30,

201

1

BR

IDG

EW

ATER

WO

RK

S SE

WER

OTH

ER

INTE

RN

AL S

ERVI

CE

SYST

EMSY

STEM

SYST

EMEN

TER

PRIS

E FU

ND

STO

TALS

FUN

DS

OPE

RAT

ING

REV

ENU

ES:

Cha

rges

for S

ervi

ces

$-

31

,431

,680

27

,438

,365

20

,060

,860

78

,930

,905

36

,529

,348

R

enta

l of F

acili

ties

2,73

4,63

7

-

-

1,

775,

801

4,51

0,43

8

-

T

oll R

ecei

pts

43,6

38,2

02

-

-

-

43,6

38,2

02

-

Mis

cella

neou

s59

,631

3,62

5,78

7

10

0,64

0

179,

945

3,

966,

003

1,02

7,84

9

T

OTA

L O

PER

ATIN

G R

EVEN

UES

46,4

32,4

70

35,0

57,4

67

27,5

39,0

05

22,0

16,6

06

131,

045,

548

37

,557

,197

OPE

RAT

ING

EXP

ENSE

S:

Cos

ts o

f Ser

vice

s-

-

-

-

-

29

,906

,620

P

erso

nnel

Ser

vice

s7,

451,

573

7,29

9,53

8

3,

404,

848

14,6

89,4

59

32,8

45,4

18

4,32

1,99

7

M

ater

ials

and

Sup

plie

s56

6,37

7

2,63

3,44

8

1,

410,

241

4,09

5,92

1

8,

705,

987

293,

249

C

ontra

ctua

l Ser

vice

s25

,377

,182

7,

183,

318

7,69

2,81

3

7,

202,

801

47,4

56,1

14

2,93

3,39

3

O

ther

25,6

88

12

0,80

3

107,

190

65

4,58

0

908,

261

84

0

T

otal

Ope

ratin

g E

xpen

ses

Bef

ore

Dep

reci

atio

n33

,420

,820

17

,237

,107

12

,615

,092

26

,642

,761

89

,915

,780

37

,456

,099

D

epre

ciat

ion

Exp

ense

(Not

e 8)

4,19

2,72

2

7,

260,

095

6,09

5,29

7

4,

559,

856

22,1

07,9

70

193,

812

T

OTA

L O

PER

ATIN

G E

XPEN

SES

37,6

13,5

42

24,4

97,2

02

18,7

10,3

89

31,2

02,6

17

112,

023,

750

37

,649

,911

O

pera

ting

Inco

me

(Los

s)8,

818,

928

10,5

60,2

65

8,82

8,61

6

(9

,186

,011

)

19

,021

,798

(9

2,71

4)

NO

N-O

PER

ATIN

G R

EVEN

UES

(EXP

ENSE

S):

Int

ergo

vern

men

tal

13,7

27

-

6,

354

-

20,0

81

12

5

Sal

es T

ax-

-

-

6,

311,

745

6,31

1,74

5

-

I

nter

est E

arni

ngs

23,0

32

95

1,41

3

64,8

47

36

,465

1,07

5,75

7

19

,409

Int

eres

t Ear

ning

s - R

estri

cted

55,9

01

80

0,95

7

171,

246

68

,430

1,09

6,53

4

-

D

isco

unt E

arni

ngs

-

4,20

5

8,

983

6,63

1

19

,819

122

P

rem

ium

s-

4,

550,

647

701,

569

18

7,45

2

5,43

9,66

8

-

M

isce

llane

ous

-

366,

374

16

2,76

2

16,3

55

54

5,49

1

-

Gai

n (L

oss)

On

Sal

e of

Ass

ets

2,60

8

29

,293

99,6

68

21

,324

152,

893

(4

7,90

7)

Int

eres

t Exp

ense

(3,6

97,1

71)

(8,7

37,2

68)

(3,0

83,1

42)

(959

,279

)

(16,

476,

860)

-

F

eder

al O

pera

ting

Gra

nt-

-

-

3,

588,

224

3,58

8,22

4

-

G

ain

(Los

s) o

n A

dvan

ce F

undi

ng-

(1

8,27

1)

-

-

(18,

271)

-

W

ater

Ava

ilabi

lity

-

(343

,824

)

-

-

(343

,824

)

-

Oth

er N

on-O

pera

ting

Exp

ense

s-

(9

,139

,482

)

(2

,402

,968

)

-

(1

1,54

2,45

0)

-

Fis

cal A

gent

Fee

s(1

,300

)

(3

,425

)

(3

,725

)

(1

25)

(8

,575

)

-

B

ond

Issu

ance

Cos

t Am

ortiz

ed(1

37,3

65)

(9

3,92

7)

(65,

587)

(3

7,74

5)

(334

,624

)

-

Sta

te D

ept.

of H

ighw

ays

-

-

-

671,

417

67

1,41

7

-

Con

stru

ctio

n(1

03,7

09)

-

-

(1

6,88

0)

(120

,589

)

-

Oth

er

-

-

-

(645

)

(645

)

-

T

OTA

L N

ON

-OPE

RAT

ING

REV

ENU

ES

(E

XPEN

SES)

(3,8

44,2

77)

(11,

633,

308)

(4

,339

,993

)

9,

893,

369

(9,9

24,2

09)

(28,

251)

(C

ontin

ued)

BU

SIN

ESS-

TYPE

AC

TIVI

TIES

- EN

TER

PRIS

E FU

ND

S

28

CIT

Y O

F LA

RED

O, T

EXA

SST

ATE

MEN

T O

F R

EVEN

UES

, EXP

ENSE

S, A

ND

CH

AN

GES

IN F

UN

D N

ET A

SSET

SPR

OPR

IETA

RY

FUN

DS

Year

end

ed S

epte

mbe

r 30,

201

1(C

ontin

ued)

BR

IDG

EW

ATER

WO

RK

S SE

WER

OTH

ER

INTE

RN

AL S

ERVI

CE

SYST

EMSY

STEM

SYST

EMEN

TER

PRIS

E FU

ND

STO

TALS

FUN

DS

I

ncom

e B

efor

e C

ontri

butio

ns a

nd T

rans

fers

4,97

4,65

1

(1

,073

,043

)

4,

488,

623

707,

358

9,

097,

589

(120

,965

)

Cap

ital C

ontri

butio

ns-In

terg

over

nmen

tal

-

26,9

42,5

69

-

4,99

0,41

8

31

,932

,987

-

C

apita

l Con

tribu

tions

-Wat

errig

hts

-

1,03

5,36

7

-

-

1,

035,

367

-

Cap

ital C

ontri

butio

ns-O

ther

-

144,

210

29

0,60

2

-

434,

812

-

C

apita

l Con

tribu

tions

-Dev

elop

ers

-

1,14

5,59

8

96

3,72

7

-

2,10

9,32

5

-

T

rans

fers

In-

-

-

28

8

288

18

6,63

7

Tra

nsfe

rs O

ut(4

,468

,108

)

(1

,375

,144

)

-

-

(5

,843

,252

)

(1

,970

,615

)

C

hang

e in

Net

Ass

ets

506,

543

26

,819

,557

5,

742,

952

5,69

8,06

4

38

,767

,116

(1

,904

,943

)

Tota

l Net

Ass

ets-

Beg

inni

ng33

,251

,152

13

3,83

1,86

7

99,1

44,9

45

37,9

45,7

09

2,29

8,35

7

Tota

l Net

Ass

ets-

Endi

ng$

33,7

57,6

95

160,

651,

424

10

4,88

7,89

7

43,6

43,7

73

393,

414

Adj

ustm

ent t

o re

flect

the

cons

olid

atio

n of

inte

rnal

ser

vice

fund

act

iviti

es re

late

d to

ent

erpr

ise

fund

s.(2

5,36

4)

Cha

nge

in n

et a

sset

s of

bus

ines

s-ty

pe a

ctiv

ities

$38

,741

,752

The

note

s to

the

finan

cial

sta

tem

ents

are

an

inte

gral

par

t of t

his

stat

emen

t.

BU

SIN

ESS-

TYPE

AC

TIVI

TIES

- EN

TER

PRIS

E FU

ND

S

29

CIT

Y O

F LA

RED

O, T

EXAS

STAT

EMEN

T O

F C

ASH

FLO

WS

PRO

PRIE

TAR

Y FU

ND

SYe

ar e

nded

Sep

tem

ber 3

0, 2

011

BU

SIN

ESS-

TYPE

AC

TIVI

TIES

-EN

TER

PRIS

E FU

ND

S

BR

IDG

EW

ATE

RW

OR

KS

SEW

ERO

THER

INTE

RN

AL

SER

VIC

ESY

STEM

SYST

EMSY

STEM

ENTE

RPR

ISE

FUN

DS

TOTA

LSFU

ND

S

CA

SH F

LOW

FR

OM

OPE

RA

TIN

G A

CTI

VITI

ES:

Rec

eipt

s fro

m c

usto

mer

s an

d us

ers

$47

,146

,776

33,3

69,5

41

26

,439

,088

22,1

55,4

73

12

9,11

0,87

8

941,

732

R

ecei

pts

from

inte

rfund

ser

vice

s pr

ovid

ed-

53

1,54

0

493,

573

17

7,18

0

1,20

2,29

3

36

,529

,348

Pay

men

ts to

sup

plie

rs(3

,312

,544

)

(8

,735

,599

)

(9

,383

,788

)

(1

2,13

0,39

8)

(33,

562,

329)

(3

1,86

0,50

5)

Pay

men

ts to

em

ploy

ees

(7,3

58,4

65)

(7,1

55,9

52)

(3,3

29,3

38)

(10,

569,

667)

(2

8,41

3,42

2)

(4,3

23,7

93)

Pay

men

ts fo

r int

erfu

nd s

ervi

ces

used

(22,

311,

962)

(2

,177

,852

)

(1

,638

,102

)

(4

,601

,132

)

(3

0,72

9,04

8)

(718

,658

)

N

et c

ash

prov

ided

(use

d) b

y op

erat

ing

activ

ities

14,1

63,8

05

15

,831

,678

12,5

81,4

33

(4

,968

,544

)

37

,608

,372

568,

124

CA

SH F

LOW

S FR

OM

NO

NC

API

TAL

FIN

AN

CIN

G A

CTI

VITI

ES:

Tra

nsfe

r to

othe

r fun

ds(4

,468

,108

)

(1

,758

,247

)

-

1,

839,

678

(4,3

86,6

77)

(1,9

70,6

15)

Tra

nsfe

r fro

m o

ther

fund

s-

-

-

56

9,93

2

569,

932

25

3,11

3

Sub

sidy

from

fede

ral a

nd s

tate

gra

nts

25,1

39

21

,214

310,

920

3,

700,

152

4,05

7,42

5

12

5

S

ales

Tax

-

-

-

6,31

1,74

5

6,

311,

745

-

N

et c

ash

prov

ided

(use

d) b

y no

ncap

ital

and

rela

ted

finan

cing

act

iviti

es(4

,442

,969

)

(1

,737

,033

)

31

0,92

0

12,4

21,5

07

6,

552,

425

(1,7

17, 3

77)

CA

SH F

LOW

S FR

OM

CA

PITA

L A

ND

REL

ATE

D F

INA

NC

ING

AC

TIVI

TIES

:

Pro

ceed

s fro

m c

apita

l deb

t-

77

,884

,944

11,8

85,1

81

3,

156,

553

92,9

26,6

78

-

C

apita

l con

tribu

tions

-

1,03

5,36

7

12

,614

-

1,04

7,98

1

-

S

ubsi

dy fr

om fe

dera

l and

sta

te g

rant

s-

30

,078

,510

-

5,00

4,62

4

35

,083

,134

-

Pur

chas

es o

f cap

ital a

sset

s-

(4

7,94

2,32

9)

(9,4

47,1

48)

(2,3

40,1

55)

(59,

729,

632)

(3

03,0

50)

A

cqui

sitio

n an

d co

nstru

ctio

n of

cap

ital a

sset

s(3

,433

,693

)

-

-

(5

,602

,884

)

(9

,036

,577

)

-

P

rinci

pal p

aid

on c

apita

l deb

t(5

,087

,435

)

(9

,544

,541

)

(5

,176

,563

)

(5

,000

,516

)

(2

4,80

9,05

5)

-

Int

eres

t pai

d on

cap

ital d

ebt

(3,6

98,4

70)

(8,4

73,5

97)

(3,0

63,9

24)

(951

,240

)

(16,

187,

231)

-

P

roce

eds

from

sal

es o

f cap

ital a

sset

s2,

608

62

,599

99,6

68

21

,324

186,

199

23

,488

N

et c

ash

prov

ided

(use

d) b

y ca

pita

l

and

rela

ted

finan

cing

act

iviti

es(1

2,21

6,99

0)

43,1

00,9

53

(5

,690

,172

)

(5

,712

,294

)

19

,481

,497

(279

,562

)

CA

SH F

LOW

S FR

OM

INVE

STIN

G A

CTI

VITI

ES:

Pro

ceed

s fro

m s

ales

and

mat

uriti

es o

f inv

estm

ents

2,40

2,44

3

(5

8,82

2,90

3)

(7,4

53,9

07)

(1,8

66,6

39)

(65,

741,

006)

1,

401,

913

Int

eres

t and

div

iden

ds re

ceiv

ed82

,311

1,61

4,43

7

24

8,07

1

116,

862

2,

061,

681

26,9

52

I

ssua

nce

of N

otes

Rec

eiva

ble

-

12,6

68

3,

655

-

16

,323

-

N

et c

ash

prov

ided

(use

d) b

y in

vest

ing

activ

ities

2,48

4,75

4

(5

7,19

5,79

8)

(7,2

02,1

81)

(1,7

49,7

77)

(63,

663,

002)

1,

428,

865

Net

incr

ease

(dec

reas

e) in

cas

h a

nd c

ash

equi

vale

nts

(11,

400)

(200

)

-

(9,1

08)

(20,

708)

50

C

ash

and

cash

equ

ival

ents

, Oct

ober

121

,400

2,15

0

300

13,5

58

37

,408

400

Cas

h an

d ca

sh e

quiv

alen

ts, S

epte

mbe

r 30

$10

,000

1,95

0

300

4,45

0

16,7

00

45

0

(C

ontin

ued)

30

CIT

Y O

F LA

RED

O, T

EXAS

STAT

EMEN

T O

F C

ASH

FLO

WS

PRO

PRIE

TAR

Y FU

ND

SYe

ar e

nded

Sep

tem

ber 3

0, 2

011

(Con

tinue

d)

BR

IDG

EW

ATE

RW

OR

KS

SEW

ERO

THER

INTE

RN

AL

SER

VIC

ESY

STEM

SYST

EMSY

STEM

ENTE

RPR

ISE

FUN

DS

TOTA

LSFU

ND

S

Rec

onci

liatio

n of

ope

ratin

g in

com

e to

n

et c

ash

prov

ided

(use

d) b

y op

erat

ing

act

iviti

es:

O

pera

ting

inco

me

$8,

818,

928

10,5

60,2

65

8,

828,

616

(9,1

86,0

11)

19,0

21,7

98

(9

2,71

2)

Adj

ustm

ents

to re

conc

ile o

pera

ting

i

ncom

e to

net

cas

h pr

ovid

ed (u

sed)

b

y op

erat

ing

activ

ities

:

D

epre

ciat

ion

expe

nse

4,19

2,72

2

7,

260,

095

6,09

5,29

7

4,

559,

856

22,1

07,9

70

19

3,81

2

(Incr

ease

) dec

reas

e in

land

fill c

losu

re a

nd p

ost c

losu

re c

ost

-

-

-

462,

989

46

2,98

9

-

(Incr

ease

) dec

reas

e in

acc

ount

s re

ceiv

able

628,

474

(1

,150

,329

)

(7

37,6

03)

24

6,45

2

(1,0

13,0

06)

(165

,722

)

Incr

ease

(dec

reas

e) in

allo

wan

ce fo

r unc

olle

ctib

le a

ccou

nts

(373

)

64,3

24

88

,736

66,4

50

21

9,13

7

97

(In

crea

se) d

ecre

ase

in in

vent

orie

s-

(2

13,3

09)

9,

272

22

,860

(181

,177

)

(12,

207)

(Incr

ease

) dec

reas

e in

pre

paid

item

s-

-

-

-

-

(2

1,39

4)

In

crea

se (d

ecre

ase)

in c

usto

mer

dep

osits

(36,

435)

208,

170

-

1,

127

17

2,86

2

-

Incr

ease

(dec

reas

e) in

acc

ount

s pa

yabl

e34

4,74

1

(762

,573

)

(1,8

20,9

18)

(1,2

10,3

90)

(3,4

49,1

40)

174,

789

In

crea

se (d

ecre

ase)

in u

near

ned

reve

nues

122,

640

(2

78,5

51)

42

,523

2,01

8

(111

,370

)

79,5

09

In

crea

se (d

ecre

ase)

in c

ompe

nsat

ed a

bsen

ces

paya

ble

50,2

24

51

,243

25,8

17

12

,682

139,

966

(1

2,82

5)

In

crea

se (d

ecre

ase)

in a

ccru

ed w

ages

and

em

ploy

ee b

enef

its42

,884

92,3

43

49

,693

53,4

23

23

8,34

3

11,0

27

In

crea

se (d

ecre

ase)

in c

laim

s &

judg

emen

ts p

ayab

les

-

-

-

-

-

413,

750

Tota

l adj

ustm

ents

5,34

4,87

7

5,

271,

413

3,75

2,81

7

4,

217,

467

18,5

86,5

74

66

0,83

6

Net

cas

h pr

ovid

ed (u

sed)

by

oper

atin

g ac

tiviti

es$

14,1

63,8

05

15

,831

,678

12,5

81,4

33

(4

,968

,544

)

37

,608

,372

568,

124

Non

cash

inve

stin

g, c

apita

l, an

d fin

anci

ng a

ctiv

ities

:

Bon

d is

suan

ce c

ost a

mor

tized

137,

365

41

,676

63,3

38

29

,870

272,

249

-

Con

tribu

tions

of c

apita

l ass

ets

from

dev

elop

ers

& o

ther

s-

1,

289,

808

1,24

1,71

5

-

2,

531,

523

-

C

urre

nt L

andf

ill C

losu

re a

nd P

ostc

losu

re c

ost

-

-

-

462,

989

46

2,98

9

-

L

oss

on a

dvan

ce re

fund

ing

-

228,

586

-

-

22

8,58

6

-

In

crea

se (D

ecre

ase)

in A

ccru

ed In

tere

st P

ayab

le-

26

7,09

6

(22,

943)

17,6

54

26

1,80

7

-

The

not

es to

the

finan

cial

sta

tem

ents

are

an

inte

gral

par

t of t

his

stat

emen

t.

31

CITY OF LAREDO, TEXASSTATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDSSEPTEMBER 30, 2011

LAREDO FIREFIGHTERSRETIREMENT

SYSTEMPENSION AGENCY

TRUST FUND FUNDS

ASSETS

Cash and Cash Equivalents (Note 4) $ 186,761 - Accrued Interest Receivable 25,871 2,033 Investments, at Fair Market Value (Note 5) - 1,881,708 Investment with Fiscal Agent, at Fair Market Value (Note 5): - Money Market Funds 1,177,447 - Foreign Money Market Funds 31,127,201 - Domestic Corporate Bonds 14,016,945 - Domestic Stocks 34,769,298 - Foreign Stocks 2,819,129 - Accounts Receivable (Note 6) 10,835 20,974

TOTAL ASSETS 84,133,487 1,904,715

LIABILITIES

Accounts Payable 50,495 1,747,240 Accrued Wages and Employee Benefits 2,068 9,871 Deferred Revenues - 129,324 Due To Other Funds - 18,280

TOTAL LIABILITIES 52,563 1,904,715

NET ASSETS

Held In Trust for Pension Benefits, Plan Participants, and Other Purposes $ 84,080,924 -

The notes to the financial statements are an integral part of this statement.

32

CITY OF LAREDO, TEXASSTATEMENT OF CHANGES IN FIDUCIARY NET ASSETS

FIDUCIARY FUNDSFOR THE YEAR ENDED SEPTEMBER 30, 2011

LAREDOFIREFIGHTERSRETIREMENT

SYSTEM CITY ANNUITYPENSION PENSION

TRUST FUND TRUST FUND

ADDITIONS:

Contributions: Employer contributions $ 4,644,823 831,928 Plan members 3,667,573 129,615 Other contributions 22,521 30,427

Total Contributions 8,334,917 991,970

Investment Earnings: Interest earnings and dividends 1,113,425 - Net increase (decrease) in the fair value of investments (902,098) - Gains (Loss) on sale of investment 2,187,030 -

Total investment earnings 2,398,357 - Less: investment expense (399,745) -

Net Investment Earnings 1,998,612 -

TOTAL ADDITIONS 10,333,529 991,970

DEDUCTIONS:

Benefits 6,632,055 920,426 Administrative Expenses 346,718 71,544

TOTAL DEDUCTIONS 6,978,773 991,970

Change in Net Assets 3,354,756 -

Net Assets - Beginning 80,726,168 -

NET ASSETS - ENDING $ 84,080,924 -

The notes to the financial statements are an integral part of this statement.

33

CITY OF LAREDO, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2011 ________________________________________________________________

1 Significant Accounting Policies 35

2 Reconciliation of Government-Wide and Fund

Financial Statements 46

3 Fund Deficits 47

4 Cash and Cash Equivalents 47

5 Investments 48

6 Receivables 50

7 Restricted Assets for Enterprise Fund Types 51

8 Capital Assets 51

9 Retirement Plans 53

10 Post Employment Benefits Other Than Pension Benefits 58

11 General Long-Term Obligations 62

12 Proprietary Funds Long-Term Obligations 67

13 Interfund Receivable and Payables 74

14 Interfund Transfers 75

15 Debt Service Requirements 76

16 Construction and Improvement Commitments 77

17 Fund Expenditures Exceeding Appropriations 77

18 Risk Management 77

19 Contingencies 79

20 Donor Restricted Endowments 79

21 Budget Basis Reporting 80

22 Fund Equity 80

34

CITY OF LAREDO, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 The accounting methods and procedures adopted by the City of Laredo, Texas conform to general accepted accounting principles as applied to governmental entities. The following notes to the financial statements are an integral part of the City’s Basic Financial Statements. NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Laredo, Texas (the City) is a municipal corporation incorporated under Article XI, Section 5 of the Constitution of the State of Texas (Home Rule Amendment). The City operates under a Council-Manager form of government and provides a full range of municipal services as authorized by its charter. The services include public safety (police and fire), highways and streets, sanitation, health and social services, culture and recreation, public improvements, planning and zoning, and general administrative services. In addition, the City owns and operates certain major activities including an airport, a transit system, water and sewer utility system, a landfill, and a bridge system. The City has defined its reporting entity in accordance with GASB 14, "The Financial Reporting Entity". The component units discussed below are included in the City's reporting entity because at least one of the following criteria are satisfied: the elected officials of the City are financially accountable for the entity, or the nature and significance of the relationship between the entity and the City are such that to exclude the entity from the reporting entity would render the financial statements misleading or incomplete. In conformity with generally accepted accounting principles, the financial statements of the component units have been included in the financial reporting entity as blended components. The City Council is the governing board for Laredo Municipal Housing Corporation, Laredo Convention and Visitors' Bureau, Laredo Transit Management, Inc and Laredo Public Facilities Corporation - La Terraza, LLC. These entities are bound by the City's legal requirements and the City Council approves the budget, major contracts, surplus dispositions, and any fees or charges. Additionally, the City is legally responsible for debt and public service rendered within the City's boundaries. Laredo Municipal Housing Corporation The Laredo Municipal Housing Corporation (LMHC) was established in 1976 to acquire 74 duplexes from the Federal Government in an effort to alleviate the existing housing shortage and provide affordable rental housing to the citizens of Laredo. These units are known as the Jose A. Flores Apartments. In 1986 the LMHC had 64 additional rental units constructed, known as the Tomas Flores Apartments. The 210 rental properties (82 two-bedroom, 98 three-bedroom and 30 four-bedroom) must be maintained in a safe and habitable condition. In addition to the rental units, one duplex unit is being used as the Laredo Municipal Housing Corporation office. The Corporation provides the necessary materials and labor required for the repairs of each rental unit. Beautification efforts are also rendered with consistent grass and tree trimming and exterior painting of the duplexes. Staff also provides a physical inspection of rental

35

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

units and implements a preventive maintenance program to curtail deterioration of the units. The Laredo Municipal Housing Corporation operations are reported as an enterprise fund. Laredo Transit Management, Inc. Under the authority of Revised Texas Civil Statues, Article 118(z) on September 8, 1987, created Laredo Municipal Transit System, The Laredo Municipal Transit System and “Mass Transit Board”. The Laredo Transit Management, Inc. reports to the Mass Transit Board. L.M.T.S. is commonly referred to as El Metro. The primary function and purpose of Laredo Transit Management, Inc. is to operate, maintain, design, and construct a safe, reliable, cost effective and efficient public transportation system that will meet the changing needs of our community, while complying with applicable state and federal mandates, including the Texas Clean Air Act and the Americans with Disabilities Act. Laredo Transit Management, Inc. provides both a fixed-route and a demand response para-transit program (El Lift). Currently, the fixed-route system is comprised of 22 routes. The fixed route system has a total of 35 buses during a regular workday and 30 buses on a Saturday. The Laredo Transit Management, Inc. bus fleet is currently comprised of 47 buses and 2 trolleys. Thirty-seven buses operate using compressed natural gas. The El Lift program operates a total of 18 para-transit vans. Twelve are utilized for a regular workday. Laredo Transit Management, Inc. is reported as an enterprise fund. Laredo Convention and Visitors' Bureau The Laredo Convention and Visitors' Bureau was established in April 1993 to engage in visitor promotion and to solicit and service conventions and other related group businesses generating overnight stays in the City, thereby enhancing and developing the economy of the city. Laredo Convention and Visitors' Bureau operations are reported as special revenue funds. Laredo Public Facilities Corporation - La Terraza, LLC. The Laredo Public Facilities Corporation (LPFC) - La Terraza, LLC was organized exclusively for the purpose of assisting the City in financing, refinancing or provided public facilities. The LPFC has the power to finance the acquisition of City obligations issued or incurred in accordance with existing law, to provide for the acquisition, construction, rehabilitation, renovation, repair, equipping furnishing and placement in service of public facilities including multifamily housing facilities. The LPFC is the sole General Partner of the La Terraza at Lomas del Sur, Ltd. Partnership. The LPFC had no financial activity as of September 30, 2011 and therefore no financial information is disclosed. Laredo Firefighters' Retirement System The Laredo Firefighters' Retirement System was created under the authority of Article 6243e - Texas Local Firefighters' Retirement Act enacted by the Legislature of the State of Texas. The act established the membership, benefits, credits and administration of certain retirement systems for volunteer or paid firefighters. The Laredo Firefighters' Retirement System administers the retirement system for the City of Laredo Firefighters employees and is included in the financial statements of the City as a component unit. Complete financial statements of the component units can be obtained from the City of Laredo, Financial Services Department offices:

36

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

City of Laredo Financial Services Department

P. O. Box 579 Laredo, TX 78042-0579

B. Basis of Accounting The accounting and reporting policies of the City as reflected in the accompanying basic financial statements conform to generally accepted accounting principles (GAAP) for local governmental units as prescribed by the Governmental Accounting Standards Board and the American Institute of Certified Public Accountants. The following represent the more significant accounting policies and practices of the City. Government Wide and Fund Financial Statements The government-wide financial statements report information on all of the non-fiduciary activities of the primary government and its component units. The effect of inter-fund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business activities. Business-type activities rely to an extent on fees and charges for support. The primary government is reported separately for certain legally separate component units for which the primary government is financially accountable. Program Revenues and Direct Expenses - The Statement of Activities demonstrates the direct expenses of a given function or segments offset by program revenues. A direct expense is specifically associated with a service, program, or department and is clearly identifiable to a particular function. In the Statement of Activities, certain indirect expenses are reported in the program expenses. Program revenue derives directly from the program itself or from parties outside the reporting government’s taxpayers or citizenry. Program revenues include charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given City function or segment. Program revenues also include grants and contributions that are limited to meeting the operational or capital requirements of a particular program. Taxes and other items not included among program revenue are reported as general revenue. Fund Accounting The accounts of the City are organized on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The City maintains the following fund types: Governmental Funds

37

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Governmental funds are those through which most governmental functions of the City are financed. The acquisition, use and balances of the City's expendable financial resources and the related current liabilities (except those, if any, which should be accounted for in proprietary funds) are accounted for through governmental funds. The measurement focus is upon determination of financial position and changes in financial position, rather than upon net income determination. The City maintains the following governmental fund types: General Fund - The General Fund is the general operating fund of the City. It is used to account for and report all financial resources not accounted for and reported in another fund. Special Revenue Funds - Special Revenue Funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specific purposes other than debt service or capital projects. Proceeds of specific revenue sources established that one or more specific restricted or committed revenues should be the foundation for a special revenue fund. The restricted or committed proceeds of specific revenue sources should be expected to continue to comprise a substantial portion of the inflows reported in the fund. Special revenue funds should not be used to account for resources held in trust for individuals, private organizations or other governments. Debt Service Fund - The Debt Service Funds are used to account for and report financial resources that are restricted, committed or assigned to expenditure for principal and interest. Capital Projects Funds - Capital Projects Funds are used to account for and report financial resources that are restricted, committed or assigned to expenditures for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Capital projects funds exclude those types of capital-related outflows finance by proprietary funds or for assets that will be held in trust for individuals, private organizations or other governments. Proprietary Funds Proprietary funds are used to account for the City's ongoing operations that are financed and operated in a manner similar to private business enterprises - where the determination of net income, financial position, and cash flows are necessary or useful for sound financial administration. Goods or services from such activities can be provided either to outside parties (enterprise funds) or to other departments or agencies primarily within the government (internal service funds). The City has adopted the following policy regarding proprietary activities under GASB Statement Number 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting. Enterprise Funds – Enterprise Funds are used to account for operations that (1) are financed and operated in a manner similar to private business enterprises where the intent of the City Council is that the cost (expenses including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges or (2) where the City Council has decided that periodic determination of revenues earned, expenses incurred, and net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes.

38

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

The City will apply all GASB pronouncements and all FASB Statements and Interpretations, Accounting Principles Board (APB) Opinions and Accounting Research Bulletins (ARB) issued on or before November 30, 1989, unless they conflict with or contradict GASB pronouncements and apply all FASB Statements and Interpretations, issued after November 30, 1989, except those that conflict with or contradict GASB pronouncements. Internal Service Funds - Internal Service Funds are used to account for the financing of goods or services provided by one City department or agency to other City departments or agencies or to other governmental units on a cost-reimbursement basis. Fiduciary Funds Fiduciary funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and other funds. Trust Funds - These funds are accounted for in the same manner as proprietary funds with the measurement focus on determination of net income and capital maintenance. The City is custodian to funds contributed into the fund; funds are used toward annuity payments. The City has two trust funds: Firefighters Retirement System, and City Annuity. Agency Fund - The Agency Fund is used to account for funds where the City’s role is purely custodial. All assets reported in an agency fund are offset by a liability to the party on whose behalf they are held and do not involve measurement of results of operations. Currently, the City has three Agency fund: Payroll Clearing, Police Retirees Dependants, and Fire Retirees Dependant Fund Permanent Funds – Permanent funds are only used to account for and report resources that are restricted to the extent that only earnings and not principal may be used for purposes that support the reporting government’s programs for the benefit of the government or its citizenry. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Economic resources measurement focus reports all inflows, outflows, and balances affecting or reflecting an entity’s net assets. Accrual basis accounting is the method that recognizes the financial effect of transactions, events, and inter-fund activities when they occur, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied while the organization recognizes grant revenue as soon as all eligibility requirements obligatory have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized when measurable and available. "Measurable" means that the amount of the transaction can be determined, and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The City considers property tax revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures are generally recognized under the modified accrual basis of accounting when the related fund

39

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

liability is incurred. An exception to this general rule is principal and interest on general long-term obligations, compensated absences, and claims and judgments which are recognized when due. Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and are recognized as revenues of the current fiscal period. Sales taxes collected and held by the state at year-end on behalf of the government are also recognized as revenue. All other revenue items are considered to be measurable and available when they are received. The City reports the following as major governmental funds: General Fund is the general operating fund of the City. It is used to account for and report all financial resources not accounted for and reported in another fund. Debt Service Fund is used to account for and report financial resources that are restricted, committed or assigned to expenditure for principal and interest. The City reports the following as major proprietary funds: Bridge System Fund is used to account for toll proceeds from four international bridges and the related operations, maintenance, and debt service. Water Works System Fund is used to account for the operations, maintenance, and debt service from three water treatment plants and seventeen booster stations and the related revenue received from 63,703 customers. Sewer System Fund is used to account for the operations, maintenance, and debt service of the City’s five sewage treatment plants and its related revenue received from 59,955 customers. Additionally, government-wide reports for proprietary funds include the following fund type: Internal Service Funds are used to provide fleet services to other funds, provide services associated with the City’s partially self-funded health benefits program, provide services associated with the risk management for all city property including workman’s compensation, and provide telecommunication services to all funds on a cost-reimbursement basis. As a general rule, the effect of inter fund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City’s water and sewer functions and various other functions of government. Private sector standards of accounting and financial reporting issued after November 30, 1989, are followed in both business-type activities and enterprise funds fund financial statements to the degree that those standards do not conflict with or disagree with the guidance of the Governmental Accounting Standards Board. Governments have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected to follow subsequent private-sector guidance.

40

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Amounts reported as program revenue include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated funds are reported as general revenues. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses result from providing services and producing and delivering goods in connection with a proprietary fund’s principal operations. The principal operating revenues of the enterprise funds and of the government’s internal service funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the government’s policy to use restricted resources first, and then unrestricted resources as they are needed. C. Budgets and Budgetary Accounting The City adheres to the following procedures in establishing the operating budgets reflected in the basic financial statements: (1) Sixty (60) days prior to the beginning of each fiscal year, the City Manager submits to the City Council a proposed budget for the fiscal year beginning October 1st. This budget is required to include expenditures by office, department, and agency and the means of financing them. Proposed short and long range capital expenditures and bonded debt requirements must also be included. (2) Public hearings are conducted at which all interested parties may comment concerning the proposed budget. (3) Council adopts the budget on or before the last day of the month of the fiscal year currently ending through passage of an appropriation ordinance and tax levy ordinance. If the City Council fails to adopt the budget at that time, the budget of the previous year is deemed to be adopted. (4) Annual appropriated budgets are legally adopted for the General Fund, Special Revenue Funds, Capital Project Funds, Debt Service Fund, Proprietary Funds, and certain Trust Funds. Annual budgets for HUD Section 108 and Expendable Trust Fund are not legally adopted. A comparison of budget to actual is presented in the Basic Financial Statements for the General Fund. (5) The City Charter identifies various allowable amendments to the budget after adoption. Supplemental Appropriations are allowed if the City Manager certifies that there are, available for appropriation, revenues in excess of those estimated in the budget and Council by ordinance and after a formal inquiry has established a need for the supplemental appropriation. Emergency Appropriations are allowed to meet a public emergency affecting life, health, property, or the public peace of the City through an emergency ordinance if there are available un-appropriated revenues. Decreases in the amount of appropriations are allowed if revenues available are insufficient to meet the amount appropriated.

41

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Transfer of Appropriations is allowed. Several supplementary appropriations were necessary during the year primarily to adjust the total budget for grants received from various federal and state agencies. (6) The City Council approval is required in order to transfer un-appropriated balances from one department, office, or agency to another. The City Manager has the authority, without City Council approval, to transfer appropriation balances from an expenditure account to another within a department, office, or agency of the City. The reported budgetary data has been revised for amendments authorized during the year. (7) Each appropriation, except those for capital expenditures, shall lapse at the close of the fiscal year to the extent it has not been expended or encumbered. Certain differences exist between the basis of accounting for budgetary purposes and that used for reporting in accordance with generally accepted accounting principles. D. Encumbrances Encumbrances represent commitments related to unperformed (executed) contracts for goods or services. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is used in the governmental funds. Encumbrances outstanding at year-end are reported as reservations of fund balances since the commitments will be honored during the subsequent year and, accordingly, do not constitute expenditures or liabilities. For budgetary purposes, appropriations lapse at year-end except for that portion related to encumbered amounts. For financial purposes, the original budget also includes actual appropriation amounts automatically carried over from prior years to cover prior-year encumbrances. E. Equity in Investment Pool Cash balances of all City funds (except for the Laredo Firefighters' Retirement System) are pooled and invested. The Equity in Investment Pool consists of cash in bank accounts, which are pooled and allocated to all funds. Investments purchased with pooled cash consisting of Investment Pools, U.S. Government obligations, U.S. Agency obligations, and Mortgage Backed Securities are recorded at fair value in accordance with GASB Statement 31 - Accounting and Financial Reporting for Certain Investments and for External Investment Pools and are classified as “Investments” in the accompanying combined balance sheet. Interest earned on investments purchased with pooled cash is allocated monthly to each participating fund based upon the fund's average month equity balance. Funds that incur a negative balance in equity in pooled investments are reclassified as Due to Other Funds in the financial statements and are not allocated any interest earnings or charged interest expense.

42

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

F. Investments

The City can legally invest in certificates of deposit, repurchase agreements, obligations of the U.S. Government and its Agencies or instrumentality and State obligations all of which are recorded at fair value in accordance with GASB Statement 31 - Accounting and Financial Reporting for Certain Investment and for External Investment Pools. G. Inventories Inventories are valued at cost, which approximates market, using the first-in first-out method, and the average cost method as appropriate. The costs of governmental fund-type inventories are recorded as expenditures when consumed rather than when purchased. H. Restricted Assets The International Toll Bridge System, Water System, and Sewer System revenue bond indentures require that, during the period the bonds are outstanding, the City must maintain certain separate accounts and funds to account for the proceeds from the issuance of the revenue bonds and the debt service deposits made from revenues. These restricted assets can be used only in accordance with the revenue bond indenture to pay the debt service payments on such bonds. I. Property, Plant, Equipment, and Infrastructure Property, plant, and equipment owned by the City are stated at historical cost. Maintenance and repairs are charged to operations as incurred, and improvements of $5,000 or more, which extend the useful life of a capital asset, are capitalized. Currently, the City’s policy has a threshold of $5,000 for equipment and $25,000 for infrastructure. The straight-line method is used to calculate the depreciation for all capital assets over the estimated useful life:

Utility Funds: Plant 50 years Transmission and distribution system 25-50 years Other machinery and equipment 1 - 25 yearsAll Other Funds: Buildings and improvements 45 years Machinery and equipment 3 - 10 years Vehicles 6 years Streets 25 years Bridges 25 years Airport runways 25 years Boat ramps 25 years Storm Drainage 25 years Landfill 25 years

The City’s Infrastructure acquired prior to June 30, 1980, is included. When property, plant, and equipment are retired from service or otherwise disposed of, a gain or loss on disposal of assets is recognized.

43

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

J. Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. Net assets are reported as restricted when there are limitations forced on their use either through enabling legislations adopted by the City or through external restrictions imposed by creditors, grantors or regulations of other governments. K. Long-Term Obligations The City has issued combination tax and special revenue (water, sewer, paving assessments, hotel-motel, airport revenues, mass transit, parking system, and public property finance contractual obligations) certificates of obligation, which it intends to repay from a combination of revenues and property taxes. The City identifies the debt service requirements for all general obligation bonds and all combination tax and special revenue certificates of obligation and reduces the property tax levy by surplus revenues (if any) from the above-mentioned sources. GASB Statement 34 eliminates the presentation of the General Long Term Debt Account Group, but provides that these records to be maintained and incorporates the information into the Governmental column in the government-wide Statement of Net Assets. General obligation and all combination tax and special revenue certificate of obligation debt is recorded exclusively in the General Long Term Debt, and it is counted towards the legal debt limit of the City. Any proceeds from issuance of general obligation and combination certificates of obligation, which are used for construction of governmental capital assets are recorded as bond proceeds in the governmental funds. Any proceeds from issuance of combination of tax and special revenue certificates of obligation bonds which are to be used for construction of enterprise fund capital assets are recorded as bond proceeds in the General Fund and as contributions to the enterprise funds. In the enterprise fund the proceeds are recorded as “Contributions”. Revenue bonds, which have been issued to fund capital projects of an Enterprise Fund and Special Revenue Fund, are to be repaid from net revenues of the Enterprise Funds and Sales Venue Sales Tax for the Special Revenue Fund. Such debt is recorded in the Enterprise Funds. L. Compensated Absences City employees are granted vacation and sick leave hours at varying rates based on the number of years employed. Employees are paid accumulated vacation hours up to a maximum of 480 hours upon termination or retirement. Sick leave hours are paid up to a maximum of 720 hours upon retirement. Amounts of vested or accumulated vacation leave that are not expected to be liquidated with available financial resources are accounted as a general long-term debt for internal purposes only. Accumulated vacation leave of enterprise funds are recorded as an expense and liability of those

44

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

funds as the benefits accrue to employees. No liability is recorded for non-vesting accumulating rights to receive sick pay benefits except as noted above.

M. Federal and State Grants and Entitlements Grants and entitlements may be accounted for within any of the three fund types. The purpose and requirements of each grant or entitlement are carefully analyzed to determine the proper fund type in which to record the related transactions. Grants and entitlements received for purposes normally financed through a particular fund type may be accounted for in that fund type provided that applicable legal restrictions can be appropriately satisfied. Capital grants restricted for capital acquisitions or construction projects are accounted for in the applicable Capital Project Funds. Revenues received for operating or for capital expenditure purposes of Enterprise Funds are recognized in the applicable Enterprise Fund. In prior years, capital contributions, including capital grants received for capital purchases, were recorded as a direct addition to the contributed capital equity account for Proprietary Funds. Beginning in fiscal year 2001, GASB 33 requires contributions of capital grants to be recorded as revenue in the Statement of Revenue, Expense, and Changes for Fund Net Assets for Proprietary Funds. N. Interfund Transactions Transactions between funds that would be treated as revenues, expenditures, or expenses if they involved organizations external to the governmental unit are accounted for as revenues, expenditures, or expenses in the funds involved. Non-recurring or non-routine transfers of equity between funds are reported as additions to or deductions from the fund balance of governmental funds. All other legally authorized transfers are treated as transfers in the basic financial statements and are included in the results of operations of both governmental and proprietary funds. O. Unamortized Bond Issuance Costs Expenses related to the sale of revenue bonds are amortized over the life of the issue. P. Statement of Cash Flows For purposes of the statements of cash flows, cash and cash equivalents include cash on hand, equity in the investment pool, and cash with fiscal agent. Governmental entities under GASB 9, as amended by GASB 34, paragraph 105, must use the direct method for Cash Flow presentation. Q. Fund Equity The City adopted GASB Statement No. 54 “Fund Balance Reporting and Governmental Fund Type Definitions effective October 1, 2010. Fund balances are classified as nonspendable, restricted, committed, assigned or unassigned in governmental funds. Nonspendable fund balance cannot be spent because of legal or contractual requirements. Restricted fund balances have restrictions for

45

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

specific purposes which are either imposed externally or by enabling legislation. Committed fund balances can only be used for specific purposes pursuant to constraints imposed by City Council through ordinance or resolution. Assigned fund balances are constrained by intent made by City management. Unassigned fund balances include residual positive balance within General Fund or may also include negative balances for any governmental fund type. The City, as per City Charter of the City of Laredo, has set aside 15% of expenditures of the General Fund as a cash reserves or minimum fund balance. If at any time the reserves fall below this threshold, City management will develop a plan, approved by the City Council, to restore the fund balance reserves to 15% of expenditures. Proprietary funds have three classifications of fund equity: 1) net assets invested in capital assets, net of related debt; 2) restricted net assets; and 3) unrestricted net assets. NOTE 2 - RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS A. Explanation of certain differences between the governmental fund balance sheet and the government-wide statement of net assets The governmental fund balance sheet includes reconciliation between fund balance-total governmental funds and net assets-governmental activities as reported in the government-wide statement of net assets. One element of that reconciliation explains that “long–term liabilities include bonds payable, which are not due and payable in the current period and therefore are not reported in the funds.” The details of this $285,516,857 difference are as follows:

Bonds, notes payable, and capital leases $ 236,009,880Accrued interest 1,244,803Deferred revenue (27,609,813)Compensated absences 23,343,701Elimination of Interfund activity (2,940,112)Net Pension Obligations 55,468,398Net adjustment to reduce fund balance-total governmental funds to arrive at net assets-governmental activities $ 285,516,857

B. Explanation of certain differences between governmental fund statement of revenues, expenditures, and changes in fund balances and the government-wide statements of activities

46

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

An element of the reconciliation states that “the issuance of long-term debt 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.” The details of this minus $10,432,434 difference are as follows:

Debt issued:Bond & Capital lease proceeds $ (23,996,731)Repayments:Bond & Notes payments 12,994,288Capital lease 570,009Net adjustment to decrease net changes in fundbalances-total governmental funds to arrive at changes in net assets of governmental activities $ (10,432,434)

An element of the reconciliation states that for governmental funds, capital outlay should be reported as expenditures. In the statement of activities, “the cost of these assets is allocated over their estimated useful lives and reported as depreciation expense.” The amount of capital outlays exceeding depreciation in this fiscal year were $59,956,857. The details of this are as follows:

Assets that were purchased and capitalized in the current year $ 90,281,034Assets that were disposed during the current fiscal year (2,479,394)Current year depreciation (27,844,783)Amount by which capital outlays exceed depreciation $ 59,956,857

NOTE 3 - FUND DEFICITS The following is a list of the unassigned deficit fund balances in the Special Revenue Funds: Veterans Field $38,241 and Laredo Energy Arena $87,500. The deficit for the Veterans Field is due as a result of operations of the Veterans Field Fund. The deficit for the Laredo Energy Arena is due to a nonspendable fund balance for inventory of $67,658 and the result of operations for the fund. The deficit will be covered by revenues received next fiscal year from events. NOTE 4 - CASH AND CASH EQUIVALENTS The monetary assets of the City are held in various forms and accounts. These assets are described and presented in the basic financial statements in three groups. One group is described as "Cash and Cash Equivalents". This group is characterized as having high liquidity with little market risk and includes cash in bank accounts, petty cash and change funds. Another group is disclosed as Equity in Investment Pool and consists of cash in bank accounts. The third group of monetary assets is presented in the basic financial statements as "Investments". Cash balances of all City funds (except for the Laredo Firefighters Retirement System) are pooled and invested. All securities are reported at fair value in order to comply with GASB Statement 31 - Accounting and Financial Reporting for External Investment Pools. Investments with a remaining maturity at the time of purchase of one

47

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

year of less are reported at amortized cost. The net decrease in the fair value of the securities was $902,098 for the Laredo Firefighters Retirement System. As of September 30, 2011, cash and cash equivalents consisted of the following:

Petty Cash and Change Fund $ 67,880 Cash in Other Bank Accounts 17,482Cash with Fiscal Agent 618,064

$ 703,426

Custodial credit risk - deposits. In the case of deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City’s deposit policy is in compliance with Texas Government Code Chapter 2257 – “Collateral for Public Funds”. All deposits were covered by federal depository insurance up to $100,000 and collateralized with eligible securities in amounts of at least 102% of the book value of deposits. As of September 30, 2011, the book value of all the City’s deposits was $703,426. Deposits were properly secured at all times during the fiscal year. All collateral securities were held by a third party in the City’s name and were not exposed to custodial credit risk. NOTE 5 - INVESTMENTS The City, as per the “Public Funds Investment Act” of the State of Texas, is authorized to invest in obligations of the United States or its agencies and instrumentalities; direct obligations of the State of Texas or its agencies and instrumentalities; other obligations which are unconditionally guaranteed by the State of Texas or United States; obligations of the States, agencies thereof, Counties, Cities, and other political subdivisions of any state having been rated as investment quality by a nationally recognized investment rating firm; Certificates of Deposits of state and national banks domiciled in Texas, guaranteed or insured by the Federal Depository Insurance or its successor; fully collateralized direct repurchase agreements with a defined termination date secured by obligations of the United States or its agencies; Banker’s Acceptances that has a stated maturity of 270 days or less from the date of issuance; Commercial Paper that has a stated maturity of 270 days or less from date of issuance and rated not less than A-1 or P-1 or an equivalent rating; a no-load money market mutual fund that is registered with and regulated by the Securities and Exchange Commission, has a dollar-weighted average stated maturity of 90 days or fewer and includes in its investment objectives the maintenance of a stable net asset value of $1 for each share; Investment Pools as long as the governing body of the City approved them by rule, order ordinance or resolution. The investments of the Pension Trust Fund, the Laredo Firefighters’ Retirement System, are governed by the Texas Local Fire Fighters’ Retirement Act, which established the System. The act authorizes additional investment types which include corporate bonds, common stock and mutual funds. The investment and maturities at September 30, 2011, were as follows:

48

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Non Maturity Fair Value Rated Less Than 1 1-3

Mutual Funds $ 32,303,611 32,303,611 - - Equities 37,588,427 37,588,427 - - Managed Pools 416,286,377 123,771,424 262,631,453 29,883,500 Total Investments $ 486,178,415 193,663,462 262,631,453 29,883,500

Investment Maturity in Years

Interest Rate Risk. Interest rate risk is the risk that the value of investments will decrease as a result of a rise in interest rates. The City’s investment policy limits the maximum maturities exceeding two years to 25% of the total portfolio. The other 75% must, to the extent possible, be matched with projected cash flow requirements. As of September 30, 2011, all investments had average maturity dates of less than one year. Credit Risk. Credit risk is the risk that the government will not be able to recover the value of its securities. As per the City’s investment policy, all security dealers must be registered and certified with the Texas State Securities Board, National Association of Security Dealers, and Securities and Exchange Commission. It is the policy of the City to require full collateralization of all City funds on deposits with a depository bank. The City’s policy states that all purchased securities shall be held in safekeeping by either the City, the City’s account in a third-party financial institution, or the City’s safekeeping account at its designated depository bank. As of September 30, 2011, the City invested in Bank Certificates of Deposit and Managed Pools. The credit ratings for our Managed Pool accounts are as follows: TexPool “AAAm”, and TexasDaily “AAAm”. The Laredo Firefighters’ Retirement System, as per their investment policy, is allowed to invest in other types of investments such as mutual funds and common stock. Concentration of Credit Risk. Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. As per the City’s investment policy, no more than 50% of the City’s total investment portfolio will be invested in a single security type, with the exception of U.S. Treasury securities. Of the City’s total investments, 100% were invested in Local Government Investment Pools and Bank Certificates of Deposit. Of the Firefighters’ Retirement System investments, 55% was invested in mutual funds and 45% in equities. Custodial Credit Risk. For an investment security, custodial credit risk is the risk that in the event of a failure of the counterparty the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. As of September 30, 2011, the City had no repurchase agreements. The City’s investment policy dictates that a third party financial institution, designated by the City, shall be the holder of the City’s investment securities. The Firefighters’ Retirement System has also designated a third party selected by the system as the safekeeping institution for its securities.

49

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

NOTE 6 - RECEIVABLES The City's property tax is levied each October 1st on the assessed value listed on the tax roll as of the prior January 1st for all real and personal property located in the City. The City Charter stipulates that taxes shall become due on October 1st of the year of levy and shall be paid by the following January 31st. All real and personal property in the City on January 1st each year will be subject to lien from that date for taxes due thereon. The adjusted assessed value for the tax roll as of January 1, 2010, upon which the 2010 levy was based, was $10,634,156,096. The appraisal of property within the City is the responsibility of the Webb County Appraisal District. The Appraisal District is required under the Property Tax Code to assess all property within the Appraisal District on the basis of 100% of its market value. The value of property within the Appraisal District must be reviewed every three years; however, the City may, at its own expense, require more frequent reviews of appraised value. The Webb County Appraisal District has chosen to review the value of property every year. Under this legislation, the City continues to set tax rates on property within the City limits. However, if the effective tax rate exceeds the rate for the previous year by more than 8% qualified voters of the City may petition for an election to determine whether to limit the tax rate to no more than 8% above the effective tax rate of the previous year. The City is permitted by Article II, Section 5 of the State of Texas Constitution to levy taxes up to $2.50 per $100 of assessed valuation for general governmental services; including the payment of principal and interest on general obligation long-term debt. Under the 1981 City Charter, the City's power of taxation is restricted to State statutes. The City Council has considered $1.50 as the maximum tax per $100 assessed valuation. The tax rate to finance general governmental services including the payment and interest on long-term debt for the year ended September 30, 2011 was $.637000 per $100 of assessed valuation ($.512304 for general government and $.124696 for debt service). Thus, the City has a tax margin of approximately $.863000 per $100, and could levy approximately $91,772,767 in additional taxes per year from the present assessed valuation of $10,634,156,096 before the limit is reached. Because of limitations imposed by state law, cases in which accumulated taxes exceed property value, other problems in tax collection and because of the possible uncollectibility of certain other accounts receivable, allowances have been provided for uncollectible accounts resulting in only the net collectible amounts being reflected in the balance sheet. The allowances for uncollectible accounts for taxes and other receivables as of September 30, 2011 are reflected in the following table:

50

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

OtherGovernmental

General Types Proprietary Fiduciary TotalReceivables: Property Taxes $ 8,230,095 1,225,262 - - 9,455,357 Hotel/Motel Taxes - 53,208 - - 53,208 Accounts 21,939,325 7,611,296 12,651,103 31,809 42,233,533 Notes - 16,073,584 661,418 - 16,735,002 Paving Assessments - 205,376 - - 205,376

Gross Receivables 30,169,420 25,168,726 13,312,521 31,809 68,682,476 Less Allowance For Uncollectible (18,882,283) (7,351,635) (2,870,255) - (29,104,173)

Net Receivables $ 11,287,137 17,817,091 10,442,266 31,809 39,578,303

NOTE 7 - RESTRICTED ASSETS FOR ENTERPRISE FUND TYPES Certain proceeds of enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. The "revenue bond retirement reserve" is used to report resources set aside to make up potential future deficiencies in the revenue bond current debt service account. The "revenue bond contingency" is used to report resources set aside to subsidize potential deficiencies from the enterprise fund's operation that could adversely affect debt service payments. The "construction account" is used to report those proceeds of bond issuance that are restricted for use in construction. The "water rights" account is used to report revenue received through water availability charges. The following table summarizes restricted assets by purpose as of September 30, 2011:

OtherEnterprise Bridge Waterworks Sewer

Fund System System System Total

Revenue Bond Retirement Reserve $ - 4,292,178 6,236,122 1,568,062 12,096,362Revenue Bond Contingency - 500,000 1,812,626 1,385,803 3,698,429Construction Account 11,129,901 132,855 96,818,448 23,122,196 131,203,400Water Rights - - 6,415,995 - 6,415,995

Total Restricted Assets $ 11,129,901 4,925,033 111,283,191 26,076,061 153,414,186

NOTE 8 – CAPITAL ASSETS Capital asset activity for the year ended September 30, 2011 was as follows:

51

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

A – Governmental Activities:

Balance as of Balance as ofSeptember 30, Deletions September 30,

2010 Additions and Transfers 2011Capital Assets, Not Being Depreciated:Land $ 70,500,680 8,283,116 (2,317,356) 76,466,440Construction in Progress 5,266,211 18,911,080 (4,366,888) 19,810,403Total Capital Assets, Not Being Depreciated 75,766,891 27,194,196 (6,684,244) 96,276,843Capital Assets Being DepreciatedBuildings 148,755,547 11,264,916 1,873,337 161,893,800Improvements Other Than Buildings 483,021,096 46,042,218 1,355,096 530,418,410Machinery and Equipment 89,151,249 6,082,754 (2,832,278) 92,401,725Total Assets Being Depreciated 720,927,892 63,389,888 396,155 784,713,935Less Accumulated Depreciation For:Buildings (34,491,020) (3,416,703) 722,252 (37,185,471)Improvements Other Than Buildings (190,991,078) (16,127,047) - (207,118,125)Machinery and Equipment (57,340,348) (8,494,845) 3,015,045 (62,820,148)Total Accumulated Depreciation (282,822,446) (28,038,595) 3,737,297 (307,123,744)Total Capital Assets, Being Depreciated, Net 438,105,446 35,351,293 4,133,452 477,590,191Governmental Activities Capital Assets, Net $ 513,872,337 62,545,489 (2,550,792) 573,867,034

B - Business Type Activities: Balance as of Balance as of

September 30, Deletions September 30,

2010 Additions and Transfers 2011

Land $ 31,180,460 48,599 - 31,229,059Construction in Progress 66,962,317 36,579,759 (19,919,191) 83,622,885Waterrights 29,847,150 10,203,673 - 40,050,823

Total Capital Assets, Not Being Depreciated 127,989,927 46,832,031 (19,919,191) 154,902,767

Capital Assets Being Depreciated:

Buildings 96,084,536 - 7,898,751 103,983,287353,237,984 2,523,328 11,915,697 367,677,009

Machinery and Equipment 71,703,748 9,681,829 (1,060,844) 80,324,733Total Assets Being Depreciated 521,026,268 12,205,157 18,753,604 551,985,029

Buildings (24,194,444) (2,205,777) 74,554 (26,325,667)(146,039,715) (13,089,910) - (159,129,625)

Machinery and Equipment (50,174,151) (6,812,283) 1,059,054 (55,927,380)Total Accumulated Depreciation (220,408,310) (22,107,970) 1,059,054 (241,382,672)

Total Capital Assets, Being Depreciated, Net 300,617,958 (9,902,813) 19,812,658 310,602,357Business Type Activities Capital Assets, Net $ 428,607,885 36,929,218 (106,533) 465,505,124

Capital Assets, Not Being Depreciated:

Improvements Other Than Buildings

Less Accumulated Depreciation For:

Improvements Other Than Buildings

Depreciation expense was charged to functions/program of the primary government as follows:

52

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Government Activities:General Government $ 952,318Public Health 1,296,293Culture and Recreational 621,834Public Works 18,805,984Public Safety 2,503,274Air Transportation 3,665,080Capital assets held by the government’s internal service funds are charged to the various functions based on their usage of the assets 193,812

Total depreciation expense-governmental activities $ 28,038,595

Business-Type Activities: Solid Waste Management 2,196,316 Municipal Transit System 2,254,232 Bridge System 4,192,722 Waterworks System 7,260,095 Sewer System 6,095,297 Other Enterprise Funds 109,308Total depreciation expense-business-type activities $ 22,107,970

NOTE 9 - RETIREMENT PLANS The City provides benefits for all of its full-time employees (except for firefighters) through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), one of 827 administered by TMRS, an agent multiple-employer public employee retirement system. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City-financed monetary credits, with interest. At the date the plan began, the City granted monetary credits for services rendered before the plan began using a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percentage (100%, 150%, or 200%) of the employee's accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contribution rate and City matching percent had always been in existence and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer-financed monetary credits with interest were used to purchase an annuity. Deposit Rate: 7% Matching Ratio (City to Employee) 2 to 1 A member is vested after 5 years

53

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Members can retire at certain ages, based on the years of service with the City. The Service Retirement Eligibilities for the city are: 5 yrs/age 60, 20 yrs/any age. Under the state law governing TMRS, the actuary annually determines the City contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, which are the obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded (over-funded) actuarial liability (asset) over the remainder of the plan's 25-year amortization period. The unit credit actuarial cost method is used for determining the City contribution rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect. (i.e. December 31, 2010 valuation is effective for rates beginning January 2012).

SCHEDULE OF ACTUARIAL LIABILITIES AND FUNDING PROGRESS

Actuarial Valuation Date 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10

Actuarial Value of Assets $ 93,220,964 104,886,750 118,216,115 131,250,617 147,642,107 166,772,840 227,498,651

Actuarial Accrued Liability 159,858,885 176,834,192 196,473,335 255,908,643 275,809,704 305,212,249 363,711,044

Percentage Funded 58.31% 59.31% 60.17% 51.29% 53.5% 54.6% 62.5%

Unfunded Actuarial

Accrued Liability (UAAL) 66,637,921 71,947,442 78,257,220 124,658,026 128,167,597 138,439,409 136,212,393

Annual Covered Payroll 59,429,800 66,500,972 70,411,134 76,207,380 83,778,815 86,683,788 84,075,541

UAAL as a percentage of

covered Payroll 112.13% 108.19% 111.14% 163.58% 153.0% 159.7% 162.0%

Annual Pension Cost:

Annual Required

Contribution (ARC) 9,637,803 10,609,392 11,593,062 12,670,264 13,625,648 14,436,262 16,239,405

Less Contributions Made

at the end of the period 9,637,803 10,609,392 11,593,062 12,670,264 13,625,648 14,436,262 16,239,405

Net Pension Obligation $ - - - - - - - -

54

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Actuarial Assumptions 0B0BActuarial Cost Method - Projected Unit Credit Amortization Method- Level Percent of Payroll Remaining Amortization Period- 27 Years – Closed Period Asset Valuation Method- 10-year smoothed market Investment Rate of Return- 7.0% Projected Salary Increases Varies by Age and Service Includes Inflation At 3.0% Cost-of-Living Adjustments- 2.1% The City of Laredo is one of 827 municipalities having the benefit plan administered by TMRS. Each of the 827 municipalities has an annual, individual actuarial valuation performed. All assumptions of the December 31, 2010 valuations are contained in the 2010 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P. O. Box 149153, Austin TX 78714-9153.

Laredo Firefighters' Retirement System Required Supplemental Information Disclosures in Accordance with GASB Statement No. 25 & 27

Actuarial Update as of March 31, 2010 The Financial Statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. The Board of Trustees of the Laredo Firefighters Retirement System is the administrator of a single-employer defined benefit pension plan. The Laredo Firefighters Retirement System is considered part of the City of Laredo financial reporting entity and is included in the City’s financial reports as a pension trust fund. The Laredo Firefighters Retirement System covers the firefighters in the Laredo Fire Department. The table below summarizes the membership of the System reflected in the actuarial valuation as of March 31, 2010, which is performed every two years.

03/31/10

109b. Current Employees:

i. Vested 74 ii. Non-vested 268

c. Total 451

a. Retirees and beneficiaries currently receiving benefits and terminated employees entitled to benefits but not yet receiving them

The Laredo Firefighters Retirement System provides service retirement, death, disability, and withdrawal benefits. These benefits vest after 20 years of credited service. Employees may retire at age 50 with 20 years of service. The Plan effective July 20, 2011 (in effect on the March 31, 2010 valuation date) provides a monthly normal service retirement benefit, payable in a Joint and Two-Thirds to Spouse form of annuity. The monthly benefit is equal to 3.03% of Final Average Monthly Salary for each year of service.

55

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

There is no provision for automatic post retirement benefit increases. The System has the authority to provide, and has periodically in the past provided for, ad hoc post retirement benefit increases. The Texas Local Fire Fighters’ Retirement Act (TLFFRA) authorizes the benefit provisions of this plan. TLFFRA provides the authority and procedure to amend benefit provisions. Contributions Required and Contributions Made The contribution provisions of this plan are authorized by TLFFRA. TLFFRA provides the authority and procedure to change the amount of contributions determined as a percentage of pay by each firefighter and a percentage of payroll by the city. While the contribution requirements are not actuarially determined, state law requires that each plan of benefits adopted by the System must be approved by an eligible actuary. The actuary certifies that the contribution commitment by the firefighters and the City provides an adequate financing arrangement. Using the entry age actuarial cost method the plan's normal cost contribution rate is determined as a percentage of payroll. The excess of the total contribution rate over the normal cost contributions rate is used to amortize the plan's unfunded actuarial accrued liability, and the number of years needed to amortize the plan's unfunded actuarial accrued liability is determined using an open, level percentage of payroll method. The costs of administering the plan are financed from the trust. For the Plan effective July 20,2011, (Plan effective March 31, 2010), the funding policy of the Laredo Firefighters Retirement System requires contributions equal to 14% of pay by the firefighters. On October 1, 2010, the city contribution rate was 17.65% of pay for all firefighters. The revised actuarial valuation as of May 31, 2010 reflected the scheduled increases in the city contribution rate from 17.65% to 17.90% in June 2011, to 18.15% in October 2012, to the ultimate rate of 20.10% in October 2013, and assumed the 20.10% rate will continue at least for the remainder of the UAAL amortization period. Annual Pension Cost For the fiscal year ending September 30, 2011, the City of Laredo's annual pension cost of $4,644,823 for the Laredo Firefighters Retirement System was equal to the City's required and actual contributions during the year. While the required contributions were not actuarially determined but were a fixed percentage, the plan benefits which was most recently amended effective as of July 20,2011 has been approved by the Board's actuary as having an adequate financing arrangement. On October 1, 2010, the city contribution rate was 17.65% of pay for all firefighters, and it increased to 17.90% effective June 2011 for the remainder of the fiscal year according to the current collective bargaining agreement. The required contributions were reflected in the March 31, 2010 actuarial valuation, which satisfied the parameters of the Governmental Accounting Standards Board (GASB) Statement No. 27.

The entry age actuarial cost method was used, with the normal cost calculated as a level percentage of payroll. The actuarial value is equal to the expected actuarial value of assets adjusted by 40% of the difference between the actual market value and the expected actuarial value. The actuarial value is not more than 110% or less than 90% of the actual market value of assets. The actuarial assumptions included an investment return assumption of 8.0% per year (net of expenses), projected salary increases averaging 3.75% per year as a general salary increase and a range from 0% to 7% per year as a promotion and longevity increase based on 30-year career, and no postretirement cost-of-living adjustments. An inflation assumption of 3.75% per year is included in the investment return and salary increase assumptions. The unfunded actuarial accrued liability (UAAL) is

56

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

amortized with the excess of the total contribution rate over the normal cost rate. The number of years needed to amortize the UAAL is determined using an open, level percentage of payroll method; assuming that the payroll will increase 3.75% per year, and was 22 years as of March 31, 2010 actuarial valuation based on the plan provisions effective July 20, 2011.

Trend Information

Annual Pension Percentage of APC Net Pension

Fiscal Year Ending Cost (APC) Contributed Obligation9/30/2002 $ 2,000,411 100% -9/30/2003 2,420,048 100% -9/30/2004 2,787,027 100% -9/30/2005 3,235,074 100% -9/30/2006 3,576,070 100% -9/30/2007 3,779,090 100% -9/30/2008 4,136,418 100% -9/30/2009 4,392,773 100% -9/30/2010 4,616,573 100% -9/30/2011 $ 4,644,823 100% -

Schedule of Funding Progress

Entry Age UAAL as a Actuarial Unfunded Percentage

Actuarial Actuarial Accrued AAL Funded Annual of CoveredValuation Value of Liability (UAAL) Ratio Covered Payroll

Date Assets (a) (AAL) (b) (b-a) (a/b) Payroll ( c ) (b-a)/c)09/30/95 $ 19,843,996 27,545,436 7,701,440 72.04% 6,832,917 113%07/31/96 21,565,365 30,936,694 9,371,329 69.71% 8,063,403 116%09/30/97 23,768,183 32,196,210 8,428,027 73.82% 8,080,170 104%06/30/98 27,925,724 38,685,191 10,759,467 72.19% 10,191,336 106%03/31/00 32,040,945 48,944,733 16,903,788 65.50% 12,481,680 135%03/31/02 35,064,847 66,941,016 31,876,169 52.40% 16,652,165 191%03/31/04 43,720,097 82,210,204 38,490,107 53.18% 18,726,396 206%03/31/06 57,228,050 95,649,924 38,421,874 59.80% 21,831,766 176%03/31/08 73,106,502 113,301,606 40,195,104 64.50% 22,931,569 175%03/31/10 $ 84,625,644 140,669,842 56,044,198 60.20% 25,715,241 218%

Schedule of Employer Contributions

57

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Annual Contribution As Annual Required Percentage of RequiredPlan Year Ended a Percentage of Payroll Contribution Contribution

Contributed9/30/2001 14.02% & 12.57% 1,714,980 100%9/30/2002 15.02% & 13.57% 2,000,411 100%9/30/2003 16.02% & 14.57% 2,420,048 100%9/30/2004 17.02% & 15.57% 2,787,027 100%9/30/2005 17.65% & 16.20% 3,235,074 100%9/30/2006 17.65% & 16.20% 3,576,070 100%9/30/2007 17.65% & 16.20% 3,779,090 100%9/30/2008 17.65% & 16.20% 4,136,418 100%9/30/2009 17.65% & 16.20% 4,392,773 100%9/30/2010 17.65% 4,616,573 100%

A copy of the financial and pension plan report may be obtained by writing to: Laredo Firefighters Retirement System, 5219 Tesoro Plaza, Laredo, TX 78041. 2B2B2B2BNOTE 10 - POST EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Plan Description: Police and City Employees who have twenty years of service or have attained age sixty with five years of service and Firefighters who have attained age forty-five with twenty years of service pr have attained age fifty with twenty years of service with the City of Laredo are eligible for a service or early retirement, or qualified for a disability retirement under the Texas Municipal Retirement System, or the Fireman’s Relief and Retirement Fund, may continue coverage in the City of Laredo Medical Plan as a retiree, at the time service terminate with the City of Laredo. An eligible employee may elect coverage for his or her dependants. The widow/widower of a retiree who has coverage as a retiree under the City of Laredo Medical Plan may continue coverage as a retiree. Currently, 166 retirees meet those eligibility requirements. The City reimburses 80% of the amount of validated claims for medical and hospitalization costs incurred by pre-Medicare retirees and their dependants. Expenditures for postretirement health care benefits are recognized as retirees report claims and include a provision for estimated claims incurred but not yet reported to the City. Prior to age 65, retirees participate in the City’s Medical Plan. At age 65, retirees are offered a Medicare Supplemental Plan (Hartford Life), but the full cost is borne by the retirees. However retirees can continue to participant in the City’s prescription drug program after age 65. There is a $750-$1,000 deductible per person with an additional maximum out of pocket cost of $2,500. The prescription co-pay is $10 for generic and $35 for brand name prescriptions and $55 for preferred brand. The Police and Firefighters are provided with a $2,000 life insurance policy at retirement.

58

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Funding Policy:

During the year, expenditures of approximately $991,970 were recognized for postretirement health benefits of which $129,615 was received from the firemen’s as a contribution. The city’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for FY 2011 and the two preceding years were as follows:

Percentage ofFiscal Year Annual Annual OPEB Net OPEB

Ended OPEB Cost Cost Contributed Obligation9/30/2009 694,653 100% - 9/30/2010 784,054 100% - 9/30/2011 991,970 100% -

Annual contribution rates for retirees not currently eligible for Medicare:

Retiree Only Retiree & Spouse Retiree & FamilyPolice & Fire $0 $2,279 $4,491 City Employees $2,848 $6,990 $6,990

Annual contribution rates for retirees who are eligible for Medicare coverage (these contributions are for prescription drug only-other medical benefits not available through the City’s Medical Plan):

Retiree Only Retiree & Spouse Retiree & FamilyPolice & Fire $532 $1,464 N/ACity Employees $532 $1,464 N/A

The City is required to contribute at a rate that is based on an actuarial valuation that is prepared in accordance within certain parameters. The following table shows the annual OPEB cost and net OPEB Obligation for the prior 4 years assuming the plan is not pre-funded (4% discount) Financial Statement Disclosures Current Plan (with four year trend):

59

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

2008 2009 2010 2011Determination of Annual Required Contribution

Normal Cost at year end 6,078,256$ 7,640,484$ 7,640,484$ 7,002,272$ amortization of UAAL & Loss 5,095,242 5,742,270 7,593,736 6,700,930 Annual Required Contribution (ARC) 11,173,498 13,382,754 15,234,220 13,703,202

Determination of Net OPEB ObligationAnnual Required Contribution 11,173,498$ 13,382,754$ 15,234,220$ 13,703,202$ Interest on prior year Net OPEB Obligation 422,048 830,235 1,283,406 1,788,307 Adjustment to AC (586,709) (1,175,100) (1,851,466) (2,579,846) Annual OPEB Cost 11,008,837 13,037,889 14,666,160 12,911,663 Contributions made (804,172) (1,708,615) (2,043,632) (2,150,933) Estimated Increase in Net OPEB Obligation 10,204,665 11,329,274 12,622,528 10,760,730

Net OPEB Obligation- beginning of year 10,551,201$ 20,755,866$ 32,085,140$ 44,707,668$ Estimated Net OPEB Obligation- end of year 20,755,866$ 32,085,140$ 44,707,668$ 55,468,398$

Fiscal Year Ending September 30

Funded Status and Funding Progress:

The funded status of the plan beginning as of October 1, 2010, was as follows: Schedule of Funding Progress:

UnfundedActuarial Actuarial UAAL as a

Actuarial Actuarial Accrued Accrued PercentageValuation Value of Liabilities Liabilities Funded Covered of Covered

Date Assets (AAL) (1) (UAAL) (2) Ratio Payroll Payroll 09-30-2008 0 95,698,806 95,698,806 0.00% 96,747,240 98.9% 09-30-2009 N/A N/A N/A N/A N/A N/A 09-30-2010 0 111,658,020 111,658,020 0.00% 88,405,550 126.3%

(1) Actuarial liability determined under the projected unit credit cost method. (2) Actuarial accrued liability less actuarial value of assets.

Actuarial valuations of the plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events for into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and annual required contributions of the employer are subject to continual revision as actual results are compared with actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress presents multiyear trend information that shows whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Unfunded Actuarial Accrued Liability: The Unfunded Actuarial Accrued (UAAL) is the ctuarial liability offset by any assets set aside in a trust to provide retiree health benefits. This is equal to the value of the retiree health benefits accrued to date that has not been funded. The UAAL must be amortized over a period not exceeding 30 years and included in the ARC (Annual Required

60

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Contribution) amount each year. The amortization of UAAL is calculated below as a level dollar of 28 years on a closed basis.

October 1, 2010-September 30, 2011Unfunded Actuarial Liability (UAAL)Actuarial Accrued Liability $111,658,020 Assets - Unfunded Actuarial Accrued Liability $111,658,020 Fund Percentage 0.00%

Amortization of UAAL for ARCUAAL $111,658,020 Amortization Period 28 yearsAmortization Amount-October 1, 2010 $6,443,202 Interest to end of year $257,728 Amortization Amount- September 30, 2011 $6,700,930

Actuarial Methods and Assumptions: Projections of benefits for financial reporting purposes are based on the substantive plan as understood by the employer and the plan members and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The actuarial cost method determines, in a systematic way, the incidence of plan sponsor contributions required to provide plan benefits. It also determines how actuarial gains and losses are recognized in pension costs. These gains and losses result from the difference between the actual experience under the plan and the experience by the actuarial assumptions. The cost of the Plan is derived by making certain specific assumptions as to rates of interest, mortality, turnover, etc. which are assumed to hold for many years in the future. In the actuarial valuation beginning October 1, 2010, the Unit Credit Actuarial Cost Method was used. This method includes the following components:

1. The normal cost is the actuarial present value of benefits allocated to the valuation year. 2. The actuarial liability is the actuarial present value of benefits accrued as of the valuation

date. 3. Valuation assets are equal to the market value of assets of the valuation date, if any. The

plan is unfunded and therefore no investment rate of returned was used. An inflation rate of 2.75% was used for the actuarial study. Salary or benefit increases were not applicable to the study.

4. Unfunded Actuarial Accrued Liability is the difference between the Actuarial Accrued Liability and the Valuation Assets. It is amortized over 28 year (the maximum permissible period under GASB 45 is 30 years).

61

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

5. Health Cost Trend used in the actuarial study is from 6.90% trending to 4.20% over

seventy two years. The basis of the health cost trend is derived from the healthcare inflation rate schedule. Retiree premium rates are assumed to increase with the Health Cost Trend.

6. The City of Laredo does not have a separate, irrevocable trust fund to the annual OPEB cost; therefore a discount rate of 4.0% has been established on the long term expectations of returns on operating funds.

NOTE 11 - GENERAL LONG-TERM OBLIGATIONS The following is a summary of changes in the City’s general long-term obligations for the year ended September 30, 2011:

General Certificates Capital NetObligation of Revenue Compensated Lease Notes Pension

Serial Bonds Obligation Bonds Absences Obligations Payable ObligationsLong Term Liabilities:Beginning Balances $ 21,166,090 157,247,881 29,390,000 15,927,701 465,231 680,000 44,707,668 Additions 3,501,891 9,545,000 10,445,000 6,475,825 807,652 - 10,760,730 Retirements (2,990,561) (5,110,793) (1,575,000) (1,690,659) (570,009) (85,000) - Ending Balances 21,677,420 161,682,088 38,260,000 20,712,867 702,874 595,000 55,468,398

Current Liabilities:Due Within One Year 3,476,587 7,157,804 1,900,000 2,630,835 473,076 85,000 - Total Liabilities $ 25,154,007 168,839,892 40,160,000 23,343,702 1,175,950 680,000 55,468,398

Compensated absences are generally liquidated by the General Fund. Bonds payable as of September 30, 2011 are comprised of the following issues: A - General Obligation Serial Bonds

$24,455,000 General Obligation Refunding Bonds, Series 2005 issued for the purpose of refundingoutstanding obligations in order to achieve a debt service savings and pay cost related to the issuance ofthe bonds. Principal is due in varying amounts through 2021 with interest varying from 3.50% to5.00% interest per annum. $ 13,992,744

$17,865,000 General Obligation Refunding Bonds, Series 2006 issued for the purpose of refunding outstanding obligations in order to restructure the City’s debt service requirements and achieve a debt service savings. Principal is due in varying amounts through 2013 with interest varying from 4.00% to 5.00% per annum. 833,658

$27,150,000 General Obligation Refunding Bonds, Series 2009 issued for the purpose of refunding outstanding obligations in order to restructure the City’s debt service requirements and achieve a debt service savings. Principal is due in varying amounts through 2018 with interest varying from 2.75% to 5.00% per annum. $ 6,825,714

62

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

9,345,000 General Obligation Refunding Bonds, Series 2010 issued for the purpose of refundingoutsanding obligations in order to restructure the City's debt service requirements and achieve a debtservice savings. Principal is due in varying amounts through 2030 with interest varying from 2.99%to 5.00% per annum. $ 3,501,891

Total General Obligation Bonds $ 25,154,007

Due Within One Year $ 3,476,587

B – Certificates of Obligation $9,925,000 2002 Combination Tax and Revenue Certificates of Obligation issued for the purpose ofacquiring downtown properties, a property known as Slaughter Farm, acquisition of land innortheast Laredo and land for the Fire Training and Law Enforcement Facility. Principal is due invarying amounts through 2022 with interest varying from 3.25% to 5.00% per annum. $ 50,000

$3,510,000 Combination Tax and Revenue Certificates of Obligation, Series 2003, for the purposeof paying all or a portion of the City’s contractual obligations for the purpose of constructingdrainage improvements, including pilot channel, constructing and equipping a fire station, for thepayment of legal, fiscal, architectural and engineering fees in connection with this. Principal is duein varying amounts through 2023 with interest from 3.40% to 4.50% per annum. 2,515,000

$13,535,000 Combination Tax and Revenue Certificates of Obligation, Series 2004, for the purposeof paying street, parking, and landfill improvements, including costs of issuance. Principal is due invarying amounts through 2024 with interest from 3% to 5% per annum. 1,065,000

$15,625,000 Combination Tax and Revenue Certificates of Obligation, Series 2005, for the purposeof purchasing vehicles, and equipment for the Fire Department, purchasing vehicles for thePlanning, Building and Public Works Department, acquiring and constructing a City communicationsystem, making improvements to the City Health Clinic, acquiring land and equipment for andmaking improvements to municipal parks, acquiring land and preliminary design for variousdrainage projects, and for the payment of legal, fiscal, and engineering fees in connection with suchprojects; and paying the costs related to the issuance of the certificates. Principal is due in varyingamounts through 2025 with interest from 3% to 5% per annum. 12,265,000

$17,320,000 Combination Tax and Revenue Certificates of Obligation, Series 2006, for paying all ora portion of the City’s Contractual Obligations for the purpose of constructing and equipping Policeand Fire department improvements for substations, a training center and headquarters building,constructing, improving, repairing, and extending City streets, and providing for road improvementsfor Texas Department of Transportation projects together with drainage improvements and trafficand signal equipment and improvements, constructing and equipping improvements to City’s Healthcomplex, branch Library, and municipal parks, and for the payment of legal, fiscal, and engineeringfees in connection with such projects. Principal is due in varying amounts through 2026 withinterest from 4% to 4.5% per annum. $ 14,415,000

63

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

$3,680,000 Public Property Finance Contractual Obligations, Series 2006, issued for the purpose ofpurchasing police vehicles, equipment and enhancements for the police dispatch/radio facility, as wellas vehicles and safety equipment for the fire department, and vehicles, heavy equipment, and officeenhancements for Public Works and other City departments. Principal is due in varying amountsthrough 2012 with interest at 3.586% per annum. $ 790,000

$72,480,000 Combination Tax and Revenue Contractual Obligations, Series 2007, for the purpose ofconstructing City streets and sidewalks, traffic signals and lighting improvements, equipment andvehicles for various City departments, developing various recreational facilities, improvements tovarious City facilities, and the payment of legal, fiscal, and engineering fees related to the variousprojects. Principal is due in varying amounts through 2024 with interest from 4% to 5.25% perannum. 61,590,000

$30,065,000 Combination Tax and Revenue Contractual Obligations, Series 2008A, for the purpose ofconstructing City streets and sidewalks, traffic signals and lighting improvements, equipment andvehicles for various City departments, developing various recreational facilities, improvements tovarious City facilities, land acquisition, and the payment of legal, fiscal, and engineering fees relatedto the various projects. Principal is due in varying amounts through 2028 with interest from 3.5% to5% per annum. 29,600,000

$11,270,000 Combination Tax and Revenue Contractual Obligations, Series 2009A, for the purpose ofconstructing City streets and sidewalks, traffic signals and lighting improvements, equipment andvehicles for various City departments, improvements to various City facilities, land acquisition, andthe payment of legal, fiscal, and engineering fees related to the various projects. Principal is due invarying amounts through 2021 with interest from 2% to 5% per annum. 10,660,000

$5,095,000 Public Property Finance Contractual Obligations, Series 2009, for the purpose of acquiringand purchasing equipment for various City departments and the payment of issuance fees. Principal isdue in varying amounts through 2014 with interest from 2% to 3% per annum. 4,895,000

$13,465,000 Combination Tax and Revenue Contractual Obligations, Series 2009B (Build AmericaBonds), for the purpose of constructing City streets and sidewalks, traffic signals and lightingimprovements, equipment and vehicles for various City departments, improvements to various Cityfacilities, land acquisition, and the payment of legal, fiscal, and engineering fees related to the variousprojects. Principal is due in varying amounts from 2022 through 2029 with interest of 6.366% perannum. 13,465,000

$5,080,000 Public Property Finance Contractual Obligations, Series 2010, for the purpose of acquiringand purchasing equipment for various City departments and the payment of issuance costs. Principal isdue in varying amounts through 2018 with interest of 3.875% per annum. 454,892

$4,095,000 Combination Tax and Airport Revenue Contractual Obligations, Series 2010, for thepurpose of constructing, improving, and maintaining the City’s Municipal Airport, and the payment oflegal, fiscal, and engineering fees related to the various projects. Principal is due in varying amountsthrough 2029 with interest of 4.750% per annum $ 3,960,000

64

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

$2,070,000 Combination Tax and Airport Revenue Refunding Contractual Obligations, Series 2010,for the purpose of refunding the Municipal Airport land indenture. Principal is due in varyingamounts through 2029 with interest of 4.750% per annum. $ 2,000,000

$2,040,000 Combination Tax and Airport Revenue Refunding Contractual Obligations, Series2010B, for the purpose of constructing and equipping a Federal inspection station at the City'sMunicipal Airport, and the payment of legal, fiscal, and engineering fees related to the project.Principal is due in varying amounts through 2029 with interest of 5.200% per annum. 1,975,000

$9,545,000 Combination Tax and Revenue Contractual Obligations, Series 2010, for the purpose ofconstructing City streets and sidewalks, traffic signals and lighting improvements, equipment andvehicles for various City departments, improvements to various City facilities, land acquisition, andthe payment of legal, fiscal, and engineering fees related to the various projects. Principal is due invarying amounts through 2030 with interest from 2.00% to 5.00% per annum. 9,140,000

Total Certificates of Obligation $ 168,839,892

Due Within One Year $ 7,157,804

The applicable bond ordinances for the aforementioned debt contain limitations and restrictions on annual debt service requirements and maintenance of and flow of monies through various restricted accounts as well as minimum amounts to be maintained in various sinking funds. The City is in compliance with all significant limitations and restrictions. C - Sales Tax Revenue Bonds The City’s Sales Tax Revenue Bonds are special obligations of the City and are collateralized by revenue from a ¼ of 1% sales and use tax collected within the City’s boundaries. Sales Tax Revenue Bonds as of September 30, 2011 consist of the following: $33,550,000 2005 Sports Venue Sales Tax Revenue Improvement and Refunding Bondsissued for the purpose of acquiring and constructing additional parking for the multipurposeentertainment arena and refunding a portion of the City’s outstanding Sports Venue Sales TaxRevenue Bonds, Series 2001 in order to achieve a debt service savings and to pay costs relatedto the issuance of the bonds. Principal is due in varying amounts through 2024 with interestfrom 3.00% to 5.00% per annum. $ 31,290,000

65

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Sports Venue Sales Tax revenue Bonds issued for the purpose of financing a baseball stadiumand related infrastructure as part of the enlarged Laredo Sports Venue Project for the multi-purpose entertainment aena and to pay costs related to the issuance of the bonds. Principal isdue in varying amounts through 2036 with interest from 1.088% to 5.85% per annum. $ 10,445,000

Total Sales Tax Revenue Bonds $ 40,160,000

Due Within One Year $ 1,900,000 D - Capital Lease Obligations The City has entered into several lease-purchase agreements for various pieces of equipment. These lease agreements qualify as capital leases for accounting purposes (titles transfer at the end of the lease terms) and, therefore, have been recorded at the present value of the future minimum lease payments as of the date of their inception. $1,330,425 Ford Motor Credit Company for the purchase of fifty law enforcement vehicles forthe Police Department. Payments are due in annual installments of $307,800.43 through June2013. Interest is at 5.50% per annum. $ 568,298

$607,652 Kansas State Bank for the purchase of thirty law enforcement vehicles for the PoliceDepartment. Payments are due in annual installments of $214,955.79 through 2014. Interest isat 3.032% per annum. 607,652

Total Present Value of Future Minimum Lease Payments 1,175,950

Plus Amount Representing Interest 84,518

Total Minimum Lease Payments $ 1,260,468

The assets acquired through capital leases are as follows:

Asset:Automotive Equipment $ 4,343,941Machinery & Equipment 2,143,500Less: Accumulated Depreciation (5,216,715)Total $ 1,270,726

Governmental Activities

The future minimum lease obligations and the net present value of these minimum lease payments as of September 30, 2011, are as follows:

66

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Year Ending Sep. 30 Governmental

Activities

2012 $ 522,756 2013 522,756 2014 214,956 Total Minimum lease payments 1,260,468 Less: amount representing interest (84,518) Present value of minimum lease payments $ 1,175,950

Capital leases will be paid within the next three years, therefore only data for those years is shown. E - Notes Payable

Section 108 Loan $1,700,000 Chase Manhattan Bank through HUD 108Program for the restoration of the Hamilton Hotel into a 165 low andmoderate income residential units. Principal is due annually with avariable interest rate between 6.2013% and 6.4050%. $ 680,000

Due Within One Year $ 85,000

F – Prior-year Defeasance of Debt In prior years, the City defeased certain general obligation and other bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and liability of the defeased bonds are not included in the City’s financial statements. As of September 30, 2011, $11.875 million in bonds outstanding are considered defeased. G – OPEB Updated on September 30, 2011, the latest actuarial valuation reflected a net obligation for Other Post-Employment Benefits in the amount of $55,468,398, with the unfunded actuarial liability at $111,658,020. NOTE 12 - PROPRIETARY FUNDS LONG-TERM OBLIGATIONS The following is a summary of changes in long-term obligations for the City's Proprietary Funds for the year ended September 30, 2011:

67

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

Revenue Certificates of General Oblig. Note Bonds Obligation Bond Payable

Long Term Liabilities:Beginning Balances $ 100,892,000 119,120,109 21,522,884 19,637,040 Additions 80,405,000 - 5,843,108 - Retirements - (5,575,000) - - Amortization of Deferred Charges - - (530,261) - Due Within One Year (7,983,000) (4,092,196) (5,538,414) (892,590) Ending Balances 173,314,000 109,452,913 21,297,317 18,744,450

Current Liabilities:Due Within One Year 7,983,000 4,092,196 5,538,414 892,590 Total Liabilities $ 181,297,000 113,545,109 26,835,731 19,637,040

Landfill CompensatedCosts Absences

Long Term Liabilities:Beginning Balances $ 9,986,580 1,009,275 Additions 462,989 172,761 Retirements - (94,634) Ending Balances 10,449,569 1,087,402

Current Liabilities:Due Within One Year - 726,404 Total Liabilities $ 10,449,569 1,813,806

A – Bonds $12,105,000 2002 International Toll Bridge System Revenue Bond issued for the purpose toacquire, purchase, construct, improve, enlarge and equip the international bridge withprincipal due in varying amounts through year 2022, including interest at 4.0% to 5.0% perannum. $ 7,840,000

$741,000 2002 Waterworks System Revenue Bond issued for the purpose of makingimprovements and extension of the Waterworks System with principal due in varyingamounts through year 2024, including interest at 3.3% to 5.9 % per annum. 558,000

$710,000 2002 Sewer System Revenue Bond issued for the purpose of makingimprovements and extension of the Sewer System with principal due in varying amountsthrough year 2024, including interest at 3.3% to 5.9% per annum. 535,000

$5,935,000 2004 International Toll Bridge System Revenue Bond issued for the purpose ofacquiring, purchase, construct, improve, enlarge and equip an International Toll Bridge withprincipal due in varying amounts through year 2024, including interest at 2.3% to 6.0% perannum. 4,540,000

$7,480,000 2004 Waterworks and Sewer Systems Revenue issued for the purpose ofimproving and extending the combined Water and Sewer System with principal due invarying amounts through year 2024, including interest at 3.0% to 5.0% per annum. $ 5,590,000

68

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

$23,760,000 2005A International Toll Bridge System Revenue Improvement and RefundingBond issue for the purpose to acquire, purchase, construct, improve, enlarge equp anInternational Toll Bridge and refunding of State Infrastructure Bank Loans with the TexasDeparment of Transportation with principal due in varying amounts through year 2025,including interest at 3.0% to 5.0% per annum. $ 18,740,000

$24,565,000 2005B International Toll Bridge System Revenue Refunding Bond issued forthe purpose of refunding other Bridge Revenue Bond issues with principal due in varyingamounts through year 2019, including interest at 4.0% to 5.0% per annum. 21,095,000

$6,420,000 2005 Waterworks & Sewer Systems Revenue issued for the purpose ofimproving and extending the combined Water and Sewer System with principal due invarying amounts through year 2025, including interest at 3.0% to 4.4% per annum. 5,020,000

$8,950,000 2006 Waterworks & Sewer Systems Revenue Bond Revenue issued for thepurpose of improving and extending the combined Water and Sewer System with principaldue in varying amounts through year 2026, including interest at 4.0% to 4.5% per annum. 11,275,000

$17,670,000 2007 Waterworks & Sewer Systems Revenue Bond issued for the purpose ofimproving and extending the combined Water and Sewer System with principal due invarying amounts through year 2027, including interest at 4.0% to 4.75% per annum. 15,275,000

$3,070,000 2008 International Toll Bridge System Revenue Bond issued for the purpose ofimproving and constructing expansion of inspection station booths for Bridge No. IV withprincipal due in varying amounts through year 2028, including interest at 4.71% per annum. 2,770,000

$915,000 2008 Waterworks and Sewer System Revenue Bond for the purpose ofconstructing, improving, and extending the waterworks and sewer systems with principaldue in varying amounts through year 2028, including interest at 4.21% to 5.26% per annum. 824,000

$7,500,000 2009 Waterworks and Sewer System Revenue Bond for the purpose ofpurchasing and acquiring additional water rights with principal due in varying amountsthrough year 2029 at 0.001 per annum. 6,830,000

$82,175,000 2010 Waterworks and Sewer System Revenue Bond for the purpose ofimproving and extending the combined water and sewer system with principal due invarying amounts through year 2040 at 2.00% per annum. 80,405,000

Subtotal $ 181,297,000 Deferred Charges for Various Revenue Refunding Bonds - Total Revenue Bonds $ 181,297,000

Due Within One Year $ 7,983,000

69

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

The applicable bond ordinances for the aforementioned debt contain limitations and restrictions on annual debt service requirements and maintenance of and flow of monies through various restricted accounts as well as minimum amounts to be maintained in various sinking funds. The City is in compliance with all significant limitations and restrictions. B – Certificates of Obligations

$9,925,000 2002 Combination Tax and Revenue Certificates of Obligtion issued for thepurpose of acquiring downtown properites, a property known as Slaughter Farm, acquisition ofland in northeast Laredo and land for the Fire Training and Law Enforcement Facility.Principal is due in varying amounts through 2022 with interest varying from 3.25% to 5.00%per annum. $ 420,000

$3,620,000 2003 Combination Tax and Sewer System Revenue Certificates of Obligation, forthe purpose of paying all or a portion of the City’s contractual obligations for constructing,improving, and extending the City’s Sewer system, and for the payment of legal, fiscal, andengineering fees in connection with this project. Principal is due in varying amounts through2023, with interest varying from 3.40% to 4.50% per annum. 2,545,000

$13,535,000 2004 Combination Tax and Revenue Certificates of Obligation for the purpose ofpaying all or a portion of the City's contractual obligations for the purpose of paying street,parking, and landfill improvements, including costs of issuance. Principal is due in varyingamounts through 2024 wtih interest from 3% to 5% per annum. 4,570,000

$72,480,000 2007 Combination Tax and Revenue Contractual Obligations, for the purpose ofconstructing City streets and sidewalks, traffic signals and lighting improvements, equipmentand vehicles for various City departments, developing various recreational facilities,improvements to various City facilities, and the payment of legal, fiscal, and engineering feesrelated to the various projects. Principal is due in varying amounts through 2024 with interestfrom 4% to 5.25% per annum. 6,340,000

$3,555,000 2008 Public Property Finance Contractual Obligations, for the purpose ofpurchasing municipal buses for the Mass Transit System with principal due in varying amountsthrough 2020 with interest at 3.399% per annum. 2,820,000

$46,235,000 2008B Combination Tax and Waterworks and Sewer System Revenue Certificatesof Obligation, for the purpose of constructing, improving, and extending the City’s Waterworksand Sewer systems, and the payment of legal, fiscal, and engineering fees related to the variousprojects. Principal is due in varying amounts through 2033 with interest from 3.50% to 5.00%per annum. 43,340,000

$13,475,000 2009C Cominbination Tax and Waterworks and Sewer System RevenueCertificates of Obligation fro the purpose of construcitng and extending Waterworks and SewerSystem with principal due in varying amounts through year 2021, including interest at 2.00% to5.00% per annum. 11,495,000

$37,945,000 2009D Combination Tax and Waterworks and Sewer System Revenue Certificatesof Obligation for the purpose of constructing and extending Waterworks System and SewerSystem with principal due in varying amount through year 2039, including interest at 6.566%per annum. $ 37,945,000

70

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

$5,060,000 2010 Public Property Finance Contractual Obligations, for the purpose ofpersonal property with principal due in varying amounts through 2018 with interest at3.875% per annu. $ 4,070,109

Total Certifcates of Obligation $ 113,545,109

Due Within One Year $ 4,092,196

C - General Obligation Bonds

$24,455,000 2005 General Obligation Refunding Bonds issued for the purpose of refundingoutstanding obligations in order to achieve a debt services savings and pay cost related to theissuance of the bonds. Principal is due in varying amounts through 2021 with interestvarying from 3.50% to 5.00% interest per annum. $ 8,572,256

$17,865,000 2006 General Obligtion Refunding Bonds issued for the purpose of refundingoutstanding obligations in order to restructure the City's debt service requirements andachieve a debt service savings. Principal is due in varying amounts through 2013 withinterest varying from 4.00% to 5.00% per annum. 2,591,342

$27,150,000 2009 General Obligation Refunding Bonds issued for the purpose of refundingoutstanding obligations in order to achieve a debt service savings and pay costs related to theissuance of the bonds. Principal is due in varying amounts through 2018 with interestvarying from 2.75% to 5.00% per annum. 10,359,286

$9,345,000 2010 General Obligation Refunding Bond issued for the purpose of refundingoutstanding obligations in order to achieve a debt service savings and pay cots related to theissuance of the bonds. Principal is due in varying amounts through 2022 with interestvarying from 2.00% to 4.00% per annum. 5,843,108

Subtotal $ 27,365,992 Deferred Charges for Various General Obligation Bonds (530,261) Total General Obligation Bonds $ 26,835,731

Due Within One Year $ 5,538,414

D - Notes Payable

Texas Department of Transportation - State Infrastructure Bank loan for $27,000,000 for thedesign and construction of bridge facilities and a portion of the costs of constructing thehighway improvements. The City of Laredo received $19,500,000 of the loan proceeds infiscal year 1998 and $9,806,858 in fiscal year 1999. Interest rate on the note is 4.10% simpleinterest per annum. Interest is deferred for seven years and added to the principal outstandingbalance. The note has a final maturity date of October 1, 2027. $ 18,744,450

Due Within One Year $ 892,590

71

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

E - Compensated Absences The long-term portion of compensated absences for all City employees for Proprietary funds is comprised of the following:

Fund Amount

Transit System $ 78,826 Bridge System 355,042 Municipal Housing 12,038 Waterworks System 279,066 Sewer System 87,471 Solid Waste Fund 274,959 Total $ 1,087,402

Due Within One Year $ 726,404

F - Refunding and Early Extinguishment General Obligation Refunding Bonds, Series 2010 On October 26, 2010, the City of Laredo issued $6,145,922 in General Obligation Refunding Bonds, Series 2010 with an average interest rate of 3.75% to advance the following:

Average Prinicpal AmountBond Issue Interest Rate Refunded

Combination Tax & Sewer Revenue C.O., Series 2000 5.25% $ 185,000Combination Tax & Water Revenue C.O., Series 2000 5.25% 255,000Combination Tax & Revenue C.O., Series 2002 4.50% 10,700,000

The net proceeds of $6,123,725 (after payment of $118,623 in underwriting fees, insurance, and other issuance costs) plus an additional cash contribution of $9,034 for the 2000 and 2002 Series C.O.’s sinking funds monies were used to purchase governmental securities. Those securities were deposited in an irrevocable trust within an escrow agent to provide for all future debt service payments on the 2000 and 2002 Series C.O.’s. As a result, the 2000 and 2002 Series C.O.’s bonds are considered defeased and the liability for those bonds has been removed from the government-wide Statement of Net Assets. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $7,661.473. This difference, reported in the accompanying financial statements as a deduction from bonds payable, is being charged to operations through the year 2022 using the effective-interest method. The agency completed the advance refunding and its total debt service payments decrease over the next eleven years by $344,073 and resulted in an economic gain (difference between the present value of the old and the new debt service payments) of $307,338.

72

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

G - Prior-year defeasance of debt. In prior years, the City defeased certain revenue bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and liability of the defeased bonds are not included in the City's financial statements. As of September 30, 2011 $15,634,576 in bonds outstanding are considered defeased. H - Landfill Closure and Post Closure Costs During fiscal year 1994, the City adopted the provisions of GASB Statement No.18 "Accounting for Municipal Solid Waste Landfill Closure and Post Closure Care Costs." The landfill closure and post closure costs and the liability for landfill closure and post closure costs in Solid Waste Fund as of September 30, 2011 is $15,062,067 of which $10,449,569 has been recognized and recorded as a liability based on the Municipal Solid Waste Landfill use. Federal and State laws and regulations require the City to place a final cover on its landfill when it stops accepting waste and perform certain maintenance and monitoring functions at the landfill site for thirty years after closure. In addition to operating expenses related to current activities of the landfill, a liability is being recognized based on future closure and post closure care costs that will be incurred near or after the date the landfill no longer accepts waste. The recognition of these landfill closure and post closure care costs is based on the capacity of the landfill used to date. The liability for landfill closure and post closure care costs of $10,449,569 as of September 30, 2011 represents the cumulative amount for 123.9 acres of the landfill filled with solid waste for closure and 200 acres for post-closure care. The percentage of the landfill capacity for solid waste used as of September 30, 2011 is 69.38%. With Landfill receiving a permit for vertical expansion the estimated remaining life of the landfill is 7 years. Based on the remaining life, the landfill will

be filled to capacity by the year 2018. The estimated total current cost of the landfill closure and post closure care ($15,062,067) is based on the amount that would be paid if all equipment, facilities, and services required to close, monitor, and maintain the landfill were acquired as of September 30, 2011. However, the actual costs of closure and post closure care may be higher due to inflation, changes in technology, or changes in solid waste management laws and regulations. The landfill is divided into four phases and is further divided into cells of 3 to 7 acres. The new regulations require that liner systems be installed in all cells opened after July 1, 1994. All cells regardless of their age will be required to receive final cover in conformity with the specifications of the current laws. Federal and State laws and regulations require the City of Laredo to make annual financial assurances regarding the financing of closure and post closure care. The City is in compliance with this requirement. It is anticipated that future inflation costs will be financed in part from earnings on investments and by a federal mandate fee of $4.25 charged monthly to all garbage users. Commercial accounts, formerly exempt from the fee, are now charged the federal mandate fee. The remaining portion of anticipated future inflation costs and additional costs that might arise from changes in post closure requirements (for example, changes in technology or more rigorous environmental regulations) may need to be covered by charges to future landfill users, taxpayers, or both.

73

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

NOTE 13 - INTERFUND RECEIVABLES AND PAYABLES The purposes of interfund balances are to provide cash flows for grants and to cover funds with negative cash. Interfund receivables and payables as of September 30, 2011 are as follows:

Interfund InterfundReceivables Payables

Governmental Activity

2007 Certificate of ObligationSolid Waste Fund $ - $ 946,202

Due to Business Type Activities for Internal Service Funds Allocation - 779,514 Total Governmental Activity $ - $ 1,725,716

Business Type Activity

Solid Waste Fund 2007 Certificate of Obligations $ 946,202 $ -

Due from Governmental Activities for Internal Service Funds Allocation 779,514 -

TOTAL BUSINESS TYPE ACTIVITY $ 1,725,716 $ -

74

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

NOTE 14 - INTERFUND TRANSFERS The purpose of interfund transfers is to transfer funds based on City ordinance for operational purposes or grant purposes. Transfers between funds during the year were as follows:

Transfers Transfers Net In Out Transfers

GOVERNMENTAL FUND:Contractual Obligations Transit $ - 288 (288)

CAPITAL IMPROVEMENTS Bridge 3,691,761 - 3,691,761 Waterworks 1,375,144 - 1,375,144

DEBT SERVICE Bridge 776,347 - 776,347 TOTAL - GOVERNMENT TYPE 5,843,252 288 5,842,964

BUSINESS TYPE:TRANSIT Contractual Obligations 288 - 288

WATERWORKS Capital Improvements - 1,375,144 (1,375,144)

BRIDGE Capital Improvements - 3,691,761 (3,691,761) Debt Service - 776,347 (776,347) TOTAL BUSINESS TYPE $ 288 5,843,252 (5,842,964)

75

CIT

Y O

F LA

RE

DO

, TE

XAS

NO

TES

TO

FIN

AN

CIA

L S

TATE

ME

NTS

NO

TE 1

5 - D

ebt S

ervi

ce R

equi

rem

ents

The

follo

win

g is

a s

umm

ary

of th

e C

ity's

deb

t ser

vice

requ

irem

ents

for a

ll fu

nds

as o

f Sep

tem

ber 3

0, 2

011

Rev

enue

Bon

dsN

otes

Pay

able

Cer

tific

ates

of O

blig

atio

nG

ener

al O

blig

atio

n B

onds

Deb

t Ser

vice

to M

atur

ity

Year

Prin

cipa

lIn

tere

stTo

tal

Prin

cipa

lIn

tere

stTo

tal

Prin

cipa

lIn

tere

stTo

tal

Prin

cipa

lIn

tere

stTo

tal

Prin

cipa

lIn

tere

stTo

tal

2012

9,89

3,00

0

10

,383

,223

20

,276

,223

1,45

0,66

6

87

0,26

0

2,32

0,92

6

11

,250

,000

13

,748

,316

24

,998

,316

9,01

5,00

2

2,

137,

887

11,1

52,8

89

31,6

08,6

68

27

,139

,686

58

,748

,354

2013

10,3

41,0

00

9,97

5,06

3

20

,316

,063

1,50

8,43

1

81

1,76

5

2,32

0,19

6

11

,542

,100

13

,349

,483

24

,891

,583

9,98

9,99

9

1,

786,

563

11,7

76,5

62

33,3

81,5

30

25

,922

,874

59

,304

,404

2014

10,7

77,0

00

9,53

2,80

0

20

,309

,800

1,26

0,91

2

75

0,34

3

2,01

1,25

5

12

,558

,921

12

,899

,044

25

,457

,965

8,97

9,99

9

1,

433,

452

10,4

13,4

51

33,5

76,8

32

24

,615

,639

58

,192

,471

2015

11,2

57,0

00

9,06

4,21

9

20

,321

,219

1,09

1,94

1

70

2,82

9

1,79

4,77

0

12

,475

,740

12

,379

,796

24

,855

,536

4,64

9,99

9

1,

123,

037

5,77

3,03

6

29

,474

,680

23,2

69,8

81

52,7

44,5

61

2016

11,7

82,0

00

8,54

7,17

7

20

,329

,177

1,13

3,22

6

65

8,67

4

1,79

1,90

0

13

,027

,561

11

,829

,585

24

,857

,146

4,67

5,00

0

91

3,25

0

5,58

8,25

0

30

,617

,787

21,9

48,6

86

52,5

66,4

73

2017

12,3

39,0

00

7,99

3,71

6

20

,332

,716

1,17

6,20

3

61

4,43

6

1,79

0,63

9

13

,599

,383

11

,253

,214

24

,852

,597

4,97

5,00

2

68

7,86

2

5,66

2,86

4

32

,089

,588

20,5

49,2

28

52,6

38,8

16

2018

12,9

35,0

00

7,40

9,59

5

20

,344

,595

1,22

0,94

2

56

7,22

3

1,78

8,16

5

14

,239

,159

10

,627

,286

24

,866

,445

4,01

0,00

0

44

6,11

3

4,45

6,11

3

32

, 405

,101

19,0

50,2

17

51,4

55,3

18

2019

10,6

46,0

00

6,78

9,57

8

17

,435

,578

1,26

7,51

6

51

7,99

7

1,78

5,51

3

14

,288

,935

9,

986,

218

24,2

75,1

53

2,

130,

000

252,

912

2,

382,

912

28,3

32,4

51

17

,546

,705

45

,879

,156

2020

10,4

99,0

00

6,28

2,15

9

16

,781

,159

1,23

0,99

9

46

6,70

9

1,69

7,70

8

14

,953

,710

9,

331,

249

24,2

84,9

59

1,

919,

998

153,

911

2,

073,

909

28,6

03,7

07

16

,234

,028

44

,837

,735

2021

11,0

05,0

00

5,77

6,39

8

16

,781

,398

1,28

1,47

0

41

6,23

8

1,69

7,70

8

15

,269

,397

8,

636,

749

23,9

06,1

46

1,

445,

001

72,1

08

1,

517,

109

29,0

00,8

68

14

,901

,493

43

,902

,361

2022

11,5

39,0

00

5,24

5,91

0

16

,784

,910

1,33

4,01

0

36

3,69

8

1,69

7,70

8

15

,992

,129

7,

881,

958

23,8

74,0

87

73

0,00

0

14,6

00

74

4,60

0

29,5

95,1

39

13

,506

,166

43

,101

,305

2023

11,1

82,0

00

4,68

5,87

1

15

,867

,871

1,38

8,70

4

30

9,00

4

1,69

7,70

8

16

,345

,000

7,

074,

016

23,4

19,0

16

-

-

-

28

,915

,704

12,0

68,8

91

40,9

84,5

95

2024

11,7

16,0

00

4,14

3,15

8

15

,859

,158

1,44

5,64

1

25

2,06

7

1,69

7,70

8

16

,570

,000

6,

227,

469

22,7

97,4

69

-

-

-

29

,731

,641

10,6

22,6

94

40,3

54,3

35

2025

7,85

0,00

0

3,

669,

581

11,5

19,5

81

1,

504,

913

192,

796

1,

697,

709

16,7

90,0

00

5,35

4,56

0

22

,144

,560

-

-

-

26,1

44,9

13

9,

216,

937

35,3

61,8

50

2026

5,83

8,00

0

3,

312,

744

9,15

0,74

4

1,56

6,61

4

13

1,09

4

1,69

7,70

8

16

,400

,000

4,

460,

928

20,8

60,9

28

-

-

-

23

,804

,614

7,90

4,76

6

31

,709

,380

2027

5,05

7,00

0

3,

061,

589

8,11

8,58

9

1,63

0,80

3

66

,863

1,69

7,66

6

15

,845

,000

3,

620,

448

19,4

65,4

48

-

-

-

22

,532

,803

6,74

8,90

0

29

,281

,703

2028

3,92

1,00

0

2,

849,

215

6,77

0,21

5

-

-

-

9,91

5,00

0

2,

943,

247

12,8

58,2

47

-

-

-

13

,836

,000

5,79

2,46

2

19

,628

,462

2029

3,80

5,00

0

2,

665,

893

6,47

0,89

3

-

-

-

7,71

0,00

0

2,

461,

222

10,1

71,2

22

-

-

-

11

,515

,000

5,12

7,11

5

16

,642

,115

2030

3,60

5,00

0

2,

480,

351

6,08

5,35

1

-

-

-

5,37

5,00

0

2,

091,

177

7,46

6,17

7

-

-

-

8,98

0,00

0

4,

571,

528

13,5

51,5

28

2031

3,80

5,00

0

2,

284,

779

6,08

9,77

9

-

-

-

4,89

5,00

0

1,

784,

706

6,67

9,70

6

-

-

-

8,70

0,00

0

4,

069,

485

12,7

69,4

85

2032

4,01

0,00

0

2,

077,

364

6,08

7,36

4

-

-

-

5,13

5,00

0

1,

500,

327

6,63

5,32

7

-

-

-

9,14

5,00

0

3,

577,

691

12,7

22,6

91

2033

4,23

0,00

0

1,

857,

510

6,08

7,51

0

-

-

-

5,38

0,00

0

1,

202,

334

6,58

2,33

4

-

-

-

9,61

0,00

0

3,

059,

844

12,6

69,8

44

2034

4,46

0,00

0

1,

625,

633

6,08

5,63

3

-

-

-

2,39

0,00

0

97

1,44

0

3,36

1,44

0

-

-

-

6,85

0,00

0

2,

597,

073

9,44

7,07

3

2035

4,70

5,00

0

1,

381,

062

6,08

6,06

2

-

-

-

2,49

5,00

0

81

1,06

5

3,30

6,06

5

-

-

-

7,20

0,00

0

2,

192,

127

9,39

2,12

7

2036

4,96

0,00

0

1,

125,

150

6,08

5,15

0

-

-

-

2,60

0,00

0

64

3,79

6

3,24

3,79

6

-

-

-

7,56

0,00

0

1,

768,

946

9,32

8,94

6

2037

4,46

0,00

0

87

9,86

2

5,33

9,86

2

-

-

-

2,71

5,00

0

46

9,30

4

3,18

4,30

4

-

-

-

7,17

5,00

0

1,

349,

166

8,52

4,16

6

2038

4,69

5,00

0

64

3,93

1

5,33

8,93

1

-

-

-

2,83

5,00

0

28

7,09

8

3,12

2,09

8

-

-

-

7,53

0,00

0

93

1,02

9

8,46

1,02

9

2039

4,94

0,00

0

39

5,62

5

5,33

5,62

5

-

-

-

2,95

5,00

0

97

,012

3,05

2,01

2

-

-

-

7,89

5,00

0

49

2,63

7

8,38

7,63

7

2040

5,20

5,00

0

13

4,15

6

5,33

9,15

6

-

-

-

-

-

-

-

-

-

5,

205,

000

134,

156

5,

339,

156

Tota

l22

1,45

7,00

012

6,27

3,31

234

7,73

0,31

221

,492

,991

7,69

1,99

629

,184

,987

285,

547,

035

163,

923,

047

449,

470,

082

52,5

20,0

009,

021,

695

61,5

41,6

9558

1,01

7,02

630

6,91

0,05

088

7,92

7,07

6

Bus

ines

s-Ty

pe a

nd G

over

nmen

tal A

ctiv

ities

76

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

NOTE 16 - CONSTRUCTION AND IMPROVEMENT COMMITMENTS As of September 30, 2011, the City had contractual commitments of $146,084,862 for various construction and improvement projects. The commitments are summarized as follows:

Project Description Commitment Financing Sources

Community Development $ 792,829 Grant ProceedsEnvironmental Services 466,120 Fund Revenues/Bond/Grant ProceedsCapital Improvements 133,272 Fund RevenuesAirport Construction 6,512,395 Grant ProceedsColonias 2,067,527 Grant ProceedsCapital Grants 1,247,698 Grant Proceeds2006 C.O. Issue 136,175 Bond Proceeds2007 C.O. Issue 2,842,949 Bond Proceeds2008 C.O Issue 4,368,081 Bond Proceeds2009 C.O. Issue 5,970,582 Bond Proceeds2010 C.O. Issue 774,486 Bond ProceedsBaseball Stadium 14,148,660 Fund Revenue/Bond ProceedsBridge 342,268 Bond ProceedsWaterworks System 103,507,438 Fund Revenues/ Bond / Grant ProceedsWastewater 2,774,382 Fund Revenues/ Bond ProceedsTotal Commitments $ 146,084,862

NOTE 17 – FUND EXPENDITURES EXCEEDING APPROPRIATIONS During the fiscal year ended September 30, 2011, expenses/expenditures in General Fund, Debt Service, Nonmajor Governmental Funds and Internal Service Funds exceeded appropriations as follows: General Fund $5,036,510; Debt Service Fund $98,788; Hotel-Motel Occupancy Tax $533; Mercado Management $6,085; Laredo Energy Arena $43,969 and Health and Benefits Fund $1,218,850. NOTE 18 - RISK MANAGEMENT A. HEALTH AND BENEFITS FUND In January 1990, the City established a partial self-insured plan for medical coverage for its employees and an internal service fund called Risk Management. On October 1, 1995, the fund name was changed to Health and Benefits Fund. Under this plan, the City will pay for medical claims up to the amount of $100,000 per employee, with a maximum lifetime benefit of $1,000,000 per employee. There is a maximum medical aggregate liability of $19,589,253 and projected net claims of $17,412,669. Claims exceeding $100,000 per employee are paid by the City and reimbursed by the City's stop/loss insurance carrier. The City has accrued for claims that have been incurred but not reported.

77

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

The incurred claims liability of $2,431,242 reported in the Fund as of September 30, 2011 is based on the requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the claim liability can be reasonably estimated. Claim liabilities are calculated considering the recent claim settlements trends including frequency and amount of

payouts and are due within one year of the date of the statement of net assets. Changes in the Fund's claims liability amount in fiscal year 2009, 2010, and 2011 were:

Balance at Claims and Current yearBeginning of Changes in Claims & Balance at Fiscal

Year Fiscal Year Estimates Payments Year end ¹

2008-2009 $1,942,025 15,411,118 15,089,689 2,263,4542009-2010 2,263,454 15,518,829 15,462,854 2,319,4292010-2011 $2,319,429 16,320,094 16,208,281 2,431,242

There were no changes or reductions in insurance coverage from coverage in prior years. Settled claims did not exceed commercial excess coverage in any of the past three years. ¹Claim Liabilities are due within one year of the date of the statement of net assets. B. RISK MANAGEMENT FUND On October 1, 1996, the City established a self-insured retention program for the worker's compensation liability within the Risk Management Fund which also accounts for the following policies: (a) General Liability (b) Law Enforcement Liability (c) Errors and Omission (d) Auto Liability (e) Auto Physical Damage - ACV. The self-insured retention program for worker's compensation was implemented with $300,000 retention per occurrence and a $2,350,000 aggregate for FY08-09 and $2,350,000 aggregated for FY09-10 and $2,360,000 aggregated for FY10-11. A deductible reimbursement program was also established for claims with $5,000 retention per occurrence through Texas Municipal League Intergovernmental Risk Pool (TMLIRP), with the exception of errors and omission, which has a $25,000 deductible. As of September 30, 2011, a liability was recorded based on fiscal year 2011 outstanding claims, which is due within one year of the date of the statement of net assets. Changes in this claims liability amount in fiscal years 2009, 2010 and 2011 were:

Balance at Claims and Current yearBeginning of Changes in Claims & Balance at Fiscal

Year Fiscal Year Estimates Payments Year end ²

2008-2009 $1,484,301 1,922,330 2,010,452 1,396,1792009-2010 1,396,179 2,101,857 1,947,866 1,550,1702010-2011 $1,550,170 2,090,250 1,788,314 1,852,106

There have been no significant changes in insurance coverage in any of the past three years. Settled claims did not exceed commercial excess coverage in any of the past three years. ²Claim Liabilities are due within one year of the date of the statement of assets.

78

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

NOTE 19 – CONTINGENCIES The City participates in a number of federal programs that are fully or partially funded by grants received from other governmental units. Expenditures financed by grants are subject to audit by the appropriate grantor agency. If expenditures are disallowed due to noncompliance with grant program regulations, the City may be required to reimburse the grantor. As of September 30, 2011, significant amounts of grant expenditures have not been audited by the grantor agencies; however, the City believes it has substantially complied with applicable laws and regulations and that the results of subsequent audits will not have a material effect on any of the individual governmental funds or the overall financial position of the City. The City is a Defendant in a number of lawsuits arising principally from claims against the City for alleged actions by City employees including alleged acts of negligence and discrimination. Total damages claimed are substantial; however, it has been the City's experience that such actions are resolved for amounts substantially less than the claimed amounts with no material effect on the financial condition of the City. NOTE 20 – DONOR-RESTRICTED ENDOWMENTS The Canseco Foundation Children’s Endowment Trust Fund was established on January of 1998, when the City accepted the endowment for the Canseco Foundation in the amount of $50,000. The program would have the City seek all opportunities to augment children’s programming resources provided though the Laredo Public Library. Funding of children’s programming from the fund each year will be based on interest accrued on the endowment. Interest distributions will be from the Canseco Foundation Children’s Endowment Fund. For September 30, 2011, the amount of unspent interest to date was $22,365. This amount is reported in the government-wide financial statements under Net Assets-Restricted for other purposes. Texas State Law:

(a) Except as provided by Subsection (e), the governing board may appropriate for expenditure, for the uses and purposes for which the fund is established, the net appreciation, realized and unrealized, in the fair market value of the assets of an endowment fund over the historic dollar value of the fund to the extent prudent under the standard provided by Section 163.007.

(b) A determination of the historic dollar value made in good faith by the governing board is conclusive.

(c) Subsection (a) does not limit the authority of the governing board to expend funds as permitted under other law, the terms of the applicable gift instrument, or the charter or articles of incorporation of the institution.

(d) Subsection (a) does not apply if the applicable gift instrument indicates the donor’s intention

that the net appreciation not be extended. A restriction on the expenditure of net appreciation may not be implied from a designation of a gift as an endowment or from a direction or authorization in the applicable gift instrument to use only “income” This rule of construction applies to gift instruments executed or in effect before, on, or after the effective date of this chapter.

79

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

NOTE 21- BUDGET BASIS REPORTING The budgetary process is based upon accounting for certain transactions on a budget basis other than generally accepted accounting principles (GAAP Basis). The results of operations as presented in the General Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances are reported in accordance with the budgetary process (budget basis) to provide a meaningful comparison with the budget. The major difference between the budget basis “actual” and GAAP basis are that encumbrances are recorded as the equivalent of expenditures (budget) as opposed to a reservation of fund balance (GAAP) and non-budgeted increases in compensated absences, claims payable, workmen’s compensation insurance, and allowance for doubtful accounts are recorded as expenditures when payments are made (budget) as opposed to when the liability is incurred (GAAP). Adjustments necessary to convert from the GAAP basis to the budget basis are as follows:

General Fund

Excess (Deficiency) of revenues and other financing sourcesover expenditures and other uses (GAAP Basis)- $ 574,108Adjustments: Timing Differences-Encumbrances (1,180,423) Basic Differences: Non Budgeted-Allowance for Doubtful Accounts 42,235

Excess of revenues and other financing sources over expendituresand other uses (GAAP Basis)-budgetary classifications (564,080)

Other adjustments-Excess of revenues and other financing Sources over expenditures and other uses for non-budgeted Funds-(Entity Differences) 34,904,097

Excess (Deficiency) of revenues and other financing sources over expenditures and other uses – Budget Basis $ 34,340,017

NOTE 22 – FUND EQUITY The City implemented GASB Statement No. 54, “Fund Balance Reporting and Governmental Fund type Definitions” effective October 1, 2010. The statement established new categories for reporting fund balance, revised the definitions for governmental fund types and change the presentation of fund balance. Components of fund balance of Governmental Funds are as follows:

80

CITY OF LAREDO, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS

OtherGeneral Debt Governmantal

Fund Service FundsFund Balances: Nonspendable:

Inventory 14,937 - 69,161 Permanent Fund Principal - - 50,000

Restricted for:Debt Service - 8,272,028 2,420,047 Public Safety - - 7,074,789 Health & Welfare - - 2,303,427 Cultural & Recreation - - 19,121,170 Transportation - - 168,702 Capital Projects 786,681 - 64,899,686

Commited to:Cash Reserves 21,212,775 - - General Government 187,341 - - Public Safety 489,519 - 56,653 Public Works 85,425 - - Health & Welfare 3,370 - 4,040,800 Cultural & Recreation 363,698 - 275,740 Other 51,070 - Capital Projects - - 2,383,377

Assigned to:Municipal Court 1,613,435 - - Public Safety - - 657,381 Health & Welfare - - 782,707 Cultural & Recreation - - 583,427 Capital Projects - - 9,685,818

Unassigned 10,712,189 - (125,741) Total Fund Balances 35,520,440 8,272,028 114,447,144

81

APPENDIX C

FORM OF BOND COUNSEL'S OPINIONS

(THIS PAGE LEFT BLANK INTENTIONALLY)

DRAFT DATE: OCTOBER 10, 2012LAW OFFICES

McCALL, PARKHURST & HORTON L.L.P.717 NORTH HARW OOD 700 N. ST. MARY'S STREET 600 CONGRESS AVENUE

NINTH FLOOR 1525 ONE RIVERW ALK PLACE 1800 ONE AMERICAN CENTER

DALLAS, TEXAS 75201-6587 SAN ANTONIO, TEXAS 78205-3503 AUSTIN, TEXAS 78701-3248TELEPHONE: 214 754-9200 TELEPHONE: 210 225-2800 TELEPHONE: 512 478-3805

FACSIMILE: 214 754-9250 FACSIMILE: 210 225-2984 FACSIMILE: 512 472-0871

October 30, 2012

CITY OF LAREDO, TEXASCOMBINATION TAX AND REVENUE

CERTIFICATES OF OBLIGATION, SERIES 2012ADATED AS OF SEPTEMBER 1, 2012

IN THE AGGREGATE PRINCIPAL AMOUNT OF $10,345,000

AS BOND COUNSEL FOR THE CITY OF LAREDO, TEXAS (the "City") in connectionwith the issuance of the certificates of obligation described above (the "Certificates"), we haveexamined into the legality and validity of the Certificates, which bear interest from the datesspecified in the text of the Certificates until maturity at the rates and payable on the dates as statedin the text of the Certificates, all in accordance with the terms and conditions stated in the text of theCertificates.

WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution andlaws of the State of Texas and a transcript of certified proceedings of the City, and other pertinentinstruments authorizing and relating to the issuance of the Certificates including (i) the ordinanceauthorizing the issuance of the Certificates (the "Ordinance"), (ii) one of the executed Certificates(Certificate No. T-1), and (iii) the City's Federal Tax Certificate of even date herewith.

BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Certificates have beenauthorized, issued and delivered in accordance with law; that the Certificates constitute valid andlegally binding general obligations of the City in accordance with their terms except as theenforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium,liquidation and other similar laws now or hereafter enacted relating to creditors' rights generally orby general principles of equity which permit the exercise of judicial discretion; that the City has thelegal authority to issue the Certificates and to repay the Certificates; that ad valorem taxes sufficientto provide for the payment of the interest on and principal of the Certificates, as such interest comesdue, and as such principal matures, have been levied and ordered to be levied against all taxableproperty in the City, and have been pledged for such payment, within the limits prescribed by law;and that the Certificates are additionally secured by and payable from the limited surplus revenuesof the City's International Toll Bridge System, remaining after payment of all operation andmaintenance expenses thereof, and all debt service, reserve, and other requirements in connectionwith all of the City's obligations (now or hereafter outstanding), which are payable from all or anypart of the net revenues of the City's International Toll Bridge System, all in the manner set forthin the Ordinance.

City of Laredo, TexasCombination Tax and Revenue Certificates of Obligation, Series 2012AOctober 30, 2012Page 2

IT IS FURTHER OUR OPINION, except as discussed below, that the interest on theCertificates is excludable from the gross income of the owners for federal income tax purposes underthe statutes, regulations, published rulings, and court decisions existing on the date of this opinion.We are further of the opinion that the Certificates are not "specified private activity bonds" and that,accordingly, interest on the Certificates will not be included as an individual or corporate alternativeminimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the"Code"). In expressing the aforementioned opinions, we have relied on, certain representations, theaccuracy of which we have not independently verified, and assume compliance with certaincovenants, regarding the use and investment of the proceeds of the Certificates and the use of theproperty financed or refinanced therewith. We call your attention to the fact that if suchrepresentations are determined to be inaccurate or upon a failure by the City to comply with suchcovenants, interest on the Certificates may become includable in gross income retroactively to thedate of issuance of the Certificates.

EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state or localtax consequences of acquiring, carrying, owning or disposing of the Certificates. In particular, butnot by way of limitation, we express no opinion with respect to the federal, state or local taxconsequences arising from the enactment of any pending or future legislation.

WE CALL YOUR ATTENTION TO THE FACT that the interest on tax-exemptobligations, such as the Certificates, is included in a corporation's alternative minimum taxableincome for purposes of determining the alternative minimum tax imposed on corporations by section55 of the Code.

WE EXPRESS NO OPINION as to any insurance policies issued with respect to thepayments due for the principal of and interest on the Certificates, nor as to any such insurancepolicies issued in the future.

OUR SOLE ENGAGEMENT in connection with the issuance of the Certificates is as BondCounsel for the City, and, in that capacity, we have been engaged by the City for the sole purposeof rendering an opinion with respect to the legality and validity of the Certificates under theConstitution and laws of the State of Texas, and with respect to the exclusion from gross income ofthe interest on the Certificates for federal income tax purposes, and for no other reason or purpose.The foregoing opinions represent our legal judgment based upon a review of existing legalauthorities that we deem relevant to render such opinions and are not a guarantee of a result. Wehave not been requested to investigate or verify, and have not independently investigated or verified,any records, data, or other material relating to the financial condition or capabilities of the City, orthe disclosure thereof in connection with the sale of the Certificates, and have not assumed anyresponsibility with respect thereto. We express no opinion and make no comment with respect tothe marketability of the Certificates and we have relied solely on certificates executed by officialsof the City as to the current outstanding indebtedness of, and assessed valuation of taxable propertywithin, the City. Our role in connection with the City's Official Statement prepared for use inconnection with the sale of the Certificates has been limited as described therein.

City of Laredo, TexasCombination Tax and Revenue Certificates of Obligation, Series 2012AOctober 30, 2012Page 3

OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Suchopinions are further based on our knowledge of facts as of the date hereof. We assume no duty toupdate or supplement our opinions to reflect any facts or circumstances that may thereafter cometo our attention or to reflect any changes in any law that may thereafter occur or become effective.Moreover, our opinions are not a guarantee of a result and are not binding on the Internal RevenueService (the "Service"); rather, such opinions represent our legal judgment based upon our reviewof existing law and in reliance upon the representations and covenants referenced above that wedeem relevant to such opinions. The Service has an ongoing audit program to determine compliancewith rules that relate to whether interest on state or local obligations is includable in gross incomefor federal income tax purposes. No assurance can be given whether or not the Service willcommence an audit of the Certificates. If an audit is commenced, in accordance with its currentpublished procedures the Service is likely to treat the City as the taxpayer. We observe that the Cityhas covenanted not to take any action, or omit to take any action within its control, that if taken oromitted, respectively, may result in the treatment of interest on the Certificates as includable in grossincome for federal income tax purposes.

Respectfully,

(THIS PAGE LEFT BLANK INTENTIONALLY)

DRAFT DATE: OCTOBER 10, 2012LAW OFFICES

McCALL, PARKHURST & HORTON L.L.P.717 NORTH HARW OOD 700 N. ST. MARY'S STREET 600 CONGRESS AVENUE

NINTH FLOOR 1525 ONE RIVERW ALK PLACE 1800 ONE AMERICAN CENTER

DALLAS, TEXAS 75201-6587 SAN ANTONIO, TEXAS 78205-3503 AUSTIN, TEXAS 78701-3248TELEPHONE: 214 754-9200 TELEPHONE: 210 225-2800 TELEPHONE: 512 478-3805

FACSIMILE: 214 754-9250 FACSIMILE: 210 225-2984 FACSIMILE: 512 472-0871

October 30, 2012

CITY OF LAREDO, TEXASCOMBINATION TAX AND REVENUE

CERTIFICATES OF OBLIGATION, TAXABLE SERIES 2012BDATED AS OF OCTOBER 1, 2012

IN THE AGGREGATE PRINCIPAL AMOUNT OF $4,605,000

AS BOND COUNSEL FOR THE CITY OF LAREDO, TEXAS (the "City") in connectionwith the issuance of the certificates of obligation described above (the "2012B Certificates"), wehave examined into the legality and validity of the 2012B Certificates, which bear interest from thedates specified in the text of the 2012B Certificates until maturity or prior redemption at the ratesand payable on the dates as stated in the text of the 2012B Certificates, and which are subject toredemption, all in accordance with the terms and conditions stated in the text of the 2012BCertificates.

WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution andlaws of the State of Texas and a transcript of certified proceedings of the City, and other pertinentinstruments authorizing and relating to the issuance of the 2012B Certificates including (i) theordinance authorizing the issuance of the 2012B Certificates (the "Ordinance"), (ii) one of theexecuted 2012B Certificates (2012B Certificate No. T-1), and (iii) the City's Federal Tax Certificateof even date herewith.

BASED ON SAID EXAMINATION, IT IS OUR OPINION that the 2012B Certificateshave been authorized, issued and delivered in accordance with law; that the 2012B Certificatesconstitute valid and legally binding general obligations of the City in accordance with their termsexcept as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization,moratorium, liquidation and other similar laws now or hereafter enacted relating to creditors' rightsgenerally or by general principles of equity which permit the exercise of judicial discretion; that theCity has the legal authority to issue the 2012B Certificates and to repay the 2012B Certificates; thatad valorem taxes sufficient to provide for the payment of the interest on and principal of the 2012BCertificates, as such interest comes due, and as such principal matures, have been levied and orderedto be levied against all taxable property in the City, and have been pledged for such payment, withinthe limits prescribed by law; and that the 2012B Certificates are additionally secured by and payablefrom the limited surplus revenues of the City's International Toll Bridge System, remaining after

City of Laredo, TexasCombination Tax and Revenue Certificates of Obligation, Taxable Series 2012BOctober 30, 2012Page 2

payment of all operation and maintenance expenses thereof, and all debt service, reserve, and otherrequirements in connection with all of the City's obligations (now or hereafter outstanding), whichare payable from all or any part of the net revenues of the City's International Toll Bridge System,all in the manner set forth in the Ordinance.

IT IS FURTHER OUR OPINION, that the 2012B Certificates are not obligations describedin section 103(a) of the Internal Revenue Code of 1986, as amended, and, therefore, interest on the2012B Certificates is includable in gross income for federal income tax purposes under the statutes,regulations, published rulings, and court decisions existing on the date of this opinion.

EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state or localtax consequences of acquiring, carrying, owning or disposing of the 2012B Certificates. Inparticular, but not by way of limitation, we express no opinion with respect to the federal, state orlocal tax consequences arising from the enactment of any pending or future legislation.

WE EXPRESS NO OPINION as to any insurance policies issued with respect to thepayments due for the principal of and interest on the 2012B Certificates, nor as to any suchinsurance policies issued in the future.

OUR SOLE ENGAGEMENT in connection with the issuance of the 2012B Certificates isas Bond Counsel for the City, and, in that capacity, we have been engaged by the City for the solepurpose of rendering an opinion with respect to the legality and validity of the 2012B Certificatesunder the Constitution and laws of the State of Texas and for no other reason or purpose. Theforegoing opinions represent our legal judgment based upon a review of existing legal authoritiesthat we deem relevant to render such opinions and are not a guarantee of a result. We have not beenrequested to investigate or verify, and have not independently investigated or verified, any records,data, or other material relating to the financial condition or capabilities of the City, or the disclosurethereof in connection with the sale of the 2012B Certificates, and have not assumed anyresponsibility with respect thereto. We express no opinion and make no comment with respect tothe marketability of the 2012B Certificates and we have relied solely on certificates executed byofficials of the City as to the current outstanding indebtedness of, and assessed valuation of taxableproperty within, the City. Our role in connection with the City's Official Statement prepared for usein connection with the sale of the 2012B Certificates has been limited as described therein.

OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Suchopinions are further based on our knowledge of facts as of the date hereof. We assume no duty toupdate or supplement our opinions to reflect any facts or circumstances that may thereafter cometo our attention or to reflect any changes in any law that may thereafter occur or become effective.

Respectfully,

DRAFT DATE: OCTOBER 10, 2012LAW OFFICES

McCALL, PARKHURST & HORTON L.L.P.717 NORTH HARW OOD 700 N. ST. MARY'S STREET 600 CONGRESS AVENUE

NINTH FLOOR 1525 ONE RIVERW ALK PLACE 1800 ONE AMERICAN CENTER

DALLAS, TEXAS 75201-6587 SAN ANTONIO, TEXAS 78205-3503 AUSTIN, TEXAS 78701-3248TELEPHONE: 214 754-9200 TELEPHONE: 210 225-2800 TELEPHONE: 512 478-3805

FACSIMILE: 214 754-9250 FACSIMILE: 210 225-2984 FACSIMILE: 512 472-0871

October 30, 2012

CITY OF LAREDO, TEXASPUBLIC PROPERTY FINANCE CONTRACTUAL OBLIGATIONS, SERIES 2012

DATED AS OF OCTOBER 1, 2012IN THE AGGREGATE PRINCIPAL AMOUNT OF $3,800,000

AS BOND COUNSEL FOR THE CITY OF LAREDO, TEXAS (the "City") in connectionwith the issuance of the obligations described above (the "Obligations"), we have examined into thelegality and validity of the Obligations, which bear interest from the dates specified in the text ofthe Obligations until maturity at the rates and payable on the dates as stated in the text of theObligations, all in accordance with the terms and conditions stated in the text of the Obligations.

WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution andlaws of the State of Texas and a transcript of certified proceedings of the City, and other pertinentinstruments authorizing and relating to the issuance of the Obligations including (i) the ordinanceauthorizing the issuance of the Obligations (the "Ordinance"), (ii) one of the executed Obligations(Obligation No. T-1), and (iii) the City's Federal Tax Certificate of even date herewith.

BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Obligations have beenauthorized, issued and delivered in accordance with law; that the Obligations constitute valid andlegally binding general obligations of the City in accordance with their terms except as theenforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium,liquidation and other similar laws now or hereafter enacted relating to creditors' rights generally orby general principles of equity which permit the exercise of judicial discretion; that the City has thelegal authority to issue the Obligations and to repay the Obligations; that ad valorem taxes sufficientto provide for the payment of the interest on and principal of the Obligations, as such interest comesdue, and as such principal matures, have been levied and ordered to be levied against all taxableproperty in the City, and have been pledged for such payment, within the limits prescribed by law.

IT IS FURTHER OUR OPINION, except as discussed below, that the interest on theObligations is excludable from the gross income of the owners for federal income tax purposesunder the statutes, regulations, published rulings, and court decisions existing on the date of thisopinion. We are further of the opinion that the Obligations are not "specified private activity bonds"and that, accordingly, interest on the Obligations will not be included as an individual or corporatealternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of1986 (the "Code"). In expressing the aforementioned opinions, we have relied on, certain

City of Laredo, TexasPublic Property Finance Contractual Obligations, Series 2012October 30, 2012Page 2

representations, the accuracy of which we have not independently verified, and assume compliancewith certain covenants, regarding the use and investment of the proceeds of the Obligations and theuse of the property financed or refinanced therewith. We call your attention to the fact that if suchrepresentations are determined to be inaccurate or upon a failure by the City to comply with suchcovenants, interest on the Obligations may become includable in gross income retroactively to thedate of issuance of the Obligations.

EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state or localtax consequences of acquiring, carrying, owning or disposing of the Obligations. In particular, butnot by way of limitation, we express no opinion with respect to the federal, state or local taxconsequences arising from the enactment of any pending or future legislation.

WE CALL YOUR ATTENTION TO THE FACT that the interest on tax-exemptobligations, such as the Obligations, is included in a corporation's alternative minimum taxableincome for purposes of determining the alternative minimum tax imposed on corporations by section55 of the Code.

WE EXPRESS NO OPINION as to any insurance policies issued with respect to thepayments due for the principal of and interest on the Obligations, nor as to any such insurancepolicies issued in the future.

OUR SOLE ENGAGEMENT in connection with the issuance of the Obligations is as BondCounsel for the City, and, in that capacity, we have been engaged by the City for the sole purposeof rendering an opinion with respect to the legality and validity of the Obligations under theConstitution and laws of the State of Texas, and with respect to the exclusion from gross income ofthe interest on the Obligations for federal income tax purposes, and for no other reason or purpose.The foregoing opinions represent our legal judgment based upon a review of existing legalauthorities that we deem relevant to render such opinions and are not a guarantee of a result. Wehave not been requested to investigate or verify, and have not independently investigated or verified,any records, data, or other material relating to the financial condition or capabilities of the City, orthe disclosure thereof in connection with the sale of the Obligations, and have not assumed anyresponsibility with respect thereto. We express no opinion and make no comment with respect tothe marketability of the Obligations and we have relied solely on certificates executed by officialsof the City as to the current outstanding indebtedness of, and assessed valuation of taxable propertywithin, the City. Our role in connection with the City's Official Statement prepared for use inconnection with the sale of the Obligations has been limited as described therein.

OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Suchopinions are further based on our knowledge of facts as of the date hereof. We assume no duty toupdate or supplement our opinions to reflect any facts or circumstances that may thereafter cometo our attention or to reflect any changes in any law that may thereafter occur or become effective.Moreover, our opinions are not a guarantee of a result and are not binding on the Internal RevenueService (the "Service"); rather, such opinions represent our legal judgment based upon our review

City of Laredo, TexasPublic Property Finance Contractual Obligations, Series 2012October 30, 2012Page 3

of existing law and in reliance upon the representations and covenants referenced above that wedeem relevant to such opinions. The Service has an ongoing audit program to determine compliancewith rules that relate to whether interest on state or local obligations is includable in gross incomefor federal income tax purposes. No assurance can be given whether or not the Service willcommence an audit of the Obligations. If an audit is commenced, in accordance with its currentpublished procedures the Service is likely to treat the City as the taxpayer. We observe that the Cityhas covenanted not to take any action, or omit to take any action within its control, that if taken oromitted, respectively, may result in the treatment of interest on the Obligations as includable in grossincome for federal income tax purposes.

Respectfully,

(THIS PAGE LEFT BLANK INTENTIONALLY)

Financial Advisory ServicesProvided By

ESTRADA HINOJOSAI N V E S T M E N T B A N K E R S

PAYING AGENT/REGISTRAR AGREEMENT

THIS AGREEMENT entered into as of October 1, 2012 (this "Agreement"), by and betweenthe CITY OF LAREDO, TEXAS (the "Issuer") and THE BANK OF NEW YORK MELLON TRUST COMPANY,N.A., DALLAS, TEXAS (the “Bank”), a national banking association duly organized and operatingunder the laws of the United States of America.

RECITALS

WHEREAS, the Issuer has duly authorized and provided for the issuance of its CITY OFLAREDO, TEXAS PUBLIC PROPERTY FINANCE CONTRACTUAL OBLIGATIONS, SERIES 2012 (the"Securities") in the aggregate principal amount of $3,800,000, such Securities to be issued in fullyregistered form only as to the payment of principal and interest thereon; and

WHEREAS, the Securities are scheduled to be delivered to the initial purchasers thereof onor about October 30, 2012; and

WHEREAS, the Issuer has selected the Bank to serve as Paying Agent/Registrar inconnection with the payment of the principal of, premium, if any, and interest on said Securities andwith respect to the registration, transfer and exchange thereof by the registered owners thereof; and

WHEREAS, the Bank has agreed to serve in such capacities for and on behalf of the Issuerand has full power and authority to perform and serve as Paying Agent/Registrar for the Securities;

NOW, THEREFORE, it is mutually agreed as follows:

ARTICLE ONE

APPOINTMENT OF BANK ASPAYING AGENT AND REGISTRAR

SECTION 1.01. APPOINTMENT.

The Issuer hereby appoints the Bank to serve as Paying Agent with respect to the Securities.As Paying Agent for the Securities, the Bank shall be responsible for paying on behalf of the Issuerthe principal, premium (if any), and interest on the Securities as the same become due and payableto the registered owners thereof, all in accordance with this Agreement and the "Ordinance"(hereinafter defined).

The Issuer hereby appoints the Bank as Registrar with respect to the Securities. As Registrarfor the Securities, the Bank shall keep and maintain for and on behalf of the Issuer books and recordsas to the ownership of said Securities and with respect to the transfer and exchange thereof asprovided herein and in the Ordinance.

The Bank hereby accepts its appointment, and agrees to serve as the Paying Agent andRegistrar for the Securities.

2

SECTION 1.02. COMPENSATION.

As compensation for the Bank's services as Paying Agent/Registrar, the Issuer hereby agreesto pay the Bank the fees and amounts set forth in Schedule A attached hereto for the first year of thisAgreement and thereafter the fees and amounts set forth in the Bank's current fee schedule then ineffect for services as Paying Agent/Registrar for municipalities, which shall be supplied to the Issueron or before 90 days prior to the close of the Fiscal Year of the Issuer, and shall be effective uponthe first day of the following Fiscal Year.

In addition, the Issuer agrees to reimburse the Bank upon its request for all reasonableexpenses, disbursements and advances incurred or made by the Bank in accordance with any of theprovisions hereof (including the reasonable compensation and the expenses and disbursements ofits agents and counsel).

ARTICLE TWODEFINITIONS

SECTION 2.01. DEFINITIONS.

For all purposes of this Agreement, except as otherwise expressly provided or unless thecontext otherwise requires:

"Acceleration Date" on any Security means the date on and after which the principal or anyor all installments of interest, or both, are due and payable on any Security which has becomeaccelerated pursuant to the terms of the Security.

"Bank Office" means the principal corporate trust office of the Bank as indicated on thesignature page hereof. The Bank will notify the Issuer in writing of any change in location of theBank Office.

"Financial Advisor" means Estrada Hinojosa & Company, Inc., Dallas, Texas.

"Fiscal Year" means the fiscal year of the Issuer, ending September 30.

"Holder" and "Security Holder" each means the Person in whose name a Security isregistered in the Security Register.

"Issuer Request" and "Issuer Order" means a written request or order signed in the nameof the Issuer by the Mayor, City Manager or the Finance Director of the Issuer, any one or more ofsaid officials, delivered to the Bank.

"Legal Holiday" means a day on which the Bank is required or authorized to be closed.

3

"Ordinance" means the resolution, order, or ordinance of the governing body of the Issuerpursuant to which the Securities are issued, certified by the City Secretary or any other officer of theIssuer and delivered to the Bank.

"Person" means any individual, corporation, partnership, joint venture, association, jointstock company, trust, unincorporated organization or government or any agency or politicalsubdivision of a government.

"Predecessor Securities" of any particular Security means every previous Securityevidencing all or a portion of the same obligation as that evidenced by such particular Security (and,for the purposes of this definition, any mutilated, lost, destroyed, or stolen Security for which areplacement Security has been registered and delivered in lieu thereof pursuant to Section 4.06hereof and the Ordinance).

"Redemption Date" when used with respect to any Security to be redeemed means the datefixed for such redemption pursuant to the terms of the Ordinance.

"Responsible Officer" when used with respect to the Bank means the Chairman or Vice-Chairman of the Board of Directors, the Chairman or Vice-Chairman of the Executive Committeeof the Board of Directors, the President, any Vice President, the Secretary, any Assistant Secretary,the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer orAssistant Trust Officer, or any other officer of the Bank customarily performing functions similarto those performed by any of the above designated officers and also means, with respect to aparticular corporate trust matter, any other officer to whom such matter is referred because of hisknowledge of and familiarity with the particular subject.

"Security Register" means a register maintained by the Bank on behalf of the Issuerproviding for the registration and transfer of the Securities.

"Stated Maturity" means the date specified in the Ordinance the principal of a Security isscheduled to be due and payable.

SECTION 2.02. OTHER DEFINITIONS.

The terms "Bank," "Issuer," and "Securities" (Security) have the meanings assigned to themin the recital paragraphs of this Agreement.

The term "Paying Agent/Registrar" refers to the Bank in the performance of the duties andfunctions of this Agreement.

4

ARTICLE THREEPAYING AGENT

SECTION 3.01. DUTIES OF PAYING AGENT.

As Paying Agent, the Bank shall, provided adequate collected funds have been provided toit for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the principal of eachSecurity at its Stated Maturity, Redemption Date, or Acceleration Date, to the Holder upon surrenderof the Security to the Bank at the Bank Office.

As Paying Agent, the Bank shall, provided adequate collected funds have been provided toit for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the interest on eachSecurity when due, by computing the amount of interest to be paid each Holder and preparing andsending checks by United States Mail, first class postage prepaid, on each payment date, to theHolders of the Securities (or their Predecessor Securities) on the respective Record Date, to theaddress appearing on the Security Register or by such other method, acceptable to the Bank,requested in writing by the Holder at the Holder's risk and expense.

SECTION 3.02. PAYMENT DATES.

The Issuer hereby instructs the Bank to pay the principal of and interest on the Securities onthe dates specified in the Ordinance.

ARTICLE FOURREGISTRAR

SECTION 4.01. SECURITY REGISTER - TRANSFERS AND EXCHANGES.

The Bank agrees to keep and maintain for and on behalf of the Issuer at the Bank Officebooks and records (herein sometimes referred to as the "Security Register") for recording the namesand addresses of the Holders of the Securities, the transfer, exchange and replacement of theSecurities and the payment of the principal of and interest on the Securities to the Holders andcontaining such other information as may be reasonably required by the Issuer and subject to suchreasonable regulations as the Issuer and the Bank may prescribe. All transfers, exchanges andreplacement of Securities shall be noted in the Security Register. The Bank represents and warrantsthat its office in the State of Texas will at all times have immediate access to the Security Registerby electronic or other means and will be capable of producing a hard copy at its Dallas, Texas officefor use by the Issuer.

Every Security surrendered for transfer or exchange shall be duly endorsed or beaccompanied by a written instrument of transfer, the signature on which has been guaranteed by anofficer of a federal or state bank or a member of the National Association of Securities Dealers, inform satisfactory to the Bank, duly executed by the Holder thereof or his agent duly authorized inwriting.

5

The Bank may request any supporting documentation it feels necessary to effect a re-registration, transfer or exchange of the Securities.

To the extent possible and under reasonable circumstances, the Bank agrees that, in relationto an exchange or transfer of Securities, the exchange or transfer by the Holders thereof will becompleted and new Securities delivered to the Holder or the assignee of the Holder in not more thanthree (3) business days after the receipt of the Securities to be canceled in an exchange or transferand the written instrument of transfer or request for exchange duly executed by the Holder, or hisduly authorized agent, in form and manner satisfactory to the Paying Agent/Registrar.

SECTION 4.02. SECURITIES.

The Issuer shall provide an adequate inventory of printed Securities to facilitate transfers orexchanges thereof. The Bank covenants that the inventory of printed Securities will be kept insafekeeping pending their use, and reasonable care will be exercised by the Bank in maintainingsuch Securities in safekeeping, which shall be not less than the care maintained by the Bank for debtsecurities of other political subdivisions or corporations for which it serves as registrar, or that ismaintained for its own securities.

SECTION 4.03. FORM OF SECURITY REGISTER.

The Bank, as Registrar, will maintain the Security Register relating to the registration,payment, transfer and exchange of the Securities in accordance with the Bank's general practices andprocedures in effect from time to time. The Bank shall not be obligated to maintain such SecurityRegister in any form other than those which the Bank has currently available and currently utilizesat the time.

The Security Register may be maintained in written form or in any other form capable ofbeing converted into written form within a reasonable time.

SECTION 4.04. LIST OF SECURITY HOLDERS.

The Bank will provide the Issuer at any time requested by the Issuer, upon payment of therequired fee, a copy of the information contained in the Security Register. The Issuer may alsoinspect the information contained in the Security Register at any time the Bank is customarily openfor business, provided that reasonable time is allowed the Bank to provide an up-to-date listing orto convert the information into written form.

The Bank will not release or disclose the contents of the Security Register to any personother than to, or at the written request of, an authorized officer or employee of the Issuer, exceptupon receipt of a court order or as otherwise required by law. Upon receipt of a court order andprior to the release or disclosure of the contents of the Security Register, the Bank will notify theIssuer so that the Issuer may contest the court order or such release or disclosure of the contents ofthe Security Register.

6

SECTION 4.05. RETURN OF CANCELED SECURITIES.

The Bank will, at such reasonable intervals as it determines, surrender to the Issuer,Securities in lieu of which or in exchange for which other Securities have been issued, or which havebeen paid.

SECTION 4.06. MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES.

The Issuer hereby instructs the Bank, subject to the applicable provisions of the Ordinance,to deliver and issue Securities in exchange for or in lieu of mutilated, destroyed, lost, or stolenSecurities as long as the same does not result in an overissuance.

In case any Security shall be mutilated, or destroyed, lost or stolen, the Bank, in itsdiscretion, may execute and deliver a replacement Security of like form and tenor, and in the samedenomination and bearing a number not contemporaneously outstanding, in exchange andsubstitution for such mutilated Security, or in lieu of and in substitution for such destroyed lost orstolen Security, only after (i) the filing by the Holder thereof with the Bank of evidence satisfactoryto the Bank of the destruction, loss or theft of such Security, and of the authenticity of the ownershipthereof and (ii) the furnishing to the Bank of indemnification in an amount satisfactory to hold theIssuer and the Bank harmless. All expenses and charges associated with such indemnity and withthe preparation, execution and delivery of a replacement Security shall be borne by the Holder ofthe Security mutilated, or destroyed, lost or stolen.

SECTION 4.07. TRANSACTION INFORMATION TO ISSUER.

The Bank will, within a reasonable time after receipt of written request from the Issuer,furnish the Issuer information as to the Securities it has paid pursuant to Section 3.01, Securities ithas delivered upon the transfer or exchange of any Securities pursuant to Section 4.01, andSecurities it has delivered in exchange for or in lieu of mutilated, destroyed, lost, or stolen Securitiespursuant to Section 4.06.

SECTION 4.08. REPORTING REQUIREMENTS.

To the extent required by the Code or the Treasury Regulations, the Bank shall report to theHolders and the Internal Revenue Service the amount of interest paid or the amount treated asinterest accrued on the Securities which is required to be reported by the Holders on their returnsof federal income tax.

7

ARTICLE FIVETHE BANK

SECTION 5.01. DUTIES OF BANK.

The Bank undertakes to perform the duties set forth herein and in the Ordinance and agreesto use reasonable care in the performance thereof.

The Bank is also authorized to transfer funds relating to the closing and initial delivery ofthe Securities in the manner disclosed in the closing memorandum as prepared by the Issuer'sfinancial advisor, bond counsel or other agent. The Bank may act on a facsimile or e-mailtransmission of the closing memorandum acknowledged by the financial advisor or the Issuer as thefinal closing memorandum. The Bank shall not be liable for any losses, costs or expenses arisingdirectly or indirectly from the Bank's reliance upon and compliance with such instructions.

SECTION 5.02. RELIANCE ON DOCUMENTS, ETC.

(a) The Bank may conclusively rely, as to the truth of the statements and correctness ofthe opinions expressed therein, on certificates or opinions furnished to the Bank.

(b) The Bank shall not be liable for any error of judgment made in good faith by aResponsible Officer, unless it shall be proved that the Bank was negligent in ascertaining thepertinent facts.

(c) No provisions of this Agreement shall require the Bank to expend or risk its own fundsor otherwise incur any financial liability for performance of any of its duties hereunder, or in theexercise of any of its rights or powers, if it shall have reasonable grounds for believing thatrepayment of such funds or adequate indemnity satisfactory to it against such risks or liability is notassured to it.

(d) The Bank may rely and shall be protected in acting or refraining from acting upon anyresolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent,order, bond, note, security, or other paper or document believed by it to be genuine and to have beensigned or presented by the proper party or parties. Without limiting the generality of the foregoingstatement, the Bank need not examine the ownership of any Securities, but is protected in actingupon receipt of Securities containing an endorsement or instruction of transfer or power of transferwhich appears on its face to be signed by the Holder or an agent of the Holder. The Bank shall notbe bound to make any investigation into the facts or matters stated in a resolution, certificate,statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security,or other paper or document supplied by Issuer.

(e) The Bank may consult with counsel, and the written advice of such counsel or anyopinion of counsel shall be full and complete authorization and protection with respect to any actiontaken, suffered, or omitted by it hereunder in good faith and in reliance thereon.

8

(f) The Bank may exercise any of the powers hereunder and perform any duties hereundereither directly or by or through agents or attorneys of the Bank.

SECTION 5.03. RECITALS OF ISSUER.

The recitals contained herein with respect to the Issuer and in the Securities shall be takenas the statements of the Issuer, and the Bank assumes no responsibility for their correctness.

The Bank shall in no event be liable to the Issuer, any Holder or Holders of any Security, orany other Person for any amount due on any Security from its own funds.

SECTION 5.04. MAY HOLD SECURITIES.

The Bank, in its individual or any other capacity, may become the owner or pledgee ofSecurities and may otherwise deal with the Issuer with the same rights it would have if it were notthe Paying Agent/Registrar, or any other agent.

SECTION 5.05. MONEYS HELD BY BANK.

The Bank shall deposit any moneys received from the Issuer into a trust account to be heldin a fiduciary capacity for the payment of the Securities, with such moneys in the account thatexceed the deposit insurance, available to the Issuer, provided by the Federal Deposit InsuranceCorporation to be fully collateralized with securities or obligations that are eligible under the lawsof the State of Texas to secure and be pledged as collateral for trust accounts until the principal andinterest on such securities have been presented for payment and paid to the owner thereof. Paymentsmade from such trust account shall be made by check drawn on such trust account unless the ownerof such Securities shall, at its own expense and risk, request such other medium of payment.

All funds at any time and from time to time provided to or held by the Bank hereunder shallbe deemed, construed and considered for all purposes as being provided to or held by the Bank intrust and as a trustee for the benefit of the Security Holders. The Bank acknowledges, covenantsand represents that it is acting herein in a fiduciary capacity in relation to such funds, and is notaccepting, holding, administering, or applying such funds as a banking depository, but solely astrustee and fiduciary for and on behalf of the Security thereto, except as trustee pursuant to the termsof this Agreement. The Security Holders shall be entitled to the same preferred claim and first lienon the funds so provided as are enjoyed by the beneficiaries of trust funds generally. The fundsprovided to the Bank hereunder shall not be subject to warrants, drafts or checks drawn by the Issuerand, except as expressly provided herein, shall not be subject to compromise, setoff, or other chargeor diminution by the Bank.

The Bank shall be under no liability for interest on any money received by it hereunder.

Subject to the unclaimed property laws of the State of Texas and any provisions in theOrdinance to the contrary, any money deposited with the Bank for the payment of the principal,

9

premium (if any), or interest on any Security and remaining unclaimed for four years after finalmaturity of the Security has become due and payable will be paid by the Bank to the Issuer, and theHolder of such Security shall thereafter look only to the Issuer for payment thereof, and all liabilityof the Bank with respect to such moneys shall thereupon cease.

SECTION 5.06. INDEMNIFICATION.

To the extent permitted by law, the Issuer agrees to indemnify the Bank for, and hold itharmless against, any loss, liability, or expense incurred without negligence or bad faith on its part,arising out of or in connection with its acceptance or administration of its duties hereunder,including the cost and expense against any claim or liability in connection with the exercise orperformance of any of its powers or duties under this Agreement.

SECTION 5.07. INTERPLEADER.

The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim,demand, or controversy over its person as well as funds on deposit, in either a Federal or StateDistrict Court located in a county of the State of Texas where either the Bank Office or theadministrative offices of the Issuer is located, and agree that service of process by certified orregistered mail, return receipt requested, to the address referred to in Section 6.03 of this Agreementshall constitute adequate service. The Issuer and the Bank further agree that the Bank has the rightto file a Bill of Interpleader in any court of competent jurisdiction located in the State of Texas todetermine the rights of any Person claiming any interest herein.

SECTION 5.08. DEPOSITORY TRUST COMPANY SERVICES.

It is hereby represented and warranted that, in the event the Securities are otherwise qualifiedand accepted for “Depository Trust Company” services or equivalent depository trust services byother organizations, the Bank has the capability and, to the extent within its control, will complywith the “Operational Arrangements,” in effect from time to time, which establishes requirementsfor securities to be eligible for such type depository trust services, including, but not limited to,requirements for the timeliness of payments and funds availability, transfer turnaround time, andnotification of redemptions and calls.

10

ARTICLE SIXMISCELLANEOUS PROVISIONS

SECTION 6.01. AMENDMENT.

This Agreement may be amended only by an agreement in writing signed by both of theparties hereto.

SECTION 6.02. ASSIGNMENT.

This Agreement may not be assigned by either party without the prior written consent of theother.

SECTION 6.03. NOTICES.

Any request, demand, authorization, direction, notice, consent, waiver, or other documentprovided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed ordelivered to the Issuer or the Bank, respectively, at the addresses shown on the signature page of thisAgreement.

SECTION 6.04. EFFECT OF HEADINGS.

The Article and Section headings herein are for convenience only and shall not affect theconstruction hereof.

SECTION 6.05. SUCCESSORS AND ASSIGNS.

All covenants and agreements herein by the Issuer shall bind its successors and assigns,whether so expressed or not.

SECTION 6.06. SEVERABILITY.

In case any provision herein shall be invalid, illegal, or unenforceable, the validity, legality,and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

SECTION 6.07. BENEFITS OF AGREEMENT.

Nothing herein, express or implied, shall give to any Person, other than the parties hereto andtheir successors hereunder, any benefit or any legal or equitable right, remedy, or claim hereunder.

11

SECTION 6.08. ENTIRE AGREEMENT.

This Agreement and the Ordinance constitute the entire agreement between the parties heretorelative to the Bank acting as Paying Agent/Registrar and if any conflict exists between hisAgreement and the Ordinance, the Ordinance shall govern.

SECTION 6.09. COUNTERPARTS.

This Agreement may be executed in any number of counterparts, each of which shall bedeemed an original and all of which shall constitute one and the same Agreement.

SECTION 6.10. TERMINATION.

This Agreement will terminate (i) on the date of final payment of the principal of and intereston the Securities to the Holders thereof or (ii) may be earlier terminated by either party upon sixty(60) days written notice; provided, however, an early termination of this Agreement by either partyshall not be effective until (a) a successor Paying Agent/Registrar has been appointed by the Issuerand such appointment accepted and (b) notice has been given to the Holders of the Securities of theappointment of a successor Paying Agent/Registrar. If the sixty (60) day notice period expires andno successor has been appointed, the Bank, at the expense of the Issuer, has the right to petition acourt of competent jurisdiction to appoint a successor under this Agreement. Furthermore, the Bankand Issuer mutually agree that the effective date of an early termination of this Agreement shall notoccur at any time which would disrupt, delay or otherwise adversely affect the payment of theSecurities.

Upon an early termination of this Agreement, the Bank agrees to promptly transfer anddeliver the Security Register (or a copy thereof), together with other pertinent books and recordsrelating to the Securities, to the successor Paying Agent/Registrar designated and appointed by theIssuer.

The provisions of Section 1.02 and of Article Five shall survive and remain in full force andeffect following the termination of this Agreement.

SECTION 6.11. GOVERNING LAW.

This Agreement shall be construed in accordance with and governed by the laws of the Stateof Texas.

[The remainder of this page intentionally left blank]

FEDERAL TAX CERTIFICATE 1. In General.

1.1. The undersigned is the Director of Finance of the City of Laredo, Texas (the "Issuer").

1.2. This Certificate is executed for the purpose of establishing the reasonable expectations of the Issuer as to future events regarding the Issuer's Combination Tax and Revenue Certificates of Obligation, Series 2012A and Public Property Finance Contractual Obligations, Series 2012 (collectively, the "Obligations"). The Obligations are issued pursuant to two ordinances of the Issuer and two Pricing Certificates, each duly adopted by the Issuer (collectively, the "Ordinances"). The Ordinances are incorporated herein by reference.

1.3. To the best of the undersigned's knowledge, information and belief, the expectations contained in this Federal Tax Certificate are reasonable.

1.4. The undersigned is an officer of the Issuer delegated with the responsibility of issuing and delivering the Obligations.

1.5. The undersigned is not aware of any facts or circumstances that would cause him to question the accuracy of the representations made by Stifel, Nicolaus & Company, Incorporated in the Issue Price Certificate attached hereto as Exhibit "D", and by Estrada Hinojosa & Company, Inc. (the "Financial Advisor") with respect to the Schedules attached hereto as Exhibit "E". 2. The Purpose of the Obligations and Useful Lives of Projects.

2.1. The Obligations are being issued pursuant to the Ordinance (a) to provide for the payment of costs of issuing the Obligations, and (b) to pay all or a portion of the Issuer's contractual obligations for the purpose of (i) acquiring municipal equipment and municipal vehicles for the Issuer’s solid waste department; (ii) acquiring, designing, constructing, improving and equipping landfill cells and buildings at the Issuer’s landfill; and (iii) acquiring or purchasing personal property (the "Projects").

2.2. The Issuer expects that the aggregate useful lives of the Projects exceed 15 years from the later of the date the Projects are placed in service or the date on which the Obligations are issued.

2.3. All earnings, such as interest and dividends, received from the investment of the proceeds of the Obligations during the period of acquisition and construction of the Projects and not used to pay interest on the Obligations, will be used to pay the costs of the Projects, unless required to be rebated and paid to the United States in accordance with section 148(f) of the Internal Revenue Code of 1986 (the "Code"). The proceeds of the Obligations, together with any investment earnings thereon, are expected not to exceed the amount necessary for the governmental purpose of the Obligations. The Issuer expects that no disposition proceeds will arise in connection with the Projects or the Obligations. 3. Expenditure of Certificate Proceeds and Use of Projects.

3.1. The Issuer will incur, within six months after the date of issue of the Obligations, a binding obligation to commence the Projects, either by entering into contracts for the construction of the Projects or by entering into contracts for architectural or engineering services for such Projects, or contracts for the

2

development, purchase of construction materials, or purchase of equipment, for the Projects, with the amount to be paid under such contracts to be in excess of five percent of the proceeds which are estimated to be used for the cost of the Projects.

3.2. After entering into binding obligations, work on such Projects will proceed promptly with due diligence to completion.

3.3. All original proceeds derived from the sale of the Obligations to be applied to the Projects and all investment earnings thereon (other than any amounts required to be rebated to the United States pursuant to section 148(f) of the Code) will be expended for the Projects no later than a date which is three years after the date of issue of the Obligations.

3.4. The Ordinances provide that allocations of proceeds to expenditures for the Projects are expected not to be later than 18 months after the later of the date of the expenditure or the date that the Projects are placed in service, but, in any event, not longer than 60 days after the earlier of five years of the date hereof or the date the Obligations are retired.

3.5. Only Project costs paid or incurred by the Issuer on or after 60 days prior to the date the Issuer approved the funding of the Project (the "60-day period") through its declaration of official intent ("Qualified Costs") will be paid or reimbursed with Bond proceeds. For this purpose Qualified Costs also include preliminary expenditures, incurred prior to the 60-day period before the approval of the Issuer through its declaration of official intent, up to an amount not in excess of 20 percent of the aggregate amount of the Obligations. No Qualified Cost represents the cost of property or land acquired from a related party.

3.6. The Issuer will not invest the proceeds prior to such expenditure in any guaranteed investment contract or other nonpurpose investment with a substantially guaranteed yield for a period equal to or greater than four years.

3.7. Other than members of the general public, the Issuer expects that throughout the lesser of the term of the Obligations, or the useful lives of the Projects, the only user of the Projects will be the Issuer or the Issuer's employees and agents. The Issuer will be the manager of the Projects. In no event will the proceeds of the Obligations or facilities financed therewith be used for private business use in an amount greater than $15 million.

3.8. Except as stated below, the Issuer expects not to sell or otherwise dispose of property constituting the Projects prior to the earlier of the end of such property's useful life or the final maturity of the Obligations. The Ordinances provide that the Issuer will not sell or otherwise dispose of the Projects unless the Issuer receives an opinion of nationally-recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Obligations.

3.9. For purposes of Subsection 3.8 hereof, the Issuer has not included the portion of the Projects

comprised of personal property that is disposed in the ordinary course at a price that is expected to be less than 25 percent of the original purchase price. The Issuer, upon any disposition of such property, will transfer the receipts from the disposition of such property to the general operating fund and expend such receipts within six months for other governmental programs. 4. Interest and Sinking Funds.

4.1. Separate and special Interest and Sinking Funds have been created and established, other than as described herein, solely to pay the principal of and interest on the Obligations (the "Bona Fide Debt

3

Service Portion"). The Bona Fide Debt Service Portion constitutes a fund that is used primarily to achieve a proper matching of revenues and debt service within each bond year. Such portion will be completely depleted at least once each year except for an amount not in excess of the greater of (a) one-twelfth of the debt service on the Obligations for the previous year, or (b) the previous year's earnings on such portion of the Interest and Sinking Funds. Amounts deposited in the Interest and Sinking Funds constituting the Bona Fide Debt Service Portion will be spent within a thirteen-month period beginning on the date of deposit, and any amount received from the investment of money held in the Interest and Sinking Funds will be spent within a one-year period beginning on the date of receipt.

4.2. Any money deposited in the Interest and Sinking Funds and any amounts received from the investment thereof that accumulate and remain on hand therein after thirteen months from the date of deposit of any such money or one year after the receipt of any such amounts from the investment thereof shall constitute a separate portion of the Interest and Sinking Funds. The yield on any investments allocable to the portion of the Interest and Sinking Funds exceeding the sum of (a) the Bona Fide Debt Service Portion and (b) an amount equal to the lesser of five percent of the sale and investment proceeds of the Obligations or $100,000 will be restricted to a yield that does not exceed the yield on the Obligations. 5. Yield. 5.1. The issue price of the Obligations included in the Form 8038-G, is based on the Issue Price Certificate attached hereto.

5.2. The Issuer has not entered into any qualified guarantee or qualified hedge with respect to the Obligations. The yield on the Obligations will not be affected by subsequent unexpected events, except to the extent provided in section 1.148-4(h)(3) of the Treasury Regulations when and if the Issuer enters into a qualified hedge or into any transaction transferring, waiving or modifying any right that is part of the terms of any Certificate. The Issuer will consult with nationally recognized bond counsel prior to entering into any of the foregoing transactions. 6. Invested Sinking Fund Proceeds, Replacement Proceeds.

6.1. The Issuer has, in addition to the moneys received from the sale of the Obligations, certain other moneys that are invested in various funds which are pledged for various purposes. These other funds are not available to accomplish the purposes described in Section 2 of this Certificate.

6.2. Other than the Interest and Sinking Funds, there are, and will be, no other funds or accounts established, or to be established, by or on behalf of the Issuer (a) which are reasonably expected to be used, or to generate earnings to be used, to pay debt service on the Obligations, or (b) which are reserved or pledged as collateral for payment of debt service on the Obligations and for which there is reasonable assurance that amounts therein will be available to pay such debt service if the Issuer encounters financial difficulties. Accordingly, there are no other amounts constituting "gross proceeds" of the Obligations, within the meaning of section 148 of the Code. 7. Other Obligations.

There are no other obligations of the Issuer, other than the Issuer's Combination Tax and Revenue Certificates of Obligation, Taxable Series 2012 (the "Taxable Obligations") that (a) are sold at substantially the same time as the Obligations, i.e., within 15 days of the date of sale of the Obligations, (b) are sold pursuant to a common plan of financing with the Obligations, and (c) will be payable from the same source of

4

funds as the Obligations. The Obligations and the Taxable Obligations are treated as "separate issues" for purposes of section 1.150-1(c)(3) of the Treasury Regulations. 8. Federal Tax Audit Responsibilities.

The Issuer acknowledges that in the event of an examination by the Internal Revenue Service (the "Service") to determine compliance of the Obligations with the provisions of the Code as they relate to tax-exempt obligations, the Issuer will respond, and will direct its agents and assigns to respond, in a commercially reasonable manner to any inquiries from the Service in connection with such an examination. The Issuer understands and agrees that the examination may be subject to public disclosure under applicable Texas law. The Issuer acknowledges that this Certificate, including any attachments, does not constitute an opinion of Bond Counsel as to the proper federal tax or accounting treatment of any specific transaction. 9. Record Retention and Private Business Use.

The Issuer has covenanted in the Ordinances that it will comply with the requirements of the Code relating to the exclusion of the interest on the Obligations under section 103 of the Code. The Service has determined that certain materials, records and information should be retained by the issuers of tax-exempt obligations for the purpose of enabling the Service to confirm the exclusion of the interest on such obligations under section 103 of the Code. ACCORDINGLY, THE ISSUER SHALL TAKE STEPS TO ENSURE THAT ALL MATERIALS, RECORDS AND INFORMATION NECESSARY TO CONFIRM THE EXCLUSION OF THE INTEREST ON THE OBLIGATIONS UNDER SECTION 103 OF THE CODE ARE RETAINED FOR THE PERIOD BEGINNING ON THE ISSUE DATE OF THE OBLIGATIONS AND ENDING THREE YEARS AFTER THE DATE THE OBLIGATIONS ARE RETIRED. The Issuer acknowledges receipt of the letters attached hereto as Exhibit "B" which discusses limitations related to private business use and Exhibit "C" which, in part, discusses specific guidance by the Service with respect to the retention of records relating to tax-exempt bond transactions. 10. Rebate to United States.

The Issuer has covenanted in the Ordinances that it will comply with the requirements of the Code, including section 148(f) of the Code, relating to the required rebate to the United States. Specifically, the Issuer will take steps to ensure that all earnings on gross proceeds of the Obligations in excess of the yield on the Obligations required to be rebated to the United States will be timely paid to the United States. The Issuer acknowledges receipt of the memorandum attached hereto as Exhibit "A" which discusses regulations promulgated pursuant to section 148(f) of the Code. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

1 In this memorandum the word "bond" is defined to include any bond, note,certificate, financing lease or other obligation of an issuer.

__________________

Copyright 2006 by Harold T. Flanagan, McCall, Parkhurst & Horton L.L.P. All rights reserved.

Exhibit "A"

LAW OFFICES

McCALL, PARKHURST & HORTON L.L.P.600 CONGRESS AVENUE

SUITE 1800

AUSTIN, TEXAS 78701-3248

TELEPHONE: (512) 478-3805 FACSIMILE: (512) 472-0871

717 NORTH HARWOOD

SUITE 900

DALLAS, TEXAS 75201-6587

TELEPHONE: (214) 754-9200 FACSIMILE: (214) 754-9250

700 N. ST. MARY'S STREET

SUITE 1525

SAN ANTONIO, TEXAS 78205-3503

TELEPHONE: (210) 225-2800 FACSIMILE: (210) 225-2984

January 1, 2006

ARBITRAGE REBATE REGULATIONS©

The arbitrage rebate requirements set forth in section 148(f) of the Internal RevenueCode of 1986 (the “Code”) generally provide that in order for interest on any issue of bonds1 tobe excluded from gross income (i.e., tax-exempt) the issuer must rebate to the United Statesthe sum of, (1) the excess of the amount earned on all "nonpurpose investments" acquired with"gross proceeds" of the issue over the amount which would have been earned if suchinvestments had been invested at a yield equal to the yield on the issue, and (2) the earningson such excess earnings.

On June 18, 1993, the U.S. Treasury Department promulgated regulations relating tothe computation of arbitrage rebate and the rebate exceptions. These regulations, whichreplace the previously-published regulations promulgated on May 15, 1989, and on May 18,1992, are effective for bonds issued after June 30, 1993. This memorandum was prepared byMcCall, Parkhurst & Horton L.L.P. and provides a general discussion of these arbitrage rebateregulations. This memorandum does not otherwise discuss the general arbitrage regulations,other than as they may incidentally relate to rebate. This memorandum also does not attemptto provide an exhaustive discussion of the arbitrage rebate regulations and should not beconsidered advice with respect to the arbitrage rebate requirements as applied to any individualor governmental unit or any specific transaction. Any tax advice contained in this memorandumis of a general nature and is not intended to be used, and should not be used, by any person toavoid penalties under the Code.

McCall, Parkhurst & Horton L.L.P. remains available to provide legal advice to issuerswith respect to the provisions of these tax regulations but recommends that issuers seekcompetent financial and accounting assistance in calculating the amount of such issuer's rebateliability under section 148(f) of the Code and in making elections to apply the rebate exceptions.

Effective Dates

________________________________________________________________________McCall, Parkhurst & Horton L.L.P. - Page 2

The regulations promulgated on June 18, 1993, generally apply to bonds delivered afterJune 30, 1993, although they do permit an issuer to elect to apply the rules to bonds issuedprior to that date. The temporary regulations adopted by the U.S. Treasury Department in 1989and 1992 incorporated the same effective dates which generally apply for purposes of section148(f) of the Code. As such, the previous versions of the rebate regulations generally appliedto bonds issued between August 1986 and June 30, 1993 (or, with an election, to bonds issuedprior to August 15, 1993). The statutory provisions of section 148(f) of the Code, other than theexception for construction issues, apply to all bonds issued after August 15, 1986, (for privateactivity bonds) and August 31, 1986, (for governmental public purpose bonds). The statutoryexception to rebate applicable for construction issues generally applies if such issue is deliveredafter December 19, 1989.

The regulations provide numerous transitional rules for bonds sold prior to July 1, 1993.Moreover, since, under prior law, rules were previously published with respect to industrialdevelopment bonds and mortgage revenue bonds, the transitional rules contained in theseregulations permit an issuer to elect to apply certain of these rules for computing rebate on pre-1986 bonds. The regulations provide for numerous elections which would permit an issuer toapply the rules (other than 18-month spending exception) to bonds which were issued prior toJuly 1, 1993 and remain outstanding on June 30, 1993. Due to the complexity of theregulations, it is impossible to discuss in this memorandum all circumstances for which specificelections are provided. If an issuer prefers to use these final version of rebate regulations in lieuof the computational method stated under prior law (e.g., due to prior redemption) or theregulations, please contact McCall, Parkhurst & Horton L.L.P. for advice as to the availabilityof such options.

Future Value Computation Method

The regulations employ an actuarial method for computing the rebate amount based onthe future value of the investment receipts (i.e., earnings) and payments. The rebate methodemploys a two-step computation to determine the amount of the rebate payment. First, theissuer determines the bond yield. Second, the issuer determines the arbitrage rebate amount.The regulations require that the computations be made at the end of each five-year period andupon final maturity of the issue (the "computation dates"). THE FINAL MATURITY DATE WILLACCELERATE IN CIRCUMSTANCES IN WHICH THE BONDS ARE OPTIONALLYREDEEMED PRIOR TO MATURITY. AS SUCH, IF BONDS ARE REFUNDED OROTHERWISE REDEEMED, THE REBATE MAY BE DUE EARLIER THAN INITIALLYPROJECTED. In order to accommodate accurate record-keeping and to assure that sufficientamounts will be available for the payment of arbitrage rebate liability, however, we recommendthat the computations be performed at least annually. Please refer to other materials providedby McCall, Parkhurst & Horton L.L.P. relating to federal tax rules regarding record retention.

Under the future value method, the amount of rebate is determined by compounding theaggregate earnings on all the investments from the date of receipt by the issuer to thecomputation date. Similarly, a payment for an investment is future valued from the date that thepayment is made to the computation date. The receipts and payments are future valued at adiscount rate equal to the yield on the bonds. The rebatable arbitrage, as of any computationdate, is equal to the excess of the (1) future value of all receipts from investments (i.e.,earnings), over (2) the future value of all payments.

________________________________________________________________________McCall, Parkhurst & Horton L.L.P. - Page 3

The following example is provided in the regulations to illustrate how arbitrage rebateis computed under the future value method for a fixed-yield bond:

"On January 1, 1994, City A issues a fixed yield issue and invests all the saleproceeds of the issue ($49 million). There are no other gross proceeds. Theissue has a yield of 7.0000 percent per year compounded semiannually(computed on a 30 day month/360 day year basis). City A receives amountsfrom the investment and immediately expends them for the governmentalpurpose of the issue as follows:

Date2/1/19944/1/19946/1/19949/1/19947/1/1995

Amount $ 3,000,000 5,000,000 14,000,000 20,000,000 10,000,000

City A selects a bond year ending on January 1, and thus the first requiredcomputation date is January 1, 1999. The rebate amount as of this date iscomputed by determining the future value of the receipts and the payments forthe investment. The compounding interval is each 6-month (or shorter) periodand the 30 day month/360 day year basis is used because these conventionswere used to compute yield on the issue. The future value of these amounts,plus the computation credit, as of January 1, 1999, is:

Date Receipts (Payments) FY (7.0000 percent)

01/1/1994 ($49,000,000) ($69,119,339)02/1/1994 3,000,000 4,207,60204/1/1994 5,000,000 6,932,71506/1/1994 14,000,000 19,190,27709/1/1994 20,000,000 26,947,16201/1/1995 (1,000) (1,317)07/1/1995 10,000,000 12,722,79301/1/1996 (1,000) (1,229)

Rebate amount (01/01/1999) $878,664"

General Method for Computing Yield on Bonds

In general, the term "yield," with respect to a bond, means the discount rate that whenused in computing the present value of all unconditionally due payments of principal andinterest and all of the payments for a qualified guarantee produces an amount equal to theissue price of the bond. The term "issue price" has the same meaning as provided in sections1273 and 1274 of the Code. That is, if bonds are publicly offered (i.e., sold by the issuer to abond house, broker or similar person acting in the capacity of underwriter or wholesaler), theissue price of each bond is determined on the basis of the initial offering price to the public (not

________________________________________________________________________McCall, Parkhurst & Horton L.L.P. - Page 4

to the aforementioned intermediaries) at which price a substantial amount of such bond wassold to the public (not to the aforementioned intermediaries). The "issue price" is separatelydetermined for each bond (i.e., maturity) comprising an issue.

The regulations also provide varying periods for computing yield on the bondsdepending on the method by which the interest payment is determined. Thus, for example,yield on an issue of bonds sold with variable interest rates (i.e., interest rates which are resetperiodically based on changes in market) is computed separately for each annual period endingon the first anniversary of the delivery date that the issue is outstanding. In effect, yield on avariable yield issue is determined on each computation date by "looking back" at the interestpayments for such period. The regulations, however, permit an issuer of a variable-yield issueto elect to compute the yield for annual periods ending on any date in order to permit amatching of such yield to the expenditure of the proceeds. Any such election must be madein writing, is irrevocable, and must be made no later than the earlier of (1) the fifth anniversarydate, or (2) the final maturity date.

Yield on a fixed interest rate issue (i.e., an issue of bonds the interest rate on which isdetermined as of the date of the issue) is computed over the entire term of the issue. Issuersof fixed-yield issues generally use the yield computed as of the date of issue for all rebatecomputations. Such yield on fixed-yield issues generally is recomputed only if (1) the issue issold at a substantial premium, may be retired within five years of the date of delivery, and suchdate is earlier than its scheduled maturity date, or (2) the issue is a stepped-coupon bond. Insuch cases, the regulations require the issuer to recompute the yield on such issues by takinginto account the early retirement value of the bonds. Similarly, recomputation may occur incircumstances in which the issuer or bondholder modify or waive certain terms of, or rights withrespect to, the issue or in sophisticated hedging transactions. IN SUCH CIRCUMSTANCES,ISSUERS ARE ADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TOADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS.

For purposes of determining the principal or redemption payments on a bond, differentrules are used for fixed-rate and variable-rate bonds. The payment is computed separately oneach maturity of bonds rather than on the issue as a whole. In certain circumstances, the yieldon the bond is determined by assuming that principal on the bond is paid as scheduled and thatthe bond is retired on the final maturity date for the stated retirement price. For bonds subjectto early redemption or stepped-coupon bonds, described above, or for bonds subject tomandatory early redemption, the yield is computed assuming the bonds are paid on the earlyredemption date for an amount equal to their value.

Premiums paid to guarantee the payment of debt service on bonds are taken intoaccount in computing the yield on the bond. Payments for guarantees are taken into accountby treating such premiums as the payment of interest on the bonds. This treatment, in effect,raises the yield on the bond, thereby permitting the issuer to recover such fee with excessearnings.

The guarantee must be an unconditional obligation of the guarantor enforceable by thebondholder for the payment of principal or interest on the bond or the tender price of a tenderbond. The guarantee may be in the form of an insurance policy, surety bond, irrevocable letteror line of credit, or standby purchase agreement. Importantly, the guarantor must be legallyentitled to full reimbursement for any payment made on the guarantee either immediately or

________________________________________________________________________McCall, Parkhurst & Horton L.L.P. - Page 5

upon commercially reasonable repayment terms. The guarantor may not be a co-obligor of thebonds or a user of more than 10 percent of the proceeds of the bonds.

Payments for the guarantee may not exceed a reasonable charge for the transfer ofcredit risk. This reasonable charge requirement is not satisfied unless it is reasonably expectedthat the guarantee will result in a net present value savings on the bond (i.e., the premium doesnot exceed the present value of the interest savings resulting by virtue of the guarantee). If theguarantee is entered into after June 14, 1989, then any fees charged for the nonguaranteeservices must be separately stated or the guarantee fee is not recoverable.

The regulations also treat certain "hedging" transactions in a manner similar to qualifiedguarantees. "Hedges" are contracts, e.g., interest rate swaps, futures contracts or options,which are intended to reduce the risk of interest rate fluctuations. Hedges and other financialderivatives are sophisticated and ever-evolving financial products with which a memorandum,such as this, can not readily deal. IN SUCH CIRCUMSTANCES, ISSUERS ARE ADVISED TOCONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THE FEDERALINCOME TAX CONSEQUENCES OF THESE TRANSACTIONS.

Earnings on Nonpurpose Investments

The arbitrage rebate provisions apply only to the receipts from the investment of "grossproceeds" in "nonpurpose investments." For this purpose, nonpurpose investments are stock,bonds or other obligations acquired with the gross proceeds of the bonds for the period priorto the expenditure of the gross proceeds for the ultimate purpose. For example, investmentsdeposited to construction funds, reserve funds (including surplus taxes or revenues depositedto sinking funds) or other similar funds are nonpurpose investments. Such investments includeonly those which are acquired with "gross proceeds." For this purpose, the term "grossproceeds" includes original proceeds received from the sale of the bonds, investment earningsfrom the investment of such original proceeds, amounts pledged to the payment of debt serviceon the bonds or amounts actually used to pay debt service on the bonds. The regulations donot provide a sufficient amount of guidance to include an exhaustive list of "gross proceeds" forthis purpose; however, it can be assumed that "gross proceeds" represent all amounts receivedfrom the sale of bonds, amounts earned as a result of such sale or amounts (including taxesand revenues) which are used to pay, or secure the payment of, debt service for the bonds.The total amount of "gross proceeds" allocated to a bond generally can not exceed theoutstanding principal amount of the bonds.

The regulations provide that an investment is allocated to an issue for the period (1)that begins on the date gross proceeds are used to acquire the investment, and (2) that endson the date such investment ceases to be allocated to the issue. In general, proceeds areallocated to a bond issue until expended for the ultimate purpose for which the bond was issuedor for which such proceeds are received (e.g., construction of a bond-financed facility orpayment of debt service on the bonds). Deposit of gross proceeds to the general fund of theissuer (or other fund in which they are commingled with revenues or taxes) does not eliminateor ameliorate the Issuer’s obligation to compute rebate in most cases. As such, proceedscommingled with the general revenues of the issuer are not "freed-up" from the rebateobligation. An exception to this commingling limitation for bonds, other than private activitybonds, permits "investment earnings" (but not sale proceeds or other types of gross proceeds)to be considered spent when deposited to a commingled fund if those amounts are reasonably

________________________________________________________________________McCall, Parkhurst & Horton L.L.P. - Page 6

expected to be spent within six months. Other than for these amounts, issuers may considersegregating investments in order to more easily compute the amount of such arbitrage earningsby not having to allocate investments.

Special rules are provided for purposes of advance refundings. These rules are toocomplex to discuss in this memorandum. Essentially, the rules relating to refundings, however,do not require that amounts deposited to the escrow fund to defease the prior obligations of theissuer be subject to arbitrage rebate to the extent that the investments deposited to the escrowfund do not have a yield in excess of the yield on the bonds. Any loss resulting from theinvestment of proceeds in an escrow fund below the yield on the bonds, however, may berecovered by combining those investments with investments deposited to other funds, e.g.,reserve or construction funds.

The arbitrage regulations also provide an exception to the arbitrage limitations for theinvestment of bond proceeds in tax-exempt obligations. As such, investment of proceeds in taxexempt bonds eliminates the Issuer’s rebate obligation. A caveat; this exception does not applyto gross proceeds derived allocable to a bond, which is not subject to the alternative minimumtax under section 57(a)(5) of the Code, if invested in tax-exempt bonds subject to the alternativeminimum tax, i.e., " private activity bonds." Such “AMT-subject” investment is treated as ataxable investment and must comply with the arbitrage rules, including rebate. Earnings fromthese tax-exempt investments are subject to arbitrage restrictions, including rebate.

Similarly, the investment of gross proceeds in certain tax-exempt mutual funds aretreated as a direct investment in the tax-exempt obligations deposited in such fund. Whileissuers may invest in such funds for purposes of avoiding arbitrage rebate, they should beaware that if "private activity bonds" are included in the fund then a portion of the earnings willbe subject to arbitrage rebate. Issuers should be prudent in assuring that the funds do notcontain private activity bonds.

The arbitrage regulations provide a number of instances in which earnings will beimputed to nonpurpose investments. Receipts generally will be imputed to investments that donot bear interest at an arm's-length (i.e., market) interest rate. As such, the regulations adopta "market price" rule. In effect, this rule prohibits an issuer from investing bond proceeds ininvestments at a price which is higher than the market price of comparable obligations, in orderto reduce the yield. Special rules are included for determining the market price for investmentcontracts, certificates of deposit and certain U.S. Treasury obligations. For example, toestablish the fair market value of investment contracts a bidding process between threequalified bidders must be used. The fair market value of certificates of deposit which bear afixed interest rate and are subject to an early withdrawal penalty is its purchase price if thatprice is not less than the yield on comparable U.S. Treasury obligations and is the highest yieldavailable from the institution. In any event, a basic "common sense" rule-of-thumb that can beused to determine whether a fair market value has been paid is to ask whether the generalfunds of the issuer would be invested at the same yield or at a higher yield. An exception to thismarket price rule is available for United States Treasury Obligations - State or LocalGovernment Series in which case the purchase price is always the market price.

Reimbursement and Working Capital

________________________________________________________________________McCall, Parkhurst & Horton L.L.P. - Page 7

The regulations provide rules for purposes of determining whether gross proceeds areused for working capital and, if so, at what times those proceeds are considered spent. Ingeneral, working capital financings are subject to many of the same rules that have existedsince the mid-1970s. For example, the regulations generally continue the 13-month temporaryperiod. By adopting a "proceeds-spent-last" rule, the regulations also generally require that anissuer actually incur a deficit (i.e., expenditures must exceed receipts) for the computationperiod (which generally corresponds to the issuer's fiscal year). Also, the regulations continueto permit an operating reserve, but unlike prior regulations the amount of such reserve may notexceed five percent of the issuer's actual working capital expenditures for the prior fiscal year.Another change made by the regulations is that the issuer may not finance the operatingreserve with proceeds of a tax-exempt obligation.

Importantly, the regulations contain rules for determining whether proceeds used toreimburse an issuer for costs paid prior to the date of issue of the obligation, in fact, areconsidered spent at the time of reimbursement. These rules apply to an issuer who usesgeneral revenues for the payment of all or a portion of the costs of a project then uses theproceeds of the bonds to reimburse those general revenues. Failure to comply with these ruleswould result in the proceeds continuing to be subject to federal income tax restrictions, includingrebate.

To qualify for reimbursement, a cost must be described in an expression (e.g.,resolution, legislative authorization) evidencing the issuer's intent to reimburse which is madeno later than 60 days after the payment of the cost. Reimbursement must occur no later than18 months after the later of (1) the date the cost is paid or (2) the date the project is placed inservice. Except for projects requiring an extended construction period or small issuers, in noevent can a cost be reimbursed more than three years after the cost is paid.

Reimbursement generally is not permitted for working capital; only capital costs, grantsand loans may be reimbursed. Moreover, certain anti-abuse rules apply to prevent issuers fromavoiding the limitations on refundings. IN CASES INVOLVING WORKING CAPITAL ORREIMBURSEMENT, ISSUERS ARE ADVISED TO CONTACT McCALL, PARKHURST &HORTON L.L.P. TO ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THETRANSACTION.

Rebate Payments

Rebate payments generally are due 60 days after each installment computation date.The interim computation dates occur each fifth anniversary of the issue date. The finalcomputation date is on the latest of (1) the date 60 days after the date the issue of bonds is nolonger outstanding, (2) the date eight months after the date of issue for certain short-termobligations (i.e., obligations retired within three years), or (3) the date the issuer no longerreasonably expects any spending exception, discussed below, to apply to the issue. On suchpayment dates, other than the final payment date, an issuer is required to pay 90 percent of therebatable arbitrage to the United States. On the final payment date, an issuer is required to pay100 percent of the remaining rebate liability.

Failure to timely pay rebate does not necessarily result in the loss of tax-exemption.Late payments, however, are subject to the payment of interest, and unless waived, a penaltyof 50 percent (or, in the case of private activity bonds, other than qualified 501(c)(3) bonds, 100

2 For this purpose, "private activity bonds" neither are afforded the benefit of thisexception nor are taken into account for purposes of determining the amount of bondsissued.

________________________________________________________________________McCall, Parkhurst & Horton L.L.P. - Page 8

percent) of the rebate amount which is due. IN SUCH CIRCUMSTANCES, ISSUERS AREADVISED TO CONSULT McCALL, PARKHURST & HORTON L.L.P. TO ADDRESS THEFEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS.

Rebate payments are refundable. The issuer, however, must establish to thesatisfaction of the Commissioner of the Internal Revenue Service that the issuer paid an amountin excess of the rebate and that the recovery of the overpayment on that date would not resultin additional rebatable arbitrage. An overpayment of less than $5,000 may not be recoveredbefore the final computation date.

Alternative Penalty Amount

In certain cases, an issuer of a bond the proceeds of which are to be used forconstruction may elect to pay a penalty, in lieu of rebate. The penalty may be elected incircumstances in which the issuer expects to satisfy the two-year spending exception which ismore fully described under the heading "Exceptions to Rebate." The penalty is payable, if atall, within 60 days after the end of each six-month period. This is more often than rebate. Theelection of the alternative penalty amount would subject an issuer, which fails the two-yearspend-out requirements, to the payment of a penalty equal to one and one-half of the excessof the amount of proceeds which was required to be spent during that period over the amountwhich was actually spent during the period.

The penalty has characteristics which distinguish it from arbitrage rebate. First, thepenalty would be payable without regard to whether any arbitrage profit is actually earned.Second, the penalty continues to accrue until either (1) the appropriate amount is expended or(2) the issuer elects to terminate the penalty. To be able to terminate the penalty, the issuermust meet specific requirements and, in some instances, must pay an additional penalty equalto three percent of the unexpended proceeds.

Exceptions to Rebate

The Code and regulations provide certain exceptions to the requirement that the excessinvestment earnings be rebated to the United States.

a. Small Issuers. The first exception provides that if an issuer (together with allsubordinate issuers) during a calendar year does not issue tax-exempt bonds2 in an aggregateface amount exceeding $5 million, then the obligations are not subject to rebate. Only issuerswith general taxing powers may take advantage of this exception. Subordinate issuers arethose issuers which derive their authority to issue bonds from the same issuer, e.g., a city anda health facilities development corporation, or which are controlled by the same issuer, e.g., astate and the board of a public university. In the case of bonds issued for public school capitalexpenditures, the $5 million cap may be increased to as much as $15 million. For purposes ofmeasuring whether bonds in the calendar year exceed these dollar limits, current refunding

________________________________________________________________________McCall, Parkhurst & Horton L.L.P. - Page 9

bonds can be disregarded if they meet certain structural requirements. Please contact McCall,Parkhurst & Horton L.L.P. for further information.

b. Spending Exceptions.

Six-Month Exception. The second exception to the rebate requirement is available toall tax-exempt bonds, all of the gross proceeds of which are expended during six months. Thesix month rule is available to bonds issued after the effective date of the Tax Reform Act of1986. See the discussion of effective dates on page two. For this purpose, proceeds used forthe redemption of bonds (other than proceeds of a refunding bond deposited to an escrow fundto discharge refunded bonds) can not be taken into account as expended. As such, bonds withexcess gross proceeds generally can not satisfy the second exception unless the amount doesnot exceed the lesser of five percent or $100,000 and such de minimis amount must beexpended within one year.

Certain gross proceeds are not subject to the spend-out requirement, includingamounts deposited to a bona fide debt service fund, to a reserve fund and amounts whichbecome gross proceeds received from purpose investments. These amounts themselves,however, may be subject to rebate even though the originally expended proceeds were not. The Code provides a special rule for tax and revenue anticipation notes (i.e., obligations issuedto pay operating expenses in anticipation of the receipt of taxes and other revenues). Suchnotes are referred to as TRANs. To determine the timely expenditure of the proceeds of aTRAN, the computation of the "cumulative cash flow deficit" is important. If the "cumulativecash flow deficit" (i.e., the point at which the operating expenditures of the issuer on acumulative basis exceed the revenues of the issuer during the fiscal year) occurs within the firstsix months of the date of issue and must be equal to at least 90 percent of the proceeds of theTRAN, then the notes are deemed to satisfy the exception. This special rule requires, however,that the deficit actually occur, not that the issuer merely have an expectation that the deficit willoccur. In lieu of the statutory exception for TRANs, the regulations also provide a secondexception. Under this exception, 100 percent of the proceeds must be spent within six months,but before note proceeds can be considered spent, all other available amounts of the issuermust be spent first ("proceeds-spent-last" rule). In determining whether all available amountsare spent, a reasonable working capital reserve equal to five percent of the prior year'sexpenditures may be set aside and treated as unavailable.

18-Month Exception. The regulations also establish a non-statutory exception toarbitrage rebate if all of the gross proceeds (including investment earnings) are expended within18 months after the date of issue. Under this exception, 15 percent of the gross proceeds mustbe expended within a six-month spending period, 60 percent within a 12-month spending periodand 100 percent within an 18-month spending period. The rule permits an issuer to rely on itsreasonable expectations for computing investment earnings which are included as grossproceeds during the first and second spending period. A reasonable retainage not to exceedfive percent of the sale proceeds of the issue is not required to be spent within the 18-monthperiod but must be expended within 30 months. Rules similar to the six-month exception relateto the definition of gross proceeds.

Two Year Exception. Bonds issued after December 19, 1989 (i.e., the effective dateof the Omnibus Reconciliation Act of 1989), at least 75 percent of the net proceeds of which areto be used for construction, may be exempted from rebate if the gross proceeds are spent

________________________________________________________________________McCall, Parkhurst & Horton L.L.P. - Page 10

within two years. Bonds more than 25 percent of the proceeds of which are used for acquisitionor working capital may not take advantage of this exception. The exception applies only togovernmental bonds, qualified 501(c)(3) bonds and private activity bonds for governmentally-owned airports and docks and wharves. The two-year exception requires that at least 10percent of the available construction proceeds must be expended within six months after thedate of issue, 45 percent within 12 months, 75 percent within 18 months and 100 percent within24 months. The term "available construction proceeds" generally means sale proceeds of thebonds together with investment earnings less amounts deposited to a qualified reserve fund orused to pay costs of issuance. Under this rule, a reasonable retainage not to exceed fivepercent need not be spent within 24 months but must be spent within 36 months.

The two-year rule also provides for numerous elections which must be made not laterthan the date of issuance of the bonds. Once made, the elections are irrevocable. Certainelections permit an issuer to bifurcate bond issues, thereby treating only a portion of the issueas a qualified construction bond; and, permit an issuer to disregard earnings from reserve fundsfor purposes of determining "available construction proceeds." Another election permits anissuer to pay the alternative penalty amount discussed above in lieu of rebate if the issuerultimately fails to satisfy the two-year rule. Issuers should discuss these elections with theirfinancial advisors prior to issuance of the bonds. Of course, McCall, Parkhurst & Horton L.L.P.remains available to assist you by providing legal interpretations thereof.

Debt Service Funds. Additionally, an exception to the rebate requirement, whether ornot any of the previously discussed exceptions are available, applies for earnings on "bona fidedebt service funds." A "bona fide debt service fund" is one in which the amounts are expendedwithin 13 months of the accumulation of such amounts by the issuer. In general, most interestand sinking funds (other than any excess taxes or revenues accumulated therein) satisfy theserequirements. For private activity bonds, short term bonds (i.e., have a term of less than fiveyears) or variable rate bonds, the exclusion is available only if the gross earnings in such funddoes not exceed $100,000, for the bond year. For other bonds issued after November 11,1988, no limitation is applied to the gross earnings on such funds for purposes of this exception.Therefore, subject to the foregoing discussion, the issuer is not required to take such amountsinto account for purposes of the computation.

FOR BONDS ISSUED AFTER THE EFFECTIVE DATE OF THE TAX REFORM ACT OF 1986WHICH WERE OUTSTANDING AS OF NOVEMBER 11, 1988, OTHER THAN PRIVATEACTIVITY BONDS, SHORT TERM BONDS OR VARIABLE RATE BONDS, A ONE-TIMEELECTION MAY BE MADE TO EXCLUDE EARNINGS ON "BONA FIDE DEBT SERVICEFUNDS" WITHOUT REGARD TO THE $100,000, LIMITATION. THE ELECTION MUST BEMADE IN WRITING (AND MAINTAINED AS PART OF THE ISSUER'S BOOKS ANDRECORDS) NO LATER THAN THE LATER OF MARCH 21, 1990, OR THE FIRST DATE AREBATE PAYMENT IS REQUIRED.

Conclusion

McCall, Parkhurst & Horton L.L.P. hopes that this memorandum will prove to be usefulas a general guide to the arbitrage rebate requirements.

Again, this memorandum is not intended as an exhaustive discussion nor as specificadvice with respect to any specific transaction. We advise our clients to seek competent

________________________________________________________________________McCall, Parkhurst & Horton L.L.P. - Page 11

financial and accounting assistance. Of course, we remain available to provide legal adviceregarding all federal income tax matters, including arbitrage rebate. If you have any questions,please feel free to contact either Harold T. Flanagan or Stefano Taverna at (214) 754-9200.

EXHIBIT "B"

LAW OFFICES

McCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE

SUITE 1800 AUSTIN, TEXAS 78701-3248 TELEPHONE: (512) 478-3805 FACSIMILE: (512) 472-0871

717 NORTH HARWOOD

SUITE 900 DALLAS, TEXAS 75201-6587 TELEPHONE: (214) 754-9200 FACSIMILE: (214) 754-9250

700 N. ST. MARY'S STREET

SUITE 1525 SAN ANTONIO, TEXAS 78205-3503

TELEPHONE: (210) 225-2800 FACSIMILE: (210) 225-2984

November 1, 2011

Certain Federal Income Tax Considerations for

Private Business Use of Bond-Financed Facilities

This memorandum provides a general discussion of those types of contractual arrangements which give rise to private business use, and to what extent that use rises to a prohibited level. Generally, in order for bonds issued by governmental units to be tax-exempt, no more than a de minimis amount of the proceeds of the bonds or the facilities financed with such proceeds may be used by non-governmental users. That is, there may be no more than an incidental use by persons, other than state or local governments. Too much private business use can cause the bonds to become taxable. Private business use for this purpose can be direct or can result from indirect benefits being conveyed to a private person by contractual arrangement. The following discussion describes, in general terms, those types of arrangements which need to be scrutinized.

We hope that this general guideline will be useful to you in interacting with private parties regarding the use of bond proceeds or bond-financed facilities. While the statements contained herein are not intended as advice with regard to any specific transaction, McCall, Parkhurst & Horton L.L.P. remains available should you have questions about these rules. If you have any specific questions or comments, please feel free to contact Stefano Taverna or Harold T. Flanagan at (214) 754-9200.

I. Private Business Use

Arrangements that involve use in a trade or business by a nongovernmental person of bond proceeds or facilities financed with bond proceeds may cause a "private business use" problem. Bond-financed facilities may be used by a variety of people with differing consequences under these rules. For example, students, teachers, employees and the general public may use bond-financed facilities on a non-exclusive basis without constituting private business use. More problematic, however, is use of bond-financed facilities by groups such as managers, lessees (e.g., book store owners), persons providing services (e.g., food or cleaning), seminar groups, sports and entertainment groups, and even alumni associations. The benefits also may be considered to pass to a private person where the right to the output produced by the facility is transferred. For this purpose, the federal government is considered a non-governmental person. Use by an organization organized under section 501(c)(3) of the Internal Revenue Code in a trade or business unrelated to the exempt purpose of such organization also is considered use by a private person.

The term "use" includes both actual and beneficial use. As such, private business use may arise in a variety of ways. For example, ownership of a bond-financed facility by a non-governmental person is private business use. The leasing of a bond-financed facility by a non-governmental person can also cause a private business use problem. Along the same line, management of such facilities by a non-governmental person can cause a problem with private business use, absent compliance with the management contract rules discussed below. Essentially, such use can occur in connection with any arrangement in which the non-governmental user has a preference to benefit from the proceeds or the facilities. Therefore,

any arrangement which results in a non-governmental person being the ultimate beneficiary of the bond financing must be considered.

1. Sales and Leases. The sale of a bond-financed facility to a non-governmental person would cause a private business use problem if that facility involved the use of more than 10 percent of the bond proceeds. Since state law often prohibits a governmental issuer from lending credit, this circumstance generally does not occur. Leases, however, also could be a problem because such arrangements grant a possessory interest in the facility which results in the lessee receiving a right to use the facility which is superior to members of the general public.

2. Management Contracts. Having a private manager will give rise to private business use unless certain terms of the management agreement demonstrate that beneficial use has not been passed to the manager. These factors relate to the compensation arrangements, contract term, cancellation provisions, and the relationship of the parties.

The primary focus of these rules is on compensation. In general, compensation must be reasonable and not be based, in whole or in part, on a share of net profits. Compensation arrangements may take one of four forms: (1) periodic fixed fee; (2) capitation fee; (3) per-unit fee; or (4) percentage of fees charged. In general, a periodic fixed fee arrangement, however, is required in which at least 50 percent of annual compensation be based on a predetermined fee. During the initial two year start-up period, compensation may be based on a percentage of fees charged (i.e., gross revenues, adjusted gross revenues or expenses).

The term of a management contract, generally, may not exceed five years, including all renewal options, and must be cancelable by the governmental unit at the end of the third year. If per-unit fee compensation is used, the term is limited to three years, with a cancellation option for the governmental unit at the end of two years. Where compensation is based on a percentage of gross revenues, the contract may not extend beyond a term of two years, cancelable by the governmental unit at the end of the first year. In each instance, cancellation may be upon reasonable notice, but must be "without penalty or cause," meaning no covenant not to compete, buy-out provision or liquidated damages provision is allowed.

Finally, the manager may not have any role or relationship with the governmental unit that would limit the ability of the governmental unit to exercise its rights under the contract. Any voting power of either party which is vested in the other party, including its officers, directors, shareholders and employees, may not exceed 20 percent. Further, the chief executive officer of either party may not serve on the governing board of the other party. Similarly, the two parties must not be members of the same controlled group or be related persons, as defined in certain provisions of federal tax law.

3. Cooperative Research Agreements. A cooperative research agreement with a private sponsor whereby the private party uses bond-financed facilities may cause a private business use problem. Nevertheless, such use of a bond-financed facility by a non-governmental person is to be disregarded for purposes of private business use if the arrangement is in one of the following forms. First, the arrangement may be disregarded if the sponsoring party is required to pay a competitive price for any license or other use of resulting technology, and such price must be determined at the time the technology is available. Second, an arrangement may also qualify if a four-part requirement is met: (1) multiple, unrelated industry sponsors must agree to fund university-performed basic research; (2) the university must determine the research to be performed and the manner in which it is to be performed; (3) the university must have exclusive title to any patent or other product incidentally resulting from the basic research; and (4) sponsors must be limited to no more than a nonexclusive, royalty-free license to use the product of any such research.

McCall, Parkhurst & Horton L.L.P. - Page 2

McCall, Parkhurst & Horton L.L.P. - Page 3

4. Output Contracts. In some circumstances, private business use arises by virtue of contractual arrangements in which a governmental unit agrees to sell the output from a bond-financed facility to a non-governmental person. If the non-governmental person is obligated to take the output or to pay for output even if not taken, then private business use will arise. This is because the benefits and burdens of the bond-financed facility are considered as inuring to the non-governmental purchaser. In addition to the general rule, output-type facilities, including electric and gas generation, transmission and related facilities (but not water facilities) are further limited in the amount of private business use which may be permitted. If more than 5 percent of the proceeds are used for output facilities and if more than 10 percent of the output is sold pursuant to an output arrangement, then the aggregate private business use which may result (for all bond issues) is $15,000,000.

II. How Much Private Business Use is Too Much?

In general, there is too much private business use if an amount in excess of 10 percent of the proceeds of the bond issue are to be used, directly or indirectly, in a trade or business carried on by persons other than governmental units, and other than as members of the general public. All trade or business use by persons on a basis different than that of the general public is aggregated for the 10 percent limit. Private business use is measured on a facility or bond issue basis. On a facility basis, such use is generally measured by relative square footage, fair market rental value or the percentage of cost allocable to the private use. On a bond issue basis, the proceeds of the bond issue are allocated to private and governmental (or public) use of the facility to determine the amount of private business use over the term of the bond issue. Temporary use is not necessarily "bad" (i.e, private use) even though it results in more than 10 percent of the facility being so used. For example, if 100 percent of a facility is used for a period equal to five percent of the term of the bond such use may not adversely impact the bonds. The question is whether the benefits and burdens of ownership have transferred to the private user, as in the case of a sale, lease or management contract. If these benefits and burdens have not transferred, such use may be disregarded for purposes of private business use.

In addition, if the private use is considered "unrelated or disproportionate" to the governmental purpose for issuance of the bonds, the private business use test is met if the level of the prohibited private use rises to 5 percent. The "unrelated" question turns on the operational relationship between the private use and use for the governmental purpose. In most cases, a related use facility must be located within or adjacent to the related governmental facility, e.g., a privately-operated school cafeteria would be related to the school in which it is located. Whereas, the use of a bond-financed facility as an administrative office building for a catering company that operates cafeterias for a school system would not be a related use of bond proceeds. Nonetheless, even if a use is related, it is disproportionate to the extent that bond proceeds used for the private use will exceed proceeds used for the related governmental use.

III. When are the tests applied to analyze the qualification of a bond?

A bond is tested both (1) on the date of issue, and (2) over the term. The tests are applied to analyze the character of the bond on the date of issue, based on how the issuer expects to use the proceeds and the bond-financed property. This is known as the "reasonable expectations" standard. The tests also continuously are applied during the term of the bonds to determine whether there has been a deviation from those expectations. This is known as the "change of use" standard. When tested, bonds are viewed on an "issue-by-issue" basis. Generally, bonds secured by the same sources of funds are part of the same "issue" if they are sold within 15 days of one another.

IV. What is the reasonable expectations standard?

The reasonable expectations standard will be the basis on which McCall, Parkhurst & Horton L.L.P., as bond counsel, will render the federal income tax opinion on the bonds. The statement of expectations will be incorporated into the Federal Tax Certificate, previously referred to as the Federal Tax Certificate. The certificate also will contain information about the amounts to be expended on different types of property, e.g., land, buildings, equipment, in order to compute a weighted useful life of the bond-financed property. Based on the information on useful life, the maximum weighted average maturity of the bonds tested to ensure that is restricted to no more than 120 percent of the useful life of the property being financed or refinanced.

V. Change of Use Standard.

The disqualified private business use need not exist on the date of issue. Subsequent use by non-governmental persons also can cause a loss of tax-exemption. Post-issuance "change of use" of bond-financed facilities could result in the loss of the tax-exempt status of the bonds, unless certain elements exist which demonstrate the change was unforeseen. For this purpose, a change in use includes a failure to limit private business use subsequent to the date of issuance of the bonds. A reasonable expectation element requires that, as of the date of issue of the bonds, the governmental unit reasonably have expected to use the proceeds of the issue for qualified facilities for the entire term of the issue. To fall within the safe harbor rules which avoid loss of tax-exempt status the governmental unit must assure that no circumstances be present which indicate an attempt to avoid directly or indirectly the requirements of federal income tax law.

Finally, the safe harbor requires that the governmental unit take remedial action that would satisfy one of the following provisions: redemption of bonds; alternative use of disposition proceeds of a facility that is financed by governmental bonds; or, alternative use of a facility that is financed by governmental bonds. For purposes of the latter two remedial action provisions, the governmental unit has 90 days from the date of the change of use to satisfy the requirements. In addition, there is an exception for small transactions for dispositions at a loss.

VI. Written Procedures.

The Internal Revenue Service ("IRS") has initiated an active audit program intended to investigate the compliance of governmental issuers with the private activity bond rules described herein and the arbitrage rules described in the other memorandum provided to you by our firm. In connection with the expansion of this program, auditors and their supervisors have expressed the viewpoint that each governmental issuer should establish written procedures to assure continuing compliance. Moreover, the IRS is asking issuers to state in a bond issue’s informational return (such an 8038-G) whether such procedures have been adopted. The federal tax certificate, together with the attached memoranda and bond covenants can be supplemented by standard written practices adopted by the executive officer or legislative bodies of the issuer. Accordingly, our firm is prepared to advise you with respect to additional practices which we believe would be beneficial in monitoring compliance and taking remedial action in cases of change in use. There is no standard uniform practice for all issuers to adopt because each issuer operates in unique fashion. However, if you wish us to assist you in developing practices which might assist you in complying with the viewpoints expressed by the IRS and its personnel, please contact your bond lawyer at McCall, Parkhurst & Horton LLP.

Disclosure Under IRS Circular 230: McCall Parkhurst & Horton LLP informs you that any tax advice contained in this memorandum, including any attachments, was not intended or written to be used, and cannot be used, for the purpose of avoiding federal tax

McCall, Parkhurst & Horton L.L.P. - Page 4

McCall, Parkhurst & Horton L.L.P. - Page 5

related penalties or promoting, marketing or recommending to another party any transaction or matter addressed herein.

Exhibit "C"

LAW OFFICES McCALL, PARKHURST & HORTON L.L.P.

600 CONGRESS AVENUE SUITE 1800

AUSTIN, TEXAS 78701-3248 TELEPHONE: (512) 478-3805 FACSIMILE: (512) 472-0871

717 NORTH HARWOOD

SUITE 900 DALLAS, TEXAS 75201-6587 TELEPHONE: (214) 754-9200 FACSIMILE: (214) 754-9250

700 N. ST. MARY'S STREET SUITE 1525

SAN ANTONIO, TEXAS 78205-3503 TELEPHONE: (210) 225-2800 FACSIMILE: (210) 225-2984

October 4, 2012 Rosario Cabello Director of Finance City of Laredo, Texas 1110 Houston Street Laredo, Texas 78040

Re: City of Laredo, Texas Combination Tax and Revenue Certificates of Obligation, Series 2012A and Public Property Finance Contractual Obligations, Series 2012

Dear Ms. Cabello:

As you know, the City of Laredo, Texas (the "Issuer") will issue the captioned obligations in order to provide for the acquisition and construction of the project. As a result of that issuance, the federal income tax laws impose certain restrictions on the investment and expenditure of amounts to be used for the project or to be deposited to the interest and sinking funds for the captioned obligations. The purpose of this letter is to set forth, in somewhat less technical language, those provisions of the tax law which require the timely use of bond proceeds and that investment of these amounts be at a yield which is not higher than the yield on the captioned obligations. For this purpose, please refer to line 21(e) of the Form 8038-G included in the transcript of proceedings for the yield on the captioned obligations. Please note that the Form 8038-G has been prepared based on the information provided by or on your behalf by your financial advisor. Accordingly, while we believe that the information is correct you may wish to have the yield confirmed before your rebate consultant or the paying agent attempt to rely on it.

Generally, the federal tax laws provide that, unless excepted, amounts to be used for the project or to be deposited to the interest and sinking funds must be invested in obligations the combined yield on which does not exceed the yield on the obligations. Importantly, for purposes of administrative convenience, the obligations, however, have been structured in such a way as to avoid, for the most part, this restriction on investment yield. They also contain certain covenants relating to expenditures of proceeds designed to alert you to unintentional failures to comply with the laws affecting expenditures of proceeds and dispositions of property.

First, the sale and investment proceeds to be used for the new money project may be invested for up to three years without regard to yield. (Such amounts, however, may be subject to rebate.) Thereafter, they must be invested at or below the bond yield. Importantly, expenditure of these proceeds must be accounted in your books and records. Allocations of these expenditures must occur within 18 months of the later of the date paid or the date the project is completed. The foregoing notwithstanding, the allocation should not occur

later than 60 days after the earlier of (1) of five years after the delivery date of the obligations or (2) the date the obligations are retired unless you obtain an opinion of bond counsel.

Second, the interest and sinking funds are made up of amounts which are received annually for the payment of current debt service on all the Issuer's outstanding obligations. Any taxes or revenues deposited to the interest and sinking funds which are to be used for the payment of current debt service on the captioned obligations, or any other outstanding obligations, are not subject to yield restriction. By definition, current debt service refers only to debt service to be paid within one year of the date of receipt of these amounts. For the most part, this would be debt service in the current fiscal year. These amounts deposited to the account for current debt service may be invested without regard to any constraint imposed by the federal income tax laws.

Third, a portion of the interest and sinking funds are permitted to be invested without regard to yield restriction as a "minor portion." The "minor portion" exception is available for de minimis amounts of taxes or revenues deposited to the interest and sinking funds. The maximum amount that may be invested as part of this account may not exceed the lesser of five percent of the principal amount of the obligations or $100,000.

Accordingly, you should review the current balance in the interest and sinking funds in order to determine if such balance exceeds the aggregate amounts discussed above. Additionally, in the future it is important that you be aware of these restrictions as additional amounts are deposited to the interest and sinking funds. The amounts in this fund which are subject to yield restriction would only be the amounts which are in excess of the sum of (1) the current debt service account and (2) the "minor portion" account. Moreover, to the extent that additional obligations are issued by the Issuer, whether for new money projects or for refunding, these amounts will change in their proportion.

The ordinances contain covenants that require the Issuer to comply with the requirements of the federal tax laws relating to the tax-exempt obligations. The Internal Revenue Service (the "Service") has determined that certain materials, records and information should be retained by the issuers of tax-exempt obligations for the purpose of enabling the Service to confirm the exclusion of the interest on such obligations under the Internal Revenue Code. Accordingly, the Issuer should retain such materials, records and information for the period beginning on the issue date of the captioned obligations and ending three years after the date the captioned obligations are retired. Please note this federal tax law standard may vary from state law standards. The material, records and information required to be retained will generally be contained in the transcript of proceedings for the captioned obligations, however, the Issuer should collect and retain additional materials, records and information to ensure the continued compliance with federal tax law requirements. For example, beyond the transcript of proceedings for the obligations, the Issuer should keep schedules evidencing the expenditure of certificate proceeds, documents relating to the use of bond-financed property by governmental and any private parties (e.g., leases and management contracts, if any) and schedules pertaining to the investment of certificate proceeds. In the event that you have questions relating to record retention, please contact us.

The Service also wants some assurance that any failure to comply with the federal tax laws was not

due to an issuer’s intentional disregard or gross neglect of the responsibilities imposed on it by the federal tax laws. Therefore, to ensure post-issuance compliance, an issuer should consider adopting formalized written guidelines to help the issuer perform diligence reviews at regular intervals. The goal is for issuers to be able to timely identify and resolve violations of the laws necessary to maintain their obligations’ tax-favored status. While the federal tax certificate, together with its attachments, may generally provide a basic written guideline when incorporated in an organizations’ operations, the extent to which an organization has

appropriate written compliance procedures in place is to be determined on a case-by-case basis Moreover, the Service has indicated that written procedures should identify the personnel that adopted the procedures, the personnel that is responsible for monitoring compliance, the frequency of compliance check activities, the nature of the compliance check activities undertaken, and the date such procedures were originally adopted and subsequently updated, if applicable. The Service has stated that the adoption of such procedures will be a favorable factor that the Service will consider when determining the amount of any penalty to be imposed on an issuer in the event of an unanticipated and non-curable failure to comply with the tax laws.

Finally, you should notice that the ordinances contain a covenant that limits the ability of the Issuer to sell or otherwise dispose of bond-financed property for compensation. Beginning for obligations issued after May 15, 1997 (including certain refunding certificates), or in cases in which an issuer elects to apply new private activity bond regulations, such sale or disposition causes the creation of a class of proceeds referred to as "disposition proceeds." Disposition proceeds, like sale proceeds and investment earnings, are tax-restricted funds. Failure to appropriately account, invest or expend such disposition proceeds would adversely affect the tax-exempt status of the obligations. In the event that you anticipate selling property, even in the ordinary course, please contact us.

Obviously, this letter only presents a fundamental discussion of the yield restriction rules as applied to amounts deposited to the interest and sinking funds. Moreover, this letter does not address the rebate consequences with respect to the interest and sinking funds and you should review the memorandum attached to the Federal Tax Certificate as Exhibit "A" for this purpose. If you have certain concerns with respect to the matters discussed in this letter or wish to ask additional questions with regards to certain limitations imposed, please feel free to contact our firm. Thank you for your consideration and we look forward to our continued relationship.

Very truly yours,

McCALL, PARKHURST & HORTON L.L.P. cc: Noel Valdez

Exhibit "E"

SCHEDULES OF FINANCIAL ADVISOR

[To be attached hereto]

Oct 2, 2012 2:36 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012B) Page 1

BOND SUMMARY STATISTICS

City of Laredo, TexasSolid Waste Certificates of Obligation, Series 2012-A [Tax Exempt] [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012First Coupon 02/15/2013Last Maturity 02/15/2022

Arbitrage Yield 1.352383%True Interest Cost (TIC) 1.488538%Net Interest Cost (NIC) 1.594750%All-In TIC 1.788133%Average Coupon 4.107242%

Average Life (years) 3.828Duration of Issue (years) 3.614

Par Amount 10,345,000.00Bond Proceeds 11,395,481.50Total Interest 1,626,356.77Net Interest 631,477.69Bond Years from Dated Date 39,597,291.67Bond Years from Delivery Date 39,597,291.67Total Debt Service 11,971,356.77Maximum Annual Debt Service 1,586,912.50Average Annual Debt Service 1,288,397.14

Underwriter's Fees (per $1000) Average Takedown 3.340000 Management Fee 1.000000 Other Fee 1.034811

Total Underwriter's Discount 5.374811

Bid Price 109.617004

Par Average AverageBond Component Value Price Coupon Life

Tax Exempt Serials 10,345,000.00 110.154 4.107% 3.828

10,345,000.00 3.828

All-In ArbitrageTIC TIC Yield

Par Value 10,345,000.00 10,345,000.00 10,345,000.00 + Accrued Interest + Premium (Discount) 1,050,481.50 1,050,481.50 1,050,481.50 - Underwriter's Discount -55,602.42 -55,602.42 - Cost of Issuance Expense -120,879.08 - Other Amounts

Target Value 11,339,879.08 11,219,000.00 11,395,481.50

Target Date 10/30/2012 10/30/2012 10/30/2012Yield 1.488538% 1.788133% 1.352383%

Oct 2, 2012 2:36 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012B) Page 2

SOURCES AND USES OF FUNDS

City of Laredo, TexasSolid Waste Certificates of Obligation, Series 2012-A [Tax Exempt] [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012

Sources:

Bond Proceeds:Par Amount 10,345,000.00Premium 1,050,481.50

11,395,481.50

Uses:

Project Fund Deposits:Project Fund 11,219,000.00

Delivery Date Expenses:Cost of Issuance 120,879.08Underwriter's Discount 55,602.42

176,481.50

11,395,481.50

Oct 2, 2012 2:36 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012B) Page 3

BOND DEBT SERVICE

City of Laredo, TexasSolid Waste Certificates of Obligation, Series 2012-A [Tax Exempt] [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012

PeriodEnding Principal Coupon Interest Debt Service

09/30/2013 1,285,000 2.000% 296,800.52 1,581,800.5209/30/2014 1,240,000 3.000% 346,837.50 1,586,837.5009/30/2015 1,280,000 4.000% 302,637.50 1,582,637.5009/30/2016 1,325,000 3.000% 257,162.50 1,582,162.5009/30/2017 1,380,000 5.000% 202,787.50 1,582,787.5009/30/2018 1,455,000 5.000% 131,912.50 1,586,912.5009/30/2019 1,525,000 5.000% 57,412.50 1,582,412.5009/30/2020 275,000 2.000% 16,537.50 291,537.5009/30/2021 285,000 2.250% 10,581.25 295,581.2509/30/2022 295,000 2.500% 3,687.50 298,687.50

10,345,000 1,626,356.77 11,971,356.77

Oct 2, 2012 2:36 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012B) Page 4

BOND DEBT SERVICE

City of Laredo, TexasSolid Waste Certificates of Obligation, Series 2012-A [Tax Exempt] [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012

Period AnnualEnding Principal Coupon Interest Debt Service Debt Service

02/15/2013 1,285,000 2.000% 114,081.77 1,399,081.7708/15/2013 182,718.75 182,718.7509/30/2013 1,581,800.5202/15/2014 1,240,000 3.000% 182,718.75 1,422,718.7508/15/2014 164,118.75 164,118.7509/30/2014 1,586,837.5002/15/2015 1,280,000 4.000% 164,118.75 1,444,118.7508/15/2015 138,518.75 138,518.7509/30/2015 1,582,637.5002/15/2016 1,325,000 3.000% 138,518.75 1,463,518.7508/15/2016 118,643.75 118,643.7509/30/2016 1,582,162.5002/15/2017 1,380,000 5.000% 118,643.75 1,498,643.7508/15/2017 84,143.75 84,143.7509/30/2017 1,582,787.5002/15/2018 1,455,000 5.000% 84,143.75 1,539,143.7508/15/2018 47,768.75 47,768.7509/30/2018 1,586,912.5002/15/2019 1,525,000 5.000% 47,768.75 1,572,768.7508/15/2019 9,643.75 9,643.7509/30/2019 1,582,412.5002/15/2020 275,000 2.000% 9,643.75 284,643.7508/15/2020 6,893.75 6,893.7509/30/2020 291,537.5002/15/2021 285,000 2.250% 6,893.75 291,893.7508/15/2021 3,687.50 3,687.5009/30/2021 295,581.2502/15/2022 295,000 2.500% 3,687.50 298,687.5009/30/2022 298,687.50

10,345,000 1,626,356.77 11,971,356.77 11,971,356.77

Oct 2, 2012 2:36 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012B) Page 5

BOND PRICING

City of Laredo, TexasSolid Waste Certificates of Obligation, Series 2012-A [Tax Exempt] [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Maturity PremiumBond Component Date # Bonds Amount Rate Yield Price (-Discount) Takedown

Tax Exempt Serials:02/15/2013 257 1,285,000 2.000% 0.500% 100.436 5,602.60 0.60002/15/2014 248 1,240,000 3.000% 0.610% 103.069 38,055.60 2.50002/15/2015 256 1,280,000 4.000% 0.710% 107.464 95,539.20 2.50002/15/2016 265 1,325,000 3.000% 0.900% 106.795 90,033.75 3.75002/15/2017 276 1,380,000 5.000% 1.100% 116.303 224,981.40 3.75002/15/2018 291 1,455,000 5.000% 1.300% 118.859 274,398.45 3.75002/15/2019 305 1,525,000 5.000% 1.550% 120.603 314,195.75 5.00002/15/2020 55 275,000 2.000% 1.900% 100.676 1,859.00 5.00002/15/2021 57 285,000 2.250% 2.150% 100.754 2,148.90 5.00002/15/2022 59 295,000 2.500% 2.350% 101.243 3,666.85 5.000

2,069 10,345,000 1,050,481.50

Dated Date 10/30/2012Delivery Date 10/30/2012First Coupon 02/15/2013

Par Amount 10,345,000.00Premium 1,050,481.50

Production 11,395,481.50 110.154485%Underwriter's Discount -55,602.42 -0.537481%

Purchase Price 11,339,879.08 109.617004%Accrued Interest

Net Proceeds 11,339,879.08

Oct 2, 2012 2:36 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012B) Page 6

AVERAGE TAKEDOWN

City of Laredo, TexasSolid Waste Certificates of Obligation, Series 2012-A [Tax Exempt] [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012

Maturity Base Takedown TakedownBond Component Date Amount $/Bond Amount

Tax Exempt Serials:02/15/2013 1,285,000 0.6000 771.0002/15/2014 1,240,000 2.5000 3,100.0002/15/2015 1,280,000 2.5000 3,200.0002/15/2016 1,325,000 3.7500 4,968.7502/15/2017 1,380,000 3.7500 5,175.0002/15/2018 1,455,000 3.7500 5,456.2502/15/2019 1,525,000 5.0000 7,625.0002/15/2020 275,000 5.0000 1,375.0002/15/2021 285,000 5.0000 1,425.0002/15/2022 295,000 5.0000 1,475.00

10,345,000 3.3418 34,571.00

Rounded Takedown

$/Bond 3.34Total amount 34,552.30

Oct 2, 2012 2:36 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012B) Page 7

UNDERWRITER'S DISCOUNT

City of Laredo, TexasSolid Waste Certificates of Obligation, Series 2012-A [Tax Exempt] [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Underwriter's Discount $/1000 Amount

Average Takedown 3.34000 34,552.30Management Fee 1.00000 10,345.00Expenses 0.38481 3,980.87Underwriters Counsel 0.65000 6,724.25

5.37481 55,602.42

Oct 2, 2012 2:36 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012B) Page 8

BOND SOLUTION

City of Laredo, TexasSolid Waste Certificates of Obligation, Series 2012-A [Tax Exempt] [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Period Proposed Proposed Total AdjEnding Principal Debt Service Debt Service

09/30/2013 1,285,000 1,581,801 1,581,80109/30/2014 1,240,000 1,586,838 1,586,83809/30/2015 1,280,000 1,582,638 1,582,63809/30/2016 1,325,000 1,582,163 1,582,16309/30/2017 1,380,000 1,582,788 1,582,78809/30/2018 1,455,000 1,586,913 1,586,91309/30/2019 1,525,000 1,582,413 1,582,41309/30/2020 275,000 291,538 291,53809/30/2021 285,000 295,581 295,58109/30/2022 295,000 298,688 298,688

10,345,000 11,971,357 11,971,357

Oct 2, 2012 2:43 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012D) Page 1

BOND SUMMARY STATISTICS

City of Laredo, TexasPPF Contractual Obligations, Series 2012 [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012First Coupon 02/15/2013Last Maturity 02/15/2022

Arbitrage Yield 1.687979%True Interest Cost (TIC) 1.816784%Net Interest Cost (NIC) 1.831061%All-In TIC 2.232937%Average Coupon 2.019366%

Average Life (years) 4.936Duration of Issue (years) 4.668

Par Amount 3,800,000.00Bond Proceeds 3,858,279.00Total Interest 378,799.48Net Interest 343,476.44Bond Years from Dated Date 18,758,333.33Bond Years from Delivery Date 18,758,333.33Total Debt Service 4,178,799.48Maximum Annual Debt Service 419,668.75Average Annual Debt Service 449,736.27

Underwriter's Fees (per $1000) Average Takedown 3.780000 Management Fee 1.000000 Other Fee 1.261042

Total Underwriter's Discount 6.041042

Bid Price 100.929554

Par Average AverageBond Component Value Price Coupon Life

Tax Exempt Serials 3,800,000.00 101.534 2.019% 4.936

3,800,000.00 4.936

All-In ArbitrageTIC TIC Yield

Par Value 3,800,000.00 3,800,000.00 3,800,000.00 + Accrued Interest + Premium (Discount) 58,279.00 58,279.00 58,279.00 - Underwriter's Discount -22,955.96 -22,955.96 - Cost of Issuance Expense -72,799.04 - Other Amounts

Target Value 3,835,323.04 3,762,524.00 3,858,279.00

Target Date 10/30/2012 10/30/2012 10/30/2012Yield 1.816784% 2.232937% 1.687979%

Oct 2, 2012 2:43 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012D) Page 2

SOURCES AND USES OF FUNDS

City of Laredo, TexasPPF Contractual Obligations, Series 2012 [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012

Sources:

Bond Proceeds:Par Amount 3,800,000.00Net Premium 58,279.00

3,858,279.00

Uses:

Project Fund Deposits:Project Fund 3,762,524.00

Delivery Date Expenses:Cost of Issuance 72,799.04Underwriter's Discount 22,955.96

95,755.00

3,858,279.00

Oct 2, 2012 2:43 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012D) Page 3

BOND DEBT SERVICE

City of Laredo, TexasPPF Contractual Obligations, Series 2012 [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012

PeriodEnding Principal Coupon Interest Debt Service

09/30/2013 360,000 2.000% 55,943.23 415,943.2309/30/2014 355,000 2.000% 64,462.50 419,462.5009/30/2015 360,000 2.000% 57,312.50 417,312.5009/30/2016 365,000 1.500% 50,975.00 415,975.0009/30/2017 375,000 2.000% 44,487.50 419,487.5009/30/2018 380,000 2.000% 36,937.50 416,937.5009/30/2019 390,000 2.000% 29,237.50 419,237.5009/30/2020 395,000 2.000% 21,387.50 416,387.5009/30/2021 405,000 2.000% 13,387.50 418,387.5009/30/2022 415,000 2.250% 4,668.75 419,668.75

3,800,000 378,799.48 4,178,799.48

Oct 2, 2012 2:43 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012D) Page 4

BOND DEBT SERVICE

City of Laredo, TexasPPF Contractual Obligations, Series 2012 [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012

Period AnnualEnding Principal Coupon Interest Debt Service Debt Service

02/15/2013 360,000 2.000% 21,936.98 381,936.9808/15/2013 34,006.25 34,006.2509/30/2013 415,943.2302/15/2014 355,000 2.000% 34,006.25 389,006.2508/15/2014 30,456.25 30,456.2509/30/2014 419,462.5002/15/2015 360,000 2.000% 30,456.25 390,456.2508/15/2015 26,856.25 26,856.2509/30/2015 417,312.5002/15/2016 365,000 1.500% 26,856.25 391,856.2508/15/2016 24,118.75 24,118.7509/30/2016 415,975.0002/15/2017 375,000 2.000% 24,118.75 399,118.7508/15/2017 20,368.75 20,368.7509/30/2017 419,487.5002/15/2018 380,000 2.000% 20,368.75 400,368.7508/15/2018 16,568.75 16,568.7509/30/2018 416,937.5002/15/2019 390,000 2.000% 16,568.75 406,568.7508/15/2019 12,668.75 12,668.7509/30/2019 419,237.5002/15/2020 395,000 2.000% 12,668.75 407,668.7508/15/2020 8,718.75 8,718.7509/30/2020 416,387.5002/15/2021 405,000 2.000% 8,718.75 413,718.7508/15/2021 4,668.75 4,668.7509/30/2021 418,387.5002/15/2022 415,000 2.250% 4,668.75 419,668.7509/30/2022 419,668.75

3,800,000 378,799.48 4,178,799.48 4,178,799.48

Oct 2, 2012 2:43 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012D) Page 5

BOND PRICING

City of Laredo, TexasPPF Contractual Obligations, Series 2012 [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Maturity PremiumBond Component Date # Bonds Amount Rate Yield Price (-Discount) Takedown

Tax Exempt Serials:02/15/2013 72 360,000 2.000% 0.500% 100.436 1,569.60 1.00002/15/2014 71 355,000 2.000% 0.610% 101.785 6,336.75 2.50002/15/2015 72 360,000 2.000% 0.710% 102.926 10,533.60 2.50002/15/2016 73 365,000 1.500% 0.900% 101.941 7,084.65 3.75002/15/2017 75 375,000 2.000% 1.100% 103.761 14,103.75 3.75002/15/2018 76 380,000 2.000% 1.300% 103.567 13,554.60 3.75002/15/2019 78 390,000 2.000% 1.550% 102.686 10,475.40 5.00002/15/2020 79 395,000 2.000% 1.900% 100.676 2,670.20 5.00002/15/2021 81 405,000 2.000% 2.150% 98.865 -4,596.75 5.00002/15/2022 83 415,000 2.250% 2.350% 99.168 -3,452.80 5.000

760 3,800,000 58,279.00

Dated Date 10/30/2012Delivery Date 10/30/2012First Coupon 02/15/2013

Par Amount 3,800,000.00Premium 58,279.00

Production 3,858,279.00 101.533658%Underwriter's Discount -22,955.96 -0.604104%

Purchase Price 3,835,323.04 100.929554%Accrued Interest

Net Proceeds 3,835,323.04

Oct 2, 2012 2:43 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012D) Page 6

AVERAGE TAKEDOWN

City of Laredo, TexasPPF Contractual Obligations, Series 2012 [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Dated Date 10/30/2012Delivery Date 10/30/2012

Maturity Par Takedown TakedownBond Component Date Amount $/Bond Amount

Tax Exempt Serials:02/15/2013 360,000 1.0000 360.0002/15/2014 355,000 2.5000 887.5002/15/2015 360,000 2.5000 900.0002/15/2016 365,000 3.7500 1,368.7502/15/2017 375,000 3.7500 1,406.2502/15/2018 380,000 3.7500 1,425.0002/15/2019 390,000 5.0000 1,950.0002/15/2020 395,000 5.0000 1,975.0002/15/2021 405,000 5.0000 2,025.0002/15/2022 415,000 5.0000 2,075.00

3,800,000 3.7822 14,372.50

Rounded Takedown

$/Bond 3.78Total amount 14,364.00

Oct 2, 2012 2:43 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012D) Page 7

UNDERWRITER'S DISCOUNT

City of Laredo, TexasPPF Contractual Obligations, Series 2012 [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Underwriter's Discount $/1000 Amount

Average Takedown 3.78000 14,364.00Management Fee 1.00000 3,800.00Expenses 0.61104 2,321.96Underwriters Counsel 0.65000 2,470.00

6.04104 22,955.96

Oct 2, 2012 2:43 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12C-012D) Page 8

BOND SOLUTION

City of Laredo, TexasPPF Contractual Obligations, Series 2012 [PRICING]

--FINAL PRICING #'s: 10/02/2012, 2:45PM--

Period Proposed Proposed Total AdjEnding Principal Debt Service Debt Service

09/30/2013 360,000 415,943 415,94309/30/2014 355,000 419,463 419,46309/30/2015 360,000 417,313 417,31309/30/2016 365,000 415,975 415,97509/30/2017 375,000 419,488 419,48809/30/2018 380,000 416,938 416,93809/30/2019 390,000 419,238 419,23809/30/2020 395,000 416,388 416,38809/30/2021 405,000 418,388 418,38809/30/2022 415,000 419,669 419,669

3,800,000 4,178,799 4,178,799

GENERAL CERTIFICATE

THE STATE OF TEXAS :COUNTY OF WEBB :CITY OF LAREDO :

We, the undersigned officers of said City, hereby certify as follows:

1. That this certificate is executed for and on behalf of said City with reference to the$3,800,000 City of Laredo, Texas Public Property Finance Contractual Obligations, Series 2012,dated October 1, 2012 (the "Contractual Obligations").

2. That said City is a duly incorporated Home Rule City, having more than 5000 inhabitants,operating and existing under the Constitution and laws of the State of Texas and the duly adoptedHome Rule Charter of said City, which Charter has not been changed or amended since the issuanceof the most recent obligations approved by the Attorney General of Texas.

3. That no litigation of any nature has ever been filed pertaining to, affecting, questioning,or contesting: (a) the ordinance which authorized said City's proposed Contractual Obligationsdescribed in paragraph 1 of this certificate; (b) the issuance, execution, delivery, payment, securityor validity of said proposed Contractual Obligations, (c) the authority of the City Council and theofficers of said City to issue, execute and deliver said Contractual Obligations, (d) the validity ofthe corporate existence or charter of said City, or (e) the current tax rolls of said City; and that nolitigation is pending pertaining, affecting, questioning, or contesting the current boundaries of saidCity.

4. That attached to this certificate and marked Exhibit A is a true, full and correct scheduleand statement of the aforesaid proposed Contractual Obligations, and of all presently outstandingtax indebtedness of said City.

5. That the currently effective ad valorem tax appraisal roll of said City (the "Tax Roll") isthe Tax Roll prepared and approved during the calendar year 2012, being the most recently approvedTax Roll of said City; that the taxable property in said City has been appraised, assessed, and valuedas required and provided by the Texas Constitution and Property Tax Code (collectively, "Texaslaw"); that the Tax Roll for said year has been submitted to the City Council of said City as requiredby Texas law, and has been approved and recorded by said City Council; and according to the TaxRoll for said year the net aggregate taxable value of taxable property in said City (after deductingthe amount of all applicable exemptions required or authorized under Texas law), upon which theannual ad valorem tax of said City has been or will be imposed and levied, is $10,691,073,245.

6. That Schedule I to the Ordinance authorizing the Contractual Obligations lists thepersonal property to be acquired by the issuance of the Contractual Obligations.

7. Sufficient funds have been budgeted and appropriated to pay the interest on theContractual Obligations coming due on February 15, 2013 and August 15, 2013 and to pay theprincipal on the Contractual Obligations coming due on February 15, 2013 and the City shalltransfer on or before such interest or principal payment date available funds to the Interest andSinking Fund in an amount sufficient to pay the interest or principal coming due on such dates.

SIGNATURE IDENTIFICATION AND NO-LITIGATION CERTIFICATE

We, the undersigned Mayor and City Secretary, respectively, of the City of Laredo Texas(the "City"), hereby certify as follows:

(a) This certificate is executed and delivered with reference to the $3,800,000 City ofLaredo, Texas Public Property Finance Contractual Obligations, Series 2012, dated October 1,2012, authorized by an ordinance passed by the City Council of the City on October 1, 2012 (the"Certificates").

(b) Each of us signed the Certificates by manually executing or causing facsimiles of ourmanual signatures to be printed or lithographed on each of the Certificates, and we hereby adopt saidfacsimile signatures as our own, respectively, and declare that said facsimile signatures constituteour signatures the same as if we had manually signed each of the Certificates.

(c) The Certificates are substantially in the form, and each of them has been dulyexecuted and signed in the manner, prescribed in the ordinance authorizing the issuance thereof.

(d) At the time we so executed and signed the Certificates we were, and at the time ofexecuting this certificate we are, the duly chosen, qualified, and acting officers indicated therein, andauthorized to execute and sign the same.

(e) No litigation of any nature has been filed or is now pending or, to our knowledge,threatened, to restrain or enjoin the issuance or delivery of any of the Certificates, or which wouldaffect the provision made for their payment or security, or in any manner questioning theproceedings or authority concerning the issuance of the Certificates, and that so far as we know andbelieve no such litigation is threatened.

(f) Neither the corporate existence nor boundaries of the City is being contested; nolitigation has been filed or is now pending or, to our knowledge, threatened, which would affect theauthority of the officers of the City to issue, execute, sign, and deliver any of the Certificates; andno authority or proceedings for the issuance of any of the Certificates have been repealed, revoked,or rescinded.

(g) We have caused the official seal of the City to be impressed, or printed, orlithographed on each of the Certificates; and said seal on each of the Certificates has been dulyadopted as, and is hereby declared to be, the official seal of the City.

FINAL 10/25/2012, 1:00 PM

To: All parties on attached distribution list From: Wally Sevier, Estrada Hinojosa & Company, Inc.

C L O S I N G M E M O R A N D U M

CITY OF LAREDO, TEXAS

$10,345,000 COMBINATION TAX AND REVENUE

CERTIFICATES OF OBLIGATION, SERIES 2012A

$4,605,000 COMBINATION TAX AND REVENUE

CERTIFICATES OF OBLIGATION, TAXABLE SERIES 2012B

$3,800,000

PUBLIC PROPERTY FINANCE CONTRACTUAL OBLIGATIONS,

SERIES 2012

$41,120,000 WATERWORKS AND SEWER SYSTEM REVENUE BONDS,

NEW SERIES 2012

Date of Closing: Tuesday, October 30, 2012 Time of Closing: 10:00 A.M. (CDT) Location of Closing: McCall Parkhurst & Horton

700 N. St. Mary's, Suite 1525 San Antonio, TX 78205 Mr. Noel Valdez Telephone: 210-225-2800 Fax: 210-225-2984 Email: nvaldez@mphlegal.com A. RECEIPTS

1. Bond Proceeds Stifel Nicolaus & Company, Inc. on behalf of itself, Stephens Inc., Southwest Securities, and Wells Fargo Brokerage Services, LLC (collectively the “Purchaser”), will pay the City of Laredo, Texas (the “Issuer”) for its Combination Tax and Revenue Certificates of Obligation, Series 2012A (the “2012A Certificates”), Combination Tax and Revenue Certificates of Obligation, Taxable Series 2012B (the “2012B Certificates”), Public Property Finance Contractual Obligations, Series 2012 (the “Contractual Obligations”), and Waterworks and Sewer System Revenue Bonds, New Series 2012 (the “WW&SS Bonds”) (collectively the “Obligations”) the amount of $62,024,439.56, as computed on the following page:

Page 2

FINAL 10/25/2012, 1:00 PM

The 2012A The 2012B The Contractual TheCertificates Certificates Obligations WW&SS Bonds Total

Principal Amount 10,345,000.00$ 4,605,000.00$ 3,800,000.00$ 41,120,000.00$ 59,870,000.00$ Net Premium 1,050,481.50 - 58,279.00 1,427,929.30 2,536,689.80 Less: Underwriters' Discount (55,602.42) (30,859.25) (22,955.96) (272,832.61) (382,250.24) Total 11,339,879.08$ 4,574,140.75$ 3,835,323.04$ 42,275,096.69$ 62,024,439.56$

On Tuesday, October 30, 2010, the amount of $62,024,439.56, paid by the Purchaser will be wire-transferred in same day Federal Funds by 9:00 A.M. (Central Time) to The Bank of New York Mellon, N.A., the “Paying Agent” for the Obligations, for disbursements as described herein: Bank: The Bank of New York Mellon, N.A. ABA #: 021 000 018 Account Name: Dallas Issuer Administrative Services Account: GLA211 065 F/F/C: TAS #441729 FFC: City of Laredo, Texas Combination Tax and Revenue Certificates

of Obligation, Series 2012A, Combination Tax and Revenue Certificates of Obligation, Taxable Series 2012B, Public Property Finance Contractual Obligations, Series 2012, and Waterworks & Sewer System Revenue Bonds, New Series 2012

Attn: Michelle Baldwin (214) 468-6254

B. DISBURSEMENTS The proceeds available, as described above, will be treated as follows: 1. Insurance Premium

The Paying Agent will wire-transfer $168,122.62 to the following to pay the Insurance Premium for the WW&SS Bonds: Bank: The Bank of New York ABA number: 021 000 018 Account name: Assured Guaranty Municipal Corp. Account number: 8900297263 Policy #: 215179-N Attn: Audrey A. Udit, (212) 339-3548

Page 3

FINAL 10/25/2012, 1:00 PM

2. The Paying Agent will wire transfer $59,139,524.00 to the Issuer’s Project Fund as follows:

Bank Name: First National Bank ABA#: 114921415 Account #: 370002377 Account Name: Investment Account Attn: Cain Caceres

The 2012A Certificates 11,219,000.00$ The 2012B Certificates 4,500,000.00 The Contractual Obligations 3,762,524.00 The WW&SS Bonds 39,658,000.00 Total Deposit 59,139,524.00$

3. The Paying Agent will wire-transfer $2,203,343.18 to the Issuer’s Waterworks and Sewer System Reserve Fund as follows:

Bank Name: First National Bank ABA#: 114921415 Account #: 370002377 Account Name: Investment Account Attn: Cain Caceres

4. The Paying Agent will wire transfer $511,449.76 to pay certain cost of issuance expenses

related to the sale of the Obligations to the following:

ABA#: 113-010-547 Bank Name: Compass Bank Preston Road, Dallas, Texas Account #: 2533879740 REF: Estrada Hinojosa & Company, Inc. Costs of Issuance for the 2012A Certificates (Less Paying Agent Fees) 120,379.08$ Costs of Issuance for the 2012B Certificates (Less Paying Agent Fees) 73,640.75 Costs of Issuance for the Contractual Obligations (Less Paying Agent Fee) 72,299.04 Costs of Issuance for the WW&SS Bonds (Less Paying Agent Fees) 245,130.89 Total 511,449.76$

Estrada Hinojosa is requested and instructed to provide an accounting for all expenses associated with cost of issuance to the Issuer.

Page 4

FINAL 10/25/2012, 1:00 PM

5. The Bank of New York Mellon, N.A. will retain $2,000.00 for paying agent fees.

Paying AgentFee

The 2012A Certificates 500.00$ The 2012B Certificates 500.00 The Contractual Obligations 500.00 The WW&SS Bonds 500.00 Total 2,000.00$

The following is a summary of the disbursements: Disbursements:

The 2012A The 2012B The Contractual TheCertificates Certificates Obligations WW&SS Bonds Total

Insurance Premium for the WW&SS Bonds -$ -$ -$ 168,122.62$ 168,122.62$ Deposit to Project Fund 11,219,000.00 4,500,000.00 3,762,524.00 39,658,000.00 59,139,524.00 Deposit to Waterworks and Sewer System Reserve Fund - - - 2,203,343.18 2,203,343.18 Costs of Issuance 120,379.08 73,640.75 72,299.04 245,130.89 511,449.76 Paying Agent Fees 500.00 500.00 500.00 500.00 2,000.00

11,339,879.08$ 4,574,140.75$ 3,835,323.04$ 42,275,096.69$ 62,024,439.56$

If there are any questions regarding the above information, please call (214) 658-1670.

September 21, 2012

City of Laredo 1110 Houston Street Laredo, TX 78040 Attention: Ms. Rosario Camarillo Cabello, Director of Finance Re: $3,880,000 Laredo, Texas, Public Property Finance Contractual Obligations, Series 2012,

dated: Date of Delivery, due: February 15, 2022 Dear Ms. Cabello: Pursuant to your request for a Standard & Poor’s rating on the above-referenced issuer, we have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have assigned a rating of "AA". Standard & Poor's views the outlook for this rating as stable. A copy of the rationale supporting the rating is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an “expert” under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a “market rating” nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor’s permission to you to disseminate the above-assigned rating to interested parties. Standard & Poor’s reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor’s relies on the issuer/obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor’s assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. To maintain the rating, Standard & Poor’s must receive all relevant financial information as soon as such information is available. Placing us on a distribution list for this information would

500 North Akard Street Lincoln Plaza, Suite 3200 Dallas, TX 75201 tel (214) 871-1400 reference no.: 1229534

Page | 2

facilitate the process. You must promptly notify us of all material changes in the financial information and the documents. Standard & Poor’s may change, suspend, withdraw, or place on CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor’s reserves the right to request additional information if necessary to maintain the rating. Please send all information to: Standard & Poor’s Ratings Services Public Finance Department 55 Water Street New York, NY 10041-0003 Standard & Poor’s is pleased to be of service to you. For more information on Standard & Poor’s, please visit our website at www.standardandpoors.com. If we can be of help in any other way, please call or contact us at nypublicfinance@standardandpoors.com.Thank you for choosing Standard & Poor’s and we look forward to working with you again. Sincerely yours,

Standard & Poor's Ratings Services a Standard & Poor's Financial Services LLC business. ar enclosures cc: Mr. Marcos Yturri

Mr. Noe Hinojosa, Jr.

PF Ratings U.S. (05/17/11)

Standard & Poor’s Ratings Services Terms and Conditions Applicable To Public Finance Ratings

You understand and agree that: General. The ratings and other views of Standard & Poor’s Ratings Services (“Ratings Services”) are statements of opinion and not statements of fact. A rating is not a recommendation to purchase, hold, or sell any securities nor does it comment on market price, marketability, investor preference or suitability of any security. While Ratings Services bases its ratings and other views on information provided by issuers and their agents and advisors, and other information from sources it believes to be reliable, Ratings Services does not perform an audit, and undertakes no duty of due diligence or independent verification, of any information it receives. Such information and Ratings Services’ opinions should not be relied upon in making any investment decision. Ratings Services does not act as a “fiduciary” or an investment advisor. Ratings Services neither recommends nor will recommend how an issuer can or should achieve a particular rating outcome nor provides or will provide consulting, advisory, financial or structuring advice. All Rating Actions in Ratings Services’ Sole Discretion. Ratings Services may assign, raise, lower, suspend, place on CreditWatch, or withdraw a rating, and assign or revise an Outlook, at any time, in Ratings Services’ sole discretion. Ratings Services may take any of the foregoing actions notwithstanding any request for a confidential or private rating or a withdrawal of a rating, or termination of this Agreement. Ratings Services will not convert a public rating to a confidential or private rating, or a private rating to a confidential rating. Publication. Ratings Services reserves the right to use, publish, disseminate, or license others to use, publish or disseminate the rating provided hereunder and any analytical reports, including the rationale for the rating, unless you specifically request in connection with the initial rating that the rating be assigned and maintained on a confidential or private basis. If, however, a confidential or private rating or the existence of a confidential or private rating subsequently becomes public through disclosure other than by an act of Ratings Services or its affiliates, Ratings Services reserves the right to treat the rating as a public rating, including, without limitation, publishing the rating and any related analytical reports. Any analytical reports published by Ratings Services are not issued by or on behalf of you or at your request. Notwithstanding anything to the contrary herein, Ratings Services reserves the right to use, publish, disseminate or license others to use, publish or disseminate analytical reports with respect to public ratings that have been withdrawn, regardless of the reason for such withdrawal. Ratings Services may publish explanations of Ratings Services’ ratings criteria from time to time and nothing in this Agreement shall be construed as limiting Ratings Services’ ability to modify or refine its ratings criteria at any time as Ratings Services deems appropriate. Information to be Provided by You. For so long as this Agreement is in effect, in connection with the rating provided hereunder, you warrant that you will provide, or cause to be provided, as promptly as practicable, to Ratings Services all information requested by Ratings Services in accordance with its applicable published ratings criteria. The rating, and the maintenance of the rating, may be affected by Ratings Services’ opinion of the information received from you or your agents or advisors. You further warrant that all information provided to Ratings Services by you or your agents or advisors regarding the rating or, if applicable, surveillance of the rating, as of the date such information is provided, (i) is true, accurate and complete in all material respects and, in light of the circumstances in which it was provided, not misleading and (ii) does not infringe or violate the intellectual property rights of a third party. A material breach of the warranties in this paragraph shall constitute a material breach of this Agreement. Confidential Information. For purposes of this Agreement, “Confidential Information” shall mean verbal or written information that you or your agents or advisors have provided to Ratings Services and, in a specific and particularized manner, have marked or otherwise indicated in writing (either prior to or promptly following such disclosure) that such information is “Confidential”. Notwithstanding the foregoing, information disclosed by you or your agents or advisors

PF Ratings U.S. (05/17/11)

to Ratings Services shall not be deemed to be Confidential Information, and Ratings Services shall have no obligation to treat such information as Confidential Information, if such information (i) was known by Ratings Services or its affiliates at the time of such disclosure and was not known by Ratings Services to be subject to a prohibition on disclosure, (ii) was known to the public at the time of such disclosure, (iii) becomes known to the public (other than by an act of Ratings Services or its affiliates) subsequent to such disclosure, (iv) is disclosed to Ratings Services or its affiliates by a third party subsequent to such disclosure and Ratings Services reasonably believes that such third party’s disclosure to Ratings Services or its affiliates was not prohibited, (v) is developed independently by Ratings Services or its affiliates without reference to the Confidential Information, (vi) is approved in writing by you for public disclosure, or (vii) is required by law or regulation to be disclosed by Ratings Services or its affiliates. Ratings Services is aware that U.S. and state securities laws may impose restrictions on trading in securities when in possession of material, non-public information and has adopted securities trading and communication policies to that effect. Ratings Services’ Use of Information. Except as otherwise provided herein, Ratings Services shall not disclose Confidential Information to third parties. Ratings Services may (i) use Confidential Information to assign, raise, lower, suspend, place on CreditWatch, or withdraw a rating, and assign or revise an Outlook, and (ii) share Confidential Information with its affiliates engaged in the ratings business who are bound by appropriate confidentiality obligations; in each case, subject to the restrictions contained herein, Ratings Services and such affiliates may publish information derived from Confidential Information. Ratings Services may also use, and share Confidential Information with any of its affiliates or agents engaged in the ratings or other financial services businesses who are bound by appropriate confidentiality obligations (“Relevant Affiliates and Agents”), for modelling, benchmarking and research purposes; in each case, subject to the restrictions contained herein, Ratings Services and such affiliates may publish information derived from Confidential Information. With respect to structured finance ratings not maintained on a confidential or private basis, Ratings Services may publish data aggregated from Confidential Information, excluding data that is specific to and identifies individual debtors (“Relevant Data”), and share such Confidential Information with any of its Relevant Affiliates and Agents for general market dissemination of Relevant Data; you confirm that, to the best of your knowledge, such publication would not breach any confidentiality obligations you may have toward third parties. Ratings Services will comply with all applicable U.S. and state laws, rules and regulations protecting personally-identifiable information and the privacy rights of individuals. Ratings Services acknowledges that you may be entitled to seek specific performance and injunctive or other equitable relief as a remedy for Ratings Services’ disclosure of Confidential Information in violation of this Agreement. Ratings Services and its affiliates reserve the right to use, publish, disseminate, or license others to use, publish or disseminate any non-Confidential Information provided by you, your agents or advisors. Ratings Services Not an Expert, Underwriter or Seller under Securities Laws. Ratings Services has not consented to and will not consent to being named an “expert” or any similar designation under any applicable securities laws or other regulatory guidance, rules or recommendations, including without limitation, Section 7 of the U.S. Securities Act of 1933. Ratings Services is not an "underwriter" or "seller" as those terms are defined under applicable securities laws or other regulatory guidance, rules or recommendations, including without limitation Sections 11 and 12(a)(2) of the U.S. Securities Act of 1933. Rating Services has not performed the role or tasks associated with an "underwriter" or "seller" under the United States federal securities laws or other regulatory guidance, rules or recommendations in connection with this engagement. Office of Foreign Assets Control. As of the date of this Agreement, (a) neither you nor the issuer (if you are not the issuer) or any of your or the issuer’s subsidiaries, or any director or corporate officer of any of the foregoing entities, is the subject of any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC Sanctions”), (b) neither you nor the issuer (if you are not the issuer) is 50% or more owned or controlled, directly or indirectly, by any person or entity (“parent”) that is the subject of OFAC Sanctions, and (c) to the best of your knowledge, no entity 50% or more owned or controlled by a direct or indirect parent of you or the issuer (if you are not the issuer) is the subject of OFAC sanctions. For so long as this Agreement is in effect, you will promptly notify Ratings Services if any of these circumstances change. Ratings Services’ Use of Confidential and Private Ratings. Ratings Services may use confidential and private ratings in its analysis of the debt issued by collateralized debt obligation (CDO) and other investment vehicles. Ratings Services

PF Ratings U.S. (05/17/11)

may disclose a confidential or private rating as a confidential credit estimate or assessment to the managers of CDO and similar investment vehicles. Ratings Services may permit CDO managers to use and disseminate credit estimates or assessments on a limited basis and subject to various restrictions; however, Ratings Services cannot control any such use or dissemination. Entire Agreement. Nothing in this Agreement shall prevent you, the issuer (if you are not the issuer) or Ratings Services from acting in accordance with applicable laws and regulations. Subject to the prior sentence, this Agreement, including any amendment made in accordance with the provisions hereof, constitutes the complete and entire agreement between the parties on all matters regarding the rating provided hereunder. The terms of this Agreement supersede any other terms and conditions relating to information provided to Ratings Services by you or your agents and advisors hereunder, including without limitation, terms and conditions found on, or applicable to, websites or other means through which you or your agents and advisors make such information available to Ratings Services, regardless if such terms and conditions are entered into before or after the date of this Agreement. Such terms and conditions shall be null and void as to Ratings Services. Limitation on Damages. Ratings Services does not and cannot guarantee the accuracy, completeness, or timeliness of the information relied on in connection with a rating or the results obtained from the use of such information. RATINGS SERVICES GIVES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. Ratings Services, its affiliates or third party providers, or any of their officers, directors, shareholders, employees or agents shall not be liable to you, your affiliates or any person asserting claims on your behalf, directly or indirectly, for any inaccuracies, errors, or omissions, in each case regardless of cause, actions, damages (consequential, special, indirect, incidental, punitive, compensatory, exemplary or otherwise), claims, liabilities, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in any way arising out of or relating to the rating provided hereunder or the related analytic services even if advised of the possibility of such damages or other amounts except to the extent such damages or other amounts are finally determined by a court of competent jurisdiction in a proceeding in which you and Ratings Services are parties to result from gross negligence, intentional wrongdoing, or willful misconduct of Ratings Services. In furtherance and not in limitation of the foregoing, Ratings Services will not be liable to you, your affiliates or any person asserting claims on your behalf in respect of any decisions alleged to be made by any person based on anything that may be perceived as advice or recommendations. In the event that Ratings Services is nevertheless held liable to you, your affiliates, or any person asserting claims on your behalf for monetary damages under this Agreement, in no event shall Ratings Services be liable in an aggregate amount in excess of US$5,000,000 except to the extent such monetary damages directly result from Ratings Services’ intentional wrongdoing or willful misconduct. The provisions of this paragraph shall apply regardless of the form of action, damage, claim, liability, cost, expense, or loss, whether in contract, statute, tort (including, without limitation, negligence), or otherwise. Neither party waives any protections, privileges, or defenses it may have under law, including but not limited to, the First Amendment of the Constitution of the United States of America. Termination of Agreement. This Agreement may be terminated by either party at any time upon written notice to the other party. Except where expressly limited to the term of this Agreement, these Terms and Conditions shall survive the termination of this Agreement. No Third–Party Beneficiaries. Nothing in this Agreement, or the rating when issued, is intended or should be construed as creating any rights on behalf of any third parties, including, without limitation, any recipient of the rating. No person is intended as a third party beneficiary of this Agreement or of the rating when issued. Binding Effect. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and their successors and assigns. Severability. In the event that any term or provision of this Agreement shall be held to be invalid, void, or unenforceable, then the remainder of this Agreement shall not be affected, impaired, or invalidated, and each such term and provision shall be valid and enforceable to the fullest extent permitted by law.

PF Ratings U.S. (05/17/11)

Amendments. This Agreement may not be amended or superseded except by a writing that specifically refers to this Agreement and is executed manually or electronically by authorized representatives of both parties. Reservation of Rights. The parties to this Agreement do not waive, and reserve the right to contest, any issues regarding sovereign immunity, the applicable governing law and the appropriate forum for resolving any disputes arising out of or relating to this Agreement.

September 24, 2012

Ms. Rosario CabelloFinance DirectorLaredo1110 Houston Street, 2nd FloorP.O. Box 579Laredo, TX 78042

Dear Ms. Cabello:

Fitch Ratings has assigned one or more ratings and/or otherwise taken rating action(s), as detailed in theattached Notice of Rating Action.

In issuing and maintaining its ratings, Fitch relies on factual information it receives from issuers andunderwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonableinvestigation of the factual information relied upon by it in accordance with its ratings methodology, andobtains reasonable verification of that information from independent sources, to the extent such sourcesare available for a given security or in a given jurisdiction.

The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will varydepending on the nature of the rated security and its issuer, the requirements and practices in thejurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability andnature of relevant public information, access to the management of the issuer and its advisers, theavailability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters,appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by thirdparties, the availability of independent and competent third-party verification sources with respect to theparticular security or in the particular jurisdiction of the issuer, and a variety of other factors.

Users of Fitch's ratings should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating will beaccurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of theinformation they provide to Fitch and to the market in offering documents and other reports. In issuingits ratings Fitch must rely on the work of experts, including independent auditors with respect to financialstatements and attorneys with respect to legal and tax matters. Further, ratings are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot beverified as facts. As a result, despite any verification of current facts, ratings can be affected by futureevents or conditions that were not anticipated at the time a rating was issued or affirmed.

Fitch seeks to continuously improve its ratings criteria and methodologies, and periodically updates thedescriptions on its website of its criteria and methodologies for securities of a given type. The criteria andmethodology used to determine a rating action are those in effect at the time the rating action is taken,which for public ratings is the date of the related rating action commentary. Each rating actioncommentary provides information about the criteria and methodology used to arrive at the stated rating,which may differ from the general criteria and methodology for the applicable security type posted on thewebsite at a given time. For this reason, you should always consult the applicable rating actioncommentary for the most accurate information on the basis of any given public rating.

Ratings are based on established criteria and methodologies that Fitch is continuously evaluating andupdating. Therefore, ratings are the collective work product of Fitch and no individual, or group ofindividuals, is solely responsible for a rating. All Fitch reports have shared authorship. Individualsidentified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein.The individuals are named for contact purposes only.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy,sell, make or hold any investment, loan or security or to undertake any investment strategy with respect toany investment, loan or security or any issuer. Ratings do not comment on the adequacy of market price,the suitability of any investment, loan or security for a particular investor (including without limitation, anyaccounting and/or regulatory treatment), or the tax-exempt nature or taxability of payments made inrespect of any investment, loan or security. Fitch is not your advisor, nor is Fitch providing to you or anyother party any financial advice, or any legal, auditing, accounting, appraisal, valuation or actuarialservices. A rating should not be viewed as a replacement for such advice or services.

JS/jh

(Doc ID: 177190)

Jeff Schaub

The assignment of a rating by Fitch does not constitute consent by Fitch to the use of its name as anexpert in connection with any registration statement or other filings under US, UK or any other relevantsecurities laws. Fitch does not consent to the inclusion of its ratings nor this letter communicating ourrating action in any offering document.

It is important that you promptly provide us with all information that may be material to the ratings sothat our ratings continue to be appropriate. Ratings may be raised, lowered, withdrawn, or placed onRating Watch due to changes in, additions to, accuracy of or the inadequacy of information or for anyother reason Fitch deems sufficient.

Nothing in this letter is intended to or should be construed as creating a fiduciary relationship betweenFitch and you or between us and any user of the ratings.

In this letter, "Fitch" means Fitch, Inc. and Fitch Ratings Ltd and any subsidiary of either of them togetherwith any successor in interest to any such person.

We are pleased to have had the opportunity to be of service to you. If we can be of further assistance,please feel free to contact us at any time.

Enc: Notice of Rating Action

Managing Director, OperationsU.S. Public Finance /Global Infrastructure & Project Finance

Notice of Rating Action

Bond Description Rating Type Action Rating Watch Eff Date NotesOutlook/

21-Sep-2012

RO:StaNew RatingLong Term AALaredo (TX) combination tax & rev ctfs of oblig ser2012A

21-Sep-2012

RO:StaNew RatingLong Term AALaredo (TX) combination tax & rev ctfs of oblig(taxable) ser 2012B

21-Sep-2012

RO:StaNew RatingLong Term AALaredo (TX) public property finance contractualobligs ser 2012

RO: Rating Outlook, RW: Rating Watch; Pos: Positive, Neg: Negative, Sta: Stable, Evo: EvolvingKey:

(Doc ID: 177190) Page 1 of 1